'You could be responsible for things you aren't aware of but should have been'

A recent ruling from the B.C. Court of Appeal has confirmed that directors and officers in regulated industries can be held personally liable for environmental offences committed by their companies — even when they had no direct knowledge of the conduct that led to those offences.

“[This is] a reminder of the risk of being a director in name only and the significant liability that can still attach with that if you're not exercising reasonable care and due diligence in any way,” says Patrick Williams, partner at Fasken in Vancouver.

In R. v. Mossman, the court dismissed the appeal of Benjamin Mossman, former director, president and COO of Banks Island Gold (BIG), a mining company that operated the Yellow Giant Mine near Prince Rupert, B.C.

Mossman had argued that he could not be held secondarily liable under the Environmental Management Act and the Fisheries Act because the Crown had not proven he knew of the specific circumstances that resulted in the company's offences — which included discharging zinc and total suspended solids into fish-bearing waters at levels exceeding permitted amounts, as well as unauthorized dumping and failure to report spills.

The court disagreed. The secondary liability provisions in both statutes — which hold directors personally responsible if they "authorized, permitted or acquiesced in" a corporate offence — do not require the Crown to prove knowledge, the court said. What matters is whether the director had the capacity to control the conduct and failed to prevent it.

“The nature of the company’s breach must be logically connected to the scope of the accused’s voluntarily assumed responsibilities,” said Justice Brian Dickson.

And there’s a likelihood there that we will see more of this kind of approach, so directors and officers will want to make sure they’re protected, says Will Shaw, partner at Lawson Lundell in Vancouver.

 “You could be responsible for things that you aren't aware of but should have been aware of.”

‘What should you have done?’

At trial, the judge found Mossman was "unquestionably the key operating mind of BIG on the ground at the Yellow Giant Mine" and "his decisions were BIG's decisions." The trial judge convicted him on counts related to discharge exceedances, concluding he "acquiesced to the continuation of mining operations without any effective environmental monitoring."

However, the summary conviction appeal judge found the trial judge had erred in acquitting Mossman on the remaining counts because he focused too narrowly on Mossman's direct knowledge, and ordered a new trial on those counts.

The Court of Appeal upheld that ruling.

The case came about because the director said he didn’t have direct knowledge or involvement in the actions or inactions that led to the various offences, says Williams. But, ultimately, the Court of Appeal disagreed.

“In this particular regulated space, mining, it’s ultimately a test of ‘What could you have done, what should you have done?’” he says. “Those kinds of concepts loom large for directors.”

Control rather than knowledge

The ruling turns on the concept of control rather than knowledge. The court held that proving secondary liability has two elements: establishing that the company committed the offence and establishing the director's active or passive involvement given the nature of their responsibilities.

“What we're looking at here in terms of the control is for the individuals within the company… What's their area of control within the company? What do they supervise? What decisions do they get to make? And if there's a contravention by the company, is it within that area of control of a director or an officer?” says Shaw.

“Are they passively involved and are they not exercising the duties that are expected of them by industry standards or by the regulations?”

The control is really about the job description and if the individual is meeting that job description, he says. "The job description might be broader than what's set out in any kind of employment agreement but you should know the regulations and the statute as well."

Avoiding seconday liability

For Lindsay Frame, associate at Fasken in Vancouver, the test is tied directly to the particular charging statute.

"It was just capacity to control, basically, the conduct by the company that amounted to the offence," she says. "Where it's, for example, an exceedance of a discharge limit — if you were a person who had the capacity to control whether or not the company committed that exceedance, then that's the kind of control that they're looking for. It's relative to the offending conduct that's charged."

In its reasons, the court stated that requiring proof of knowledge would "effectively allow officers, directors and agents to avoid secondary liability by remaining wilfully blind to foreseeable risks and remove the incentive to ensure safe operations to avoid those risks."

Frame echoes that directive.

"One of the objectives of the court is to avoid a situation where people can be wilfully blind to risks within their control and say, 'Oh, I didn't actually know about that' — but you turned a blind eye so that you wouldn't know about it," she says. "That's kind of the overarching policy framework that we're working with."

Implications for job descriptions

The ruling carries practical implications for how companies document roles and responsibilities, particularly in regulated industries.

“It is important for both companies and for the individuals to review the job description and make sure that it does capture anything that's expected by the industry or expected by the regulations,” says Shaw.

Williams agrees, noting that while it may be difficult to enumerate every regulatory obligation in a job description, "at a high level, that's the kind of thing that both employers and employees should be aware of."

Documenting evolving roles is also critical, says Shaw, particularly in industries like mining where responsibilities shift across the lifecycle of an operation.

"Whenever we're advising people on due diligence defences — or preferably on preparing a due diligence program before there's any kind of charge — documentation is key to this," he says. "Are you reviewing policies, procedures, job descriptions? Are you updating them as necessary? Are you meeting with the employees to discuss those changed roles and responsibilities?"

Due diligence frameworks

Frame points to proactive environmental due diligence frameworks as increasingly important — not just outlining who is responsible for what but identifying foreseeable risks and documenting the steps being taken to address them.

"For companies like mines, there are certain kinds of offences that are relatively foreseeable. If you're a permitted company that has a waste discharge permit, for example, exceedance of the waste discharge permit is something that always going to be top of mind,” she says.

“So, taking steps to proactively figure out what those risks are and how the company can address them, I think, fits well with the outlining of those responsibilities for the actual individuals.”

Shaw notes that the scope of the due diligence defence itself is narrowing because there is an expectation that if something bad happened, it really was foreseeable, he says.

“If you take the example of the mining code, it's a very extensive, expansive document that sets out a ton of responsibilities and a ton of requirements… and so… it's harder to say that something isn't foreseen or should not have been foreseen.”

Insurance, indemnity and agreements

For individual directors and officers, the decision raises questions about financial protection. Shaw says employment agreements should be reviewed to ensure there is coverage if charges are brought.

"You've got strong directors and officers’ liability. If a director or an officer is charged, who's going to pay for the defence?" he says, adding that some insurance policies cover regulatory offences while others do not. "You want to make sure that those policies are robust enough."

Shaw also raises the issue of departing employees.

"If you're terminating the employment of someone in a senior position, but you suspect that there may be regulatory charges coming at some point, are you making provision in any severance package to get their cooperation with any kind of investigation going forward?" says Shaw.

“You may want to ensure you've got a reasonable relationship with them going forward so that you can align your defenses to it.”

In Mossman itself, the Crown's key witness was a former employee of the company who had originally been charged and whose charges were stayed before she testified.

Beyond mining, B.C.

Although the case arose in mining, lawyers say the implications reach across other regulated industries as the secondary liability provisions at issue reflect language found in statutes across sectors.

"Trucking would have that; forestry will have that… pipelines or ports, transportation," says Shaw. "If there's any kind of regulated nature to it, there probably are provisions like that and so you could be held accountable."

Williams points to forestry and heavy industry more broadly: "This case is about discharges, for example, in part. So… that extends beyond mining to a wider variety of industries.”

Parts of the case were also decided under the federal Fisheries Act.

"That applies everywhere and can be prosecuted across the country in the same way," he says. "Most provinces have similar approaches to environmental regulations. So, you can see this kind of secondary liability arising elsewhere."

Frame agrees that any company holding a discharge permit of any kind — "pulp and paper, waste management, mining" — should be paying attention.

On a final note, Shaw flags an important factor in the Mossman case.

"This case is a little factually weird in that the company had gone bankrupt," he says. "So, going after the officers was a way to hold someone liable for it."

He notes that a Crown may be less motivated to pursue individuals when a solvent company remains available as a defendant.

“That being said, these principles will apply… this idea that you could be responsible for things that you aren't aware of but should have been aware of.”