Posted on July 9, 2019 by 1

Failure to exercise due diligence makes General Manager liable for false reports

In Environment Protection Authority v Davis [2019] NSWLEC 79 (EPA v Davis), Pain J considered the liability of the general manager of a company for offences arising from the company’s provision of false information to the Environment Protection Authority (EPA), in circumstances where the general manager was not aware that false information had been provided.

The facts

The Defendant (Mr Davis) was the general manager of Wollondilly Abattoirs Pty Ltd (Wollondilly Abattoirs). He had worked at the company on and off for over 30 years. His duties and responsibilities included the general running of the abattoir, overseeing and running the whole plant, overseeing all staff on the premises including office staff, authorising payments from the company’s bank accounts and ensuring that documents submitted to authorities were correct. However, Mr Davis did not have good computer skills.

Wollondilly Abattoirs held an environmental protection licence (EPL) that had been issued under the Protection of the Environment Operations Act 1997 (POEO Act), for livestock processing activities carried out at its premises that resulted in contaminated wastewater or effluent. The conditions of the EPL required Wollondilly Abattoirs to:

• take an effluent quality sample from a particular effluent pond on its premises once each quarter, have the samples analysed for particular pollutants in accordance with the Approved Methods for the Sampling and Analysis of Water Pollutants in New South Wales publication and provide the results of the analysis to the EPA in a quarterly report and in its annual return, and
• take three annual surface soil samples and three annual subsurface soil samples from the main effluent irrigation area on its premises, have the samples analysed for particular pollutants in accordance with the EPL and provide the results of the analysis to the EPA in a quarterly report and in its annual return.

Mr Davis was aware that Wollondilly Abattoirs held the EPL, but was not aware of all of its conditions, even though he was the person responsible for ensuring the company’s compliance with it.

The usual procedure for compliance involved Mr Davis taking the water and soil samples that were required under the conditions of the EPL. The office manager would then call Toll Transport Pty Limited (Toll), which would courier the samples to Australian Laboratory Services Pty Ltd (ALS) for analysis. ALS would then analyse the samples and email an invoice to Wollondilly Abattoirs, marked to the attention of Mr Davis. The office manager would then prepare the relevant documents, being the quarterly reports and the annual return, and submit them to the EPA.

The charges related to four quarterly reports and an annual return that were submitted to the EPA by the office manager in 2017. There was no evidence of who created all the false documents the subject of the charges. However, the office manager admitted to having created two of the false quarterly reports and the annual return, and to having sent them to the EPA. The evidence suggested that Mr Davis did not review any of the documents the subject of the charges before they were submitted to the EPA.

Wollondilly Abattoirs pleaded guilty to five offences against s66(2) of the POEO Act, arising from the following provision of false or misleading information to the EPA in the quarterly reports and the annual return the subject of the charges:

• the four quarterly reports contained false certificates of analysis that had been doctored by Wollondilly Abattoirs and did not contain genuine results of analysis, but were purported to have been created by ‘ALS Environmental’ (a trading name of ALS), and
• the annual return contained false monitoring data for the effluent samples, surface soil samples and subsurface soil samples; falsely stated that no effluent samples were required to be tested for pH and conductivity; failed to report any breaches of a particular condition of the EPL, despite the fact that the condition had been breached; and contained an inaccuracy in relation to dates of non-compliances with the provision of quarterly reports.

The offences committed by Wollondilly Abattoirs each gave rise to liability under s169(1) of the POEO Act.

Mr Davis was consequently charged with, and pleaded guilty to, the same five offences as Wollondilly Abattoirs.

Aside from the five convictions, Mr Davis was also fined a total of $10,200 and ordered to pay $40,000 for the EPA’s costs.

In considering the sentencing considerations under s241 of the POEO Act, amongst others, Pain J considered that the primary harm caused was not actual environmental harm, but the ‘undermining of the efficacy of the environmental protection legal framework’ (see: para [67] of EPA v Davis).

Source of liability

Section 169(1) of the POEO Act imposes a positive duty on directors and persons concerned with the management of a corporation to use all due diligence to prevent a corporation from contravening provisions of the POEO Act that attract special executive liability. The term ‘due diligence’ is not defined in the POEO Act.

Section 169(1) of the POEO Act, provides that:

If a corporation contravenes, whether by act or omission, a provision of this Act attracting special executive liability, each person who is a director of the corporation or who is concerned with the management of the corporation is taken to have contravened the same provision, unless the person satisfies the court that:

… (b) the person was not in a position to influence the conduct of the corporation in relation to its contravention of the provision, or

(c) the person, if in such a position, used all due diligence to prevent the contravention by the corporation.

Mr Davis’ liability for the offences arose under s169(1) of the POEO Act because he held the role of general manager and was therefore ‘concerned with the management of the corporation‘ at the time Wollondilly Abattoirs committed each of the offences, but failed to exercise all due diligence to prevent Wollondilly Abattoir’s contravention of s66(2) of the POEO Act.

The offences Mr Davis was convicted with arose from circumstances which were not caused by his own actions. Mr Davis collected the necessary samples over the period in which the false quarterly reports and annual return were provided to the EPA. Further, he did not prepare or submit any of the false reports or the annual return himself, or know that they contained any false or misleading information.

Mr Davis’ culpability instead arose from his failure – or omission – to exercise all due diligence in managing the process for compliance by Wollondilly Abattoirs with the conditions of the EPL. Mr Davis did not review or inspect the impugned quarterly reports and annual return for accuracy before they were submitted to the EPA by the office manager, who Mr Davis was supposed to be supervising. Further, Mr Davis failed to notice that the quarterly reports and annual return contained false results, or that no invoices were received by email from Toll or ALS over a period of 12 months, or that no results of analysis of samples by ALS were received by email from ALS over the same period. Mr Davis also failed to ensure that the office manager arranged for the samples he had collected to be sent to the ALS.

With regard to Mr Davis’ state of mind in connection with determining the objective seriousness of the offence, the EPA submitted that:

‘…Mr Davis as general manager of Wollondilly Abattoirs was responsible for authorising payments from the company’s bank accounts and overseeing all staff on the premises. His responsibilities and duties included ensuring the documents submitted to the EPA were correct. Even if he did not know reports were being falsified, gross recklessness was established in that Mr Davis must have known that no payments were being made to Toll or ALS as he was one of two people authorised to make bill payments. He was reckless in not reviewing the accounts of the company to ensure regular payments were being made. Mr Davis must have known that he received no emails from Toll or ALS during the period or at the very least he was reckless in giving other staff access to his emails without supervision.’

Does liability under s169(1) extend to persons involved in the management of local councils?

The term ‘corporation’ is not defined in the POEO Act. However, s220(4) of the Local Government Act 1993 provides that, although a council is not a body corporate (including a corporation), ‘a law of the State applies to and in respect of a council in the same way it applies to and in respect of a body corporate (including a corporation)’.

Therefore, s169(1) can be said to apply to persons involved in the management of local councils.

A positive duty to use all due diligence to avoid a corporation’s contravention of legislation has been imposed on persons involved in the management of local councils in other cases involving other pieces of legislation.

For example, in Garrett v Freeman (No. 4) [2007] NSWLEC 389 (Garrett v Freeman), the defendant (Mr Freeman), who ordinarily was the Director of Infrastructure Services at Port Macquarie-Hastings Council (Council), was the acting general manager of the Council at the time the Council committed offences against s118D(1) of the National Parks and Wildlife Act 1974 (NPW Act). Mr Freeman was consequently charged with committing offences against s118D(1) of the NPW Act in his capacity as a person concerned in the management of the Council, pursuant to s175B(1) of the NPW Act. At the time of the decision, s175B(1) of the NPW Act was drafted in similar terms to s169(1) of the POEO Act and thereby imposed a similar positive duty of due diligence on persons concerned in the management of corporations to prevent a corporation’s contravention of any provision of the NPW Act.

Key takeaways

Section 169(1) of the POEO Act is a special executive liability provision that effectively imposes a positive duty to act with all due diligence on persons who are directors and persons who are concerned in the management of a corporation. As seen in Garrett v Freeman, this extends to persons who are involved in the management of a local council.

The EPA v Davis case serves as a reminder that ignorance of facts does not excuse anyone involved in the management of a corporation from exercising their due diligence obligations and that anyone involved in the management of a corporation must:

• be aware of a corporation’s environmental law obligations, especially in circumstances where the person is responsible for ensuring compliance with those obligations,
• take positive steps to ensure that a corporation complies with its statutory environmental law obligations, such as the obligations imposed by the POEO Act,
• develop and implement appropriate systems and processes to ensure that all environmental law obligations are complied with by a corporation through the actions of all of its staff, and
• exercise due diligence in managing the process for compliance by a corporation with its environmental law obligations, including in the supervision of the activities of subordinate staff.

EPA v Davis can be viewed here. Garrett v Freeman can be viewed here.

To discuss this blog or any planning and environmental matter, please contact Carlo Zoppo, Partner on 8235 9705 or Sophia Urlich, Lawyer on 8235 9708.