Download Directors` and Officers` Civil Liability

Corporate Counsel Update
June 2001
Directors and Officers
environmental liability
Over the past decade, concern for the environment has become a daily reality. Provincial and
federal legislators have enacted a vast number of laws and regulations to protect the environment and
indemnify governments or, more precisely, taxpayers for the economic impact of environmental
problems. Such statutes include, among others, provisions that impose personal criminal and civil
liability upon corporate directors and officers or agents (at the federal level) under certain conditions.
Although this may appear onerous, a corporation is an abstraction, without a body and a mind; its
volition is expressed only through its directors and officers.
Who are the Directors and Officers?
The term “director” is defined in the Companies Act and the Canada Business Corporations
Act as any person sitting on the board of directors of a corporation in order to administer its affairs.
The term "officer" usually refers to the president, vice-president, secretary, and/or treasurer of a
corporation. However, the courts have widened the definition of “officer” to include “directing
mind.” As interpreted by the Supreme Court in Le Rhône v. Le Peter A.C. Widener ([1993] 1 S.C.R.
497), the extent of an individual’s control and decision-making power in a given corporation
determines whether or not that person qualifies as an officer. An individual’s control, even if
temporary, over a given operation is sufficient for such a person to be deemed an officer with respect
to that operation. Thus, the degree of authority and the amount of control officers and directors
have in a corporation are relevant in determining their future liability.
Statutory Criminal Liability
Certain legislative provisions, both at the provincial and federal levels, address directors’ and
officers’ criminal liability. We will attempt to briefly illustrate how directors and officers may become
liable and what defence is available.
Environment Quality Act, R.S.Q., c. Q-2 (EQA)
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Under the EQA, certain articles provide for the environmental liability of officers and
directors and impose fines or imprisonment.
Section 109.3 of the EQA provides for the personal criminal liability of directors and officers
who, by way of an order, an authorization or through their advice or encouragement, lead a
corporate body to emit, deposit, release, or discharge a contaminant into the environment in
violation of the legislation.
In addition, there are also general provisions that affect directors and officers. Sections 20 and
106.1 of the EQA allow any director or officer who emitted, deposited, issued, or discharged or
allowed the emission, deposit, issuance, or discharge of a contaminant into the environment to be
held liable. These sections permit a finding of liability against any person who has contaminated the
environment.
With respect to the aforementioned offences, the Crown has the burden of proof beyond all
reasonable doubt with respect to each aspect of the offence (actus reus). However, given that they
are strict liability offences, the Crown does not have to prove the accused’s wrongful intent (mens
rea).
Canadian Environmental Protection Act, 1999, c. 33 (CEPA)
This law generally applies to activities that fall under federal jurisdiction. Without necessarily
being limited thereto, its fields of jurisdiction include toxic substances, nutrients, international air
pollution, and disposal of waste at sea. Under Section 280 of the CEPA any director, officer, or
agent as a party to the offence, together with the corporation, may be held liable if they directed,
authorized, assented to, acquiesced in or participated in the commission of an offence under the Act.
Such offences are generally sanctioned with a fine not exceeding $300,000, to which imprisonment
for a maximum term of six months may be added. Moreover, Section 274(2) stipulates that anyone in
violation of the law who shows wanton or reckless disregard for other persons, thereby exposing
them to the risk of death or bodily harm, is subject to the same punishment as provided for under
certain articles of the Criminal Code: namely, a sentence of life imprisonment. Under the CEPA, the
directors’, officers’, and agents’ criminal liability is much larger and the sanctions are more severe.
However, the scope seems to be more limited.
Other Laws Providing for Directors’ and Officers’ Liability
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In addition to the CEPA, other federal environmental address directors’ and officers’ liability.
The Fisheries Act (R.S., ch. F-4), the Hazardous Products Act (R.S., ch. H-3) and the Transportation
of Dangerous Goods Act, 1992 (1999, ch. 33) contain similar provisions, wherein a director and
officer may be considered parties to an offence, together with the corporation, if they directed,
authorized, assented to, acquiesced in, or participated in the commission of an offence, whether or
not the corporation has been prosecuted for or convicted of the same offence.
Due Diligence Defence
All of the aforementioned offences, with the exception of abetting the commission of another
offence, require the Crown to prove, beyond all reasonable doubt, the commission of the elements
of the offence (actus reus), without having to prove wrongful intent (mens rea). However, in the
case of abetting, case law has required proof of mens rea.
Consequently, with respect to strict liability offences (the offences listed above, excluding
abetting) where the Crown proves an actus reus, the defendant must demonstrate due diligence.
That is, the defendant must prove that it has taken all precautions and actions that a reasonable
director or officer would have taken under the circumstances to prevent the commission of an
offence. In this regard, the burden of proof is the “balance of probabilities,” namely, fifty percent
plus one.
Case law has developed with respect to the notion of due diligence. Today, the courts make a
distinction between internal and external directors of a corporation. Internal directors have a heavier
burden of proof, as they are "presumed" to be more knowledgeable about the corporation’s
operations.
The probability of success for a director or officer invoking a due diligence defence depends
on the measures implemented inside the corporation before the offence was committed. Several
elements will be taken into consideration. It is not only a question of drafting environmental policies
or guidelines, or determining the measures to be taken in the event of an environmental incident;
diligence must also be established on the operational and conceptual levels. Accordingly, a director or
officer who is being prosecuted must demonstrate that the procedures, policies, or measures
implemented have been followed in a correct and efficient manner. The following are a few examples
of elements that may be considered:
•
requiring regular compliance reports and obtaining all the information with regard to an
offence, a violation notice, and/or measures taken to rectify the situation;
•
maintaining continuous follow-up of said reports;
•
establishing an environmental committee on the board of directors;
•
making directors, officers, and employees aware of their potential personal
environmental liability;
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•
implementing an environmental policy and especially enforcing it;
•
conducting regular inventories of environmental problems;
•
determining directors’ and officers’ response time in case of an incident (they must act
immediately and personally once they are informed or if they themselves notice a
system failure).
Thus, not only must it be proven that the director and officer acted in a responsible manner
but that all possible measures were previously taken so as to minimize the chances of an offence
occurring.
Directors’ and Officers’ Civil Liability
In addition to criminal liability, there is the issue of directors’ and officers’ civil liability in
environmental matters. General civil liability is provided for in the Civil Code of Quebec (C.C.Q.)
and more specifically in the EQA and the CEPA.
In accordance with the general principles of civil liability under the C.C.Q., all abuse of right
or wrongful conduct by a director or officer that has given rise to an environmental problem may
lead to liability. In this respect, the plaintiff must establish the director's or officer's fault, that the
plaintiff has suffered damage, and that there is causality between the director’s or officer’s fault and
the damage. The director or officer may be held personally liable for the damage or may be
considered an accomplice and held jointly liable with the corporation, in which case the director or
officer must indemnify the plaintiff for the damage.
Section 113 of the EQA establishes the civil liability of directors and officers. Pursuant to this
section, under specific conditions and circumstances, the Ministry of the Environment may recover
directly from the directors and officers the costs incurred following an order issued by the Minister
of the Environment (the “Minister”) when a corporation refuses or neglects to abide by the order.
Article 40 of the CEPA permits any person who has suffered loss or damage as a result of a
conduct that is in contravention with any of the provisions of the CEPA or its regulations, to bring a
claim in action for such damages.
Thus, the directors and officers of a corporation should be aware of the possible effects of
their actions and decisions. They must know that they cannot hide behind the corporate entity when
there are environmental consequences pursuant to an operational incident. When directors and
officers are prosecuted, proof of due diligence may be difficult to establish. Consequently, it is
important to emphasize prevention and to implement very strict procedures within the corporation.
Governments are becoming less and less liberal when it comes to the environment. Needless to say,
there can never be enough prevention.
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Finally, with the coming into force of Bill 156, we anticipate a possible increase in the number
of incidents that could result in directors' and officers' liability, especially with respect to the
reimbursement of expenses incurred by the Ministry of the Environment pursuant to a corporation's
failure to comply with an order. In fact, once Bill 156 is enacted, the Minister will have an expanded
power to create orders. Thus, it is possible to anticipate that the Minister will exercise this power
more often. Accordingly, a corporation’s failure to proceed with a decontamination, thus obliging
the Ministry of the Environment to do so, may have significant repercussions on its directors and
officers.
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An Act to amend the Environment Quality Act and other legislative provisions with regard to land protection
and rehabilitation, submitted to the National Assembly on November 14, 2000 and not yet enacted.