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“Smart Regulation” and Public Safety: Transport Canada’s Safety Management System (SMS) Model and the Lac- Mégantic Disaster

April 2015

The following is a summary of a working paper posted on the Sustainable Energy Initiative Website at

In the early hours of July 6th, 2013, an unattended train of 73 car-loads of crude oil from the Bakken shale formation in North Dakota, operated by the Montreal, Maine and Atlantic (MMA) railway ran away and then derailed, exploded and burned in the heart of the small Quebec town of Lac-Mégantic. Forty-seven of the town’s residents died in the ensuing inferno, making it the deadliest rail accident in Canada of the past century.

The disaster has drawn substantial parliamentary, media and public attention to the question of railway safety regulation in Canada. Studies by Transportation Safety Board, Auditor General of Canada, House of Commons Standing Committee on Transport, Canadian Centre for Policy Alternatives, the Canada Safety Council and others both before and after the disaster have identified significant weaknesses in Transport Canada’s oversight regime. The existing system consists of three parts: Transport Canada defined general rules and regulations; individual company developed and Transport Canada approved operating rules; and company developed and Transport Canada audited “Safety Management System (SMS)” plans intended to embed safety considerations into the company’s operations and decision-making processes.

The governments’ responses to the disaster, including the amendments to the Railway Safety Act introduced in February 2015, so far have been to make adjustments at the margins of the regime, strengthening or changing specific rules and requirements. There has been no overall review of the current approach to railway safety oversight. Such a response is inadequate given the scale of the Lac-Mégantic disaster, and ongoing concerns about the effectiveness of the oversight retime

Serious questions have been raised by the Auditor General of Canada and others about Transport Canada’s capacity to simultaneously implement a system based on company developed SMS and maintain adequate traditional oversight activities of safety standards and policy development, field inspections, and enforcement activities. This is particularly true in the context of ongoing budgetary regulations. The department’s most recent Report on Plans and Priorities indicates that the budget for rail safety oversight will actually fall from $20 million in 2015-16 to $16 million in 2017-18.

Experience in environmental regulation over the past three decades suggests that there may be better ways to strengthen the focus of railway company boards of directors and senior management attention on safety matters than the regulator mandating and directly overseeing the development of internal safety management plans. In the environmental field, expanded statutory duties on the part of company officers and directors to take “all reasonable care” to prevent damage to the environment has triggered the development of internal environmental management systems, without the need for direct involvement or oversight by regulatory agencies.

In contrast, the existing provisions of the Railway Safety Act only open company officers and directors to personal liability if they actively or knowingly engage in a violation of the act. Effectively they require a criminal standard of behaviour on the part of company officers and directors to attract the possibility of fines and jail terms. Even the behaviour of the management and owners of the Montreal, Maine and Atlantic Railway prior to the Lac-Megantic disaster fails to meet such a test.

A requirement that railway company officers and directors take “all reasonable care” to prevent violations of the Railway Safety Act could be incorporated into the federal legislation. Transport Canada’s regulatory resources could then be refocused on traditional safety policy development and oversight activities rather than company management system implementation and audits. The incorporation of a general offense provision in the act, making it an offense, for example, to engage in “unsafe operation of a railway” would further reinforce the effectiveness of expanded provisions regarding officers’ and directors’ liability.

In addition to these changes related to officers’ and directors’ liability and general offenses under the Railway Safety Act, the safety related order powers of the Minister of Transport and provisions related to public access to information need to be significantly strengthened and the consultation and appeal processes for the railways streamlined. Clear reporting and approval requirements for significant changes in operations need to be established. The role of individual company developed rules in the regulatory regime requires serious re-examination.

The SMS initiative began as a well-intended effort to improve railway safety performance, grounded in a combination of “smart regulation” and management systems thinking prevalent in Canada and elsewhere in the OCED in the late 1990s intended to produce a “reflexive” regulatory regime. The Lac-Mégantic disaster has highlighted the extent to which in practice the initiative became a significant distraction away from Transport Canada’s traditional, but essential safety oversight functions. As such it provides a cautionary tale regarding the risks associated with pursuing these regulatory models. The disaster has made it clear that the approach requires serious reconsideration if it is to ensure safety in the transportation sector.