Environmental Risk and Dairy Farming
Keith Wilson and Jason Krips
Wilson & Company, 1100 First Edmonton Place, 10665 Jasper Avenue, Edmonton, AB Canada T5J 3S9
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Take Home MessagesThe commencement and maintenance of a properly inspected and maintained pollution prevention system which is within the terms and practices of the industry for ensuring compliance with environmental laws;
Periodic reporting by the corporate officers to the board of directors on the operation of the pollution prevention system;
Reporting by the officers of any substantial non-compliance to the board of directors in a timely manner.
In recent years, the public
=s concern and awareness have grown substantially regarding the agricultural community=s management of the environment. Specifically, the public has expressed concerns over the management of manure by feedlots as well as hog and dairy operations. The fear is that mismanagement of manure is leading to noxious odors and contaminated ground water and surface water in rural areas. As these concerns grow, more attention is being paid to the legal obligations farmers are under to ensure that their operations do not cause contamination of the environment.This paper focuses on the duties and responsibilities imposed upon the directors and officers of farm corporations respecting environmental matters. As the common law duties and responsibilities of directors and officers of corporations have largely been codified or altered by legislation, this paper examines three key pieces of legislation respecting the obligations of corporate directors and officers regarding environmental matters: the Alberta Business Corporations Act (
AABCA@), the Alberta Environmental Protection and Enhancement Act (AAEPEA@) and the federal Fisheries Act.# Alberta Business Corporations Act
Section 117(1) of the ABCA codifies the common law fiduciary duty of directors and officers and provides for a standard of care in which directors and officers must meet in order to adhere to their codified fiduciary duty. Section 117(1) of the ABCA is as follows:
Every director and officer of a corporation in exercising his powers and discharging his duties shall;
(a) act honestly and in good faith with a view to the best interest of the corporation;
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. [1]
Section 117(1)(a) establishes that directors and officers must perform their duties honestly and in good faith while adhering to the best interests of the corporations. In other words, the directors and officers have a fiduciary duty to the corporation: the directors and officers must subordinate their own personal interests to the interests of the corporation. Section 117(1)(b) provides the standard by which the activities of directors and officers are weighed against in determining whether the directors and officers have placed the corporation
=s interests above their own. The standard that must be met is that the directors and officers must take all Areasonable care@ applicable in the circumstances. A recent legal publication explained that the Areasonable care@ standard includes the following for directors and officers:It therefore implies that directors should regularly attend committee and directors meetings. It implies a duty to become informed before acting. To be informed, directors should insist on receipt of sufficient information with respect to operations of the corporation and with respect to issues affecting the corporation so as to be able to make an informed decision. They should also make such inquiries as they deem necessary, including obtaining advice from outside experts to ensure that their decisions are informed. [2]
When a director or officer is defending a claim that he did not act honestly, in good faith with a view to the best interests of the corporation, the director or officer can argue that he acted with due diligence. This is called the
Adue diligence defence@. As stated in one legal publication, directors or officers will be able to successfully argue a due diligence defence, if, Athey have taken all the steps that a reasonably prudent person would have taken in comparable circumstances@. [3]# AEPEA and FISHERIES ACT B Release of Substances
Two key statutes for Alberta farm corporations, especially for those operating feedlots and hog and dairy operations, are the Alberta Environmental Protection and Enhancement Act (
AAEPEA@) and the federal Fisheries Act.Alberta Environmental Protection and Enhancement Act
The AEPEA makes it an offence for persons, including corporations, to release substances into the environment in amounts, concentrations or levels which causes or may cause a significant adverse effect on the environment. The governing section for this offence is section 98 of the AEPEA, which reads as follows:
(1) No person shall knowingly release or permit the release into the environment of a substance in an amount, concentration or level or at a rate of release that causes or may cause a significant adverse effect.
(2) No person shall release or permit the release into the environment of a substance in an amount, concentration or level or at a rate of release that causes or may cause a significant adverse effect.
(3) Subsections (1) and (2) apply only where the amount, concentration, level or rate of release of the substance is not authorized by an approval or the regulations.
(4) No person may be convicted of an offence under this section if that person establishes that the release was authorized by another enactment of Alberta or Canada. [4]
There is a further provision dealing with the creation of offensive odours (105):
(1) Where the Director is of the opinion that a substance or thing is causing or has caused an offensive odour, the Director may issue an environmental protection order to the person responsible for the substance or thing.
(2) Subsection (1) does not apply in respect of an offensive odour that results from an agricultural operation that is carried out in accordance with generally accepted practices for such an operation.
(3) An environmental protection order under this section may order the person to whom it is directed to take any or all the following measures:
(a) investigate the situation;
(b) take any action specified by the Director to prevent the offensive odour;
(c) minimize or remedy the effects of the offensive odour;
(d) monitor, measure, contain, remove, store, destroy or otherwise dispose of the substance or thing causing the offensive odour or lesson or prevent the offensive odour;
(e) install, replace or alter any equipment or thing in order to control or eliminate the offensive odour;
(f) report on any matter ordered to be done in accordance with directions set out in the order.
Fisheries Act
The Fisheries Act makes it an offence to release
Adeleterious@ or harmful substances in water frequented by fish. This Act also makes it an offence for persons to disrupt or destruct a fish habitat. The governing sections for these offences are sections 35 and 36 of the Fisheries Act. The relevant portions of these sections are as follows:35. (1) No person shall carry on any work or undertaking that results in the harmful alteration, disruption or destruction of fish habitat. (2) No person contravenes subsection (1) by causing the alteration, disruption or destruction of fish habitat by any means or under any conditions authorized by the Minister or under regulations made by the Governor in Council under this Act.
36. (3) Subject to subsection (4), no person shall deposit or permit the deposit of a deleterious substance of any type in water frequented by fish or in any place under such conditions where the deleterious substance or any other deleterious substance that results from the deposit of the deleterious substance may enter any such water.(4)No person contravenes subsection (3) by depositing or permitting the deposit in any water or place
(a) waste or pollutant of a type, in a quantity and under conditions authorized by regulations applicable to that water or place made by the Governor in Council under an Act other than this Act; or
(b) a deleterious substance of a class, in a quantity or concentration and under conditions authorized by or pursuant to regulations applicable to that water or place or to any work or undertaking or class thereof, made by the Governor in Council under subsection (5).
AEPEA and FISHERIES ACT B Director and Officer
Liability
Both AEPEA and the federal Fisheries Act contain sections regarding the liability of corporate directors and officers for environmental mishaps. As a result, directors and officers of farm corporations can be found to be liable for the release of substances into the environment or water frequented by fish in violation of the AEPEA and the federal Fisheries Act, respectively.
AEPEA
The director and officer liability section under the AEPEA is section 218 and it reads as follows:
Where a corporation commits an offence under this Act, any officer, director, or agent of the corporation who directed, authorized, assented to, acquiesced or participated in the commission of the offence is guilty of the offence and is liable to the punishment provided for the offence, whether or not the corporation has been prosecuted for or convicted of the offence. [5]
If a director or officer of a farm corporation violates section 218 by violating section 98(1) or 98(2) regarding harmful release of substances into the environment, section 214 governs the penalties the director or officer may be subjected to. Section 214 of the AEPEA is as follows:
(1) A person who commits an offence referred to in section 58, 82.1, 97(1), 98(1) or 213(a), (d), (f) or (h) is liable
(a) in the case of an individual, to a fine of not more than $100,000 or to imprisonment for a period of not more than 2 years, or to both a fine and imprisonment, or
(b) in the case of a corporation, to a fine of not more than $1,000,000.00
A person who commits an offence referred to in section 59, 82.2, 64, 72, 73, 76, 97(2), 98(2), 99(1) or (2), 100, 101, 122, 141, 142, 148, 150, 156, 162, 163, 166, 168.1, 179, 182, 182.1, 199, 213(b), (c), (e), (g) or (i) or 237 is liable
(a) in the case of an individual, to a fine of not more than $50 000, or
(b) in the case of a corporation, to a fine of not more than $500 000.
A person who commits an offence referred to in section 134, 169, 170, 171,171.1 or 173 is liable
(a) in the case of an individual, to a fine of not more than $250, or
(b) in the case of a corporation, to a fine of not more than $1000. [6]
Fisheries Act
Section 78.2 of the Fisheries Act governs the liability of corporate officers for offenses committed under the Fisheries Act. Section 78.2 reads as follows:
Where a corporation commits an offence under this act, any officer, director or agent of the corporation who directed, authorized, acquiesced in or participated in the commission of the offence is a party to and guilty of the offence and is liable on conviction to the punishment provided for the offence, whether or not the corporation has been prosecuted. [7]
If a director or officer of a farm corporation violates section 78.2 of the Fisheries Act in participating in the violation of sections 35 or 36 of the Fisheries Act by destroying a fish habitat or by releasing a harmful substance into a water frequented by fish, section 40 governs the penalties the director or officer may be subjected to. Section 40 is as follows:
(1) Every person who contravenes subsection 35(1) is guilty of
(a) an offence punishable on summary conviction and liable, for a first offence, to a fine not exceeding three hundred thousand dollars and, for any subsequent offence, to a fine not exceeding three hundred thousand dollars or to imprisonment for a term not exceeding six months, or to both; or
(b) an indictable offence and liable, for first offence, to a fine not exceeding one million dollars and, for any subsequent offence, to a fine not exceeding one million dollars or to imprisonment for a term not exceeding three years, or to both.
(2) Every person who contravenes subsection 36(1) or (3) is guilty of
(a) an offence punishable on summary conviction and liable, for a first offence, to a fine not exceeding three hundred thousand dollars and, for any subsequent offence, to a fine not exceeding three hundred thousand dollars or to imprisonment for a term not exceeding six months, or to both; or
(b) in indictable offence and liable, for a first offence, to a fine not exceeding one million dollars and, for any subsequent offence, to a fine not exceeding one million dollars or to imprisonment for a term not exceeding three years, or to both. [8]
For many charges under the AEPEA, including a charge under section 98(2) where a corporation released harmful substances into the environment, and all charges under the Fisheries Act, directors and officers can avoid liability by proving that they acted with due diligence in performing their duties. In other words, the directors or officers must prove that, "they have taken all steps that a reasonably prudent person would have taken in comparable circumstances". [9] However, if a director or officer "knowingly" released or permitted the release of a substance in violation of section 98(1) of the AEPEA, the director or officer cannot rely on the due diligence defence to escape liability.
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Due DiligenceThe Supreme Court of Canada in R v. City of Sault Ste. Marie [10] sets out the due diligence defence as follows:
The due diligence which must be established is that of the accused alone. Where any employer is charged in respect of an action committed by an employee acting in the course of employment, the question will be whether the act took place without the accused's direction or approval, thus negating willful involvement of the accused, and whether the accused exercised all reasonable care by establishing a proper system to prevent commission of the offence and by taking reasonable steps to ensure the effective operation of the system. The availability of the defence to a corporation will depend on whether such due diligence was taken by those who are the directing mind and will of the corporation, whose acts are therefore in law the acts of the corporation itself.
The due diligence section under the AEPEA is section 215 which is as follows:
No person shall be convicted of an offence under section 59, 82.2, 64, 72, 73, 76, 97(2), 98(2), 99(1) or (2), 100, 101, 122, 141, 142, 148, 150, 156, 162, 163, 166, 168.1, 179, 182, 182.1, 199, 213(b), (c), (e), (g), or (i) or 237 if that person establishes on a balance of probabilities that he took all reasonable steps to prevent its commission. [11]
The due diligence section under the Fisheries Act is section 78.6 which is as follows:
No person shall be convicted of an offence under this Act if the person established that the person
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What is Environmental Due Diligence?The question becomes, what is environmental due diligence? The legal community uses the 1992 Ontario Provincial Court decision of R v. Bata Industries [12] as the standard in determining what steps a reasonably prudent director and officer must take to show that he was duly diligent respecting the environmental mishaps of the corporation. In this decision, three directors of Bata Industries were charged under the Ontario Water Resource Act and the Ontario Environmental Protection Act when the company discharged harmful materials into groundwater at one of the company's plants. In considering the due diligence defence, the Judge stated the following:
I ask myself the following questions in assessing the defence of due diligence:
(a) Did the board of directors establish a pollution prevention "system" as indicated in R v. Sault Ste. Marie (City) [(1978), 40 C.C.C. (2d) 353 (S.C.C.)]; i.e., was there supervision or inspection? was there improvement in business methods? did he exhort those he controlled or influenced?
(b) Did each director ensure that the corporate officers have been instructed to set up a system sufficient within the terms and practices of its industry of ensuring compliance with environmental laws, to ensure that the officers report back periodically to the board on the operation of the system, and to ensure that the officers are instructed to report any substantial non-compliance to the board in a timely manner?
I reminded myself that:
(c) The directors are responsible for reviewing the environmental compliance reports provided by the officers of the corporation but are justified in placing reasonable reliance on reports provided to them by corporate officers, consultants, counsel or other informed parties.
(d) The directors should substantiate that the officers are promptly addressing environmental concerns brought to their attention by government agencies or other concerned parties including shareholders.
(e) The directors should be aware of the standards of their industry and other industries which deal with similar environmental pollutants or risks.
(f) The directors should immediately and personally react when they have notice the system has failed.
Within this general profile and dependent upon the nature and structure of the corporate activity, one would hope to find remedial and contingency plans for spills, a system of ongoing environmental audit, training programs, sufficient authority to act and other indices of a pro-active environmental policy.
The decision of Bata Industries appears to be the guiding decision regarding whether or not directors or officers were duly diligent regarding environmental mishaps. As a result, based on the Judge
=s remarks in Bata Industries, in order for the directors and officers of a farming corporation to act duly diligent regarding environmental mishaps, they must ensure that:#
References