Posted on September 19, 2018 by Anna Sinclair
Executive liability – who it captures, and what can be done to avoid it
The issue of executive liability is an important topic for directors or persons concerned in the management of corporation who may be liable for the offences of a corporation. This article briefly examines the basis for liability including liability for council officers and considers what directors and persons concerned in the management of a corporation should do to avoid liability.
Executive liability for environmental offences
Corporations are by their nature artificial legal entities that only operate by virtue of the actions of individuals. Those individuals who make decisions that affect the corporation as a whole have for many years been liable for the offences of the corporation under many diverse pieces of legislation including workplace safety and environmental laws.
In 2012, executive liability provisions in NSW legislation were amended to reduce the circumstances in which directors or persons ‘concerned in the management’ of a corporation could be charged for environmental offences committed by their corporations.
The changes introduced two categories of executive liability for offences, including: ‘special executive liability’ and ‘executive liability’. Executive officers may also be charged for accessorial liability.
These provisions apply equally to offences committed by corporations and to local councils, which are treated as corporations by the law.
In the decision of Garrett v Freeman (No. 5); Garrett v Port Macquarie Hastings Council; Carter v Port Macquarie Hastings Council  NSWLEC 1 a Director of the Council was held liable for the offences committed by the Council and fined $35,000 and ordered to pay costs of $80,000.
What executive officers can be held liable for offences of the organisation?
Directors and ‘persons concerned in the management’ of a corporation (Executive Officers) are liable for the offences of the corporation
Case law considering the phrase ‘persons concerned in the management’ establishes that this captures persons who:
- are involved in policy and decision-making activities that are related to the business affairs of the organisation, and which affect the organisation as a whole or a substantial part of the organisation, or
- make decisions as to the direction of the organisation, although not at the highest level, and not necessarily without being subject to obtaining the approval of a higher officer.
In the case of councils, it is likely that general managers and other officers, such as directors of divisions of the council, who make decisions concerning the policy or direction of the division, will be considered to be Executive Officers and taken to have committed the same offence as the Council.
However determining who will be considered to be an Executive Officer as a ‘person concerned in the management of a corporation’, will depend on the circumstances of each case, and the level of involvement and decision-making power of a particular officer with regards to the activities that gave rise to the offence.
Special executive liability
The most serious offences under the Protection of the Environment Operations Act 1987 (POEO Act) attract ‘special executive liability’ for Executive Officers, which imposes an obligation or responsibility on the officer.
There are 19 ‘special executive liability’ offences under the POEO Act comprising the Tier 1 offences and a number of Tier 2 offences (including pollution of waters (s120), unlawful transporting or depositing of waste (s143) and failing to notify a pollution incident (s152)).
Where a corporation or council commits one of these offences, each Executive Officer is ‘taken to have contravened’ the same provision, unless that person satisfies the court that:
- the person was not in a position to influence the conduct of the organisation in relation to its contravention of the provision, or
- the person, if in such a position, used all ‘due diligence’ to prevent the contravention by the organisation.
These offences are far easier for the prosecution to establish, given that it is the Executive Officer that has to lead evidence to satisfy the Court that they are not responsible for the offence or that the Executive Officer has used all due diligence.
Less serious environmental offences attract ‘executive liability’ for Executive Officers. Executive liability exists for offences under a range of legislation including the POEO Act, the Biodiversity Conservation Act 2016, the Contaminated Land Management Act 1997, the Forestry Act 1916 and the National Parks and Wildlife Act 1974.
For these offences, the onus is on the prosecution to establish that:
- the organisation committed the offence, and
- the Executive Officer:
- was involved in the management of the organisation and was in a position to influence the conduct of the organisation in relation to the offence committed,
- knew or ought reasonably to have known that the offence would be or was being committed, and
- failed to take all ‘reasonable steps’ to prevent or stop the offence from being committed.
The ‘executive liability’ offence is more difficult to establish as the prosecution must establish beyond a reasonable doubt that the Executive Officer was involved in the activity that gave rise to the commission of the offence, that they could influence the conduct of the organisation, and that they knew or should have known that the offence would be committed.
Indeed, since the creation of these two categories of offences in 2012, only the ‘special executive liability’ offences under the POEO Act have been prosecuted.
Executive Officers may also be liable if, in respect of an offence committed by the organisation, they:
- aided, abetted, counseled or procured the offence,
- induced, whether by threats or promises or otherwise, the commission of the offence,
- conspired with others to effect the commission of the offence, or
- was in any other way, whether by act or omission, knowingly concerned in, or party to, the commission of the offence.
Measures to reduce the risk of executive liability
The purpose of the Executive Liability provisions is to impose an obligation on an Executive Officer to take all reasonable steps to ensure that the Corporation does not contravene a relevant law.
Executive Officers must act with all due diligence in their roles and functions and importantly must be in a position where they can demonstrate that they have acted with all due diligence.
While the laws use the terms ‘Due Diligence’ and ‘Take Reasonable Steps” almost interchangeably, there is little discernible difference between the terms.
What is clear is that Executive Officers must ensure that they have used all due diligence to prevent the contravention by the corporation which may include ensuring that:
- the organisation’s environmental compliance systems are robust and the systems and the operations of the organisation are regularly reviewed and audited,
- staff have appropriate training and support to ensure that they understand the obligations and comply with environmental legislation,
- plant, equipment and work systems are properly maintained and appropriate for activities undertaken by the organisation,
- they implement policies and procedures that encourages a culture of compliance with environmental legislation, and
- the Executive Officer has involved itself in ensuring compliance that may involve undertaking inspections of its operation and immediately and appropriately responding to circumstances that may result in a contravention of the law.
These factors essentially reflect good corporate governance and due diligence.
The recording of the steps or measures implemented by an Executive Officer may take place in a variety of ways including minutes of meetings, report or even notes maintained by the Executive Officer.
What is critical is that the Executive Officer is in a position to demonstrate that they have acted with all due diligence many months and sometimes years after an incident.
To discuss this blog, please contact Anna Sinclair on 8235 9713 or Carlo Zoppo on 8235 9705.