Posted on March 9, 2022 by Anna Sinclair and Adriana Kleiss 22

Environmental Law Reforms – New Liabilities for Directors and Related Companies

The Environmental Legislation Amendment Act 2022 (Amendment Act) has come into force, making significant amendments to environmental protection legislation in NSW.

The Amendment Act primarily seeks to overcome practices that certain industry sectors, businesses and individuals have established to avoid enforcement, clean-up costs and the payment of waste levies.

We will discuss these amendments over two blogs, with this first blog focusing on amendments to the Protection of the Environment Operations Act 1997 (POEO Act), Contaminated Land Management Act 1997 (CLM Act), Pesticides Act 1999 and Radiation Control Act 1990 (collectively, the Environmental Acts) which impose new liabilities on current and former directors of a company, and any related corporate body for environmental offences.

Our second blog will discuss other key amendments to the POEO Act including the introduction of new and expanded offences, and increased penalties, designed to ensure cooperation with regulatory authorities during investigation processes and deter criminal behavior.

New liabilities for directors, managers and related companies

A key aim of the Amendment Act is to prevent persons and entities from using corporate structures to bypass responsibility for enforcement and clean up action.

In its ‘Better Regulation Statement’ for the legislation, the NSW Environment Protection Agency (EPA) says that this practice is particularly apparent in the waste sector, where separate companies may be established for each licensed site, which are then dissolved, to avoid enforcement action.

The Amendment Act seeks to overcome these practices in the following four ways:

1. Criminal liability for receiving monetary benefits 

The Amendment Act now makes it an offence for any of the following persons to receive, acquire or accrue a monetary benefit as a result of the commission of an offence by a corporation under the Environmental Acts:

• a person who is, or was, a director or a person concerned in the management of the corporation at the time of the offence,
• a related body corporate, and
• a person who is, or was, at the time of the offence, a director of related bodies corporate at the time of the offence.

The maximum penalty of the offence is the maximum penalty that applies for the underlying offence. Proceedings for this offence can only be dealt with in the Land and Environment Court (LEC).

2. Recovering proceeds of environmental crime

If a corporation is convicted of an offence under the Environmental Acts, the Amendment Act also now allows the prosecutor of the offence to commence civil proceedings in the LEC seeking an order that any of the following persons pay an amount representing the amount of the monetary benefit acquired, accrued or accruing to the person, as a result of the commission of the offence by the corporation:

• a person who is, or was, a director of the corporation at the time of the offence,
• a related body corporate, and
• a person who is, or was, at the time of the offence, a director of related bodies corporate.

The LEC may only make an order if it is satisfied, on the balance of probabilities, that the person acquired, accrued or will accrue the alleged monetary benefits.

Whilst this provision, and the new offence provision discussed at item 1 above, arguably increase the liability exposure for directors and related companies of offending companies, it should be noted that the LEC has been able to impose a monetary benefits order against an offender under the POEO Act since the commencement of that Act. However, this order has never been sought by a prosecutor.

This may be because of the inherent difficulty in proving, even on the balance of probabilities, that an individual or corporation has acquired, accrued or will accrue the alleged monetary benefit.

The Protection of the Environment Operations (General) Regulation 2021 currently prescribes the ‘Protocol for calculating monetary benefits’, prepared by the EPA (Protocol) as the method for the calculation of monetary benefits under the POEO Act. The Protocol sets out a complex methodology that requires information on the size and timing of cash flows to then calculate the monetary benefit an individual or corporation gained from being able to retain and reinvest those benefits from non-compliance.

A prosecutor must generally obtain this information by issuing a notice for information and/or records, or a subpoena to the offender and other relevant parties. If the notice or subpoena is not fully complied with it may not be possible to calculate and prove the alleged monetary benefit.

It will have to be seen whether prosecutors, particularly the EPA, can overcome these hurdles and start to bring proceedings under this provision and the new offence provision discussed at item 1 against directors and related bodies corporate of offending corporations. If they do not, then these amendments will not achieve the Government’s key objectives of holding those who benefit from environmental crimes accountable, and further deterring environmental crime.

3. Personal clean-up and prevention notices under the POEO Act

The Amendment Act allows an appropriate regulatory authority (ARA) (namely the EPA or a local council) to give current and former directors of a corporation and related bodies corporate a clean-up notice or prevention notice if such a notice has been given to the corporation, and the corporation has failed to comply with the notice.

This is likely to be a useful provision for ARA’s by extending the number of persons they can hold liable for responding to pollution incidents, particularly if the offending company is dissolved. The fact that directors can now be held personally liable for a failure to comply with a notice may give a company a greater incentive to comply with the notice in the first place.

4. Expanded ‘fit and proper’ person test

When determining whether a corporation is a ‘fit and proper’ person to hold an Environment Protection Licence under the POEO Act, the EPA can now consider whether current and former directors of the corporation, related bodies corporate or current or former directors of related bodies corporate have contravened relevant legislation and are otherwise ‘fit and proper’ persons.

This allows the EPA to take related and former companies’ environmental records into consideration in licencing decisions, and refuse or revoke a company’s licence if there is a pattern of non-compliance across related companies.

The full Amendment Act can be accessed here.

If you have any questions about this blog, please contact Anna Sinclair at anna.sinclair@lindsaytaylorlawyers.com.au or on 8235 9713 or Adriana Kleiss at adriana.kleiss@lindsaytaylorlawyers.com.au or on 8235 9718.