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LAW 534 Notes for Final Exam

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Law and Business
LAW 534
Gil Lan

LAW 534 – Regulatory and Corporate Liability from Due Diligence to Risk Management General Comments: Regulation came to be from the time line. SEC established |_______________|_______________|______________________|______________________ Lassie Faire 1929 1970’s 1985 Adam Smith stock market too much waste increase in regulation Invisible Hand crash Thatcher & Regan era Keynes vs. Hyack : Keynes wanted intervention into the market – spending and regulation by government Freedom is limited in society because all are restricted to some point in what they can do for the good of all. In understanding the privatization and regulation, it is important to appreciate the distinction between divesting public ownership and the removal of regulations. Risk Management – think of it from whose perspective – How does society deal with risks of individuals - non-compliance of the law. Case Law: Walkerton Report D. R. O’Connor (Events of May 2000), 2002 - Ecoli in the water – hazard was known but not communicated to the agencies that would make an advisory to the public - Medical officer is the one who would have issued “boil water” notice. – The government process to privatize testing was done too quickly and not all the normal reporting requirements were codified to ensure the lab must report the condition to the medical officer. Multiple fail safes should have been put in place with an area of such grave results to society if something went wrong. Walker Report shows the importance of the “Precautionary Principle” states that if an action or policy has a suspected risk of causing harm to the public or to the environment, in the absence of scientific consensus that the action or policy is harmful, the burden of proof that it is not harmful falls on those taking the action. Importance of risk communication issues. 114957 Canada Ltee v. Hudson (Town) – the town of Hudson restricted the use of pesticides as preventive action, respecting the precautionary principle. R. v. Edmonton (City) – case of PCB’s falling from a series of lights on spectators at the stadium for an event. The final decision based on a risk assessment is that there was no probability of an adverse effect of human health of persons subject to the substance. Court employed the de minimis principle – the law cares not for small things. Risk approaches: Risk assessment, Risk Management, Risk Communication Listeriosis Outbreak, Fall 2007, Maple Leaf Foods – employees of company did not tell CFIA (Canadian Food Inspection Association) because no legislation requiring them to. – Another example of the information known but no legal requirement/obligation to disclose. Importance of risk communication issues. Basis process for risk assessment: 1. identify the potential hazard; 2. Draw a does/response curve; 3. Estimate the amount of human exposure; and 4. Categorize the result. Risk assessment always comes first - then risk management – often government has made the risk assessment and codified legislation to require compliance. The risk management is then left to the individual/company. 1 Attention should be paid to the level of risk/harm – this change will greatly affect how risk management is handled. Also, time horizon plays important role. How are risk levels and the need for codification determined? Should be with scientific evidence but often based on voter belief. e.g. Industrial air pollution, car exhaust and indoor air quality all have same risk scientifically because the risk needs to be over a time horizon. This would not be the case if a lay person was asked. Phycology plays a role. Not all human decisions are rationale. E.g. No rational person would play Russian roulette but smoking has the same statistical chance of killing you and that is done all the time. When risk is deferred the appropriate risk level is not taken into account if it is considered immediate – this is called “discount deferred risk”. Also known as “Short termism” – moves away from considering long term risk because only short term risks get addressed – happens often in electoral system. When the general tendency to discount long term risk is combined with the short term electoral cycles then short term risks have a higher degree of getting addressed. Shows the intersection of law, politics and economics. Coates study suggests that testosterone promotes the taking of risk – tied to hormones – tied to men. Therefore the suggestion is that women and older men should regulate risk in corporations. Ford Pinto case – Grimshaw v. Ford Motor Company (1981) did a mathematical analysis of the cost of recall v the cost of payout for lives that could be lost if gas tank exploded. It was located too close to the back of the car and a rear collision could make it explode. – issue was they only evaluated a single case scenario which is a bad risk assessment model – sub-prime market is another example of only looking at a single case scenario. The cost to Ford was $137.5 million to fix vs. $49.6 million in potential payouts (the infamous “burn chart”). They did not account for risk of public backlash. Judge ordered large punitive damages as well to ensure this behaviour would not be repeated by them or other organizations. Explains why governments interfere with the market – consumers are not in a position to evaluate all the risks with a product or services because; i) appropriate disclosure is not available; ii) level of consumer understanding is limited because a) no time to understand and do proper due diligence; b) financial literacy may not exist to conduct the due diligence; c) mental/scientific ability to understand both short and long term risk may not exist. – So regulations put in place can either be an ex post or ex ante type. Concept of good corporate governance or lack of good governance results in loss of confidence with a business and its ultimate demise. The under estimation of the impact of a risk can result in “deterrent effect”. (Complete loss of governance.) Systemic risk – chain of responsibilities Enterprise risk management – Internal controls – is the application of control Sparrow identifies 5 Properties of Harm:  Invisible hand: may be invisible by design such as white collar crimes or they can be invisible because of lack of reporting – ex ante more appropriate regulation (lack of reporting was Walkerton & Maple Leaf Foods)  Conscious opponents: described as having a brain behind the harm – fraud to students cheating – ex post more appropriate regulation eg. R. v. Benlolo  Catastrophic harms: rare events with very serious consequences – need for backup systems and contingency plans – ex ante more appropriate regulation  Harms in equilibrium: imbalance that may be created in a competitive industry from varying levels of compliance. Compliant companies may be at a disadvantage to non-compliant companies due to costs to comply – a robust ex post enforcement of both ex ante and ex post rules will level the field.  Performance enhancing risks: relate to organization’s performance goals. Eg. Aggressive, fraudulent or abusive billing practices. Departments within an organization responsible for compliance must have credibility for the organization to resist performance enhancing risk. Eg. R. v. Castro 2 Risk – can be a trade off when deciding what regulations to enact and how much to restrict the market. Risk from one activity contrasted with another activity. Regulations usually lag industry due to the time required to a) understand the risk; b) develop and pass legislation; and c) have case law that is applicable. Barrier of causation – Crown must prove actus reus for all offences (plus intent for criminal offences) or plaintiff always has to prove causation – hard to prove cause. D. Scott – problem with tort based approach. A regulatory approach may be better able to deal with such issues. Tort law is backward looking – many good risk management approaches are designed to eliminate the possibility of the risk. Environmental racism – location of plants in poorer locations – pg. 1-42. Broad remedial approach is an interpretation of existing legislation. Ex ante or Ex poste are an approach to develop new legislation. Risk integration of role of the court. – Reinforcing the consequence – send the message as punitive damages Type of Advantages Disadvantages regulation Ex ante Advert the harm Ineffective at times Proactively addresses the harm Costly and inefficient Advantage of using a rational approach towards an issue in Low predictability advance Ex post Cheaper Cannot address the problem before it occurs More flexible Enforcing of rights may be not possible for certain groups due to cost Ineffective when harm can be catastrophic Remedy may be insufficient to compensate 2 principles that ought to govern the balance between ex ante and ex post systems. First principle – governments and regulators ought to focus on prevention of harm and the serving of human needs in the order of their priority. – Typology of Harm – Malcom Sparro argues that regulations should focus on fixing the big problems that cause the most harm by developing strategies that operate at the operational risk level. The application of harm theory puts a given industry into the proper context when considering the role of regulations. Second principle – the regulatory state should offer multiple models that reflect the different needs and interests at stake within both the ex ante and the ex post world. – offer a full range of models based on the seriousness and economics of the case. Courts often have two approaches in interpreting harm. 1. General approach as articulated by Sparrow and 2. Remedial approach which is often applied in broad terms as was done in R. v. Furtado (pg. 3-12) Dichotomy (contrast, difference, polarity, conflict) of ex ante and ex post becomes a matrix of four models Paradigm Ex Ante Ex Post Rules Based Harm related: imposition of detailed Detailed rules in regulation technical rules in licences 3 Principles Based Imposition of licensing terms framed General principles for conduct in reasonable parameters contained in regulation A rule generally entails an advance determination by the frontline regulator or decision-maker. A principle may entail leaving both specification of what conduct is permissible and factual issues for the frontline regulator. Risk Management 6 stages: 1. Define the problem and put in the context. 2. Analyse the risk associated with the problem in context. 3. Examine options for addressing the risks. 4. Make decisions about which options to implement. 5. Take actions to implement the decisions. 6. Conduct an evaluation of the action’s results. Principle based approach vs. Rule based approach – the benefit of the principle based approach is illustrated by the Re Cartaway Resources Corp. (BCSC) found 2 securities brokers had breached the prospectus requirement of the Act by relying on a prospectus exemption to which they were not entitled. Tried to hide the true nature of the business (originally a garbage hauler – new owners used the company for mining claims – much higher risk – to make a quick profit) no disclosure to investors. BCSC had to rely on principle based legislation to find them guilty. There was no specific rule violation. Law Reform Commission of Canada (LRCC) in 1976 prosed a redrafting of the Canadian Criminal Code to remove regulatory offences from the Criminal Code. – No offence outside the Criminal Code may be punished by imprisonment. Mens Rea offences are criminal and require guilt to be proven beyond a reasonable doubt. – The full details of this were not recognized in the decision in R. v. Sault Ste. Marie – but most of the basic provisions were adopted. R. v. Pierce Fisheries – short lobsters – 50,000 lbs of lobster – 26 short lobsters, the catch of which was prohibited, were accidentally caught in the net. Absence of mens rea. Court viewed the offence as one that was not truly criminal with little stigma. Before this Law was the concept of a blunt instrument. Regulatory Law – and reasons for it by LRCC : 1. Proactive prescription – harm avoidance 2. Negligence (vs. Internal conduct) 3. Streamlined hearings vs. traditional trials 4. Lower stigma 5. No jail 1. Mens rea = act + intent – Crown must prosecute to the level of beyond a reasonable doubt – burden on the Crown. 2. Strict liability = act unless there is a due diligence offense – burden on Crown to prove actus reus beyond a reasonable doubt and then burden shift to the defendant to prove due diligence defence (this is the most common type) 3. Absolute liability = Crown must simple prove the actus reus beyond a reasonable doubt. No due diligence defense. Due Diligence can only be used for sentencing issues, where allowed. (see R. v. Feldorhof) Not all offences it can easily be determined if they are strict liability or absolute liability – however, most offences without a mens rea component are strict liability. Actus reas is read in a broad interpretation for Human Health and Safety offences. Development of a dual track structure – 1. Civil track 2. Criminal track. R. v. Sault Ste. Marie (City) (1978) SCC. – hired a contractor for the disposal of City garbage. Garbage in liquefied form ran into Cannon Creek and Root River and violated the Water Resources Act by polluting the creek. Halfway house created by Dickson J. (Court) (pg. 2-10) made a specific distinction between mens rea, strict liability and absolute liability. Those offenses were not criminal. [Decision was made before the Charter of Rights and 4 Freedoms]. Essentially held that the liability of the defendant for an offence of strict liability will rest on control and on the steps taken to prevent the particular event. The Court held that “this control may be exercised by supervision or inspection, by improvement of his business methods or by exhorting those whom may be expected to influence control”. This case established test for Due Diligence. Two questions that must be answered under due diligence: 1. Did the defendant believe in a mistake set of facts, which if true rendered their act or omission innocent (this part is very narrowly interpreted by the Court); or 2. Did the defendant take all reasonable steps to avoid the occurrence of the particular event. Look up details of the INCO Test. – relates to natural levels of nickel (minerals) that occur in water or soil. R. v. Wholesale Travel Group Inc. (1991) SCC – defendant had advertised vacation packages at “wholesale prices” while at the same time charging consumers a price higher than wholesale. Charged with misleading advertising. SCC struck down those latter absolute liability provisions. SCC’s decision affirmed the legitimacy of placing the onus on the defence for proving due diligence. [After the Charter of Rights and Freedoms existed]. (The regulatory offence that was at the heart of this case no longer exists.) R. v. Oakes – created the Oakes test – 4 criteria – 1. Whether the objection of the legislation is of sufficient importance to warrant overriding a constitutionally entrenched freedom (the promotion of vigorous and fair competition throughout Canada by the Competition Act is considered to meet this test) 2. Whether the means chosen to implement the objective are “rationally connected” to the objective. (Imposing a burden on the accused to establish due diligence on a balance of probabilities achieves the objective). 3. The means chosen must impair the constitutional right as “little as possible” to accomplish the objective. (this was adopted following the SCC decision in R. v. Chaulk whereby it was said that Parliament could not reasonably have chosen an alternative means that would have achieved the identified objective as effectively) 4. The means chosen must be such that their effect on the limitation of rights is proportional to the objective. Speaks to Charter scrutiny and reasonable limits on freedoms. R. v. Timminco Ltd. (2001) ONCA. – worker(press operator) was found dead at the back of a press and subsequently charged under the Occupational Health and Safety act – no chains or guards restricting access to the back of the press were in place. Significance of the case is that it is only the Crown’s obligation to prove the actus reus in strict liability offences and not an element of mens rea. Then the burden of proof shifts to the defendant to prove a due diligence defense. (Note that the words “may endanger”does not build in some flexibility to the section (see pg. 3-12.2)) excerpt from the judge in the case, “stands for the proposition that section 25(1)(c) is a strict liability offence in which the crown need not prove mental element of the offence in order to establish the actus reus of the offence. R. v. 974649 Ontario Inc. pg. 2-20 Levis (City) v. Tretreault: Levis (City) v. 2629-4470 Quebec Inc. pg. 2-21 – Defendant pulled over with an expired driver’s license, and he argued that he was unaware of the expiry date, having confused it with a payment date. Attempted to rely on “Officially Induced Error” as a defense. – The court had to decide if this offence was an absolute liability or strict liability offence. If an absolute liability no defense would be allowed – proof by the Crown of the actus reus would be enough to convict. The court creates a presumption of strict liability, in the absence of explicit statutory language that displaces the presumption and creates an absolute liability offence. This case shows that legislation does not always make it clear if the offence is strict liability or absolute liability. R. v. Pontes (1995) pg. 2-21 R. v. Transport Robert (1973) Ltee. – flying truck tire case (wheels must stay attached to the vehicle while on the highway) - absolute liability case – Found guilt and the SCC denied leave to appeal. The significance is the Court 5 of Appeal ruled that an offense of absolute liability, even when enforced with a large fine, does not violate the minimal requirements of the Charter. – This case opened up HIGH FINES in absolute liability offences. [Note: authors of textbook believe – “As a matter of policy, we are of the view that a minimum fine (such as the $2,000 fine in s. 84.1(l) of the Highway Traffic Act, should not be combined with an absolute liability offense. ]  Metho  d  ol  og  y     of     C  lassification    pg 2­25 (pg 2­26 – 2­34.1) –   Ways to determine between mens rea, strict liability & absolute liability A methodology of classification is necessary to assist in interpreting the increasingly blurred lines  between categories 1. Search for wording in the offence of intent such as “knowledge” or “recklessly.” If so the offence is a mens rea  offence 2. Look at potential defenses. Is the legal onus placed on the accused by statue? If so, the offence is regulatory (strict  liability) 3. If the statute is silent: 1 and 2 look at general provisions, such as s. 8(3) of the Criminal Code, that preserve common  law defenses. The offence of is a mens rea 4. Offence if the burden stays on the prosecution throughout. In mens rea the legal burden always stays with the Crown  to prove the requirement of mens rea beyond a reasonable doubt 5. If there is no specified fault element and no specified burden of proof and the offence is in context and purpose  regulatory, it will be a strict liability offence that allows the accused a due diligence defense. 6. If due diligence is explicitly ruled out as a defence and there is no liability to imprisonment then the offence is one  of absolute liability. Think about the foreseeability of the hazard when evaluating the due diligence offence. Be mindful of hindsight. Lower court  in Hershey may have been guilty of this.  Would a reasonable person have forseen a danger is a better approach than  hindsight. R. v. Harper – the company was engaged in the development of a gold mine in Ghana, West Africa. Harper, the president authorized the a press release with optimistic results. Then 2 negative results were not disclosed by a press release. Prior to the disclosure of the negative results Harper sold shares in his wife’s name to make a profit. He was found guilty, but he made $4 Million and was fined $2 Million. - found insider trading offences to be strict liability. Was only able to be convicted under the basket clause. But the issue is that it was a strict liability offence, thus shifting the due diligence defence onto the accused on the balance of probabilities. R. v. Felderhof – Ontario case – NB for chapter 7 issues (see below) charged with insider trading – similar to Harper. The Crown was not able to prove the actus reus beyond a reasonable doubt – which is evidence that strict liability cases are quasi – criminal in the actus reus stage. Pg. 2-29 and 2-30 R. v. Martin – the defendant shot a polar bear and the export of a polar bear skin to the hunter who resided in the US. – (the offence had more to do with the export than with the killing) original when the case was decided it could be a fine or imprisonment. On appeal the issue of the Crown needing to prove mens rea because of the imprisonment component of the offence. The Court ruled that it was strict liability offence and said “ words denoting the requirement of proof of mens rea for the offences under other sections such as s. 15. “ simply fortify the conclusion that the legislature did not intend s. 13 to create a mens rea offence. It is not a crime in the true sense.” This has the effect of putting the burden back on the defendant to show due diligence on a balance of probabilities. R. v. Kanda – defendant was caught driving a car containing a child who was not wearing a seatbelt. The Highway Traffic offence was one of absolute liability with no imprisonment option. The defendant wanted to raise a due diligence defence. It was clear the legislatures intent but it also showed that is does not result in a higher standard 6 of care and that the only rationale for it is efficiency. Because even in absolute liability offences a due diligence defence will be considered in the sentencing section thereby removing the efficiency rationale. R. v. Raham –issue of stunt driving – charged for stunt driving solely based on being clocked at 151 km per hour. She was trying to pass a truck. While most Highway traffic act offences are absolute liability stunt driving is a more serious offence and does have a potential large fine and imprisonment term. This is a strict liability offence that affords a due diligence defence. pg. 2-34 – Any offence that has an imprisonment possibility must have a due diligence defence option to pass Charter scrutiny. Redrafting of this act might move away from the current rules based approach to a principled based language. R. v. Benlolo – Ontario Court of Appeals case – defendants sent out false invoices for Yellow Pages internet service renewals. The value of the small invoices were paid exceeded $1 Million. Convicted of 2 counts of misleading advertising. Crown was able to prove “knowingly and recklessly” making a representation to the public that was false or misleading in a material way. – this case is a true watershed change. The choice between the criminal and civil tracks are subject to guidelines. To proceed under the criminal track, there must be compelling evidence that the accused knowingly or recklessly made a misleading respresentation, and that such a prosecution would be in the public interest. R. v. Stucky – defendant was a resident of Ontario, operated a direct mail business in Ontario that sold lottery tickets and merchandise only to person outside of Canada. – Charged with 16 counts of making false or misleading representations to the public. The recent decision of the Ontario Court of Appeal decision illustrates the evolution of the amendments to the Competition Act. The Court of Appeal allowed the Crown’s appeal on meaning of a 52(1) of the Act and held that the phrase “to the public” is not restricted o the Canadian public. Legal advice cannot be used to prove Mistake of Fact defence (judged accepted this in the original trial). Remedial public welfare statues, designed to promote public health and safety, will be generously interpreted in keeping with the purpose of the legislative scheme. The following types of regulatory standards are identified to organize the discussion, but are not intended as rigid categories: a) Precise codified standards; c) specific prescriptions with limited site-specific assessment; b) Reasonable person test; d) general prohibitions with site specific balancing Two questions that must be answered under due diligence are: 1. Did the defendant believe in a mistaken set of facts, which if true rendered their act or omission innocent [Note: this is narrowly applied] or 2. Did the defendant take all reasonable steps to avoid the occurrence of the particular event Ontario (Ministry of Labour) v. Hamilton (City) pg. 3-3- the worker in this case was tragically killed when he was run over by a reversing dump truck. The worker had been acting in a dual capacity, as both signaller to the driver an operator of the stone spreader, which was attached to the back of the dump truck. The spreader was used as the truck reversed. While the statute did not specifically indicate that the positions were separate any reasonable person would conclude this. This case illustrates that precise regulations may also lead to defence challenges that the wrong section was charged, as was done in this case. Again a broader reading for Health and Safety legislation as was done in R. v. Wyssen (1992). The purposive interpretation – the court reading into the legislation as to what Parliament meant. Due diligence defence must be available for regulatory offences to pass Charter scrutiny when imprisonment is a possible punishment for being found guilty. 7 Section 1 of the Charter has 2 functions. First, it guarantees the rights of freedoms set out in the provisions which follow it and secondly, it states explicitly the exclusive justification criteria (outside of section 33 of the Constitution Act, 1982) against which limitations on those rights and freedoms may be measured. The onus of proving that a limitation on any Charter right is reasonable and demonstrably justified in a free and democratic society rests upon the party seeking to uphold the limitation. Charter and reasonableness …. Two central criteria must be satisfied 1. Issue or restriction of right must be significantly NB to warrant overriding the right (s) . There is a high standard and cannot be for trivial issues. 2. The party invoking Section 1 of the Charter must show the means to be reasonable and demonstrably justified. Ontario (Ministry of Labour) v. Pioneer Construction Inc. – the purposive interpretation is again illustrated in this case. – Defendant argued that a non-employee driver of a contractor could not be considered to be employed by the defendant for the purposes of liability under the Occupational Health and Safety Act. Again showing that the court does not apply a narrow reading when the issue is for the issue of public health and safety. R. v. Chrima Iron Works Ltd. – a supervisor was crushed by a steel box that was being turned over while on a forklift. On appeal , the court concluded that a wider interpretation was appropriate given the remedial nature of public welfare statutes. – At the actus reus stage, the courts have interpreted words such as “ensure” to mean that an employer is virtually an insurer who must make certain that the proscribed regulations for safety in the workplace have been complied with. R. v. Greenough – a company and its project manager proposed and implemented a closure plan for a landfill site owned by the City of Moncton. Leachate from the site drained into the adjoining creek via a pipe installed by the defendants. The defendants argued that they did not “deposit” the leachate because they neither deposited nor controlled the garbage that led to the formation. This case demonstrates that a consultant that is retained to develop a closure plan and to implement it will likely be a party to an offence alleging a deposit that occurs through the closure plan, especially when the consultant has influence and control over the project. R. v. Newfoundland Recycling Ltd. – Ship sank while and deposited deleterious substance in the waters. The court affirmed that control is the measure they look to when allocating responsibility. Halton Region Conservation Authority v. Symphony Golf Inc.- a consultant had contracted to oversee the development of a golf course, scope of services included assistance with approvals and dealing with permits. Consultant knew of concern and didn’t move to get a permit. If an applicant fails altogether to get a permit, the regulatory model is used, which creates a quasi-criminal offence of doing work without a permit. Case encourages person to apply for permits (environmental issues) and avail themselves of the administrative expertise that is available. The president of Symphony Golf Inc. was out of the country. The court held that the actions of leaving the country fell below the due diligence requirement to adequately supervise Hanna v. Conservation Halton - Encourages people to apply for permits in advance of construction and follow due process. It seems counter intuitive that applying for a permit after an infraction should allow a cure to the problem. Stale dated applications would undermine the ex ante system by, in effect, converting it into an ex post system, which is not appropriate. Ontario Khalsa Darbar Inc. v. Toronto and Region Conservation Authority, Mining & Land Commission pg. 3-8 and 3-9 issue of different ruling on whether a problem can be cured by applying for a permit after the fact. In Chapter 2 they argue that the most intrusive ex ante rules based system is suitable where serious harm is prevented by such regulations. 8 Ontario (Ministry of Labour) v. Dofasco Inc. - the defence argued that a push bar that was manually operated was an acceptable alternative to a physical bar from equipment (offered employee misconduct as part of the defence). The court observed that the purpose of the guards is to remove the individual discretion that may lead to accidents and rejected the defence argument. Courts commented that employees do not deliberately injure themselves. Employee’s misconduct will not form any sort of defence. The Court’s decision is consistent with the general approach to avoiding harm articulated by Sparrow. As the MOL points out, workplace safety regulations are intended to prevent workplace accidents that arise when workers make mistakes, are careless, or are even reckless. Enbridge Gas Distribution Inc. v. Ontario (Ministry of Labour) – the general, the remedial approach accords with the legislative purpose of protecting workers with safety regulations. This case is an example of that principle. (Charges were dismissed by the trial court since Enbridge did not own or control the workplace (Trial judge removed PWC and Enbridge too early in the due diligence process). It lied with the excavator who was in charge of the excavation. Contractor using a backhoe hit a natural gas line. Proper locates were not done. An explosion occurred when the natural gas built up in the basement of a 2 storey shopping plaza and the explosion killed 7 people. It is another example that the court wants a broad interpretation in matters of health and safety. R. v. Furtado – the broad remedial approach was applied in this case to defeat a technical argument by the defendant that the supervisor was not himself a worker and as such was not governed by the requirements. Worker was on the roof and could have fallen off. R. v. King Paving & Materials Co. – court applied res ipsa loquitor to find that a corporation committed the actus reus where a loose pipe injured a worker. Court ultimately was satisfied with the due diligence defence despite being found liable for the actus reus. Res ispo loquitur was not imported into this decision. Found not guilty. R. v. Brampton Brick – judge said “ The statute requires the Crown to prove that Brampton Brick failed to take every reasonable precaution in the circumstance and not some broader ration of acting reasonable… The circumstances in an element of the offence and those circumstances must be considered before concluding that the precaution taken was reasonable. Question? Was the right test applied? Should have to prove that the discharge was toxic and had a detrimental effect on the environment. R. v. Hershey Canada – a worker was directed to shut down the “Cherry Blossom” production line as a result of a mechanical failure. The worker agreed that she did not follow the proper procedure (unplug the machine) for cleaning a machine and that it had resulted in the loss of her left index finger. It was the employers position that the employee’s unsafe act could negate the actus reus offence. The court found that the employee’s misconduct goes to the issue of due diligence as opposed to the actus reus, citing the decision in Ontario v. Dofasco. The Court upheld the principle that due diligence requires specific training that is not vague. Designed to protect workers even when they are careless or reckless is one of the functions of the Workplace safety legislation. Ontario v. Canadian Pacific Ltd. – defendant was conducting controlled burns of dry grass on its railway right of way. The burning discharged a significant amount of thick, dark smoke that adversely affected the health and property of nearby residents. The SCC ruled that such general prohibitions on discharges into the natural environment are not void of vagueness. It is a broad and general approach. Courts do not worry about minimal impact. R. v. Dow Chemical Canada Inc. – discharge of chlorine into the open air which seriously injured a worker (significant physical injuries from chlorine gas). The Court found that the incident impacted both the environmental and occupational health legislation. The court recognized that in some circumstances there may not be a duty to report because the impact is trivial or minimal, but in this case, the line was crossed. R v. Inco Ltd. – Illustrates/identifies a dichotomy in terms of substance types that will determine the test for impairment. The decision tree is Inherently toxic substances from Not Inherently toxic substances. In terms of risk assessment, although it is not made explicit, the policy of zero tolerance reflects the precautionary principle. 9 Applies the Imperial Oil test – unless a certificate of approval was authorized, because there is a zero tolerance policy. R. v. Kingston (City) pg. 3-17 – Fact dump closed and operated as a rec centre. R. v. Castro – the accused alleged to have committed fraud by delaying payment of settlement funds to personal injury claimants that they represented. – Court found actus reus of fraud – dishonest business practise – reasonable person would consider the practise to be dishonest and unscrupulous. Both for its general nature of using other people’s money without consent or payment and because of the mental anguish that these people were already under. Ontario (Ministry of Labour) v. Brampton Brick Ltd. – a worker in this case was pinned by a moving kiln car containing bricks. 3 months before the injury a maintenance manager, concerned that outsiders unfamiliar with the plant’s operating system could get injured, recommended the installation of an automatic switch on the door that would stop the movement of the cars whenever the door to the dryer room opened. Installation of the automatic switch had been approved but not completed at the time of the injury to the worker. – In this case the particularized precaution is at issue. An automatic safety switch was not mandated by regulation. The defendant was convicted because once the potential harm was identified they were required to protect their employees from it. The delay in installation was not reasonable. – This case is about what is reasonable and the broad protection of workers required by employer’s. Due diligence must relate to the prohibited act. The logical paradox between what is reasonable standards and a due diligence defence is brought to the forefront with this case. R. v. Canadian National Railway – on the one hand the Crown must prove all the particulars that it alleges. On the other hand, the Crown need not prove particulars that are surplusage. The court juxtaposes these concepts, which appear to be in conflict and reconciles then by way of the concept of prejudice. See pg. 3.-25 (Employee killed when he fell off the rail car. – Was he properly supervised?). Canadian Labour Code. “it is a defence to prove that the person charged “exercised due care and diligence to avoid contravention”. Defence of DD may be raised. Sandhu (Litigation Guardian of) v. Wellington Place Apartments – a 2 year old child fell from a fifth floor apartment, suffering catastrophic injuries. The screen on the window that the child fell through had a huge hole in it and the window had no safety lock. Following the accident the landlord took remedial measures which included replacing the screens and installing locks on the windows. The court held that these remedial acts could not be used as an admission of liability – it can be used to show what could have been done to avoid the harm. – In part because it is too prejudicial an in part because it removes the incentive to help reduce future harm. Ontario (Ministry of Labour) v. Guelph (City) –issue of limitation periods. A 14 year old, grade 9 student, was killed by blunt force trauma when a concrete block privacy wall in the women’s washroom at a City of Guelph park fell apart. The court held that the actions of the architect and the engineer were outside of the limitation period. City of Guelph, however there was a continuing obligation of the employer to maintain and keep safe the workplace. Polgrain Estate v. Toronto General Hospital - is an illustration how an innocent verdict in a criminal trial cannot be used as a shield in a civil trial with the same facts. Pg. 3-34. Chapter 4 Arland v. Taylor – where the definition of the reasonable person was developed. 10 The doctrine of res ipsa loquitor is now treated as obsolete after the SCC decision in Fontaine v. Loewen Estate. Pg. 4-7 (yellow tab at the top of the page. The flaw related to the representative heuristic – the tendency for people to jump to conclusions. The representative heuristic trap. R. v. Petro Canada (2003) (ON. CA) – cause of discharge was unknown Dicotomy with 2 different stands where 1 the cause is known - then due diligence must have been attempted to eliminate that cause and 2 is didn’t know the cause – then due diligence must have been developed to stop all possible causes R. v. Canadian Tire – the court observed in this case that assessing the efficacy of a due diligence defence, the court must guard against the correcting, but at times the distorting, influences of hindsight. Hind sight bias can be avoided by applying probability analysis. – FACT – CTC bought refrigerators from a foreign supplier. They used an illegal Freon – the defendant argued that they relied on the due diligence and the reputation of the foreign supplier. The court again indicated that the direct responsibility for due diligence is with the defendant. Should have done some testing. Could have conducted random audits by way of example to show true due diligence for the related category. Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board – case where the court observed that the trial judge had been alive to the issue of hind sight bias. Lapierre v. Quebec (Attorney General) – Lapierre’s daughter was vaccinated against measles. She was the victim of acute viral encephalitis which rendered her almost totally disabled. It was accepted that the fault could not be alleged against anyone. Lapierre based his claim in no-fault or objective liability basis that would spread the loss to the community. In tort a fault must occur. Negligence law and strict liability violations have a similar flaw of fault. (Lapierre did not win). Canada v. Saskatchewan Wheat Pool – The Wheat Pool provided wheat that was infested with rusty grain beetle larvae. The Act forbade the discharge from an elevator of any grain that was infested or contaminated. Treating a statutory breach as only some evidence of negligence avoided the “inflexible application of the legislature’s criminal standard of conduct to civil cases. The tort treatment of statutory violations runs parallel to the defence of due diligence that permits the defence to show they took all reasonable care. That does not mean, however, that it is any easier to reconcile the inherent tension between a risk-based system of standards enshrined in legislation and a fault-based forum to assess liability. Page 4-16. The paradox created by reasonable being unavailable in the due diligence stage if the actus reus can be proven. e.g. if a reasonable person would order enough of a product advertised given the demand and then found himself out of the product offered for sale how can he reasonably argue due diligence. There is only a few ways out of this logical conundrum. First – focus on reasonable precautions taken to avoid the problem. (a system that is reasonable is not necessarily perfect) Second - use risk management systems that predict different scenarios over time. (the demand at the time of the buying period vs. at the selling period may be significantly different Third - permit reference to efforts taken after the fact. – (ordered sufficient rain check products or made rain check arrangements) R. v. Natso Mechanical Contractors Inc. - there was a complete lack of planning or reasonable steps taken in the moving of a large pipe without a crane, which as an industrial standard. The use of a forklift alone was not a plan – there was virtually no planning for the unloading of the pipe. A company’s general safety standards and policies is not sufficient. Due diligence must relate directly to the prohibited act in question to allow for a successful due diligence defence. (Same point in Canadian Tire case). Court found complete lack of planning. 11 Vancouver (City) v. Access Collateral Pawnbrokers Ltd. In this case although there were some errors in the records the procedure applied to and tried to address the actus reus issue. The court acquitted indicating that some mistakes are inevitable. Ontario (Ministry of Labour) v. North Bay General Hospital – procedures were in place but the court did not require a “Cadillac” program to be in place but rather one that complied with the statutory requirements. R. v. MacMillian Bloedel Ltd. – discusses the 2 branches of the due-diligence defence. The first is that the defendant did not know and could not have reasonably known of the existence of the hazard and the second is the defendant knew or ought to have known of the existence of the hazard. – FACTS – a leak occurred and was caused by microbiological corrosion, which was not foreseeable. The court held that the defendant ought to have been acquitted on the basis that if brought itself within the 1 branch of the due diligence defence. Mistake of Fact – narrowly applied. (Actus reus agreed by both sides) Two branches of the due diligence defence: 1. Reasonable mistake of fact or 2. Took all reasonable care. (Prosecution does not have to prove negligence – defendant must prove that all due care was taken. – Issue in R. v. MacMillian Blodel – plan and due diligence must specifically address the cause of the concern of subject of the offence. R. v. Ellis Don Corp. – Mistake of Fact defence (framed narrowly) – inspector took pictures of a worker that was not tied off. Worker had been trained in fall protection procedures and supervisor new saw the worker violating the protocols. Maitland Valley Conservation Authority v. Cranbrook Swine Inc. – the defendant was in the business of hog farming and had obtained a building permit from a chief building official to build two barns and a liquid manure storage tank. No permit directly from the conservation authority. They got a stay not an acquittal. Was the inspector who issued the permit that was relied on an “appropriate official”. Officially induced error. Some general comments: 1. Obtain a Certificate of Approval (CofA) from environmental division is not a defence if charged. 2. A legal opinion is not a defence. Each person is responsible for their action. See R. v. Stucky 3. The Due Diligence must directly relate to the issue. i.e. the actus reus of the charge. Need to conduct direct due diligence and relate to the category of risk that applied 4. Fraud is defined in a general or broad sense – based on “reasonable person test”. 5. Specific regulations can’t capture every type of fraud so general provisions are more likely to apply. 6. All reasonable precautions is the standard for a due diligence defence. 7. Post offence conduct - Act by person or company to better a situation cannot be used against them – the act of betterment does not mean that the original condition was not compliant – court does not want to discourage someone from subsequent remedial conduct. 8. Civil suit – can use conviction of a regulatory offence – as evidence but not as proof of guilt. However a not guilty verdict can’t be used as proof of innocence in a civil trial – be not guilt is not the same as innocent. Felderhof case comes to mind. Interrelation between civil and regulatory trials. 9. Res Judicata means – the thing has been decided – law says you can’t re-litigate. 12 10. Res ispa loquitor – the thing speaks for itself. This was used to shift responsibility to defendant – still exists in regulatory law in the form of “stereotyping” 11. Reasonableness standard is not unconstitutional R. v. Oakes 12. Representative heuristic and bias 13. Two levels of analysis – 1 . actus reus stage  risk assessmen2 . Due diligence stage  risk management 14. Focus on the process not the outcome when developing due diligence process 15. Dichotomy – 1. Hindsight bias 2. Representative bias (cognitive bias can result in weak correlation and correlation is not causation; and 3. Normality bias means peoples tendency to think a person is less likely to be guilty if they did the normal thing even if it resulted in a bad outcome. PL=OC Probability of the Event as it relates to the consequence of the event as it relates to the cost to correct/eliminate the risk (L= gravity of loss and B= adequate precaution) To issues to also consider that may be used as a defence:  Mistake of Fact – has high standard of proof  Officially induced error – the accused must show 6 factors: o An error of law or of mixed law and fact was made o The person who committed the act considered the legal consequences of his actions o The advice obtained came from an appropriate official o The advice was reasonable o The advice was erroneous; and o The person relied on the advice in committing the act. NOT A BONANZA FOR THE DEFENCE. TO THE CONTRARY MORE LIKE A MINEFIELD. Representative heuristic is used when making judgements about the probability of an event under uncertainty. Shortcut often speeds up decision making but can occasionally send us off course. (Heuristic – can be a simple means of generating judgement or decision making – not always reliable method). Two levels of analysis: Actus reus  risk assessment Due Diligence Stage  risk management 14 Factors of Due Diligence: Part of Risk Assessment, Part of Risk Management (Not statute) 1. the nature and gravity of the adverse effect (this is pure risk assessment) R. v. Lockyer – no fall protection – due diligence was not sufficient i. identifying the potential hazard ii. drawing a dose/response curve 13 iii. estimating the amount of human exposure iv. categorizing the result 2. the foreseeability of the effect, including abnormal sensitivities : also routed in negligence, objectionable test by a reasonable person – this blends with precautionary principle - Act of God (3 elements – see below) R. v. Rio Algom (case to show that a reasonable person could not have forseen the accident) or R. v. Vipond (also a case that shows that an accident or a source of danger is not always foreseeable.) Paper trail necessary but not sufficient for due diligence defence 3. the alternative solutions available : Links to economics and technology 4. legislation or regulatory compliance : Due diligence must relate to the specific harm in question R. v. Vipe Construction Ltd. : encourages companies to comply with inspectors and to fix things as soon as harm or hazard is known. Page 4-40 5. industry standards : governs both risk assessment and risk mgmt. (problem is : whole industry could be negligent – could possibly ignore the regulators codified statute at the actus reus stage – Doctor might be a good example of reasonable professional standard: This idea of industry standard may be used as a sword or a shield (defence portion) pg. 4.42 6. the character of the neighbourhood : usually environmental R. v. Inco 7. what efforts have been made to address the problem : NB section pg 4-47, post remedial measures – hindsight issues comes to mind learning from experience – to do pg. 4.49 (Lan indicated this item is an “interesting one”) (Self reporting is not part of due diligence) 8. over what period of time, and promptness of response : See R. v. Amoco Fabrics & Fibers Ltd. 9. matters beyond the control of the accused, including technological limitations: R. v. Commander – eg. Machine did not exist; can’t hold a defendant to this level during the charge period is the test. – certain levels of backup of info not possible 20 years ago, however now commercially indefensible ( not expense and very possible) Cross reference to economic issues 10. skill level expected of the accused: floating standard for due diligence – can be used against you but not for you. eg. R. v. Imperial Oil : reliance on the knowledge is not acceptable (can’t neglect in enhance knowledge and then use this as a defence) – this ties to greater industry standards - cannot profit from a lower standard. “Cut Throat” defences – R. v. Crawford and Halton Region… v. Sy.. Golf 11. the complexities involved – courts look beyond complexity for a viable defence “Analysis paralysis” : “study the problem” vs. taking reasonable action – cannot say you were “studying” for a long time and think that will be accepted as a viable offence. The Sydney tar ponds are perhaps Canada’s worst toxic nightmare, reflecting the legacy of over 100 years of steelmaking. Government’s response was too much study and not enough action to relocate the families and solve the problem. An example of Analysis paralysis. 12. preventative systems : What preventative system did you have in place to avoid the issue and this must be constantly monitored. Monitor for compliance and does it work. Email is necessary but not determinative. Written procedures are only part of due diligence. R. v. Aecon Utilities - sets out the type of preventative systems that will qualify as due diligence – see page 4-60.3 if you need the list. 14 13. economic considerations : R. v. Commander B page 4.62 R. v. Bata Industries and R. v. International Graphite – If you can’t comply with the regulatory requirements of an industry – then don’t be in the industry pg. 4.62 a. Number 13 can be considered to be in two section – Courts do not want to intervene in the government’s decision as to how it allocates financial resources among departments or projects. - The case law suggests that deference is shown to government funding decisions. See R. v. Cambridge Health Authority. (government’s decision not to fund radial cancer surgery.) Courts have only intervened when there was a “total” lack of funding for a program. Eldridge v. British Columbia (Attorney General). We have a Tripartite System: i. Legislative -make the laws ii. Judiciary - make sure the laws are enforced iii. Executive -carrying out and enforce the laws 14. action of officials : see Officially induced error. Pg. 4-62.7 With regard to the 14 Factors an appropriate question to be asked in risk management might be: Is the scope of the defendant’s preventative efforts in proportion to the potential gravity of the adverse effects that may occur? Reasonable foreseeable – due diligence test Cost consequence of due diligence – for the defendant: costs are borne by the defendant in regulatory offences even if found innocent – not the same for civil charges. – Companies should consider investing in compliance systems so they don’t get charged. Fine splitting – Done by the Fisheries Act. Basically deputizing the public so they will help report offenders. The waters are too large to police with limited budgets and resources. R. v. Beirel- the accused refused to provide a breathalyser sample. Accused make the unique argument that he had relied on the duty counsel to the effect that he need not provide the sample. Court consider the advice legal advice not “official” advice and rejected the defence. Significance of this case is that it shows how narrowly officially induced error is applied. R. v. Syncrude – federal officers made representations that the company would not be prosecuted under the Migratory Birds Convention Act if it used due diligence to keep birds from landing on its tailing ponds. Court held that such communications were not sufficient for the defence of officially induced error (this type of communication is not tantamount to immunity) – again reinforcing the narrow application of this defence and it must be that the defendant was “mislead’ as to the state of the law by responsible person. Ontario (Minstry of Labour) v. Lockyer – workers were found to be working without fall protection equipment. The supervisor, Lockyer, was charged with failing to ensure that safety measures were carried out. The workers were at risk of falling 10 feet. – Lockyer’s action of previously advising the workers to wear the fall protection equipment did not constituted due diligence. He did nothing specific to avoid the harm on the day of the accident. This case is an illustration of the fact that serious harm must be balanced by significant steps to avoid such harm. R. v. B. Gottardo Site Servicing Ltd. – another construction related accident – use of heavy equipment – Court confirmed that when there is a high risk of harm and also in this case a high likely hood – the bar for the level of 15 due diligence required is raised. This case illustrates that the matrix of harm and probability is central to the concept of due diligence. R. v. Vipond – defendant was contracted to do work at the Bruce Nuclear facility, and Bruce Nuclear was responsible for the scaffolding. A worker from Vipond was seriously injured when he fell through a hole that had been left unguarded by Bruce employees. The Court found that Vipond could not solely rely on the good work procedures of Bruce Nuclear but that Vipond had an overarching supervision for its works, which if in place would have foreseen the event. This case is about the requirement of foreseeability in due diligence. R. v. Skyway Equipment Co. – This is a case that is often cited by the defence to show that the act/a potential source of danger was not foreseeable. R. v. Devlan Construction Ltd. – a worker had indicated that he wanted to go into a dangerous area to finish two bolts. He was told not to worry about it, but not explicitly directed not to attend. The tragic result was the death of this probationary apprentice worker. The Court held that the actions of the worker were foreseeable and that the additional supervision and guidance needed by an apprentice were lacking and therefore a failure to show due diligence. R. v. 20207000 Ontario Inc. – this case is about the objective nature of foreseeability. A fire was found in a pile of construction material by the Fire Inspector who was on site to inspect compliance. The fire was extinguished and the Fire inspector believed the fire was extinguishe
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