DUE DILIGENCE DEFENCE IN REGULATORY PROSECUTIONS
DEVELOPMENTAL TRENDS AND CURRENT INTERPRETATION
Larry Nelson
Lisa Sulek (Articling Student)
Fasken Martineau DuMoulin LLP
Vancouver, British Columbia
© November 19, 2006
Fasken Martineau DuMoulin LLP
Introduction
During the implementation of the British Columbia provincial government’s Forestry
Revitalization Plan in 2003, one of the many legislative changes introduced was the addition of
the defence of due diligence to those accused of contravening the Forest Practices Code of
British Columbia Act (the “Code”) and its replacement, the Forest and Range Practices Act
(“FRPA”). Since that time there have been a number of decisions made by regional and district
managers at opportunities to be heard in which the statutory decision maker (the “SDM”)
rejected the accused’s assertion that it acted with due diligence. Two of these decisions were
subsequently appealed to the Forest Appeals Commission (the “FAC”), Weyerhaeuser
Company Limited v. Government of British Columbia, Appeal No. 2004-FOR-005(b)
(“Weyerhaeuser I”) and Kalesnikoff Lumber Co. Ltd. v. Government of British Columbia,
Decision Nos. 2003-FOR-005(b) and 2003-FOR-006(b) (“Kalesnikoff”)).
This paper will
review the common law development of the due diligence defence in Canada and then review
Weyerhaeuser I and Kalesnikoff Lumber, including how the FAC interpreted and applied the due
diligence defence and the potential effect the FAC’s interpretation and application may have on
licence holders and qualified registered professionals (“QRP”) working in the forest industry in
British Columbia.
The Origin and Development of the Due Diligence Defence
In the late 1970s, the due diligence defence was made available to a new category of regulatory
offences, known as strict liability offences, by the Supreme Court of Canada (the “SCC”) in R v.
Sault Ste. Marie, [1978] 2 S.C.R. 1299; 5 D.L.R. (3d) 161 (“Sault Ste. Marie”). Strict liability
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offences, and the due diligence defence, were provided in response to the inadequacies of the
existing criminal law. Prior to the development of strict liability offences, the two categories of
offences were (i) full mens rea offences, which required proving beyond a reasonable doubt that
the accused both committed the impugned act and intended to do so, and (ii) absolute liability
offences, which assigned guilt without having to prove the subjective intent of the accused.
In Sault Ste. Marie, the City of Sault Ste. Marie (the “City”) was charged with an environmental
offence after one of its contractors was accused of discharging pollution into a watercourse in
contravention of the Ontario Water Resources Act. At the SCC, the court found that to establish
the mental component beyond a reasonable doubt for a regulatory prosecution was too onerous a
burden on the Crown and that absolute liability offences were at times too harsh as they provided
no defence despite the accused being potentially “morally innocent”.
Strict liability offences were, therefore, intended as a middle ground requiring the Crown to
prove beyond a reasonable doubt that the accused committed the impugned act, but providing the
accused an opportunity to avoid conviction by showing, on a balance of probabilities, that all
reasonable steps were taken to avoid the contravention.
The Due Diligence Test
The test laid out by the SCC in Sault Ste. Marie is still used today. The defence is available to an
accused if, on a balance of probabilities, it is established that
1)
the accused believed in a mistaken set of facts which, if true, would render the act
or omission innocent, or
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2)
the accused took all reasonable steps to avoid the particular event.
Under this test, the burden of establishing that due diligence was exercised is on the accused,
even if the impugned act was done by another party, such as a contractor. 1
Reasonable Foreseeability
The main issue when analyzing whether the due diligence defence has been established is
reasonable foreseeability. Courts have debated exactly to what foreseeability relates. At times,
courts have determined “reasonable” using the benefit of hindsight, which made establishing that
the accused was duly diligent extremely difficult.
In R. v. Imperial Oil Ltd., [2000] B.C. J. No. 2031 (“Imperial Oil”), the majority of the British
Columbia Court of Appeal (the “BCCA”) rejected the defence of due diligence when it found
that a company failed to exercise reasonable care even though the company tested its effluent
more frequently than required by permit, relied on the supplier’s Material Safety Data Sheets
(“MSDS”) that indicated the substance was not toxic to fish and was unable to locate any
information about the substance, since none was yet published. The BCCA determined that
because subsequent research revealed that the product contained two chemicals that the
company’s separator was unable to remove from the effluent, the onus was on the accused to
independently test the toxicity of the substance as well as the separator’s ability to remove the
chemicals from the effluent. In the majority’s opinion, these specific actions were necessary to
establish the defence of due diligence, not the company’s general environmental safety system.
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The dissenting judge in Imperial Oil Ltd. disagreed in finding that the company had done all that
it reasonably could in the circumstances by having procedures to guard against risks, conducting
inspections of the separator, providing MSDSs and implementing spill reporting procedures. In
the opinion of the dissent, the majority’s position was essentially “applying a standard of
perfection” in concluding that the company did not exercise due diligence despite this evidence.
However, subsequent interpretation has reset the threshold so that foreseeability is based on
reasonableness at the time the offence occurred. In R v. MacMillan Bloedel Ltd., [2002] B.C. J.
No. 2083 (“MacMillan Bloedel”), the BCCA reviewed a decision relating to an unforeseen
microbiological process that caused pipes to corrode, as a result of digging around the pipes
while inspecting a suspected leak, and which resulted in a leak of a toxic substance into a creek.
At the time of the alleged offence, MacMillian Bloedel Ltd. (“MacBlo”) recognized a risk of
leakage due to aging of the pipes, but considered pipe replacement a low priority as a recent
inspection showed the pipes were in sound condition. At the trial level, the judge convicted
MacBlo, even though the judge determined that MacBlo honestly believed the pipes were in
sound condition, on the basis that MacBlo knew it would have to replace the pipes at some point
and failed to provide evidence of having such a plan.
The summary conviction appeals judge
overturned the decision on the basis that it was irrelevant that MacBlo had not established plans
to replace the aging pipes because the leakage was caused by an unforeseen microbiological
process rather than aging of the pipes.
1
The SCC in R. v. Wholesale Travel Group Ltd., [1991] 3 S.C.R. 154, S.C.J. No. 79 held that placing the burden on
the accused was a violation of Section 11(d) of the Charter of Rights and Freedoms, but found that it was
justifiable under Section 1of the Charter of Rights and Freedoms.
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At the BCCA the majority stated that “the focus of foreseeability is on the actus reus of the
offence charged, and not the general foreseeability of the environmental contamination or the
foreseeability of the specific cause.” The majority determined that it is irrational to say that the
accused may escape liability for an event that was not reasonably foreseeable only by taking all
reasonable steps to avoid the unforeseen event. It held that “the fact that the leak occurred as a
result of an unforeseeable cause is determinative.” The majority emphasized that the focus of
foreseeability is not the cause of the leak but rather the occurrence of the particular event giving
rise to the charge, although the majority later indicated that these may be one in the same if “the
chain of unforeseeability from the cause of the event to the event itself is one and indivisible.” 2
While the focus of MacMillan Bloedel is on the first branch of the test for due diligence, whether
the accused reasonably believed in a mistaken set of facts, it also clarified that the second branch
is an alternative to the first branch. Therefore, once the test for the first branch is met, the due
diligence defence is established. This is important as it reasserts that the due diligence defence
requires meeting a threshold that is reasonable to attain and does not require a standard of
perfection.
Decisions after MacMillan Bloedel have followed the “middle ground and practical approach” to
due diligence.
Such cases include R. v. Pacifica Papers Inc., [2002] B.C.J. No. 1639 (B.C.
Prov. Crt.) (“Pacifica Papers”), R. v. Weyerhaeuser Canada Limited, [2000] B.C.J. No. 2858
2
Although the decision in MacMillan Bloedel, appears to indicate a change from Imperial Oil, the majority did
attempt to distinguish the two cases by saying Imperial Oil involved a company that carelessly created a hazard
in its plan, whereas MacBlo honestly believed the pipes were sound and did not know of the hazard.
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(B.C. Prov. Crt.) (“Weyerhaeuser II”) and R. v. B.H.P. Diamonds Inc., (2002) NWTSC 74,
[2002] N.W.T.J. No. 91 (N.W.T. Supr. Crt) (“BHP Diamonds”).
In Pacifica Papers, the court examined a contravention of the Fisheries Act occurring because of
actions taken by a contractor hired by Pacifica Paper Inc. (“Pacifica”). The court found that
Pacifica acted with due diligence because it
(i)
took steps to hire a responsible contractor,
(ii)
gave clear instructions to the contractor to pump water from an excavation
on to an adjacent rock pile, not a stream;
(iii)
had no reason to believe that its instructions would not be complied with,
and
(iv)
was not reasonable to expect Pacifica’s supervisor to stay on-site
throughout the process.
In BHP Diamonds, the company was charged with contravening the section 36(3) of the
Fisheries Act due to sediment entering a lake during construction of a diversion channel. The
court found on the evidence that it was not foreseeable that the permafrost in an area not
immediately adjacent to the channel would thaw and result in movement of the materials into the
channel. As such, the company acted reasonably in the development of the diversion ditch and
could not have taken “precautionary steps against that which was not foreseen”.
The court
reiterated that due diligence does not require perfection.
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In Weyerhaeuser II the company asserted a defence of due diligence in response to charges laid
for contravening the Fisheries Act due to a road wash out entering a creek. The court relied on
R. v. Bata Industries Ltd., [1992] O.J. No. 236, 9 O.R. (3d) 329, (Ont. Crt. Prov. Div.) (“Bata”)
and set out the following elements to assess whether the defendant acted reasonably:
(i)
the preventative system in place;
(ii)
the efforts made to address the problem;
(iii)
the promptness of the response;
(iv)
the industry standards;
(v)
matters beyond the control of the accused;
(vi)
the foreseeability of the incident.
After reviewing these elements, the court held that the company acted with due diligence and
showed reasonable care by implementing a preventative road maintenance system and inspection
schedule.
Due Diligence under FRPA
Weyerhaeuser I
The first decision to reach the FAC in which the accused asserted due diligence as a defence to a
contravention of the Code was Weyerhaeuser I.
Weyerhaeuser Company Ltd. (“WCL”)
appealed a determination that it contravened the Code by harvesting a .095-hectare strip outside
of a cut block boundary. The SDM acknowledged that WCL conducted annual training with all
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contractors as part of its environmental management system and that part of this training ensured
that contractors were aware of the pre-work requirements, had proper maps and were aware of
WCL’s block layout methods, specifically the ribbon and paint methods. In this particular case,
WCL conducted an office pre-work and a site walk-around with the contractor’s supervisor.
WCL required the contractor to walk the site with the bunchermen.
However, the SDM
determined that due diligence was not exercised for the following reasons:
(vii)
the contractor’s supervisor did not walk the site with the buncherman
before commencing operations, contrary to WCL’s specific instruction to
do so;
(viii)
WCL was responsible for its contractor (vicariously liable) and failed to
ensure that the contractor’s supervisor carried out the instruction to walk
the site with his buncherman; and
(ix)
the block boundary was sparsely ribboned and painted, causing confusion
for the operator.
On Appeal to the FAC, the two members of the panel (the “Majority”) allowed the due
diligence defence asserted by WCL after applying the common law interpretation of due
diligence as set out in Sault Ste. Marie and MacMillan Bloedel. With regard to the test for due
diligence, the FAC indicated that:
(x)
the “two branch” test will be the basis for determining whether due
diligence was established;
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(xi)
the responsibility of establishing the defence of due diligence is on the
person accused of the contravention even if that person did not physically
perform the impugned act; and
(xii)
when assessing the due diligence of a company accused of a contravention
caused by its subcontractor, one is to determine whether the impugned act
took place without the licensee’s direction or approval and whether the
licensee exercised all reasonable care by taking all reasonable steps to
ensure that the contravention did not occur.
The Majority’s decision centered on the fact that Weyerhaeuser had clearly given the
contractor’s foreman instructions to walk its employee to the point where he was to begin
cutting. The Majority determined that had this instruction been carried out, the contravention
would not have occurred and made the following finding:
While it may be foreseeable in a general sense that machine
operators working in the bush on winter days may become
disoriented, it was not foreseeable on the facts of this case, given
the specific instruction to walk Mr. Glover to Point A where he
was to start cutting, that he would misread the map and start
cutting on the wrong side of Block C. Thus, the unauthorized
harvesting that occurred on January 16, 2002, was not reasonably
foreseeable.
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The Majority recognized that it is not reasonable to expect a company hiring a reputable
contractor to oversee and double-check everything that the contractor is hired to do. The root
cause of the contravention was not a failure by Weyerhaeuser, but rather a decision by one of the
harvesting contractor’s employees to ignore a clear instruction to walk to the point where the
cutting was to begin.
The dissenting member of the panel found that the event was reasonably foreseeable and that
Weyerhaeuser did not exercise due diligence in preventing the contravention. In particular, the
dissenting panel member found that Weyerhaeuser should have overseen the walk-through that it
instructed its contractor to carry out with its bunchermen.
It should be recognized that Weyerhaeuser’s conduct in this case was measured against its
extensive environmental management system and the fact that it had hired a reputable contractor.
If these facts had been different, the result may have been different.
However, it is interesting to note that the FAC determined this decision using the first branch of
the due diligence test, on the basis that it was not foreseeable the contractor would fail to follow
Weyerhaeuser’s instructions. However, the actual contravention was not the failure of a contract
to follow instructions, but harvesting outside the cut block. The question the FAC should have
asked on the first branch of the test was whether it was foreseeable that harvesting outside the cut
block could occur. The answer to this question invariably would have been that it is foreseeable,
as this is a common concern in the industry. The FAC should have decided this case using the
second branch of the test by determining whether Weyerhaeuser took all reasonable steps to
prevent the contravention.
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Kalesnikoff Limber
In Kalesnikoff Lumber, Kalesnikoff Lumber Company Ltd. (“Kalesnikoff”) appealed the
determination of a review panel that it violated the Code in relation to landslides that occurred on
two roads constructed in its operations. The review panel agreed with the original determination
of the SDM that Kalesnikoff did not exercise due diligence. Kalesnikoff argued that it relied on
a QRP in its road construction operations, and therefore met the due diligence requirement. The
review panel disagreed for the following reasons:
(xiii) the evidence showed that two similar slides on the same road system had
occurred within the previous year;
(xiv)
based on this history, a reasonable person in Kalesnikoff’s position with
knowledge of these problems would have the QRP review the road design,
paying particular attention to the difficult sites; and
(xv)
a geotechnical assessment at the site may have revealed the true risk and
that a duly diligent person would have done this assessment.
Therefore, Kalesnikoff’s failure was in not doing all that was reasonably required to identify the
potential hazard.
On appeal, the FAC determined that Kalesnikoff did not violate the Code. Therefore, it was not
necessary to determine whether Kalesnikoff was duly diligent.
However, the FAC
acknowledged that there was interest in the topic, and given that considerable argument was
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made on the defence of due diligence at the hearing, commented on how it may interpret and
apply this defence in the future.
The FAC’s comments mainly related to a licensee’s use of QRPs. The FAC commented that it
was neither feasible nor practical for a licensee to obtain a second opinion on the professional
advice it received. However, the FAC cautioned that a licensee cannot “asset due diligence
merely by pointing to the retention of a competent expert”. In addition, the FAC determined that
experts are “contractors” under the Code and the they should be supervised by a licensee in the
same manner as other contractors.
Unanswered Questions
Under FRPA, the responsibility to ensure compliance with legislative requirements in forestry
operations has shifted from the government to the licence holders and QRPs, particularly RPFs.
To date, the FAC has only reviewed the due diligence defence involving a licence holder accused
of being vicariously liable for the actions of its contractor. It will be interesting to see how the
FAC will apply the test to an action committed directly by the accused. However, since the FAC
has stated in Weyerhaeuser I that due diligence under FRPA should be applied in its “natural and
ordinary sense as defined in the case law”, one would expect similar standards and principles
would applied.
In addition, while the FAC provided additional comments in the Kalesnikoff Lumber decision,
these comments raise additional questions. One obvious question is at what point should a
licence holder seek a second opinion on the advice it receives from a QRP? One troubling aspect
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of this decision is the FAC’s comment that using a “competent expert” may not be enough to
establish due diligence.
Additional questions include, how will the FAC apply the due diligence test to QRPs where the
QRP is prosecuted in his or her own capacity? and To what extent should external QRPs be used
verses internal QRPs?
What does this Mean for Licence Holders and QRPs
Under FRPA, licence holders are required to have various aspects of it forestry planning
preformed or certified by a QRP. This means that licence holders must ensure that they establish
a good working relationship with its QRPs. In addition, licence holders should establish clear
criteria for hiring external QRPs and policies for internal QRPs to assist in establishing that it
was reasonable to act. QRPs should also ensure that the scope of their assignment is precisely
written out and agreed to in advance of commencing work, with flexibility to address chaning
circumstances. The unfortunate consequence of this will be the difficult circumstances where the
licence holder and the QRP are pointing the finger at the other after an alleged contravention.
Other Insights into the Due Diligence defence
The following are guidelines derived from the case law that may assist in determining whether
one is acting in a diligent manner:
2.
Due diligence does not excuse ignorance of the law, rather it relates to fulfilling a duty
(see R. v. Motis (1980), 55 C.C.C. (2d) 558, [1980] 2 S.C.R. 365 (S.C.C.));
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3.
Due diligence depends on the facts of each case, the particular industry or activity
involved including the operation, its size, location, inherent risks, likelihood of harm,
how much control the defendant had over the events, degree of knowledge expected of
the defendant, and the damage and degree of harm involved (see Bata and Pacifica);
4.
Due diligence considers whether the defendant acted according to industry standards,
relevant legislation, licenses, or plans, used preventative systems such as environmental
management systems (EMSs), training programs, internal and external audits, risk
assessments,
the availability of alternative solutions to prevent the occurrence, the
party’s promptness in responding to the problem, efforts to mitigate and responsiveness
to suggestions by regulatory officials (see R. v. Gonder (1981), 62 C.C.C. (2d) 326
(Yukon Terr. Ct.); Imperial Oil; R. v. British Columbia Hydro and Power Authority,
[1997] B.C. J. No. 1744 (“BC Hydro”) and R. v. Fibereco Pulp Inc., [1993] B.C. J. No.
218);
5.
Due diligence requires a person to exercise reasonable care. Reasonable care does not
mean superhuman effort (see R. v. Courtaulds Fibres Canada (1992), 76 C.C.C. (3d)
68);
6.
An accused must take all reasonable steps to avoid harm, but this in not the same as all
conceivable steps. Rather, and accused is only required to take those steps that could be
reasonably expected in the circumstances (see BC Hydro and Bata);
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7.
Reasonable care requires staying abreast of current technological and industry standards
and hiring consultants where necessary (see R. v. Rio Algom Ltd. (1998), 46 C.C.C. (3d)
242, 66 O.R. (2d) 674 (Ont. C.A.) and Bata );
8.
Reasonable care requires maintaining awareness of changing conditions and responding
in a timely and appropriate manner so as to mitigate the foreseeable harm (see BHP
Diamonds and Kaleinikoff Lumber);
9.
The reasonable care warranted in each case is principally governed by:
(a)
the gravity of potential harm - No one can hide behind commonly accepted
standards of care if, in the circumstances, due diligence warrants a higher level of
care.
The greater the potential for substantial injury, the greater the degree of
care required: (see R. v. Barre, [2005] B.C.J. No. 2423 (B.C. Prov. Crt) (“Barre”),
citing R. v. Panarctic Oils (1983), 12 C.E.L.R. 29; R. v. Canadian National
Railway, [2004] B.C. J. No. 1121 (B.C.S.C.) and Canada Tungsten Mining
Corporation v. R. [1976] W.W.D. 104, 1 F.P.R. 75);
(b)
the available alternatives - The reasonable alternatives the accused knew or ought
to have known were available, provide a primary measure of due diligence. To
successfully plead the defence of reasonable care, the accused must establish on a
balance of probabilities that no feasible alternatives could be employed to avoid
or minimize harm (see Barre).
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(c)
the likelihood of harm - The greater the likelihood of harm, the higher duty of
care required. What particular facts heighten or diminish the likelihood of an
accident will vary in each case. Assessment of the likelihood of harm is based on
what an appropriately qualified expert might reasonably predict (see Barre);
(d)
the degree of skill required and the extent the accused could control the causal
elements of the offence - Anyone choosing to become involved in activities
posing a danger to the public, or to the environment, assumes an obligation to take
whatever measures may be necessary to prevent harm. The costs of preventive
measures are significantly less important in assessing the duty of care imposed
upon persons who choose to undertake dangerous activities (see Barre, citing
Sweet v. Parsley, [1970] A.C. 132); and
(e)
the extent the accused could control the causal elements of the offence - No
accused can be held accountable for unforeseeable accidents and for activities
beyond the reach of what they might reasonably be expected to influence or
control (see Barre, citing Reynolds v. G.H. Austin & Sons Ltd., [1951] 2 K.B. 135;
Pacifica and Weyerhaeuser).
Conclusion
Recent cases on the issue of due diligence and reasonable care appear to reflect a more practical
and evidence-based analysis, rather than an unrealistic and speculative approach.
While more
judicial insight has been gained over the years regarding what is required to establish a defence
of due diligence, each decision will depend on the facts of the case involved. In conducting
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forestry activities, both licence holders and QRPs must ensure that they follow industry standards
and rely on the most up-to-date and accurate information and continuously be asking two
questions:
10.
Are reasonable steps being taken and are adequate systems in place to anticipate and
detect the risk associated with our operations?
11.
Have systems been put into place to ensure that identified risks are avoided and managed
properly if they occur, and are those systems being implemented properly?
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