Personal liability is a mounting possibility for directors, officers and supervisors of organizations that run afoul of environmental regulators or are on the losing side of civil litigation. During a recent online seminar addressing liability and risk management, practitioners with Willms & Shier Environmental Lawyers outlined some scenarios in which individuals could be tagged to share responsibility for a corporate failing or even solely carry the blame for environmental mishaps if organizations can prove their own due diligence.

This is occurring with more frequency in both civil actions involving disputes between private parties and in regulatory orders and prosecutions seeking compliance and recompense under public statutes. Some environmental legislation also includes avenues for offending parties to be found civilly liable, presenting a potential double-whammy of consequences for transgressors.

“In the regulatory sphere, if there’s a spill, the corporation may be charged, but so too may be the people with management control. We’re seeing, for example, contractors, consultants and mine managers brought into an order or into a prosecution. Sometimes that’s the regulator looking for deeper pockets or looking for leverage,” observed Richard Butler, a partner and litigator at Willms & Shier. “We’re starting to see the same thing in civil liability with the person in charge of the corporation being drawn into a lawsuit.”

Broad sweep of incidents can fall under environmental orders or causes of civil action

Environmental orders are the first instrument that provincial or federal officials deploy to enforce rules, halt environmentally damaging activity and compel any necessary remediation. From there, regulators can turn to prosecutions to address non-compliance or pursue punitive measures.

Joanna Vince, a Willms & Shier partner and a certified specialist in environmental law, stressed that although orders can be appealed, they are mandatory unless they are formally stayed, and recipients will likely be inviting grief upon themselves should they ignore them. This is also when individuals will get notice if they have been personally implicated.

“Companies and corporate directors, officers, owners and those with management and control over a property, business or undertaking, as well as municipalities, can all be named in environmental regulatory orders. Regulators’ ability to issue orders is very broad. That includes who can be ordered as well as the content of the order,” Vince noted. “We’ve seen situations where environmental orders were issued to flow-through property owners who were not the source of contamination, to former corporate directors and officers, and even to an accountant who had power of attorney on a contaminated property.”

Looking to the civil arena, Jacquelyn Stevens, a partner at Willms & Shier and a certified specialist in environmental law, summarized the causes — nuisance, strict liability, trespass to land, breach of contract and negligence — commonly at the centre of private disputes, all of which could potentially involve the naming of individuals. Breach of contract, for example, underscores the many players that can be involved in commercial real estate transactions, leasing, management and maintenance agreements.

“Where it often arises is where there are representations or warranties in agreements of purchase and sale that require compliance with the laws, or the requirement to not use hazardous substances, or there may be remediation obligations,” Stevens said. “The disputes we see often relate to situations where contamination is found after a deal has been completed. The purchaser may sue the vendor pursuant to the terms of that agreement of purchase and sale, or the purchaser may sue their consultant under their contract for failing to identify the contamination prior to the sale.”

Crossovers of regulatory and civil liability

She also pointed to provisions in some provincial statutes that allow for civil action against regulatory transgressors. For example, offenders who have been found responsible for contamination under British Columbia’s Environmental Management Act can also be civilly sued for recovery of remediation costs. That would be in addition to any fines owing for the regulatory violation.

“Section 47 (of the Act) provides the mechanism that says a person who is responsible for remediation is liable to any person or governmental body for reasonably incurred costs of the remediation of that site.” Stevens advised. “This could be a current or former owner or operator.”

These general principles also hold sway in Ontario, where Butler identifies a 2015 Court of Appeal decision as the impetus for a subsequent new approach to awarding damages. Section 99 of the provincial Environmental Protection Act, dealing with compensation for spills, states that transgressors are liable to whomever will have to pay for the cleanup.

“That’s a crossover of civil and regulatory liability,” Butler reiterated.

Under earlier interpretations, violators were typically required to pay reparations equivalent to the diminution of property value that the spill and resulting contamination caused. However, in this case, the Court of Appeal tied compensation to the cost of remediating the contamination and also found the company owner personally liable.

“That’s piercing the corporate veil, going through the corporation and looking at the language in the statute that says ‘the person having control over the pollutant’, which was determined to be the owner because he controlled the corporation on such a day-to-day level,” Butler explained.

Differing formalities with similar principles for civil and regulatory proceedings

Legal formalities differ in civil actions and regulatory prosecutions, but there are many key similarities in how prosecutors and plaintiffs must prove their case and how defendants can refute accusations. Unless a case reaches the Supreme Court of Canada, decisions made in one jurisdiction don’t establish rigid precedents further afield.

“Case law in Canada doesn’t necessarily apply from province to province. It’s not binding on the judges in a different province, but it is persuasive,” Stevens said.

In the civil arena, plaintiffs have to prove defendants’ liability and their own damages. There is also a limited period to make the claim, which begins counting from the time it’s deemed plaintiffs became aware of contamination. “If you discover an issue, you have two years in Ontario,” Butler said.

The Crown carries the burden of proof in regulatory prosecutions and defendants have a number of strategies to prove they are not guilty of contravening an environmental law. Of these, due diligence is commonly dubbed the “big defence”, but other recognized valid arguments include:

• officially induced error: if the defendant relied on a regulator’s flawed advice or authorization, which then unwittingly brought about the prosecution;
• necessity: if the defendant can show that an environmental incident was triggered to avoid imminent danger;
• de minimis: if the defendant can show that the consequences of an environmental incident are trivial and do not merit a finding of guilt; or
• improper gathering or sharing of evidence on the regulator’s part.

For the first three defences, Vince emphasized the importance of documentation and demonstrating a conscientious approach to management, operations and decision-making.

“It’s important to know, with de minimis: What was the impact to the environment? What steps could you take to minimize it? With officially induced error, when a regulator tells you something, make sure you document that. With necessity, show that you weighed your options, that you looked at the potential impacts and you made a choice out of necessity,” she instructed.

Environmental management systems key to demonstrating due diligence

Those steps are also aligned with the cornerstone of proving due diligence — environmental management systems. Due diligence, which was verified as a full defence against an environmental offence in a 1978 Supreme Court of Canada decision, is premised on two possible scenarios: that the defendant took all reasonable steps to prevent the offence from occurring, or; the defendant had a reasonable belief in a mistaken set of facts.

“For the first branch, you do not have to exercise superhuman efforts, but you must exercise reasonable care. What this means is a high standard of awareness and decisive, prompt continuing action,” explained John Georgakopoulos, a Willms & Shier partner and certified specialist in environmental law. “Under the second branch, mistaken fact, you have to have reasonably believed in a set of facts, which, if true, would render the act or omission innocent.”

An environmental management system, such as those aligned with the widely employed ISO 14000 standard, provides the framework for organizations to demonstrate that high standard and serious intent. Georgakopoulos cited the example of a company that avoided conviction because it successfully proved its employee’s action in triggering a spill was contrary to policies, procedures, training and consistent messaging in the workplace. More importantly, environmental management system can help instill procedural rigour that leads to better overall environmental vigilance.

“Although due diligence can be a complete defence to a prosecution, it’s not a defence to a civil claim. However, many of the elements of due diligence can be good evidence for defendants in a civil claim and can also help to avoid environmental incidents that give rise to civil claims,” Georgakopoulos added.

To effectively mitigate liability risks, he urged organizations to first gain a full understanding of the environmental impact of their operations and the potential vulnerabilities in their control systems. From there, they should undertake due diligence to address those vulnerabilities and also consider liability protection. The latter might include indemnities in contractual agreements, making use of regulatory liability protection such as Ontario’s records of site condition or Alberta’s remediation certificate, and environmental insurance.

“Director and officer insurance usually excludes environmental matters so if you are a corporate director or officer, it is beneficial to explore the potential benefits of environmental liability insurance given the common exclusions that we see in D&O policies,” Georgakopoulos said.

Barbara Carss is editor-in-chief of Canadian Property Management.