Companies doing business in Canada should identify and manage the risks associated with legal liability for harm that has been (or may be) caused to the environment. Environmental legislation (statutes and regulations) in Canada are made and enforced by all three levels of government: federal, provincial/territorial and municipal. In addition to environmental legislation, Canadian tribunals and courts provide decisions that interpret this legislation which also form part of Canadian law (known as the common law).
Companies typically require approvals (permits, licences, registrations and the like) for activities that can impact or relate to the environment, such as discharges into the atmosphere or water. Failure to obtain or comply with a necessary approval is an offence. Such offences can result in significant fines and penalties against a company, as well as individuals, including a company’s officers and directors. Most environmental statutes also authorize environmental agencies to issue administrative orders to a broad range of parties.
Further, there are civil actions that can be commenced, based on legislation or common law, for matters such as damage caused by contamination. These actions are typically based on breaches of legislation or the common law actions of nuisance, negligence, trespass and strict liability.
Federal and Provincial Legislation
The key federal environmental protection legislation – the Canadian Environmental Protection Act, 1999 – regulates the manufacture, use, import and export of substances that the federal government has deemed toxic. There is also federal legislation that regulates interference with fish and fish habitat, species at risk, migratory birds and other matters under federal jurisdiction.
Each province (and, to a lesser extent, the territories) has its own environmental protection legislation.
Key areas of environmental regulation include federal and provincial legislation that regulates the:
release of substances into the environment including related reporting requirements;
remediation of contaminated sites;
licensing of emissions and effluent;
assessment of environmental impacts prior to licensing of certain activities;
import and export of certain substances;
transportation of dangerous goods;
storage of hazardous materials;
generation, storage and disposal of wastes;
treatment of sewage (which typically includes industrial sewage and stormwater); and
protection of wildlife and fish, including endangered species, and their habitats;
In addition, it is noteworthy that certain federal and provincial environmental legislation creates a range of offences relating to environmental matters including:
unlawfully discharging contaminants or pollutants into the environment;
failing to immediately report certain incidents, such as the unlawful release, discharge or spill of a chemical into the environment;
failing to comply with orders issued by regulators; and
engaging in certain activities without obtaining approval or failing to comply with the terms of any approval obtained.
Maximum penalties permitted under legislation can be quite significant, including fines in the millions of dollars per day that the offence is committed and, potentially, prison sentences (although these are rare and typically are reserved for egregious behaviour).
Many municipalities are active environmental regulators, usually through their urban planning and zoning powers. Since the Supreme Court of Canada upheld a municipal by-law prohibiting pesticide applications (despite the existence of federal and provincial government licensing to do so), municipalities have been increasingly exploring the extent of these powers to regulate environmental matters including by enacting community right-to-know by-laws about the presence of toxic substances used within municipal boundaries.
Certain government initiatives, as well as designated private projects, may be subject to a requirement to conduct a provincial and/or federal environmental assessment (essentially an assessment of the potential effects of the proposal or activity on the environment). An environmental assessment may need to be completed prior to the issuance of project-related licenses or government funding, or prior to the disposition of Crown lands. It is important for project proponents to fully assess and mitigate scheduling, regulatory and litigation risks associated with environmental assessments.
Common Law Environmental Liabilities
Civil actions can be commenced, including class actions for damages that have been suffered even, in some circumstances, where there has been legislative compliance. Injunctions can also be obtained requiring, for example, closure of a facility that is the source of pollution.
A potentially wide net of liabilities for environmental contamination exists under the common law based on nuisance, negligence, trespass and strict liability. Purchasers of property, landlords and tenants, parent and successor corporations, purchasers of assets or shares of a business, lenders and even underwriters should be aware of these risks.
Directors and officers of companies doing business in Canada can be held personally liable for environmental matters. For example, federal and some provincial environmental legislation impose a direct, positive duty on directors and officers to take reasonable care to prevent the corporation from committing an offence, such as causing contamination. In some cases, the risk of personal liability can turn on the operational control (or willful blindness) exercised; failure to comply with the duty to proactively take reasonable care can be an offence even, potentially, where an officer or director may not have operational responsibilities.
Officers and directors can face the risk of substantial fines and, potentially, prison sentences (although these are rare and typically are reserved for egregious behaviour by officers and directors of small companies).
Canada’s securities regulators are increasingly less tolerant of boiler plate language about the disclosure of environmental liabilities in corporate documents. Canada’s financial institutions continue to make financing for most commercial transactions contingent on the completion of satisfactory environmental due diligence.
As with other business risks, environmental risks must be identified and managed. This can include, for example, due diligence for a purchase, sale, merger or financing transaction, and the implementation of policies and procedures for operations to prevent (and, if necessary, respond to) environmental incidents. An extraterritorial company would likely want to ensure that its Canadian subsidiary has taken such steps to protect the value of the business.
Climate change has become an important and complex business concern – one that can have a direct impact on a company’s profitability, growth prospects, governance, risk analysis and compliance assessments, as well as reputational branding and business sustainability.
Risks relating to climate change include mandatory reporting and reduction of greenhouse gas emissions as well as increasing pressure on companies to be “green” and adapt to the effects of climate change. There are, however, opportunities and incentives available such as participating in emissions trading markets in some cases, achieving competitive advantage, reducing costs and gaining the goodwill of stakeholders.
In Canada, successful businesses often have comprehensive, forward-looking strategies for addressing environmental impacts. The most developed strategies integrate consideration of social impacts and long-term profitability to find ways of ensuring business sustainability.
Canadian legislation does not expressly require the implementation of business sustainability strategies. It is important, however, to note that corporate law requires directors and officers of Canadian companies to act in the best interests of the corporations they serve. This encourages (and arguably requires) such business leaders to think broadly about the opportunities and risks their companies face. Many Canadian investors and lenders have also come to expect that companies demonstrate a commitment to sustainability. Trends such as these suggest that profitably doing business in Canada may sometimes require surpassing simple compliance with environmental laws (which is, of course, the minimum standard required).
Bennett Jones’ Environmental Law Group
Bennett Jones’ Environmental Law Group assists a broad range of clients in every industry – from natural resources to energy to manufacturing to waste management – in identifying, managing and resolving environmental risks and issues locally, nationally and internationally.
Working across Canada in both of Canada’s official languages, our firm’s fully integrated team delivers superior client service in a practical fashion. The Environmental Law Group works closely with our exceptional Public Policy Group, which has in-depth knowledge of Canadian governmental and international affairs, cross-border issues and policy development. Members of our Public Policy Group include the former Governor of the Bank of Canada, the former Chief of Staff to the Prime Minister, two former Canadian Ambassadors to the United States, the former Premier of Alberta, a former Justice of the Supreme Court of Canada, the former Deputy Prime Minister of Canada and the former Commissioner of the Competition Bureau of Canada.