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RESPONSIBILITIES AND LIABILITIES

Since the beginning of the public recognition of the Year 2000 problem, a major motivation for businesses and governments to undertake Year 2000 remediation is their need to show "due diligence."1

What this means, in practical terms, is that businesses and governments are expected to be taking all reasonable measures to ensure that this problem is resolved and does not impact on their shareholders, clients, and partners. The details are different for each organization but broadly these measures include ensuring that the organization does everything it reasonably can to correct the Year 2000 problem and to develop and implement contingency plans and business resumption plans. Failure to show due diligence could result in a number of consequences for both organizations and their boards of directors.

The Canadian Bar Association stressed that how a company does or does not deal with its Year 2000 problems may expose it to liability, possibly giving rise to disputes and claims down the road. In short, the Committee heard that failure to be Year 2000 compliant could potentially result in businesses having no business insurance coverage for Year 2000 related incidents, being exposed to legal liability from clients and partners, and being potentially legally liable for failure to comply with government environmental regulations.

On the other hand, the Committee was also informed that even showing concerted efforts to be prepared for the Year 2000 problem may not be sufficient if problems nevertheless emerge. The Canadian Mining Association stated that Environment Canada had informed it that failure to become Year 2000 compliant will not be an acceptable defence for being in contravention of statutes such as the Environmental Protection Act and the Fisheries Act. In addition, the insurance industry explained that from its point of view, since the Year 2000 problem is viewed as a foreseeable business risk, commercial insurance products will not normally cover a Year 2000 event.

Statistics Canada's second survey confirmed that many larger businesses (51%) recognized that their firms might be sued and 66% of these firms were making specific plans in case of litigation. Unfortunately, the survey showed that such is not the case with medium and small firms. Only 37% of medium-sized firms and 19% of small businesses recognized the potential for being sued and of these approximately one-third were making specific plans in case of litigation. This finding is disappointing. It is in the interest of all businesses and governments to exercise due diligence in solving the Year 2000 problem in order to avoid as much as possible any costly litigation as a result of Year 2000 failures.

Another legal liability issue raised by several groups related to the information one organization provides to another on Year 2000 readiness. Witnesses asked which organizations offering information on Year 2000 readiness status they should believe; they feared that some organizations might provide overly optimistic information to avoid losing contracts or business for which Year 2000 compliance has been made a condition. Misinformation could impact on others that have made plans based on this information. This is an additional reason for businesses and governments to prepare contingency plans. The Canadian Bar Association suggested that reliability of information could be increased by having specific contracts or clauses within existing contracts between organizations regarding the exchange of Year 2000 related information. The availability of Year 2000 readiness information varies greatly. Some areas, such as major electrical utilities, are providing their Year 2000 readiness status on their Internet Web sites, but others are much more secretive.

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1 Black's Law Dictionary (Sixth Edition) defines due diligence as "Such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case."