Examining Due Diligence & Liabilities — CAGC Symposium

“Where exactly does the buck stop?” and, “Although the job was done in good faith, was it done in blind ignorance?” These questions were recently posed to those attending the Fifth Annual Canadian Association of Geophysical Contractor’s (CAGC ) Oil & Gas Symposium, held in Calgary on August 21-22, 2001.

Both questions are controversial in nature and sure to spark hours of theoretical debate I immediately thought, reading my invite to chair the symposium. However, as the symposium gained momentum the statements were quickly summarized into, “What are our liabilities and how can we better prepare ourselves?” In this brief I would like to take the opportunity to share the contents of the symposium as I saw it unfold. As Chairperson I was fortunate to meet with some very interesting people and dynamic speakers with an incredible amount of valuable information to share with our industry.

There is plenty of folklore and, as we heard in various discussions at the symposium, all of us are liable for our actions at all times. Sure, sometimes people get lucky, sometimes we get a second chance, but often liability becomes a very real reality, materializing instantaneously.

Having worked in this industry for almost twenty years I can tell you that liability and as importantly, accountability, sometimes arrive when you least expect them. It could be in milliseconds, with thousands of pounds of vehicle mass colliding, ending in serious injury or fatality before you have even had your first coffee of the morning. When you answer your phone, the voice at the other end regretfully informs you, you are now part of a large somewhat ominous liability investigation.

A few of us embrace the possibility of a liability issue and prepare for it, but most live in fear of that kind of situation. However, as we heard time and again in Dave Fergus’ tremendous presentation at this year’s symposium, it is not that difficult to defend yourself in cases termed “strict liability”, whether it be an injury to a worker or an environmental issue, if you have taken some simple steps of preparation.

Further examining some prior folklore and falsehoods, we saw where marketing representatives for a multitude of contracting and front end companies have in the past used this fear of becoming involved in a liability suit as a spring board to launch aggressive sales campaigns, sometimes inferring or claiming that only by utilizing their protective services and supervisory attributes, and / or acting as prime contractors at slightly inflated costs, would you be safe from the claws of a liability suit. The symposium went a long way to set things straight; the truth is no one can absolve you from complete liability or accountability.

Oil Companies have unrealistically expected or demanded, contractors talked about and claimed, zero injury rates, but where does the truth lie in that? In our industry we have industrial athletes working in the field, and I ask you, when have you been to a serious sporting event at which someone has not been hurt or at a minimum suffered from a strain or sprain during the due process of giving their best for the team? For those of you that like stats consider this: A couple years ago a company by the name of 649 was around. They did some fine work in the fields of accident prevention and safety program administration. I’m not sure if they still exist but their philosophy was that for every 600 near misses there were likely to be 48 incidents or accidents, and out of those there would on average be one serious injury, fatality or major incident. This philosophy was again echoed in the numbers given to us by Dave Fergus in his paper: 40,000 lost-time accidents or claims, 2,600 permanent disability claims and 118 deaths, just in the year 2000 in the Province of Alberta. The reality is that sooner or later an accident or incident may take place within your organization.

Once again the exact numbers are not important, but the reality is that we are often putting larger crews in areas that are increasingly more challenging logistically and operationally. For contractors the margins have all but vanished, and the time afforded to complete a project can often be the difference between breaking even and taking a loss. Take a minute and consider how the odds of an accident can increase as a contractor who has started with little or no margin hurries to makeup for lost ground — again we are dealing with people. Our seismic contractor industry has to be commended for the absolutely diligent effort that has been put forward over the past few years aimed at reducing accidents and making the work place safer for the people and the environment. Unfortunately though, we are not dealing with a controlled atmosphere on a regular basis, and an accident by the very definition of the word could happen at anytime. Both Dave Fergus and Dale Guether touched on the topic or definition of an accident, and whether it is someone breaking the rules or an act of self- sabotage, the reality is that you cannot have control over every worker, every minute of the day.

No one is exempt from the prying eyes of a liability investigation, but no one should fear the outcome if their defence is solid. The key defence is termed “due diligence”. The Supreme Court of Canada stated, in reference to R. v Sault Ste. Marie (1978), that “all reasonable care can be proven if an employer can show that it developed a “proper system to prevent the commission of an offence” and the reasonable steps (were taken) to ensure the effective operation of the system.”

The system that case law refers to is very familiar to those that have chosen to protect themselves in advance. Speakers at the symposium often included or reviewed what was initially laid out as far back as 1978. The elements of a “proper system” as established in current case law include:

1. Establishing instruction, training and orientation programs;
2. Ensuring that appropriately trained and sufficient supervisory personnel are appointed;
3. Auditing or reviewing the workplace for foreseeable health and safety risks;
4. Ensuring policies, practices and procedures to protect workers against risks, which additionally includes creating disciplinary guidelines to enforce policies, practices and procedures;
5. Receiving regular reports on the operation of the health and safety program, particularly cases of noncompliance with Acts, and regulations and accidents;
6. Maintaining records.

Regularly examining due diligence and liabilities, and looking at where the buck stops are all necessary steps to continued success within our industry and more importantly our own individual businesses. As in most developed countries, we in Canada have developed a particularly low tolerance for work-related injury or illness and damage to the environment. I would like to think, as Marc Anderson stated during his presentation, that the main reason for this low tolerance is based strictly on morals and values, but the reality also exists is that a lack of due diligence costs money, and that is bad business. Among the many informational and extremely beneficial items Brad Inkster, representing an insurance company view, shared with the symposium were the responsibilities and due diligence of having the appropriate insurance. Brad additionally expressed something that should be dear to every businessman’s heart, and that is profit is not a dirty word but should be a part of every day business.

Marc Anderson expressed that our geophysical contractors have become extremely committed to ensuring that due diligence is not just a common phrase or blanket statement, but a living testament to the way they live, work and play. I believe this and commend our industry for it. Marc also made the extremely important point that there has to be due diligence not only aimed at preventing injury to the worker or the environment, but additionally the health of the company. What if the quality of the data is such that a drilling program commences and a large cost is incurred with no success for that oil and gas company? What is the cost to those folks when the company has to close its doors?

As with any large group we would be naive to believe that the 80/20 rule does not have some application or merit even in the world of geophysical contractors. When we look beyond the contractors to other stakeholders in the exploration process it is fair to state that these numbers may actually be somewhat reversed, either because of a lack of knowledge or because folks have chosen to conveniently look the other direction. Unfortunately there still exists a large percentage of geophysicists and exploration departments within our industry that have not had the benefit of a seminar or symposium like this fifth one; the demographics of this symposium and previous ones continue to reflect this statistic.

Dale Guether, a lawyer by profession, gave another great presentation, a legal perspective in which we heard about tort law. Dale challenged the audience to think for a moment about how far they would go in claiming for the loss of a loved one. Attendees at the symposium were told how important it is to go home, back to their businesses and to begin work aimed at better protecting themselves and building a better case of due diligence. Image one of your loved ones working on a crew, at a job funded by someone else; a fatal accident happens to that person and you decide to launch a civil suit. What angles are you going to utilize to expose the company or companies in order to collect for the loss of your loved one? Dale outlined the all too common strategy of “sue everyone involved”. Once again in Dale’s talk we heard that no third party can completely absolve you of all responsibility or liability.

The idea of the conference was to present some factual requirements, some realities and actual penalties imposed along with some perspectives from various regulatory bodies in the industry such as the likes of Dave Bartesko and Tracey Thompson. It was almost anticipated by the symposium organizing committee that attendees might come away from this conference with more questions than answers and that in itself would not be a bad thing. You should continually be questioning and examining your business practices.

The audience heard from the major oil companies speaking at the symposium that when it comes to protecting yourself, it is again recommended to get involved, join an association, and take an active role in the audits that are being done on your company and those companies working for you, or about to work for you. In fact, just being at a conference or symposium may some day be part of your defense: “Yes your honor, I took an active role in our system or safety program and that included attending a conference in August of 2001 aimed at making myself and my company more aware of our responsibilities and ensuring we had exercised due diligence in our daily decision making and operating practices.” Your effort has to be consistent, and as Dale Guethner also indicated, there are no exceptions for off days nor is there ever a time that you should proceed without fully considering the outcome of your actions.

John Meyer, representing a large oil company, talked about always looking at the big picture and the stakeholders at all levels, and how present actions might affect future activity and the viability of a company to do ongoing exploration in an area. He also touched on the world of multi-client programs, and how we still need to educate those subscribing to or pre-funding these large scale jobs, again considering who may be exposed to liability. Dale Guether indicated that in these situations those with deeper pockets are more attractive targets for legal suits, and those who would be more likely to settle out of court in order to protect their image.

In the final morning of the symposium, two long-term players in our industry, Lee Hunt and Al Goodfellow, shared their views as representatives of those that fund, prepare and then see programs brought to life. Lee and Al shared some interesting and thought provoking concepts. Both talks again had important points regarding due diligence and reducing companies’ risk factors Their talks also included suggestions on how we can better prepare ourselves as an industry. Lee brought the concept of a Standard Master Service Agreement to the table, and Al Goodfellow, representing Pan Canadian, came through with a copy for universal usage and distribution.

The final afternoon saw a panel discussion with canned scenarios being explored by a panel of experts. A question and answer period then followed before the symposium closed. The intention of the symposium was met — our industry’s continued commitment to better educate those involved and avenues to explore and develop new strategies had been provided. If folks left the symposium with more questions, this was viewed as a step in the right direction. The Canadian Association Of Geophysical Contractors (CAGC) had provided a wonderful opportunity to explore all avenues of Due Diligence and attendees left the symposium with a solid understanding of where exactly “the buck stops”, and how doing something in good faith is never a solid enough defense in a liability case. As Dave Fergus pointed out, it’s the law, we have to be well prepared, rehearsed and often open minded to change.