THE INSIDER’S 6th ANNUAL DUE DILIGENCE SCORECARD: Court Cases Shed Lights on Due Diligence

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Violating an OHS law doesn’t necessarily result in liability. Your company can avoid liability by proving “due diligence,” that is, that it took all reasonable steps to comply with the law and prevent the violation. Exactly what “reasonable steps” does the law require? Unfortunately, there’s no precise formula. Courts decide each case on the basis of its particular facts. So the only way to determine what steps are required is to review cases in which companies raised a due diligence defence, figure out why they won or lost and apply the lessons from these cases to judge the adequacy of your company’s OHS program.

That’s where the Insider’s annual Due Diligence Scorecard comes in. Every November since 2005, the Insider has located and organized reported OHS cases involving the due diligence defence from across Canada in the last year and compiled them into a Scorecard. This year’s version picks up where last year’s left off—in August 2009. As always, we’ll begin with a brief review of the concept of due diligence. Then we’ll break down the results of the cases.

Note to Readers

Feel free to skip the next section and go right to the Scorecard at the end of the article if you feel confident in your knowledge and understanding of due diligence or you’ve already read our review of the due diligence basics. But if you’re new to the Insider—or you simply want to brush up on your due diligence knowledge—keep reading.

DUE DILIGENCE BASICS

To convict a company of a safety offence, the prosecutor must prove “beyond a reasonable doubt” that the company violated an OHS law. If the prosecution fails to satisfy this burden, the case ends here with the dismissal of the charges. Once the prosecutor has proven that the company committed a safety violation, it can still avoid liability if it successfully argues a “due diligence” defence. The due diligence defence applies to violations of not only OHS laws but also other environmental, anti-competition and other “regulatory” laws. And any individuals who can be liable for an OHS offence, such as owners, corporate directors, supervisors and even workers, can also raise a due diligence defence. (Two of the cases in the Scorecard involve a foreman and a supervisor).

There are two types of due diligence defence:

Reasonable steps. This form of the due diligence defence requires a defendant to demonstrate that it took all reasonable steps to protect workers’ health and safety, ensure compliance with OHS laws and prevent the violation. This type of due diligence is the easiest to prove and thus the most common. In fact, all of the cases reported in this year’s Scorecard involve the reasonable steps form of due diligence.

Reasonable mistake of fact. The second type of due diligence defence requires a defendant to prove that it reasonably relied on a set of facts that turned out to be untrue but, had those facts been true, would have made what it did—or failed to do—legal. The so-called “reasonable mistake of fact” defence is harder to prove and so less common than the reasonable steps branch of due diligence.

Insider Says: For more information on the mistake of fact defence, see “The Flip Side of Due Diligence, The ‘Reasonable Mistake of Fact’ Defence.”

How Courts Evaluate a Due Diligence Defence

In evaluating whether a company exercised due diligence, courts look at the facts of the particular case. Although no two cases are ever exactly the same, a number of key factors  commonly arise in many cases:

Foreseeability. Due diligence defences often turn on whether a company adequately protected its workers from foreseeable hazards, including both general hazards and hazards specific to the particular industry, equipment and materials involved. The courts consider whether a reasonable person in the company’s position would have foreseen that something could go wrong or, conversely, whether the incident was a bizarre occurrence that was so unlikely that the company couldn’t have reasonably expected it to happen. Bottom line: A hazard is foreseeable if the company knew or should’ve reasonably known about it. And if it was foreseeable, the company should’ve taken reasonable steps to protect workers from it.

Degree of harm. The more harm a particular hazard could potentially cause, the more a company is expected to do to address it. So the courts expect a company to protect workers from even rare hazards if they pose the risk of serious harm, such as death.

Preventability. Courts consider whether the company had a chance to prevent the violation or safety incident and, if so, whether it made all reasonable efforts to do so, such as by identifying hazards, creating safe work policies and training workers and supervisors.

Control. Courts look at who had control over the situation. In other words, was someone present who could’ve prevented the violation or incident? For example, suppose a supervisor sees a worker welding without using proper PPE. If the supervisor doesn’t order the worker to put on the appropriate safety gear or discipline him for failing to do so and the worker gets injured, it’ll be nearly impossible for the company to prove due diligence because a supervisor was present, had control of the situation and yet didn’t take reasonable steps to prevent the injury.

The Scorecard

This year, we found 18 reported safety prosecutions decided since August 2009 in which a court—or in BC, the Workers’ Compensation Appeals Tribunal—had to evaluate a company’s or an individual’s due diligence defence. Once again, the due diligence defence failed much more often than it succeeded. In last year’s Scorecard, defendants lost in 13 of 19 cases. This year’s results were even more lopsided:

Wins. The defendant won in three cases from AB and ON.

Losses. The defendant lost in 15 cases from BC, ON, NS and YT.

Insider Says: Don’t assume that because the cases in the Scorecard are from only five jurisdictions that companies in the rest of Canada aren’t being prosecuted for OHS offences. Many safety prosecutions are resolved with plea bargains. And not all court decisions in safety prosecutions are reported.

BOTTOM LINE

For each of the 18 cases mentioned above, the Scorecard tells you whether the company (or individual) won or lost, what happened and how the court or tribunal analyzed the due diligence defence. Next month, we’ll explain the lessons you can learn from these cases and how to use them to judge the adequacy of your company’s OHS program.

COURT DECISIONS

Here’s a synopsis of 18 cases decided since August 2009 in which a court or tribunal had to evaluate a company’s (or individual’s) due diligence defence in a safety prosecution.