Internal Investigations (PDF) by gjjur4356


									Internal Investigations
Friday, January 30, 2009 — Vancouver
Table of Contents
Internal Investigations

Friday, January 30, 2009

Tab 1.   Agenda

Tab 2.   Our Internal Investigations Practice

Tab 3.   Biographies: Presenters                Rich Balfour      Randal Hughes
                                                Cam Belsher       Miranda Lam
                                                Bob Cooper        Warren Milman
                                                Donald Houston    Michael Urbani
                                                Nicholas Hughes   Jill Yates

Tab 4.   Practical Advice on Conducting a       Presentation
         Successful Internal Investigation

Tab 5.   Public Company Compliance Reviews      Presentation
         and Regulatory Investigations

Tab 6.   Now What?                              Presentation
         Managing Environmental Incidents
         After the Fact

Tab 7.   Internal Investigations in             Presentation
         Competition/Antitrust Matters

Internal Investigations
Friday, January 30, 2009

8:45 am    Introduction                        Rich Balfour

8:50 am    Practical Advice on Conducting a    Miranda Lam
           Successful Internal Investigation
                                               Warren Milman

                                               Cam Belsher

9:15 am    Public Company Compliance Reviews   Bob Cooper
           and Regulatory Investigations
                                               Michael Urbani

9:30 am    Now What?                           Nicholas Hughes
           Managing Environmental Incidents
           After the Fact

9:45 am    Internal Investigations in          Donald Houston
           Competition/Antitrust Matters
                                               Randal Hughes

                                               Jill Yates

10:00 am   Wrap up

           - Questions and Answers -
Our Internal Investigations Practice

Our lawyers have extensive experience and expertise in conducting internal investigations for our
clients. We have conducted investigations involving fraud, securities enforcement, market
manipulation, insider trading, workplace fatalities, environmental violations, whistle-blower
complaints, competition investigations and a broad range of regulatory matters.

When conducting investigations, we often advise our clients on corporate governance issues and
compliance programs. We have the ability to call on other McCarthy Tétrault lawyers with experience
in virtually every substantive area of law.

Members of our team have led, conducted or been involved in a number of internal investigations,

       •       Creation of special committee of a >$1B public company to investigate performance
               of related party transaction. This ultimately led to the initiation of multi-jurisdiction
               lawsuits against the acting CEO and several directors for misappropriation of a business
               opportunity. Ultimately settled for $30 million in restitution payments.

       •       An investigation to determine the merits of a CEO’s defence in a claim by a former
               employee in order to address the CEO’s indemnity claim and concurrent lawsuit
               against D & O insurer.

       •       An international investigation of misappropriation by former directors and officers
               of a public company through a series of inflated business acquisitions.

       •       Stock options back-dating review.

       •       An investigation and ultimately successful litigation on behalf of a special
               committee of a public company regarding the acquisition of mining properties
               under what appeared as a customary transaction but which was to further an
               underlying illegal scheme by the vendor.

       •       Advising a public client to terminate a proposed improvident transaction following a
               confidential investigation of improper payments and other arrangements with
               related parties.

       •       An investigation into a large-scale internal fraud at an international public
               corporation. The investigation and subsequent legal proceedings included coordinating
               teams of lawyers in three separate jurisdictions. The investigation led to the
               conviction of the principal actors in the fraud and a full recovery of the stolen money.
        •       An investigation into allegations of insider trading by executives of a major public
                company. We worked with a special committee of the Board to investigate the
                allegations and provide governance advice on trading policy.

        •       A whistle-blower complaint into allegations of theft by a key employee of a public

        •       An investigation into allegations of money-laundering at a financial institution. The
                investigation began when our clients’ offices were raided by RCMP Commercial Crime
                officers. In addition to conducting a forensic investigation, we responded to
                concurrent investigations by federal and provincial regulators.

        •       An investigation into a workplace fatality in the forestry industry. The incident
                attracted significant media interest and led to a public inquest into the death. During
                the investigation, we reviewed our client’s occupational health and safety program and
                worked with our client to develop an industry-leading program for contractor

        •       An investigation into a fatal accident on the set of a film production. The
                investigation involved defending both regulatory and criminal prosecutions, as well as
                civil actions arising from the accident.

        •       An investigation into a gaseous discharge that injured workers at a neighbouring
                facility. The investigation involved assessing civil and regulatory exposure and future
                regulatory compliance issues.

        •       An investigation into a large spill of deleterious substances into water frequented
                by fish. The investigation involved assessing both civil and regulatory exposure.

        •       An investigation into an off-site explosion caused by Lithium entering the regular
                waste stream. This investigation was focussed on assessing exposure to criminal

        •       Numerous internal investigations in competition matters. Among them, internal
                investigations related to domestic Competition Bureau investigations/proceedings in
                chocolate confectionary products, gasoline products and carbonless paper sheets; and
                international cartel investigations, involving coordination with counsel in multiple
                jurisdictions, in air cargo, rubber chemicals and related products, hydrogen peroxide,
                carbon products, food and feed additives, automotive products and building products.

        •       A special committee investigation into the conduct of a director of a large non-
                profit organization which included advice on board governance.

McCarthy Tétrault delivers customized legal services that help our clients achieve their business goals.
We are committed to developing the right solutions and strategies to achieve successful outcomes in a
highly responsive, efficient, and financially-disciplined manner.

                                                                                                   Page 2
           Practical Advice on Conducting a
           Successful Internal Investigation
            Miranda Lam, Warren Milman, Cam Belsher

     Keys To Conducting a Successful Internal         1


1.    Have a Plan
2.    Ensure the Investigation is Independent
3.    Preserve Evidence
4.    Maintain Confidentiality
5.    Protect Privilege
6.    Consider Your Employees
7.    Consider Insurance Issues
8.    Consider Disclosure Obligations


1. Have a Plan
When is an investigation needed?

     Possibilities include:

        •   an adverse external event
        •   when litigation or prosecution is being contemplated
        •   when regulatory investigation is expected or underway
        •   a whistleblower allegation or media report
        •   human rights complaints
        •   when internal policies require investigation to be


1. Have a Plan
What are the goals of the investigation?

Possibilities include:

•    to establish the facts and report them to the relevant body
•    to assess likely risks to the company
•    to permit the company to take appropriate action (redress,
     future prevention)
•    to meet disclosure obligations and comply with internal control
•    to establish exculpatory facts and other defences (to claims or
     regulatory proceedings (e.g., due diligence))
•    to satisfy requirements of insurance policy
•    to satisfy internal and external audiences (e.g. demonstrating
     that the company has a compliance culture)


1. Have a Plan
Scope of the investigation

•   What are the potential sources of information –
    internal and external?

•   What documents need to be gathered?

•   What is the timing, format and scope of interviews?

•   Are independent consultants required? (forensic
    accountants? electronic document recovery?)


1. Have a Plan
Set a Timetable

Factors to consider include:

    •   the time estimated to be required to complete
        proper investigation

    •   when results are needed (e.g. deadlines imposed
        by regulators or civil proceedings)


1. Have a Plan
Memorializing the Results


       • whether the report should be in writing

       • to whom it should be presented

       • whether there should be interim reports


1. Have a Plan
Consequences of a Poor Plan

A poorly-planned investigation may:

   •   lead to a failure in understanding the problem or
       appropriate solutions (see Re: YBM Magnex)
   •   create an impression of a cover-up or lack of serious
   •   expose participants to liability (See Correia v. Canac


2. Ensure Independence
Who will oversee the investigation?

       An investigation should be overseen by the board of
       directors (generally via a special committee) when

   •      relate to conduct of senior management
   •      call into question the integrity of the company’s financial
   •      pose a significant threat to company or its reputation

       Otherwise, an investigation should normally be
       overseen by in-house counsel.


2. Ensure Independence
Who will conduct the investigation?

       Depends on the nature of the allegations and degree of risk to
       the company. Most investigations should be conducted by legal

         •   Choice of legal counsel (in-house, regular external, or
             special) will depend on:

                 • importance of maintaining privilege
                 • prior involvement with underlying issues
                 • nature (closeness) of relationship to management
                   or persons potentially implicated
                 • need for special expertise
                 • availability of time and resources
                 • likelihood of securing witness cooperation

2. Ensure Independence

• Less serious matters may be investigated by HR
  department, security department, privacy office, etc.

• Key role of in-house counsel in all scenarios:
      • ensuring legal issues are considered
      • familiarity with business
      • obtaining cooperation of employees
      • liaison with board or senior management


3. Preserve Evidence
• Suspend routine corporate document destruction
  policies for potentially relevant documents
• Notify employees to preserve potentially relevant
  electronic and paper records, or other evidence
• Consider denying or limiting access of specific
  employees to particular items
• Gather paper records, emails and electronic records
  from relevant employees and from their servers/hard
• Obtain professional advice on data preservation and
  recovery, as necessary
• Document what was done to preserve evidence


4. Maintain Confidentiality

  Maintaining confidentiality is critical:

  • to ensure effectiveness of investigation and especially interviews
  • to avoid compromising investigation’s independence
  • to assist in maintaining privilege claim

  Ensure initial plan deals with relationship between
  oversight, instruction and access to information.
  Consider what public statements will be made about
  existence of investigation, intended process and
  eventual results.


5. Protect Privilege
  Maintaining privilege over the results of an
  investigation is desirable because it minimizes the risk
  that those results will be used against the company,
  and at the same time:

      • encourages full and frank disclosure of relevant facts
      • allows an accurate understanding of what happened so that
        corrective action can be taken
      • permits a judgement to be made about appropriate
        disclosure (and associated waiver of privilege) when full
        facts are known


5. Protect Privilege
  Privilege protects against the compelled disclosure of
  communications with counsel for the purpose of obtaining
  legal advice (solicitor/client privilege) or information
  obtained for pending or anticipated litigation (litigation

  Protecting privilege is consistent with the objective of
  getting all the relevant facts and advising management so
  that appropriate action can be taken.

  Use of external counsel will enhance the company’s ability
  to protect privilege because it avoids doubt about whether
  in-house counsel was acting in a legal or business capacity
  (see Silver v. Imax Corp.). Also some jurisdictions may not
  extend privilege to in-house counsel.


5. Protect Privilege
To protect privilege:

   • the investigation must be conducted by a lawyer,
     and all parties assisting should report to legal
   • where outside counsel is engaged, retainer letter
     must state purpose for investigation which gives rise
     to privilege
   • confidentiality must be maintained – employees and
     investigators should be instructed accordingly
   • documents should be marked “Privileged and
   • third party consultants should be retained by
     counsel with suitable written retainers
   • all reporting should be done by counsel


5. Protect Privilege
Implied waiver of privilege may occur when:
   • report is disclosed to regulator
   • confidentiality is not maintained
   • company relies on legal advice as defence to
   • results are disclosed to parties with related interest
     without a joint defence agreement

Waiver may be necessary:
  • to obtain favourable outcome from regulator or
     merely to persuade regulator that company is being
  • to restore public confidence
  • to demonstrate due diligence or reasonable conduct


6. Consider Your Employees
• Certain employees are likely to be key witnesses or the
  subject of allegations under investigation.

• An interview is appropriate whenever an employer
  reasonably believes that it may yield relevant and
  necessary information.

• Prior to arranging a meeting with the employee,
  gather and review all relevant documents so the
  interviewer enters the meeting with an understanding
  of the incident in question.


6. Consider Your Employees

• Be aware of relevant provisions of policies, collective
  agreements, directives from Human Rights Commission
  and Privacy Commission, etc. regarding company’s
  ability to:

         •   search employee’s work space
         •   monitor email and computer use by employee
         •   monitor telephone use by employee
         •   use video surveillance
         •   monitor security pass use
         •   interview employees


6. Consider Your Employees

• If any of the potential witnesses may be involved in a
  criminal prosecution, interviewers should ensure that
  witness meetings or statements do not undermine
  criminal charges.

• Advise employee being interviewed that outside
  counsel acts for company and not employee.

• Consider suggesting and/or paying for independent
  counsel where employee’s interests conflict with


6. Consider Your Employees
• Interviewer should explain:
      • their role
      • the purpose of interview
      • any relevant company policies

• Discuss confidentiality requirements (e.g., employee is
  not to discuss with others what is discussed in
• Warn that while confidentiality will be respected, it is
  not guaranteed.
• Don’t tell interviewee what other employees have
• Consider privacy rights.


6. Consider Your Employees
During the interview, be sure to:
• Use pre-planned, open-ended questions to allow a full
  understanding of the facts. Use follow-up questions if
• Make sure to get complete information, including
  details relating to the incident, date, time, place,
  location, similar occurrences, witnesses, etc
• Record all statements and answers
• Repeat back facts to ensure accuracy and clarify any
• Advise the employee to keep records of any relevant
  events and to advise the company accordingly


6. Consider Your Employees
At the end of the interview:

• Ask the employee a “scoop” question, such as,

  “Is there anything we haven’t talked about that we
  should know about?”


7. Consider Insurance Issues
• Consider policies to determine:

    • whether the insured has an obligation to notify the insurer
    • whether coverage exists for legal or other costs of the
      investigation (may depend on whether a claim has been
    • whether disclosure is required upon renewal

• Report to insurer on a basis that maintains
  confidentiality and privilege.


8. Consider Disclosure Obligations

• The company may be required to report findings to
  regulatory authority.

• It may be in the company’s interest to proactively
  report to regulator.

• If a reporting issuer, the company may have an
  obligation to issue press releases, or make disclosure
  in routine public filing or in public offerings.

  Vancouver                        Ottawa                               Québec
  P.O. Box 10424, Pacific Centre   The Chambers                         Le Complexe St-Amable
  Suite 1300                       Suite 1400                           1150, rue de Claire-Fontaine,
  777 Dunsmuir Street              40 Elgin Street                      7e étage
  Vancouver BC V7Y 1K2             Ottawa ON K1P 5K6                    Québec QC G1R 5G4
  Tel: 604-643-7100                Tel: 613-238-2000                    Tel: 418-521-3000
  Fax: 604-643-7900                Fax: 613-563-9386                    Fax: 418-521-3099

  Calgary                          Montréal                             United Kingdom & Europe
  Suite 3300                       Suite 2500                           5 Old Bailey, 2nd Floor
  421 – 7th Avenue SW              1000 De La Gauchetière Street West   London, England EC4M 7BA
  Calgary AB T2P 4K9               Montréal QC H3B 0A2                  Tel: +44 (0)20 7489 5700
  Tel: 403-260-3500                Tel: 514-397-4100                    Fax: +44 (0)20 7489 5777
  Fax: 403-260-3501                Fax: 514-875-6246

  Box 48, Suite 5300
  Toronto Dominion Bank Tower
  Toronto ON M5K 1E6
  Tel: 416-362-1812
  Fax: 416-868-0673

             Public Company Compliance
             Reviews and Regulatory
              Bob Cooper and Michael Urbani

Events Leading to Public Company                                         2

Internal Investigations
Regulatory Enquiries:
 •    Securities commissions routinely ask for information about
      public company obligations to make continuous disclosure
 •    TSX also makes enquiries about press releases and compliance
      with other listed company obligations

 Enquiries initiated by Company:
 •    Whistle blowing complaints
 •    Investigation prompted by effective operation of internal
 •    Investigation prompted by regulatory enforcement priorities

Both processes give rise to internal investigations that entail issues
and considerations already canvassed.

Principles Behind Continuous Disclosure Reviews
• Risk Based Analysis:
   • CSA ongoing continuous disclosure reviews1
   • review each active reporting issuer at least once every 4 years
   • reviews can be full (entire disclosure record for past twelve to
      fifteen months + most recent annual and interim financial
      statements2) or limited (concerned with specific disclosure
   • issue-oriented reviews (across issuers)
        • current market conditions
        • revenue recognition
        • executive compensation
        • hedge accounting
        • environmental reporting
1   See for example, CSA Staff Notice 51-312 Harmonized Continuous Disclosure Review Program; CSA Staff Notice 51-326 Continuous
    Disclosure Review Program Activities for Fiscal 2008; CSA Staff Notice 51-328 Continuous Disclosure Considerations Related to Current
    Market Conditions; and, OSC Staff Notice 11-719 A Risk Based Approach for More Effective Regulations.
2   Two-year financial statement review if Ontario is prime (OSC Staff Notice 51-703 sets out OSC review mechanics).


What the Regulators are Interested In

Select Problem Areas – Financial Statements3

•   Revenue Recognition
•   Stock-Based Compensation
•   Financial Instruments
•   Goodwill Impairment Losses
•   Interim Financial Statements
•   Restructuring Costs
•   Enterprises in the Development Stage
•   Related Party Transactions

3   See CSA Staff Notice 51-326 Continuous Disclosure Review Program Activities for Fiscal 2008; and Ian Palm, “CSA-Continuous Disclosure
    Reviews – Select Problem Areas,” McCarthy Tétrault LLP client seminar (revised to April 02, 2007).

What the Regulators are Interested In (cont’d)

Select Problem Areas – MD&A4

•   Liquidity and Capital Resources
•   Quantitative Analysis of Results of Operations
•   Disclosure of Adoption of New Accounting Policies
•   Related Party Transactions
•   Trends, Risks and Effect of Current Market Conditions
•   Projects Under Development
•   Restructuring Costs

4   Ibid.

What the Regulators are Interested In (cont’d)

Select Problem Areas – Others5

    •       Executive Compensation Disclosure
    •       Insider Reporting Requirements
    •       BARs
    •       Material Contract Disclosure
    •       Options Backdating
    •       Environmental Disclosure (OSC focus in 2008)
    •       CEO and CFO Certification
    •       Industry Specific Disclosure Requirements e.g. oil and
            gas, mining

5   Ibid.

Reason for Compliance Reviews

Red flags that may lead to Compliance Review:

    • unusual trading by insiders before press releases
    • manipulative trading by insiders
    • use of unusual accounting policies
    • disagreements with auditors
    • complaints from public
    • referral from another section of BCSC or other securities
    • media reports

Statutory Sources of Power to Conduct Compliance
Reviews and Investigations in British Columbia6
• s. 141:
    • power to order production of information or records
    • applies to registrants, reporting issuers, directors and officers of
      reporting issuers (including IR persons who may not be officers)

• s. 141.2 (registrants) and 141.3 (issuers):
    • power to review “the business and conduct” of a reporting issuer or a
      registrant for determining compliance with Act, regulations,
      regulatory instruments
    • likely source of power for continuous disclosure reviews
    • power to levy fees or prescribe charges for costs of the review

• s. 142, 143, 144:
    • BCSC’s investigation authority
    • power to enter premises
    • power to summon witnesses

6   Also see ss. 19, 20, 20.1 of the Ontario Securities Act, R.S.O. 1990, C.S.5; ss. 58(1), 60(1), 60.1, 60.2 of the Alberta Securities Act,
    R.S.A. 2000, C.S-4; ss. 151.1 and 158 of the Quebec Securities Act R.S.Q., c.V-1.1.

Process of Investigations

Potential stages of regulatory review:
    • case assessment/surveillance
    • investigations
    • handling by Litigation

• Regulatory investigation usually commenced by letter
  simply asking for information – sometimes
  accompanied by requests under s. 141, 141.2
  (registrants) or 141.3 (issuers) of the Securities Act
  (British Columbia).

Process of Investigations (con’t)
First Steps:
    • determine who is involved or has knowledge
    • compile relevant documents, including email, internal memos,
      minutes, correspondence, board presentations and background
    • prepare chronology

• Important issues:
    • How are facts verified?
    • Can the investigation be conducted by the public company with
      active involvement of all affected parties?
    • Can or should the public company determine whether there has been
      a violation of law?
    • Can the public company impose discipline itself?
    • How much influence can the public company exert over timing and
    • Application of “credit for co-operation” policies

Voluntary and Involuntary Disclosure
• Frequently requests from regulators are made on an informal basis.

• Requests for voluntary production of documents may involve private third
  party information.

• Testimony given voluntarily may be used in subsequent proceedings.

• What precautions should be considered before responding voluntarily?

• When to insist that production/interview take place under compulsion
  pursuant to a s. 142 order?

• For what purpose is the order/request being made?

• What protection does a s. 142 order provide in subsequent proceedings?

Outcome of Regulatory Investigations

• Responses should be put together with care and shown to
  people with knowledge of facts to ensure accuracy.
• Depending on how it develops, may have to refile or change
  disclosure practices (19% of CD reviews in 2008 led to
  refilings; 36% led to prospective changes to disclosure).8
• Can lead to enforcement proceedings (5%).8
• Can sometimes lead to disclosure of investigation if
  continuous disclosure review leads to commencement of a
  formal investigation.

8   See CSA Staff Notice 51-326 Continuous Disclosure Review Program Activities for Fiscal 2008.

Events Leading to Investigations of Registrants

• Periodic risk-based compliance audits or issue-oriented
  reviews by regulators from supervising audit jurisdiction
  (CSA, IIROC or MFDA).9
• Investigations by market surveillance officials of IIROC
• Internal investigations initiated as a result of registrant’s
  internal compliance procedures. See UMIR s. 7.1.

 9   See for example, OSC Staff Notice 33-731 2008 Compliance Team Annual Report; CSA Staff Notice 81-316 Hedge Funds; OSC Staff Notice
     81-709 Continuous Disclosure Review of Investment Funds (2008), and; IIROC, MFDA and OSC Public Consultation on Product Suitability –
     December 17, 2008.

Registrants are continuously involved in Internal
Investigations of one kind or another
• Registrants respond to many regulatory information requests without
  knowing whether a formal investigation or enforcement proceeding will
  be started.
• IIROC will advise when an investigation has formally started but securities
  regulators can often be vague about the stage an investigation has
• Written correspondence and record production is a highly important part
  of registrant regulatory investigations. Typical information provided to
  regulators takes the form of:
      • written responses to questions or information requests letters or e-mails that
        regulators send
      • production of tape recordings of telephone calls
      • production of instant message transcripts for specific periods
      • production of extensive e-mail records
      • oral testimony through witness interviews

• IIROC imposes affirmative obligations to police for and report instances of

Recurring Issues in Internal Investigation by Issuers
and Registrants (cont’d)
• OSC has policy respecting “credit for cooperation”, which
  rewards voluntary notification of securities regulators and
  the taking of unilateral corrective action.
• BCSC does not, but same principles apply in practice.
• Meeting deadlines imposed in information requests
   • do requests for more time bespeak a poor compliance capacity or
     absence of “compliance culture” ?
   • how flexible are regulators if there are repeated requests for
     extension over time ?
• How is the accuracy of a “letter of response” verified
   • what is extent of consultation and how many senior people should
     know about and sign off on queries ?
   • how much independent verification should compliance people do of
     their own people’s answers ?
   • how carefully do records have to be reviewed when the productions
     are extremely voluminous ?

Recurring Issues in Internal Investigation by Issuers
and Registrants (cont’d)
• Using letters from regulators as a basis for pro-actively
  taking corrective action or changing compliance procedures:
   • if regulatory correspondence shows a specific regulatory concern
     about issuer or registrant, conduct or a particular employee, what
     are the pros and cons of changing conduct or disciplining employees
     before an investigation is over?
• Is it possible to ask regulators precisely what would fix their
  concerns or what specifically they are looking for when an
  investigation has been going on for a long time?
• Is there a point when the duration, cost or invasiveness of
  an investigation justifies discussions with regulators about
  over-reaching by investigators?

Recurring Issues in Internal Investigations by Issuers                                                   17

and Registrants (cont’d)

• Investigations that appear to ignore industry practices or
  industry standards and implicitly impose a higher standard
  than what the industry follows.
• Handling conflicting interests (e.g. the firm interest versus
  the interests of the employee respondents) in a situation
  where alleged misconduct by employees is the basis of
  “failure to supervise” proceedings against the firm.
• If an internal investigation report concludes there has been
  wrongdoing, should the whole report be forwarded to

   Vancouver                        Ottawa                               Québec
   P.O. Box 10424, Pacific Centre   The Chambers                         Le Complexe St-Amable
   Suite 1300                       Suite 1400                           1150, rue de Claire-Fontaine,
   777 Dunsmuir Street              40 Elgin Street                      7e étage
   Vancouver BC V7Y 1K2             Ottawa ON K1P 5K6                    Québec QC G1R 5G4
   Tel: 604-643-7100                Tel: 613-238-2000                    Tel: 418-521-3000
   Fax: 604-643-7900                Fax: 613-563-9386                    Fax: 418-521-3099

   Calgary                          Montréal                             United Kingdom & Europe
   Suite 3300                       Suite 2500                           5 Old Bailey, 2nd Floor
   421 – 7th Avenue SW              1000 De La Gauchetière Street West   London, England EC4M 7BA
   Calgary AB T2P 4K9               Montréal QC H3B 0A2                  Tel: +44 (0)20 7489 5700
   Tel: 403-260-3500                Tel: 514-397-4100                    Fax: +44 (0)20 7489 5777
   Fax: 403-260-3501                Fax: 514-875-6246

   Box 48, Suite 5300
   Toronto Dominion Bank Tower
   Toronto ON M5K 1E6
   Tel: 416-362-1812
   Fax: 416-868-0673

        Now What?
        Managing Environmental Incidents
        After the Fact

        Nicholas R. Hughes

The First 24 Hours – Crisis Management

• Responding to Incident
  • ensuring employee and public safety
  • protecting the environment
  • securing facility

• Mandatory reporting obligations

• Information gathering and dissemination


The first 24 hours - cont.
• Engage counsel
  • In-house
  • external counsel

• Have counsel initiate internal

• Identify point person for all external


The next 24 months
• Inspections and Investigations by regulators

• Search warrants

• Demands by regulators for improvements
     • process/facility improvements
     • permit improvements

• Charges/lawsuits


Sources of Liability
• Civil liability
   • personal injury
   • damage to property
   • natural resource damages claims

• Regulatory liability/quasi criminal liability
   • unauthorized discharge/spill
   • failing to report/providing false information
   • failing to adequately respond to discharge/spill


Due Diligence
• Due diligence is a defence to most
  regulatory and quasi criminal charges

• Due diligence established where:
   • the accused took all reasonable steps to
     avoid the event; or
   • the accused reasonably believed in a
     mistaken set of facts which, if true would
     render the act or omission innocent.


Purposes for Internal Investigations
• Identify the cause(s) of incident and fix the

• Secure available evidence to assist company in
  defending itself in litigation arising out of the

• Stay ahead of the regulators

• Develop plan on how to address expected
  demands from regulators for improvements


Role/Value of Counsel
• Why involve counsel?
  • ensure compliance with post incident
    responsibilities and obligations;
  • institute and oversee internal investigations and
    protect and maintain the confidentiality of post
    incident documents:


Privilege Cont.
• Litigation privilege over internal
  investigation documents
      • See HMTQ v. CN, 2008 BCSC 1677

• Solicitor client privilege
      • Legal advice privilege

• Statutory privilege
      • submissions to transportation safety board
      • Apology Act (BC)


The first 24 hours revisited
• If you have not got an incident response plan, develop

• Retain counsel ASAP to address reporting requirements
  and to institute internal investigation of the incident

• Develop external communications protocol/media
  relations program

• Draw upon the expertise and experience of others to
  get the company through this trying time

Vancouver                        Ottawa                               Québec
P.O. Box 10424, Pacific Centre   The Chambers                         Le Complexe St-Amable
Suite 1300                       Suite 1400                           1150, rue de Claire-Fontaine,
777 Dunsmuir Street              40 Elgin Street                      7e étage
Vancouver BC V7Y 1K2             Ottawa ON K1P 5K6                    Québec QC G1R 5G4
Tel: 604-643-7100                Tel: 613-238-2000                    Tel: 418-521-3000
Fax: 604-643-7900                Fax: 613-563-9386                    Fax: 418-521-3099

Calgary                          Montréal                             United Kingdom & Europe
Suite 3300                       Suite 2500                           5 Old Bailey, 2nd Floor
421 – 7th Avenue SW              1000 De La Gauchetière Street West   London, England EC4M 7BA
Calgary AB T2P 4K9               Montréal QC H3B 0A2                  Tel: +44 (0)20 7489 5700
Tel: 403-260-3500                Tel: 514-397-4100                    Fax: +44 (0)20 7489 5777
Fax: 403-260-3501                Fax: 514-875-6246

Box 48, Suite 5300
Toronto Dominion Bank Tower
Toronto ON M5K 1E6
Tel: 416-362-1812
Fax: 416-868-0673

          Internal Investigations in
          Competition/Antitrust Matters
          Donald Houston, Randal Hughes, Jill Yates


Competition Act Risks
• Price fixing, bid-rigging, market or customer
  allocation, supply restrictions or other
  coordination with competitors.
• Criminal offence – up to $10 million fine per
  count and/or imprisonment.
• Civil Actions – Plaintiffs can sue to recover loss
  or damage suffered as a result of conduct
  contrary to criminal provisions of the
  Competition Act. These actions are
  increasingly brought as class actions.
• Unilateral conduct may also raise issues.


How Was the Conduct Detected?

 • Company compliance program/internal audit
 • An employee report (Whistleblowers protected –
   s. 66.1 Competition Act)
 • Contact from the Competition Bureau
 • Search Warrant
 • Subpoenas (s. 11 Orders)
 • Enforcement activity in another jurisdiction

Internal Investigations in the Context                       4

of Leniency Programs
• Need to evaluate/act quickly – Get the facts first.
• Immunity Program - May seek Immunity if “first-in” in
  one or more jurisdictions.
• Leniency Program – early cooperation may result in
  more favourable resolution.
• “Immunity Plus” – disclose offence related to a second
  product – immunity for second product, leniency for
  first product.
• Information provided to Competition Bureau is kept
  confidential, but there are limits.
• Potential disclosure obligations under securities laws –
  tension with requirement of confidentiality under
  Bureau’s Immunity Program.
• Civil/class action exposure remains.


Get the Facts – Without Creating Evidence
 • Use counsel to conduct internal investigations.

 • Benefits of using outside counsel –
    • Specialized competition expertise
    • Experience interviewing witnesses and document
      review in competition investigations

 • Investigations with international implications: In-house
   counsel communications may not be protected by
   privilege outside North America.


Get the Facts – Without Creating Evidence
 • Don’t record or videotape interviews (counsel notes
 • Tell employees that the investigation is highly
   confidential internally and externally.
 • DO tell employees that counsel represents the
   company’s interests – not the employee’s.
 • If a government investigation is likely or ongoing -
    • inform employees that phones may be tapped (office, cell and
      home) or that people they meet may be wearing a wire
    • instruct employees not to remove/delete/destroy electronic or
      paper documents.
 • DO NOT tell employees that they cannot speak to the
   authorities but DO advise that they have the right to
   remain silent and to request the assistance of counsel.
 • DO tell employees that you want to know if they have
   been/are contacted by the authorities.


Individual vs. Company Interests
 • If senior management is implicated in investigation or
   if obstruction activity is detected, implicated
   individuals cannot be involved in decision-making with
   respect to investigation.
 • Set up a special committee immune from influence and
   shield information about conduct of investigation from
   implicated individuals.
 • Individual counsel may be required if interests diverge
   from company (e.g. employee obstructs investigation,
   continues conduct, or does not cooperate fully, “rogue
 • Employee may also require individual counsel if
   “target” of inquiry.


International Cases
• Conduct has implications outside Canada. (e.g.
  allegations of “global conspiracy”)
   • Products sold in/from Canada
   • Foreign directives to Canadian management
• Authorities do coordinate their investigations.
• Must have an early coordinated approach among
  counsel in all jurisdictions for multi-jurisdictional
• Decision to cooperate (or not) in one jurisdiction will
  have implications in others.
• Immunity may not be available in all jurisdictions.
• Implications of sharing fruits of the investigation in
  different jurisdictions … different discovery and
  privilege rules may apply. (e.g. U.S. vs. Canada)

Vancouver                        Ottawa                               Québec
P.O. Box 10424, Pacific Centre   The Chambers                         Le Complexe St-Amable
Suite 1300                       Suite 1400                           1150, rue de Claire-Fontaine,
777 Dunsmuir Street              40 Elgin Street                      7e étage
Vancouver BC V7Y 1K2             Ottawa ON K1P 5K6                    Québec QC G1R 5G4
Tel: 604-643-7100                Tel: 613-238-2000                    Tel: 418-521-3000
Fax: 604-643-7900                Fax: 613-563-9386                    Fax: 418-521-3099

Calgary                          Montréal                             United Kingdom & Europe
Suite 3300                       Suite 2500                           5 Old Bailey, 2nd Floor
421 – 7th Avenue SW              1000 De La Gauchetière Street West   London, England EC4M 7BA
Calgary AB T2P 4K9               Montréal QC H3B 0A2                  Tel: +44 (0)20 7489 5700
Tel: 403-260-3500                Tel: 514-397-4100                    Fax: +44 (0)20 7489 5777
Fax: 403-260-3501                Fax: 514-875-6246

Box 48, Suite 5300
Toronto Dominion Bank Tower
Toronto ON M5K 1E6
Tel: 416-362-1812
Fax: 416-868-0673


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