Directors of corporations should be familiar with their obligations to the corporation and its shareholders. However, they may need to become more familiar with their external obligations, such as director liability for environmental issues. In Ontario, environmental protection is a key consideration – and, as a result, many key pieces of legislation impose obligations on directors to ensure compliance and mitigate the risk of a corporation causing or contributing to an environmental issue.
This blog post will provide an overview of director liability for environmental issues in Ontario.
What is a Director?
In corporate law, directors are elected members of the board of directors responsible for managing and supervising the corporation’s activities. In other words, directors comprise the governing body of a corporation.
An Introduction to Directors’ Liability
Though directors have broad powers to act on behalf of a corporation, they also carry significant liability. Under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (and, for federally-incorporated corporations, the Canada Business Corporations Act, R.S.C. 1985, c. C-44), directors have statutory duties to act in a certain manner (at least when it comes to the corporation), as follows:
- Directors have a fiduciary duty to act honestly, in good faith, and in the best interests of the corporation. Essentially, this duty requires directors to put aside their own interests (where they conflict with the interests of the corporation) and to act solely in the best interests of the corporation.
- Directors must exercise the care, skill, and diligence of a reasonably prudent person when acting on behalf of the corporation.
- Directors must avoid conflicts of interest.
If directors breach their duties to the corporation, they can be found personally liable. However, a director can also be found liable for actions taken by the corporation, as we’ll explore further below.
Directors and Environmental Liability
In addition to their statutory duties under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (and, for federally-incorporated corporations, the Canada Business Corporations Act, R.S.C. 1985, c. C-44), directors may face other statutory obligations. Notably, several pieces of environmental legislation in Ontario impose duties on corporate directors to hold corporations accountable for poor environmental practices.
Below, we’ll summarize some of the directors’ duties concerning environmental liability that Ontario directors should know about.
Directors’ Liability for Environmental Issues: Key Ontario Legislation
Several pieces of legislation impose a duty on directors to take reasonable care to prevent their corporation from committing an environmental offence (whether explicitly or implicitly), including the following:
The Ontario Environmental Protection Act
The Environmental Protection Act, RSO 1990, c E.19 protects and conservates Ontario’s natural environment. This legislation entitles the Minister of the Environment, Conservation and Parks to regulate activities that could harm Ontario’s environment.
This legislation obligates directors to take reasonable care to prevent their corporation from committing environmental offences. It also imposes strict liability for any resulting environmental damage, meaning that directors can be liable for environmental issues even if they didn’t intend to cause the harm.
The Ontario Water Resources Act
The Ontario Water Resources Act, R.S.O. 1990, c. O.40 provides for protecting and conserving Ontario’s waters, including regulations relating to water pollution, extraction, and use. Like the Environmental Protection Act, RSO 1990, c E.19, this legislation imposes a duty on directors to take reasonable care to prevent their corporation from committing environmental offences and imposes strict liability for resulting harm.
The Environmental Assessment Act
The Environmental Assessment Act, RSO 1990, c E.18 creates a framework for environmental assessments in Ontario to evaluate the potential environmental impact of certain projects before approval. Corporations that fail to comply with the Environmental Assessment Act, RSO 1990, c E.18 requirements can face significant fines.
The Occupiers’ Liability Act
The Occupiers’ Liability Act, RSO 1990, c O.2 imposes duties and obligations on individuals or corporations possessing or controlling a property. This legislation requires owners or occupiers of a property to ensure that actions undertaken on the property do not harm others or the environment.
Directors and Personal Liability for Environmental Issues
In some cases – such as in environmental infractions under the Environmental Protection Act, RSO 1990, c E.19 and the Ontario Water Resources Act, R.S.O. 1990, c. O.40 – corporate directors have specific duties to prevent their corporation from committing environmental offences and are liable for the resulting harm. Generally, however, directors are shielded from personal liability for the actions of a corporation, except in the following cases:
- Where a director fails to adequately oversee environmental compliance measures or address known risks (i.e., failing to exercise reasonable care, diligence, and skill on behalf of the corporation).
- Where a director knowingly participates in or consents to activities that result in environmental violations.
- Where a director engages in fraudulent or deceptive practices relating to environmental matters (e.g., lying or misrepresenting information in an environmental impact assessment).
How Directors Can Avoid Environmental Liability Issues
While corporate directors face significant responsibility – and resulting liability – for environmental issues, there are steps they can take to help mitigate potential risks when it comes to environmental liability. Below, we’ve provided some helpful tips for directors:
- Get help from the experts: working with experienced environmental lawyers and consultants can help directors stay informed about regulatory changes, assess environmental risks, and provide the critical information directors need to ensure they are not running afoul of their environmental obligations.
- Create a culture of compliance: ensuring the corporation has a comprehensive environmental compliance program (including policies, procedures, and director training) can help mitigate the risk of environmental liability issues.
- Ensure directors have adequate insurance coverage: at the end of the day, environmental issues can arise regardless of directors’ efforts to avoid them. Therefore, directors must have adequate liability insurance in place to protect them against personal liability arising from environmental issues. Directors should review their policies regularly to ensure they still meet their needs.
Conclusions on Directors’ Liability for Environmental Issues
Corporate directors’ roles come with significant – and often daunting – responsibilities, especially in areas they may be less familiar with, such as environmental compliance. However, by understanding directors’ liability for environmental issues, implementing effective compliance measures, and relying on the guidance of experts when needed, directors can mitigate their risk while ensuring that corporate actions are taken with environmental responsibility in mind.
Contact the Experienced Environmental Lawyers at Tierney Stauffer LLP for Guidance on Directors’ Liability for Environmental Issues
Navigating the rules and regulations relating to environmental compliance as a corporate officer or director can be extremely challenging, especially when unfamiliar with Ontario’s environmental regulation landscape. At Tierney Stauffer LLP, our lawyers use their extensive environmental and regulatory law experience to provide you with practical and effective advice on environmental and regulatory matters. Call us at 1-888-799-8057 or contact us online to speak with an experienced environmental law lawyer today.
