Decisions

TATC File No. O-3081-41
MoT File No. PAP5504-053311

TRANSPORTATION APPEAL TRIBUNAL OF CANADA

BETWEEN:

Insight Instrument Corporation, Applicant

- and -

Minister of Transport, Respondent

LEGISLATION:
Aeronautics Act, R.S.C. 1985, c. A-2, s. 7.7
Canadian Aviation Regulations, SOR/96-433, s. 573.09

Routine Conformance Audit, Limitation Period, Internal audits, Approved maintenance organization (AMO)


Review Determination
Richard F. Willems


Decision: September 14, 2005

I find that Insight Instrument Corporation did contravene section 573.09 of the Canadian Aviation Regulations. Due to the mitigating issues created by Transport Canada's actions, I decrease the monetary penalty from $1,250.00 to $400.00. This amount is to be made payable to the Receiver General for Canada and must be received by the Transportation Appeal Tribunal of Canada within thirty-five days of service of this determination.

A review hearing on the above matter was held June 1 and 2, 2005 at 10:00 hours, at the Holiday Inn in St. Catharines, Ontario.

BACKGROUND

During the period of February 9 to 13, 2004, the Aircraft Maintenance & Manufacturing division of Transport Canada conducted a routine conformance specialty audit of Insight Instrument Corporation [hereinafter Insight] at their facility in Fort Erie. The audit manager, Mr. Graham McBride, held the exit meeting on February 13, 2004, and in attendance were Mr. Tom Cale and Mr. Imi Waljee for Transport Canada, and Mr. Youngquist and Mr. Ron Roberge representing Insight. Insight was informed that there were two significant issues that were of concern to Transport Canada as a result of the audit. The one we are dealing with today is as follows:

The company had not conducted the internal audits as required by the regulations and their approved quality assurance program, as listed in their Quality Program Manual, since 2001.

Transport Canada's approvals for various functions are based on manuals submitted to Transport Canada which identify how the company is going to abide by the regulatory requirements to hold these approvals. Once Transport Canada approves these manuals, the company is then required to follow the policies set. Failure to do so can initiate regulatory action against the certificate holder.

The following is a time line of the events that took place after the audit in February 2004:

May 10, 2004  -   Insight receives notice that there is a possible violation under section 573.09 of the Canadian Aviation Regulations (CARs) with regards to internal audits.

June 10, 2004  -   Transport Canada receives correspondence from Insight to which is attached a Mandatory Inspection Report by Mr. Cale of Transport Canada which indicates no problems with regards to internal audits as of May 16, 2002.

June 23, 2004  -   Mr. Miller asks Insight to send him more documentation to show that these internal audits were done.

July 2, 2004  -   A letter is sent from Mr. Roberge to Mr. Miller with the requested documentation attached. It is a Supplier Quality Evaluation for Cessna.

September 7, 2004  -  Mr. Waljee closes the Routine Conformance Audit of February 9 to 13, 2004, and states that the audit findings have been corrected through the Corrective Action Plan, and that the corrections have been found acceptable.

November 18, 2004  -   The charge of failing to conduct internal audits from September 17, 2001 to February 3, 2004 is laid. This information is taken from the audit of February 9 to 13, 2004.

MOTION

Mr. Youngquist put forward a motion to dismiss all charges due to the fact that some of the charges took place prior to November 18, 2003.

Mr. Lipiec agreed to discount all evidence prior to November 18, 2003.

Section 26 of the Aeronautics Act states:

No proceedings under sections 7.6 to 8.2 or by way of summary conviction under this Act may be instituted after twelve months from the time when the subject-matter of the proceedings arose.

Motion was denied.

In looking further into this matter, I find the following:

If one subscribes to the view that the Notice of Assessment of Monetary Penalty from Transport Canada must be issued within 12 months of the time when the subject-matter of the proceedings (the alleged contravention) arose. The Notice is dated November 18, 2004. The audit took place from February 9 to 13, 2004. During this audit, on page QP418, para 3.1 of the Quality Self Audit Report, we find the following: "Audit done annually – NO – last audit Sept 17/2001". This is signed by Debbie McNaul on February 3, 2004. I take this to be the date of the internal audit as it applies to the charge laid.

The subject-matter first arose on February 3, 2004 when discovered by Ms. McNaul, and again on the audit of February 9 to 13, 2004. Both of these dates fall into the twelve-month time frame.

THE LAW

Section 573.09 of the CARs states:

An approved maintenance organization (AMO) certificate holder shall establish a quality assurance program to verify and ensure that maintenance and its administration continue to comply with these Regulations, in accordance with the standards set out in Chapter 573 of the Airworthiness Manual.

Subparagraph 573.09(2)(f)(ii) of the Airworthiness Manual states:

573.09 Quality Assurance Program

[...]

(2) The program must:
[...]
(f) employ audit checklists to identify all functions controlled by the MPM. Having regard to the complexity of the AMO's activities, checklists must be sufficiently detailed to ensure that all maintenance functions are addressed. Specifically, the program must include the following elements:
[...]
(ii) a recurring cycle of further internal audits, conducted at intervals established in the approved MPM;
[...]

Insight's approved MPM, known as the Quality Program Manual, under the heading "Quality Program Procedures", at QP 418 entitled "Quality Management Audit" found at paragraph "S" of the Manual, outlines Insight's method to be used for monitoring the successful implementation and effectiveness of its own quality program. It states that:

... It is the responsibility of the Quality Manager to design, and direct the review of each element of the quality program on a progressive basis, over a one year period.

This procedure details the method of audit, records to be maintained, responsibilities for analysis of audit data, and corrective action process to be followed. Audit reports will be provided to the Quality Manager who is responsible for initiating any corrective action indicated by the audit data.

In the Regulatory Audit Report at page 15, "Quality Procedure QP 418, in detail, states at section 3.A:

Auditing will be accomplished by the use of the Insight Quality Self Audit Report form... The form is arranged such that elements of the quality system may be audited individually, or in groups, so that the full system is reviewed in one year. This cycle of auditing is then repeated for another one year period ....

ISSUE

Did Insight perform internal audits as required by its Quality Program Manual?

EVIDENCE

The Minister

In the minutes of the exit meeting (Exhibit M-2), it is stated that Mr. Youngquist had informed Transport Canada that internal audits were not being conducted. He had not had any returns and no Airworthiness Directives were issued against their products and therefore they did not see it as being a priority to conduct internal audits. While under oath, Mr. Youngquist did not deny this statement.

In QP418 of the Quality Self Audit Report (Exhibit M-6), where it asks if audits are done annually, Ms. McNaul indicates "No" and comments "Last audit Sept 17/2001. This document is signed by Ms. McNaul and Mr. Roberge.

In an interview on February 1, 2004 by Mr. McBride and Mr. Cale, Mr. Roberge, Insight Quality Manager and person responsible for maintenance (PRM), tells them that the company had not conducted internal audits for the years 2002 and 2003. He also states that the last internal audit was completed in September of 2001 (Exhibit M-7).

The Applicant

Subsequent to the audit, Insight, in a letter dated June 10, 2004 (Exhibit M-11), advises Transport Canada that they have documentation to show that they in fact did internal audits in the time frame of September 17, 2001 to February 2, 2004. Attached to this document, for the year 2002, is a Mandatory Inspection Report, signed by Thomas Cale, indicating that as of May 16, 2002, the QA-Internal audits were "OK". I accept Mr. Waljee's explanation that this document indicates that Mr. Cale had found that at the time the company was still in compliance due to the fact they had until December 31 of that year to complete their internal audit. A discussion at this point took place as whether Insight could use a fiscal year instead of the calendar year. Mr. Waljee explained that a fiscal year could be used if it was defined in their Quality Program Manual. The Manual states that "it is the responsibility of the Quality Manager to design, and direct the review of, each element of the quality program on a progressive basis, over a one year period." Since no more definition is given, I will accept Mr. Waljee's definition that it defaults to the calendar year.

Insight argues they did an internal audit in 2003 and asks us to accept the Cessna Supplier Quality Evaluation (Exhibit M-13) as proof that they were doing internal audits, which in their view, is an audit that is equivalent or better than Transport Canada's.

The only internal audit acceptable would be by the use of the approved Quality Self Audit Report. Insight agreed to comply with the approved procedures and limitations specified in its Quality Program Manual, when it received its Certificate of Approval, AMO 42-90, from Transport Canada. Transport Canada is tasked with creating standards in the aviation industry. With this in mind they create procedures and regulations to insure these standards are maintained. If Transport Canada would allow every company to use audits of their choice, whether it is a self-written audit, not approved by Transport Canada, or as in this case an audit done by Cessna, they would be unable to create or maintain a standard. I will not accept the Cessna Audit.

DETERMINATION

I find that Insight did contravene section 573.09 of the CARs.

I accepted Exhibit D-4 from Mr. Youngquist (Brief of Submissions). However, he did not address it while under oath, nor did Mr. Lipiec speak to it, as he did not cross-examine Mr. Youngquist. As a result it was not taken into account in this decision.

SANCTION

While I agree with the Minister that Insight did not conduct internal audits from September 17, 2001 to February 4, 2004, the letter dated September 7, 2004 (Exhibit D-3) from Mr. Waljee to Insight does cause me some concern. In this letter he states that the audit findings of Transport Canada's audit of Insight in February 2004 have been corrected, the corrections have been found acceptable, and that the audit is now considered closed. Mr. Waljee, under cross-examination, attempted to separate Insight's 2003 and 2004 internal audit from the Transport Canada February 2004 audit. I do not accept that explanation. I find that the problem with Insight's 2002 and 2003 internal audits was uncovered by the February 2004 Transport Canada audit and therefore is part of that audit.

On November 18, 2004, the charge concerning Insight's internal audits discovered by the February 2004 audit, was laid.

While I do not believe that this confusion defeats the monetary penalty itself, I do believe it should alert Transport Canada to reconsider its internal policies. As well, Insight must be put on notice to abide by the terms by which Transport Canada issued its AMO.

Due to the mitigating issues created by Transport Canada's actions, I decrease the monetary penalty from $1,250.00 to $400.00.

September 14, 2005

Richard F. Willems
Member
Transportation Appeal Tribunal of Canada


Appeal decision
Faye H. Smith, Hebb C. Russell, William H. Fellows


Decision: March 28, 2006

The Appeal is dismissed and the monetary penalty in the amount of $400.00 as assessed by the Tribunal Member at review is upheld. This amount is to be made payable to the Receiver General for Canada and must be received by the Transportation Appeal Tribunal of Canada within fifteen days of service of this decision.

The appeal hearing in the above matter was held Monday, January 23, 2006 at 10:00 hours at the Federal Court of Canada, in Toronto, Ontario.

BACKGROUND

Insight Instrument Corporation (hereinafter Insight) is located in Fort Erie, Ontario, and has been an aviation related business as a manufacturer of specialty instruments for aircraft from 1980 to present. Insight is also an approved maintenance organization (hereinafter AMO) as approved by the Minister of Transport (hereinafter Transport Canada) and provides repair service for its manufactured products. Insight was granted an AMO in 1990 and has held this approval since then.

As with all AMOs, from time to time Transport Canada inspectors conduct mandatory on-site conformance specialty audits to ensure compliance with Canadian Aviation Regulations (CARs) as applied to aviation maintenance facilities.

In addition to on-site conformance audits, AMOs are further mandated to perform annual "internal", self-conducted audits to ensure their AMOs remain in compliance. Procedural requirements for such "internal" audits are prepared by the AMO; subsequently approved by Transport Canada; and published within a Quality Program Manual (QPM) specific to each AMO. Compliance with both conformance audits and annual "internal" audits is integral to Transport Canada approval of AMOs.

During the period of February 9 to 13, 2004, Transport Canada conducted a routine conformance specialty audit of Insight at their facility in Fort Erie. When this audit at Insight was concluded, an exit meeting between Transport Canada and Insight representatives was held to review audit results. Transport Canada advised that they found several non-compliance issues. One major non-compliance issue was a finding that they had not conducted internal audits as required by the regulations and as required by the company's approved quality assurance program as listed in their QPM since 2001.

The company was advised that in an interview on February 11, 2004 with Mr. McBride and Mr. Cale, Mr. Roberge [Insight's quality manager and person responsible for maintenance (PRM)] told the others that the company had not conducted internal audits for the years 2002 and 2003. He also stated that the last internal audit was completed in September of 2001. Other non-compliance issues were discussed, and Insight was granted a grace period to correct them as they were deemed of lesser import.

On May 10, 2004, Insight received notice from Transport Canada about a possible violation under section 573.09 of the CARs with regard to internal audits not being done since 2001.

On June 10, 2004, Insight sent previous documentation from Transport Canada dated May 16, 2002 indicating no problems with internal audits at that time.

On June 23, 2004, Transport Canada asked Insight to provide further documentation verifying that internal audits were done in the time period 2001 to 2004.

On July 2, 2004, Insight sent Transport Canada documentation showing an internal audit was performed in 2003. This documentation was a "manufacturing" audit requested in 1993 by Cessna Corporation, an aircraft manufacturer located in the United States, to evaluate Insight for approval as a supplier.

On September 7, 2004, Transport Canada Superintendent Mr. I. Waljee advised Insight its routine conformance audit of February 9 to 13, 2004 was closed, stating that minor non-conformance discrepancies had been corrected within the corrective action plan grace period, and corrections were found acceptable.

A Notice of Assessment of Monetary Penalty dated November 18, 2004 was issued against Insight alleging that internal audits from September 17, 2001 to February 3, 2004 had not been done and the monetary penalty was assessed to be $1,250.00 for the failure to conduct annual audits as required by the Airworthiness Manual at subparagraph 573.09(2)(f)(ii).

Insight filed for review by the Tribunal and the review hearing was conducted on June 1 and 2, 2005. The Tribunal Member in his determination dated September 14, 2005 confirmed the Minister's allegation and finding mitigating circumstances, reduced the assessed penalty to $400.00.

GROUNDS FOR APPEAL

By Notice of Appeal dated October 19, 2005, Insight appealed the Tribunal Member's decision on the following grounds:

The provisions in the Aeronautics Act which define the time limit for laying charges of the type made against this company (in the Notice of Assessment of Monetary Penalty dated November 18, 2004) were not interpreted correctly. The Tribunal has jurisdiction to confirm the penalty assessed only if the charge specifies an alleged violation within the 12 month period prior to the date it is laid. The charge improperly refers to a 38 month period prior to its date, and should have been dismissed in its entirety as invalid;

  • the limitation period provisions were also not interpreted correctly when the Hearing Officer concluded that the date of discovery in February 2004 should be considered the "date on which the subject matter arose" for purposes of applying the time limit. The subject matter of the charge was alleged failure to conduct recurring annual internal audits starting from September 2001. All of the alleged wrongful activity referred to in the Review Determination falls outside and beyond the twelve month limitation period defined in the Aeronautics Act. The time limit for such a charge expired after twelve months, regardless of whether the alleged contravention had been discovered by that time;
  • the Hearing Officer failed to properly interpret and apply the internal audit requirements defined in 573.09 of the Airworthiness Manual, as elaborated in this company's Quality Program Manual, and failed to properly apply the limitation period provisions in the Aeronautics Act as a result. The Review Determination identifies September 2001 as the date of the last internal audit considered acceptable by Transport Canada. The Airworthiness Manual provisions called up in the QPM require completion of recurring internal audits during each one year period, and therefore each succeeding audit was to be completed on or before September 17 of the following year. Within the 38 month period specified in the charge, the one year period from September 2002 to September 2003 was the last audit interval which could have been the subject matter for the charge. The limitation period for alleged violation during that interval expired before the charge was laid;
  • the Hearing Officer failed to provide a hearing consistent with procedural fairness and natural justice when he refused to accept this company's written submissions concerning the proper application of the limitation period provisions under the Aeronautics Act and their effect on his jurisdiction to conduct a review hearing, and the Hearing Officer acted capriciously when he refused to give any consideration to those written submissions after they were marked as an exhibit for the record at the hearing;
  • the Hearing Officer failed to apply the spirit and intent of the Airworthiness Manual requirements for internal audits when he rejected the equivalent internal audit which was conducted by this company in 2003, to satisfy a major client's requirements.

THE LAW

Section 573.09 of the CARs states:

An approved maintenance organization (AMO) certificate holder shall establish a quality assurance program to verify and ensure that maintenance and its administration continue to comply with these Regulations, in accordance with the standards set out in Chapter 573 of the Airworthiness Manual.

Subparagraph 573.09 (2) (f) (ii) of the Airworthiness Manual states:

573.09 Quality Assurance Program

[...]

(2) The program must:

[...]

(f) employ audit checklists to identify all functions controlled by the MPM. Having regard to the complexity of the AMO's activities, checklists must be sufficiently detailed to ensure that all maintenance functions are addressed. Specifically, the program must include the following elements:

[...]

(ii) a recurring cycle of further internal audits, conducted at intervals established in the approved MPM;

[...]

Insight's approved MPM, known as the QPM, under the heading "Quality Program procedures", at QP 418 entitled "Quality Program Audit" at paragraph "S" of the Manual, outlines Insight's approved method used to monitor veracity and effectiveness of its quality program. It reads as follows:

... It is the responsibility of the Quality Manager to design, and direct the review of each element of the quality program on a progressive basis, over a one year period.

This procedure details the method of audit, records to be maintained, responsibilities for analysis of audit data, and corrective action process to be followed. Audit reports will be provided to the Quality Manager who is responsible for initiating any corrective action indicated by the audit data.

In the Regulatory Audit Report at page 15, "Quality QP 418 states at section 3.A:

Auditing will be accomplished by the use of the Insight Quality Self Audit Report form... The form is arranged such that elements of the quality system may be audited individually, or in groups, so that the full system is reviewed in one year. This cycle of auditing is then repeated for another one year period ....

PRELIMINARY MOTION

Mr. Dawe, on behalf of the appellant, brought a motion to file new evidence at the appeal level, pursuant to section 14 of the Transportation Appeal Tribunal of Canada Act, which states as follows:

An appeal shall be on the merits based on the record of the proceedings before the member from whose determination the appeal is taken, but the appeal panel shall allow oral argument and, if it considers it necessary for the purposes of the appeal, shall hear evidence not previously available.

The document sought to be filed was the original certificate of Insight issued on October 28, 1999 which Mr. Dawe stated was not in the disclosure package and he deemed it relevant to determine when the 12-month audit period started to run. Mr. Dawe submitted that at the Review Hearing in June, 2005, Transport Canada's Exhibit M-3 contained documents illustrating a revision history for Insight's AMO, but did not include a copy of its original AMO certificate issued on October 28, 1999. The motion asked that Insight's original AMO certificate be allowed as additional evidence in this matter.

Mr. Dawe stated the date shown on the original AMO certificate (October 28, 1999) must be recognized for Appeal because it identifies a kickoff or "trigger" date for Insight's first internal audit. He further stated that Insight's approved QPM does not contain specific reference that internal audits occur during a "calendar year", i.e. January through December, or throughout a "rolling year", i.e., a 12-month period beginning at any given month during a year. Transport Canada may consider "calendar year" as a rule of thumb or guideline, but nowhere is it specified in any statute, i.e., CARs 573.09, or within Insight's QPM.

The initial approval date for Insight's AMO is beyond the limitation period specified in section 26 of the Aeronautics Act, and lack of awareness could hinder the appeal panel in considering the matter under appeal. Mr. Dawe submitted that allowing this document into evidence answers the question: What is the official kickoff date for Insight's annual internal audits?

The Minister's representative responded that all relevant material was disclosed to Insight in a timely manner. She further stated that Insight's original AMO certificate was irrelevant as the matters were regularized with the introduction of the CARs in 1998 and from that date on, the audit had to be done annually.

She stated that it was shown in evidence during the review hearing that Insight was required to do annual internal audits beginning the first year following its being granted AMO approval in 1998 under CARs. In 1998/99 a new CARs database was created by Transport Canada, thus the actual AMO approval certificate for Insight was dated 1999, but the requirement for annual internal audits began in 1998.

Ms. Caminsky noted had this document been necessary it should have been put on record during the review hearing. Prior to the review hearing, it was in possession of the appellant and was available as evidence for the review hearing if so desired by the appellant.

RULING

The Tribunal notes that introduction of new evidence in appeals is rarely allowed, and past decisions permitting it, take into consideration unique and extenuating circumstances.

In the matter currently before this Tribunal, the document Mr. Dawe proposed to introduce was previously known to and in Insight's possession. There is no question that Insight was fully aware of its existence. Had Insight wished to present its AMO certificate as evidence, it was free to do so during the review hearing. Following an adjournment, this panel denied Mr. Dawe's preliminary motion to introduce Insight's original AMO certificate as new evidence.

APPELLANT'S SUBMISSIONS

Key issues raised during Mr. Dawe's presentation on Insight's behalf were as follows:

As determined at the review hearing, section 26 of the Aeronautics Act limits the scope of evidence and charges to a period of one year backdated from the date that Transport Canada commenced its proceedings against Insight on November 18, 2004. It was Mr. Dawe's suggestion that the time period for the alleged offence lies between November 18, 2003 and November 18, 2004. Insight's approved QPM specifies internal audits be performed "during a twelve-month period", but does not define when this twelve-month period begins or ends.

Transport Canada's witness Mr. Waljee stated in testimony at the review hearing that unless an AMO says otherwise in its Manual, Transport Canada uses an unwritten and arbitrary policy that a "calendar year" is the defining period for internal audits. Mr. Dawe stated this illustrates that Transport Canada's interpretation of a calendar year as a "twelve-month period" is unclear, and Mr. Waljee's arbitrary use of this interpretation for purposes of Transport Canada's charge against Insight was therefore invalid. Furthermore, the Review Determination for this matter did not specify when the offence occurred during the twelve-month period defined by section 26 of the Aeronautics Act.

Insight has used a "rolling twelve-month period" as their policy in conducting internal audits, primarily because it is congruent with the date their AMO was granted several years earlier. Furthermore, a full two years could elapse using calendar year cycles, i.e. the first cycle occurs in January of the first year, and the second cycle occurs in December of the second year, thus almost 24 months have elapsed between audits. Mr. Dawe asserted that Insight's most recent internal audit was completed on February 4, 2004, and having followed its practice of rolling twelve- month intervals, Insight therefore complied with requirements under section 573.09 of the CARs for the previous twelve months.

Mr. Dawe further noted that Insight conducted a Cessna Supplier Assessment audit format during the rolling twelve-month period ending February 4, 2004. He suggested this was a very rigorous procedure and should be considered helpful in completion of Insight's audit. Insight also began an internal audit on February 4, 2004, and this was followed shortly thereafter by an on-site conformance audit by Transport Canada inspectors during February 9 to 13, 2004, which recognized the February 4, 2004 audit process as satisfactory.

Mr. Dawe also spoke to two instances where he suggested hearsay evidence had been accepted in the Review Determination. Mr. Youngquist and Mr. Roberge of Insight had each been quoted in the Determination as stating internal audits had not been done. Jurisprudence included with Mr. Dawe's written submissions, specifically High Country Fishing Ltd. v. Canada (MoT), CAT File No. W-0143-37, was used to support his assertion that both statements qualified as uncorroborated hearsay evidence.

RESPONDENT'S SUBMISSIONS

Key issues raised during Ms. Caminsky's presentation on Transport Canada's behalf were as follows:

This matter concerns audit procedures specified by CARs 573.09, and it was accepted in evidence during the review hearing that internal audits mandated therein are progressive or "continuing" in nature. As is the case in any such procedure, the end date is key to audit completion. Ms. Caminsky submitted that Transport Canada's expectation in such audits is that they be completed at the end of each calendar year. She submitted that a "continuing"offence is categorized as a contravention which "arises passively when the document holder does not do something and the contravention continues until the omission is rectified". The wording of Insight's charge was an effort to capture the continuing nature of this alleged offence. Ms. Caminsky's contention is that if the offence is deemed to be "continuous" in nature, Insight's failure to do an internal audit by the end of 2003 resulted in a contravention on January 1, 2004.

Section 26 of the Aeronautics Act was therefore complied with by Transport Canada, in that Insight was notified of the allegations within the prescribed limitation period when the Notice dated November 18, 2004 was served on the appellant.

The Review Determination properly interpreted and applied the internal audit requirements as defined in section 573.09, and there were no errors in its Determination which should be reversed.

Ms. Caminsky submitted the review hearing was conducted in a manner consistent with procedural fairness and natural justice, and did not deprive Insight of those precepts when it refused to accept Insight's written submissions at that hearing. Those precepts were satisfied when the Member listened to Insight's verbal presentations on the matter throughout the hearing. The Review Determination was not wrong in rejecting the Cessna audit procedure used by Insight in 2003, because Cessna's audit did not meet requirements as set out in CARs 573.09, and as such, it was not an approved Transport Canada audit procedure, and therefore not acceptable as an internal audit standard for the purposes of 573.09.

THE ISSUE

Both parties obviously put a great deal of thought into presentations before this Tribunal, addressed those issues vigorously, and provided considerable documentation in support of their respective positions in this matter.

That said, in the opinion of the Tribunal, the crux of this matter boils down to two questions:

1) Was the Review Member correct in upholding Transport Canada's charge that Insight did not perform mandated internal audits in accordance with format, procedures, and timelines consistent with CARs 573.09?; and

2) What was the appropriate twelve-month timeline within which internal audits were required to be completed? Was it within a calendar year, or within a rolling twelve month period? In this regard, a difference of interpretation between the parties is a pivotal issue, and the Tribunal must resolve this issue in order to rule on the matter before it.

DISCUSSION

We agree with the Minister's submission that the Tribunal Member's failure to consider the company's written submissions did not deprive the appellant of procedural fairness and natural justice since its verbal presentation covered all of these matters.

The Tribunal accepts that audits are a continuing process, not a singular event. They are formal examinations of a broad spectrum of activities and used by those who conduct them in a wide variety of applications. Audits review the present for shortcomings, and frame the basis of future remedial action, thus the end of an audit merely starts the next step in the process, namely, acting on findings. In the matter before the Tribunal, internal audits by AMOs are a very important function in Transport Canada's efforts to maintain aviation safety at the highest levels. The Tribunal agrees with Transport Canada's premise that the end of an audit is a key component of a continuing process comprised of conducting reviews and acting on their findings.

There is no doubt that Insight has been in possession of a valid AMO since 1990. Because of a revision in the CARs, an amended AMO approval was provided to Insight in 1998, and that event was followed by a revised AMO certificate being provided on October 28, 1999. As stated with its reasons for denying the motion to introduce the AMO certificate dated October 28, 1999, this panel holds that the date of this document should not be regarded as a trigger date for Insight's annual internal audits in subsequent years.

The Cessna Supplier Qualification Audit which Insight completed in 2003, while undoubtedly a rigorous exercise for Cessna's purposes, is not an approved procedure under CARs, nor is it specified as such within Insight's approved QPM. Consequently, we find that the Cessna audit cannot be considered as verification of an audit by Insight during 2003.

Mr. Dawe raised the issue of hearsay evidence allowed in the Review Determination. This applied to statements allegedly made by Mr. Youngquist during a February 13, 2004 exit meeting with Transport Canada inspectors following an on-site compliance audit during February 9 to 13, 2004. These were recorded in minutes of that meeting by Transport Canada's Mr. Waljee. The statement was recorded as follows:

The company's president informed Transport Canada that the internal audits were not being conducted as the company was undergoing a loss in business and revenues, and that all resources were being applied in the production of work, rather than meeting the regulatory obligations.

The company president added, that they had not had any returns and no Airworthiness Directives were issued against their products and therefore they did not see it as being a priority to conduct internal audits.

The accuracy of these minutes was disputed by Mr. Younquist during the Review Hearing when that document was introduced as Transport Canada's Exhibit M-2, although he did not specifically deny saying what was attributed to himself.

These meeting minutes also noted that Mr. Younquist and Mr. Roberge were notified that the compliance audit had disclosed two significant issues of concern. One of these issues applied to Insight's AMO, in that no internal audits were conducted since 2001 as required by CARs 573.09 and Insight's Quality Assurance Program. The other issue concerned missing documentation as applied to Insight's manufacturer approval for an Insight product. It is noted that Insight provided the necessary documentation for the second issue subsequent to this meeting, and Transport Canada then notified Insight the audit was closed. Evidently, Insight was aware of at least some of the items which were discussed at the exit meeting.

The transcript record shows that during the review hearing, an Insight quality manager, Ms. Deborah McNaul, testified under examination by Transport Canada's representative that she had assisted Mr. Roberge in Insight's internal audit during February 2004. During that audit, she had not been able to find any record of internal audits done at Insight between 2001 and February 2004, and had confirmed that in writing on the 2004 internal audit report. Under cross- examination, Ms. McNaul stated she had found only the 2003 audit for Cessna Corporation prior to the 2004 audit. Furthermore, her testimony relating to the missing internal audits was challenged in cross-examination as resulting from inexperience in doing internal audits.

We think that it is therefore moot that: (a) minutes recorded by Transport Canada qualify as hearsay, and (b) Ms. McNaul's inexperience resulted in her inability to find any record of Insight's internal audits since 2001. Ms. McNaul did, however, report finding records of the 2003 Cessna supplier qualification audit, and this was not challenged during the review hearing. Insight asserted this was evidence of audit activity in 2003, but it is our view that this contention is invalid because we believe that the Cessna procedure does not qualify as an annual audit under CARs 573.09, and is not written into Insight's approved QPM.

A rationale discussed by Mr.Dawe to show calendar year audit cycles could allow a full two years to elapse between audits also applies equally to rolling twelve-month cycles, hence we do not see this as a valid reason to support use of one method over the other.

Insight has been a manufacturer of aviation products continually since 1980; a span of more than twenty-five years. Furthermore, Insight has held an AMO since 1990, a span of more than fifteen years. It is reasonable to believe that Insight's management and staff would be familiar with Transport Canada's policies and expectations with respect to regulatory compliance over such a long period. Furthermore, in 1998 a change was made in CARs procedures when, among other issues, a requirement for annual internal audits was introduced. It is equally reasonable for this panel to believe that Insight would be familiar with Transport Canada's expectations and policies under this revised procedure as well.

Such a long-term working relationship between these two parties is not entirely congruent with both Insight's assertion that it was unclear as to trigger dates and time spans for annual internal audits, and where Transport Canada stated its arbitrary internal audit policy was a calendar year.

The Tribunal asserts that a calendar year would, by default, apply to internal audits as specified in CARs 573.09. Furthermore, if Insight was, as stated in testimony and argument, unclear as to which policy to use for its internal audits, then Insight should have sought clarification from Transport Canada instead of arbitrarily adopting its own interpretation. At the same time, Transport Canada shares some responsibility in the matter because it apparently did not clarify the issue for Insight over many years of monitoring Insight's compliance with the CARs.

In the review determination, the misunderstanding between Insight and Transport Canada was given consideration when the monetary fine imposed with the offence was reduced due to "mitigating circumstances".

It is understood and accepted by both parties that section 26 of the Aeronautics Act limits Transport Canada's charge in this matter to a twelve-month period backdated from November 18, 2004. At the same time, we find that the internal audits under CARs 573.09 must be completed within and by the end of a calendar year. This confirms that an internal audit Insight conducted in February 2004 satisfies CARs 573.09 compliance during calendar year 2004, and audit activity by Insight in 2004 applies to calendar year 2004.

That said, what internal audits, if any, were done by Insight between November 18, 2003 and the end of calendar year 2003? This is an important question, given that we hold that Insight had until the end of 2003 to complete an internal audit for that calendar year.

Evidence was adduced during the review hearing showing that no audits occurred from November 18 to December 31, 2003. Evidence also showed that Insight completed a supplier qualification audit for Cessna Corporation prior to November 18, 2003, and no other internal audit activity occurred during the entire 2003 calendar year. That the Cessna audit was ruled invalid by Transport Canada was upheld by the Tribunal Member at review. We therefore concur that for all intents and purposes no Transport Canada approved internal audit process was conducted by Insight during the entire calendar year 2003.

CONCLUSION

This Tribunal agrees that AMOs are required to conduct annual internal audits on a calendar year cycle unless a different timeline is written into their Transport Canada approved quality manuals. Insight had no specific timeline written in its manual. Transport Canada had arbitrarily adopted a calendar year cycle. It is the view of this panel that Insight should have sought further clarification because the regulation specifically refers to "a recurring cycle of further internal audits, conducted at intervals established in the approved MPM".

Consequently, we the panel hold that Insight was required to conduct an approved internal audit during the calendar year 2003, and did not do so either before November 18, 2003 or between that date and December 31, 2003, thus committing a breach of CARs 573.09.

Therefore, we find that Insight failed to conduct an annual internal audit before the end of calendar year 2003, as per CARs 573.09 as alleged by Transport Canada. Accordingly, the Appeal is dismissed and the monetary penalty in the amount of $400.00 as assessed by the Tribunal Member at review is upheld.

March 28, 2006

Reasons for Appeal Decision by:

William H. Fellows, Member

Concurred:

Faye Smith, Chairperson
Hebb C. Russell, Member


Federal Court of Canada (T)


Decision:

Date: 20080129

Docket: T-746-06

Citation: 2008 FC 109

Ottawa, Ontario, January 29, 2008

PRESENT:   The Honourable Mr. Justice O'Reilly

BETWEEN:

INSIGHT INSTRUMENT CORPORATION

Applicant

and

MINISTER OF TRANSPORT

Respondent

REASONS FOR JUDGMENT AND JUDGMENT

[1] Insight Instrument Corporation manufactures specialty instruments for small aircraft. Since 1990, Transport Canada has designated Insight as an approved maintenance organization (AMO). Insight's AMO status requires it to comply with its Quality Program Manual (QPM), which includes periodic self audits (s. 573.09, Canadian Aviation Regulations, 1996, SOR 96-433; incorporating subparagraphs 573.09(2)(f)(i) and (ii) of the Airworthiness Manual; relevant enactments are set out in an Annex). In turn, inspectors from Transport Canada carry out conformance audits to ensure that AMOs are complying with their QPMs.

[2] In February 2004, an inspector found that Insight had not carried out a self-audit between September 2001 and February 2004. Transport Canada issued a Notice of Assessment of a Monetary Penalty ($1250.00) to Insight in November 2004 (under s. 7.7 of the Aeronautics Act, R.S.C. 1985, c. A-2). Insight sought to review that decision before the Transportation Appeal Tribunal of Canada (TATC). The TATC member confirmed the assessment but reduced the amount to $400.00. Insight appealed to the TATC Appeal Panel. The Appeal Panel dismissed the appeal.

[3] Insight argues that the Appeal Panel erred in finding that it had not carried out a self-audit during the relevant time period. Insight also submits that the one-year limitation period in s. 26 of the Aeronautics Act, should have precluded Transport Canada from initiating any proceedings against it for alleged non-compliance. Insight asks me to overturn the Appeal Panel's decision and order a new hearing before a different panel. I can find no basis for doing so, however, and must, therefore, dismiss this application for judicial review.

I.   Issues

  1. Did the Appeal Panel err in finding that Insight had failed to carry out a self-audit during the relevant period?
  2. Did the Appeal Panel err when it found that the proceedings were not outside the one-year limitation period?

[4] In addition to these main issues, Insight raised a preliminary question about an affidavit filed by Transport Canada for purposes of this judicial review. Insight argues that I should draw an adverse inference from the fact that the affidavit and supporting exhibits, sworn by Mr. Imtiazali Waljee and which make reference to Insight's compliance history, are incomplete and should have been disclosed earlier. Transport Canada submits that the affidavit was intended to address certain representations made by Insight's deponent, Mr. John Youngquist, in the affidavit filed in support of the application for judicial review. In addition, Transport Canada notes that the information contained in the Waljee affidavit was, in any case, in Insight's possession and could have been presented and supplemented if Insight believed it supported its position.

[5] Insight concedes that the information in the Waljee affidavit constitutes fresh evidence before me. There exists a well-established rule that an application for judicial review must be decided on the basis of the record before the decision-maker. Both parties had ample opportunity to present evidence before the tribunals below. I see no reason to receive fresh evidence at this point nor any basis for drawing an adverse inference from the conduct of the parties in respect of the evidence they previously submitted or chose not to submit.

I. Analysis

1. Did the Appeal Panel err in finding that Insight had failed to carry out a self-audit during the relevant period?

(a) The Decision of the TATC

[6] Insight's QPM requires it to carry out an audit of its quality assurance program over a "one year period". Insight carried out an audit in 2003, which it says satisfied its obligation for that year. The 2003 audit was conducted for the benefit of the Cessna Corporation which was evaluating Insight's operations to determine if it would be a suitable supplier to Cessna. The TATC found that the evaluation done for Cessna in 2003 was not an acceptable substitute for the self-audit required under the QPM. The member was of the view that audits should be carried out according to a standard procedure. If the Cessna audit were to satisfy Insight's self-audit obligation, other AMOs could put forward their own versions of self-audits and there would cease to be a standard reporting requirement. This would be contrary to the purposes of the Aeronautics Act and Regulations, which are aimed at setting uniform standards across the aviation industry.

[7] The TATC found that Insight had contravened s. 573.09 of the Regulations. It also found that Transport Canada's own conduct was problematic in that it had advised Insight in September 2004 that Insight had satisfactorily corrected the shortcomings noted in the February 2004 inspection. Subsequently, Transport Canada advised Insight that it was in contravention of its QPM because of its failure to carry out a self-audit. In light of this confusion, the Member reduced Insight's monetary penalty from $1250.00 to $400.00.

(b)  The Decision of the Appeal Panel

[8] The Appeal Panel found that while the Cessna audit was a "rigorous exercise" it did not fulfill Insight's obligation to carry out a self-audit under the Regulations and its own QPM. The Panel rejected Insight's submission that the "one-year" period for self-assessments was not necessarily a calendar year, as well as its suggestion that there was confusion about when audits were required. The Panel agreed with Transport Canada that the one-year period should be interpreted as a calendar year unless specified otherwise in a QPM.

[9] The Panel also noted that Insight had been in the aviation manufacturing business since 1980 and had held its AMO status since 1990. If there had been actual confusion about the requirement for yearly audits, Insight could have asked Transport Canada for clarification. The fact that Transport Canada could have taken the initiative to make Insight's obligation clearer, and had failed to do so, had already been taken into account in determining the amount of the monetary penalty.

(c)  Discussion and Conclusion

[10]   I can overturn the Appeal Panel's finding that Insight had contravened the Act if I conclude that it was unreasonable: Hudgin v. Canada (Minister of Transport) 2002 FCA 102, [2002] F.C.J. No. 369 (F.C.A.) (QL); Asselin v. Canada (Minister of Transport), [2000] F.C.J. No. 256 (F.C.T.D.) (QL); Butterfield v. Canada (Attorney General), 2006 FC 894, [2006] F.C.J. No. 1132 (F.C.) (QL).

[11]   In my view, the Appeal Panel's conclusion was reasonable. Insight may well have considered the Cessna audit to have been rigorous and assumed that it had done enough self-analysis in 2003 to satisfy its regulatory obligations. Further, it might well have thought that it was entitled to carry out self-audits within rolling twelve-month periods. However, I cannot conclude that the Appeal Panel's characterization of the Cessna audit was unreasonable. Further, if Insight had wished to establish a reporting period other than a calendar year, it could easily have done so by amending its QPM.

2.  Did the Appeal Panel err when it found that the proceedings were not outside the one-year limitation period?

(a) The Decision of the TATC

[12]   The TATC noted that s. 26 of the Aeronautics Act states that no proceedings can be commenced "after twelve months from the time when the subject-matter of the proceedings arose". Insight was informed of the assessment of a monetary penalty in November 2004. Given that Insight's alleged non-compliance with the self-audit obligation had come to light in February 2004, the TATC found that proceedings against Insight had been properly commenced within twelve months of that inspection.

(b) The Decision of the Appeal Panel

[13]   Before the Appeal Panel, Insight argued that any non-compliance with the Act or Regulations was out of time in November 2004. It said that it had completed a self-audit in February 2004 and, given that it had an obligation to conduct audits over a one-year period, any non-compliance must have occurred prior to February 2003. Proceedings in relation to any such non-compliance could not, therefore, be commenced any time after February 2004.

[14]   Given its conclusion that self-audits must be carried out within each calendar year, the Appeal Panel found that the February 2004 audit satisfied Insight's obligations for the year 2004. The question was whether Insight had complied with its obligation to conduct a self-audit in 2003. The Appeal Panel found that there was no evidence of Insight's compliance with that obligation in the twelve months prior to the date when proceedings were commenced against Insight (i.e. after November 17, 2003) or, for that matter, earlier in 2003, having already rejected the proposition that the 2003 Cessna audit could be considered a self-audit for purposes of the Regulations. Accordingly, at the end of 2003, Insight was in a situation of non-compliance and proceedings against it could be commenced within the ensuing twelve months. The notice of assessment, dated November 28, 2004 was, therefore, valid.

(c)  Discussion and Conclusion

[15]   On this issue, which involves the interpretation of a statutory limitation period, I can overturn the Appeal Panel's decision if I find that it was incorrect. To repeat, s. 26 states that no proceedings "may be instituted after twelve months from the time when the subject-matter of the proceedings arose."

[16]   I agree with the Appeal Panel's conclusion that the "subject matter" referred to in s. 26 is a contravention of the regulations. Accordingly, proceedings must be commenced within twelve months of an infraction. Here, the proceedings were commenced in November 2004, less than eleven months after the end of 2003. At that point, Insight, having failed to conduct a self-audit in 2003, had contravened the Act. Therefore, the proceedings were commenced within the required twelve months of the infraction and are valid.

[17]   Accordingly, this application for judicial review must be dismissed, with costs.

JUDGMENT

THIS COURT'S ORDER IS that

1. The application for judicial review is dismissed, with costs.

"James W. O'Reilly"

Judge

Annex

Canadian Aviation Regulations, 1996, SOR 96-433

573.09 (1) The holder of an approved maintenance organization (AMO) certificate shall establish and maintain a quality assurance program consisting of provisions for sampling maintenance processes to evaluate the AMO's ability to perform its maintenance in a safe manner.

(2) The person responsible for maintenance shall ensure that records relating to the findings resulting from the quality assurance program are distributed to the appropriate manager for corrective action and follow-up in accordance with the policies and procedures specified in the maintenance policy manual (MPM).

(3) The person responsible for maintenance shall establish an audit system in respect of the quality assurance program that consists of the following:

(a) an initial audit within 12 months after the date on which the AMO certificate is issued;

(b) subsequent audits conducted at intervals set out in the MPM;

(c) checklists of all activities controlled by the MPM;

(d) a record of each occurrence of compliance or non-compliance with the MPM found during an audit referred to in paragraph (a) or (b);

(e) procedures for ensuring that each finding of an audit is communicated to them and, if management functions have been assigned to another person under subsection 573.04(4) or (5), to that person;

(f) follow-up procedures for ensuring that corrective actions are effective; and

(g) a system for recording the findings of initial and periodic audits, corrective actions and follow-ups.

(4) The records required under paragraph (3)(g) shall be retained for the greater of

(a) two audit cycles; and

(b) two years.

(5) The duties related to the quality assurance program that involve specific tasks or activities within an AMO's activities shall be fulfilled by persons who are not responsible for carrying out those tasks or activities.

Canadian Aviation Regulations 2007-1

Quality Assurance Program
(amended 1998/06/01; previous version)

  573.09 (1) Pursuant to section 573.09 of the CARs, each AMO Certificate holder must establish and maintain a program to ensure that the maintenance system continues to comply with the regulations.

[…]

 (2) The program must:

[…]

(f) employ audit checklists to identify all functions controlled by the MPM. Having regard to the complexity of the AMO's activities, checklists must be sufficiently detailed to ensure that all maintenance functions are addressed. Specifically, the program must include the following elements:

(i) an initial internal audit, using the audit checklists, that covers all aspects of the AMOs technical activities, within 12 months of the date on which the certificate is issued;

(ii) a recurring cycle of further internal audits, conducted at intervals established in the approved MPM;

Aeronautics Act, R.S. 1985, c. A-2

Notice of assessment of monetary penalty

7.7 (1) If the Minister believes on reasonable grounds that a person has contravened a designated provision, the Minister may decide to assess a monetary penalty in respect of the alleged contravention, in which case the Minister shall, by personal service or by registered or certified mail sent to the person at their latest known address, notify the person of his or her decision.

Limitation period

26. No proceedings under sections 7.6 to 8.2 or by way of summary conviction under this Act may be instituted after twelve months from the time when the subject-matter of the proceedings arose

Règlements de l'aviation, 1996, DORS 96-433

573.09 (1) Le titulaire d'un certificat d'organisme de maintenance agréé (OMA) doit établir et maintenir un programme d'assurance de la qualité qui comporte des dispositions qui permettent l'échantillonnage des processus de maintenance pour évaluer la capacité de l'OMA à effectuer la maintenance d'une manière sécuritaire.

(2) Le responsable de la maintenance doit veiller à ce que les dossiers concernant les constatations qui découlent du programme d'assurance de la qualité soient distribués au gestionnaire compétent pour que des mesures correctives soient prises et que le suivi soit assuré conformément aux lignes de conduite et aux marches à suivre précisées dans le manuel de politiques de maintenance (MPM).

(3) Le responsable de la maintenance doit établir un système de vérification à l'égard du programme d'assurance de la qualité qui comprend les éléments suivants :

a) une vérification initiale dans les 12 mois qui suivent la date de délivrance du certificat OMA;

b) des vérifications ultérieures effectuées à des intervalles indiqués dans le MPM;

c) des listes de contrôle de toutes les activités régies par le MPM;

d) une inscription de chaque cas de conformité ou non-conformité avec le MPM qui est relevé au cours d'une vérification visée aux alinéas a) ou b);

e) une marche à suivre pour que chaque constatation qui découle d'une vérification lui soit communiquée et, si des fonctions de gestion ont été attribuées à une autre personne en application des paragraphes 573.04(4) ou (5), soit communiquée à cette dernière;

f) des modalités de suivi pour faire en sorte que les mesures correctives soient efficaces;

g) un système pour consigner les constatations qui découlent des vérifications initiales et des vérifications périodiques, les mesures correctives et les mesures de suivi.

(4) Les dossiers exigés par l'alinéa (3)g) sont conservés pendant la plus longue des périodes suivantes :

a) deux cycles de vérification;

b) deux ans.

(5) Les fonctions relatives au programme d'assurance de la qualité qui comportent des tâches ou activités particulières dans le cadre d'activités de l'OMA doivent être remplies par des personnes qui ne sont pas responsables de leur exécution.

Règlement de l'aviation canadien 2007-1

Programme d'assurance de la qualité
(modifié 1998/06/01; version précédente)

  573.09 (1) En vertu de l'article 573.09 du RAC, chaque titulaire de certificat d'OMA doit établir et mettre en oeuvre un programme garantissant que le système de maintenance respecte toujours la réglementation.

(2) Le programme doit :

f) prévoir l'utilisation de listes de vérifications pour identifier les fonctions dont le contrôle est défini dans le MPM. Ces listes doivent être suffisamment détaillées, en fonction de la complexité des activités de l'OMA, pour s'assurer que toutes les fonctions de maintenance sont abordées. Plus précisément, le programme doit inclure les éléments suivants :

(i) une vérification interne initiale, à l'aide des listes de vérifications, de tous les aspects des activités techniques de l'OMA, dans les 12 mois de la date de délivrance du certificat;

(ii) d'autres vérifications internes périodiques à effectuer aux intervalles établies dans le MPM approuvé;

Loi sur l'aéronautique, L.R. 1985, ch. A-2

Avis établissant le montant de l'amende

7.7 (1) Le ministre, s'il a des motifs raisonnables de croire qu'une personne a contrevenu à un texte désigné, peut décider de déterminer le montant de l'amende à payer, auquel cas il lui expédie, par signification à personne ou par courrier recommandé ou certifié à sa dernière adresse connue, un avis l'informant de la décision.

Prescription

26. Les poursuites au titre des articles 7.6 à 8.2 ou celles visant une infraction à la présente loi ou à ses règlements punissable sur déclaration de culpabilité par procédure sommaire se prescrivent par douze mois à compter de la perpétration de l'infraction.



FEDERAL COURT

NAME OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: T-746-06

STYLE OF CAUSE:   INSIGHT INSTRUMENT CORPORATION v. MINISTER OF TRANSPORT

PLACE OF HEARING:   Toronto, Ontario

DATE OF HEARING: September 25, 2007

REASONS FOR JUDGMENT

 AND JUDGMENT: O'REILLY J.

DATED: January 29, 2008

APPEARANCES:

W. Brian Dawe

FOR THE APPLICANT

Andrea Bourke

FOR THE RESPONDENT

SOLICITORS OF RECORD:

W. BRIAN DAWE

Toronto, ON

FOR THE APPLICANT

JOHN SIMS, Q.C.

DEPUTY ATTORNEY GENERAL

Toronto, ON

FOR THE RESPONDENT