The National Energy Board’s New System of Administrative Monetary Penalties

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On February 16, 2013, draft Administrative Monetary Penalties Regulations (AMP Regulations) were published in the Canada Gazette, Part I, setting out necessary details for a new enforcement tool in the form of administrative monetary penalties (AMPs). The National Energy Board (NEB) invited public comment on the AMP Regulations within 30 days following the date of publication. The regulations are expected to be in place by July 2013. These regulations follow the passage of the Jobs, Growth and Long-term Prosperity Act in June 2012, by which Parliament amended the National Energy Board Act (NEB Act) and gave the NEB the authority to establish a system of AMPs. AMPs are monetary sanctions similar to fines, which may be issued by a government department directly to a person who commits a violation, and in this circumstance are meant to encourage compliance with the NEB Act and its regulations, as well as orders, decisions, certificates, licenses and permits issued under the NEB Act.

The NEB has indicated that the purpose of AMPs is to encourage compliance, deter future non-compliance, and prevent harm, with a focus on ensuring the safety of workers and the public, and the protection of the environment.1 The proposed AMPs are meant to promote compliance, not to punish those who commit violations.2

National Energy Board Act AMP Framework

The NEB Act provisions establishing the legal framework for AMPs are sections 134 to 154 of the revised Act, but are currently not in force (see coming into force section below). The general violation provision is found at section 136 and provides that a person (i.e., a legal person, which includes individuals and certain other entities such as corporations) who contravenes specified provisions of the NEB Act or its regulations, any order or decision made under the NEB Act, or fails to comply with the terms of a certificate, licence or permit, is guilty of a violation and liable to a penalty. Maximum penalties are established in section 134(2) of the NEB Act as $25,000 in the case of an individual and $100,000 in the case of any other person, such as a corporation, for each violation.

The new provisions of the NEB Act create an “absolute liability” scheme, meaning that the violation itself is enough to establish liability. The NEB Act specifically excludes the possibility of a due diligence defence for violations.3 This means that efforts to prevent a violation will not be considered in determining whether a person is guilty of a violation. As discussed further below, preventative measures may, however, impact the amount of the penalty.

The NEB Act amendments also impose officer and director liability with respect to any violation committed by a corporation, if the officer or director directed, authorized, assented to, acquiesced in or participated in the commission of the violation.

The AMP Regulations provide the specific acts or omissions that will constitute a violation. They also establish the method for determining the amount of a penalty and identify the required content of violation notices.

Enforcement

The NEB’s current compliance scheme has a number of enforcement tools. These tools include issuing advisories, requesting corrective action, issuing orders to restrict operations, or pursuing court-based proceedings. The introduction of AMPs completes an “enforcement toolkit” that spans a spectrum of possible responses to non-compliance.4 These options are not mutually exclusive and any may be used alone or in combination with others to promote compliance. The NEB has indicated that it will continue to employ these other measures and has published criteria that will guide its use of AMPs.5 The NEB has stated that AMPs will be used when compliance is not obtained using other compliance tools, when harm is caused or is likely to occur because of non-compliance, or any other situation where an AMP is the best way to obtain compliance or deter future non-compliance.6

The one qualification on the NEB’s ability to use multiple enforcement tools is with respect to offences under the NEB Act. Violations that are subject to an AMP are not necessarily offences under the Act, but in some cases may qualify as both. In such cases, the NEB may elect to proceed by way of an AMP, but by doing so may not also proceed with the violation as an offence.

Designated Violations

The AMP Regulations designate certain acts and omissions as violations, including:

  1. The contravention of the NEB Act or its regulations as set out in Schedule 1 to the AMP Regulations;
  2. The contravention of any order or decision made under the NEB Act; and
  3. The failure to comply with any term or condition of any certificate, licence, permit, leave or exemption that is granted under the NEB Act.

Schedule 1 of the AMP Regulations lists 194 specific provisions of the NEB Act and its regulations which will qualify as a violation. These include provisions of the Onshore Pipelines Regulations, 1999, National Energy Board Processing Plant Regulations, National Energy Board Pipeline Crossing Regulations, Part I, National Energy Board Pipeline Crossing Regulation, Part II, and the Power Line Crossing Regulations.

Calculating Penalties

Under the AMP Regulations, designated violations are classified as either Type A or Type B. The significance of the classification is relevant in the calculation of the appropriate penalty. Type A violations attract lower penalties, in the range of $250 to $3,000 for individuals and $1,000 to $12,000 for any other person, for each violation. Type B penalties are significantly higher, ranging from $1,000 to $25,000 for individuals and $4,000 to $100,000 for any other person, for each violation. Under the NEB Act, a violation that continues for more than one day constitutes a separate violation for each day.7 Committing one of the designated violations can expose companies and individuals to significant financial penalties, compounding each day the violation continues.

The AMP Regulations employ a unique method for calculating the penalty for a violation, which is dependent on an assigned gravity value. The AMP Regulations incorporate a table identifying nine criteria that will attribute a positive (+) or negative (-) gravity value (previous violations, benefit derived, mitigation efforts, negligence, reporting, cooperation with the NEB, steps taken to prevent recurrence, violation of a minor nature, and any other aggravating or mitigating factors). The gravity value has the effect of moving the penalty up or down the scale found in Schedule 2 to the AMP Regulations and allows the NEB some flexibility in attributing a penalty. This means that despite the “absolute liability” nature of an AMP, efforts to prevent violations and mitigate their effects are encouraged under the AMP Regulations and may affect the amount of a penalty.

It should be noted that the AMP Regulations do not provide for compliance agreements with individuals and small businesses. In its discussion paper issued in 2012, the NEB had proposed that the AMP scheme allow for a penalty to be reduced or eliminated if the individual or small business came into compliance within a time set by the agreement.8 Compliance agreements are not included in the proposed AMP Regulations.

Content of Violation Notice

Any person or corporation facing an AMP is to be provided with a notice of violation, which must identify the amount of the penalty, manner of payment, the person believed to have committed the violation and the relevant facts.

Importantly, a notice of violation must notify persons of their right to a review with respect to the penalty. Failure to request a review will result in a person being deemed to have committed the violation and being liable for the penalty in the notice. The right to a review is significant, as a review requires, depending upon the case, that the NEB review and determine whether the person actually committed the violation or whether the amount of the penalty was appropriate, or both. This gives a person the opportunity to dispute the violation itself, or to challenge the amount of the penalty based on the gravity value attributed to the violation.

Coming into Force

As previously noted, the amendments to the NEB Act that create the AMP scheme (sections 134 to 154) are not currently in force. It is expected that these sections will be brought into force by Order in Council just before or at the same time that the AMP Regulations are enacted, which is expected to be by July 2013.

Notes

  1. National Energy Board, Proposed National Energy Board Administrative Monetary Penalties, online: National Energy Board <http://www.neb-one.gc.ca/clf-nsi/rpblctn/ctsndrgltn/dmnstrtvmntrypnlts/cntctsamp-eng.html>.
  2. National Energy Board Act, RSC 1985, c N-7, s 136(2).
  3. Ibid, s 140(1).
  4. National Energy Board, Regulatory Impact Analysis Statement: Administrative Monetary Penalties Regulations, Canada Gazette Part I, February 16, 2013.
  5. Supra note 1.
  6. National Energy Board, FAQs on the NEB’s Administrative Monetary Penalties, online: National Energy Board <http://www.neb-one.gc.ca/clf-nsi/rthnb/nws/fqs/dmnstrtvmntrypnltsfq-eng.html#s8>.
  7. Supra note 2 at s 141.
  8. National Energy Board, Administrative Monetary Penalties under the National Energy Board Act: Discussion Paper, online: National Energy Board <http://www.neb-one.gc.ca/clf-nsi/rpblctn/ctsndrgltn/dmnstrtvmntrypnlts/dmnstrtvmntrypnlts-eng.pdf>.