Northern Territory extends liability for environmental offences to related entities in the onshore petroleum industry

Karen Trainor, Margaret Michaels, Nicole Besgrove and Madeleine Grant
16 Dec 2022
Time to read: 6.5 minutes

Directors, executive officers and other related entities will soon be potentially liable for environmental offences in the onshore petroleum industry under the new chain of responsibility laws that have been passed.

On 12 October 2022, the Environment Protection Legislation Amendment (Chain of Responsibility) Bill 2022 (NT) (COR Act) was introduced to the Northern Territory Legislative Assembly and subsequently passed with no amendments, on 20 November 2022. The COR Act is currently awaiting assent and following this will commence on the day fixed by the Administrator by Gazette notice (but no later than 1 July 2024).

The COR Act was passed in response to Recommendation 14.30 of the of the Scientific Inquiry into Hydraulic Fracturing in the Northern Territory (Final Report), which we have previously considered. Relevantly, Recommendation 14.30 requires the Territory Government to enact legislative amendments to establish “a chain of responsibility for gas companies and related parties to ensure compliance with environmental obligations” before giving consideration to any gas production approvals. Recommendation 14.30 falls within Stage Three of the Chief Minister’s Hydraulic Fracturing Inquiry Implementation Plan, and is being implemented in line with the timeline proposed in that Plan.

Upon commencement, the COR Act will amend the Environment Protection Act 2019 (EP Act) and Environment Protection Regulations 2020 (EP Regulations), to introduce chain of responsibility laws (COR laws) as part of the Northern Territory’s environmental regulatory framework which can be applied retrospectively for the preceding three-years.

The chain of responsibility

As outlined in the Northern Territory Government’s Environmental regulatory reform information paper, COR laws promote the ecologically sustainable development principle of “polluter-pays”. The COR laws are designed to protect the government and taxpayers from inheriting financial liabilities that arise when environmental approval holders contravene statutory compliance obligations, such as the costs associated with cleaning up environmental damage, by redirecting liability to a related person who may not have otherwise been liable under the EP Act or a prescribed Act, but who is not prevented from meeting the relevant obligations for financial reasons.

Figure 1 – overview of the chain of responsibility provisions

Figure 1 provides a broad overview of the new chain of responsibility provisions, with each element discussed in further detail below.

Flow chart environmental non compliance


What is a compliance notice?

The purpose of a compliance notice is to redirect liability from the approval holder for a petroleum activity to a person (defined to include a company or an individual), that is related to the entity which would have otherwise been liable under an environmental or prescribed approval, as defined within the COR Act.

Under the COR Act, a petroleum activity is an activity for which any of the following is required under the Petroleum Act 1984 (NT):

  • an exploration permit;
  • a retention licence;
  • a production licence; or
  • a permit or lease, or a renewal, or an application for a permit or lease, granted under a repealed version of the Petroleum Act 1984 (NT).

The COR Act defines the compliance notice for the purposes of the COR laws to include either an “environment protection notice” issued under the EP Act, or a “prescribed direction” issued under at “prescribed Act”.

An environment protection notice can be issued under the EP Act for the purpose of securing compliance with either an environment approval, or a requirement prescribed by the EP Regulations. An environment protection notice will prescribe various activities to achieve compliance, such as a requirement to cease work, to prepare a plan to prevent minimise, manage or remediate environmental harm or to undertake other specific activities within a certain timeframe.

A prescribed direction is defined to include a direction, notice or order that:

  • is made or issued under a prescribed Act; and
  • relates to compliance with a prescribed approval or prescribed environmental duty under the prescribed Act; and
  • is prescribed by the EP Regulations.

A prescribed approval includes an environmental approval as well as an authorisation or a plan approved under a prescribed Act. A prescribed environmental duty includes a duty, requirement or obligation under a prescribed Act.

For the above, a prescribed Act means an Act prescribed by regulation for the new COR laws. Currently, there are no prescribed Acts.

Who can issue a compliance notice?

A compliance notice may be issued by a relevant decision-maker, which includes:

  • for an environmental protection notice or an environmental approval issued under the EP Act, the Chief Executive Officer (CEO); and
  • in relation to a prescribed direction, approval or environmental duty issued under a prescribed Act, the CEO, an office holder or a statutory authority responsible for enforcement under the prescribed Act.

Who might be issued a compliance notice?

In order for a compliance notice to be lawfully issued, the primary entity must be a high risk entity and the person to whom it is issued must be a related person that the relevant decision-maker decides has a relevant connection to the high risk entity (related person).

Each key element for the new compliance notice provisions are defined as follows:

High risk entity - a person, body or entity who or which is, or was, the holder of a prescribed approval or a prescribed environmental duty and who or which, in broad terms:

  • is a bankrupt corporation; or
  • has failed to comply with the requirements of a compliance notice or a prescribed approval or a prescribed environmental duty.

Related person - a person (individual or company) who falls within one of the following categories:

  • a person who the CEO of the Northern Territory Environment Protection determines has a relevant connection to the high risk entity, as discussed below;
  • a holding entity of a high risk entity; or
  • an associated entity of the high risk entity who is the owner or occupier of land on which the high risk entity carries out or has, in the preceding three years, carried out, a petroleum activity.

This could include a director, executive officer, associated entity, or shareholder, depending upon their ‘relevant connection’.

Relevant connection - the relevant decision-maker is required to take into account various matters when determining whether a relevant connection exists between a high risk entity and a related person, such as:

  • the level of influence and control the person has over the high risk entity’s conduct;
  • the extent of any financial interest held by the person in the high risk entity; and
  • any agreement or other transactions the person has had at any time within the preceding three years with the high risk entity.

What must be considered when deciding to issue a compliance notice?

When deciding whether to issue a compliance notice, the relevant decision-maker is required to take various matters into consideration, such as:

  • the objects of the Act under which the compliance notice is issued (the EP Act or a prescribed Act);
  • whether the related person took all reasonable and practical steps to influence the high risk entity’s compliance with a prescribed approval, prescribed environmental duty or compliance notice relating to a petroleum activity;
  • whether the related person took all reasonable and practical steps to influence the high risk entity’s financial management of and provision in funding for compliance with a prescribed approval, prescribed environmental duty or compliance notice and the remediation and rehabilitation of the environment to address the environmental impacts of the petroleum activity over the lifetime of the activity; and
  • whether any financial assurance, for example a bond or security, is held in relation to the petroleum activity.

The threshold of “reasonable and practical steps” is not defined within the COR Act or the EP Act and will need to be determined on a case by case basis.

Note that a decision-maker is prevented from issuing a compliance notice to a related person if “a reasonable person would consider that issue of the notice to the related person to be oppressive, unjust or unreasonable in the circumstances.

Redirection to related persons

There are various circumstances under which a relevant decision-maker may issue a compliance notice to a related person including:

  • where the high risk entity has, within the preceding three years, been issued with a compliance notice and is non-compliant with that notice. That period of three years operates retrospectively from the date that a compliance notice was issued to the related person. If the relevant decision-maker was not aware of the high risk entity’s non-compliance, that period may include time before the commencement of the COR Act or the regulations prescribing the prescribed direction, as applicable.
  • in certain circumstances, where the high risk entity has not itself been issued with a compliance notice.
  • where a different related person of the same high risk entity was issued with a compliance notice within the preceding three years for the same or a related matter. In this way, the relevant decision-maker can issue notices to a range of appropriate related entities in order to “maximise the opportunity to ensure completion of rehabilitation and remediation requirements”, as stated in the Explanatory Statement. Those persons will be held jointly and severally liable for compliance.
  • in certain circumstances, where a person is a former owner or occupier of land on which a relevant petroleum activity was carried out by a high risk entity. The Explanatory Statement provides that this power aims to address circumstances where land is purposefully transferred to a phoenix company, to avoid environmental responsibilities. Notably, the transfer must have occurred within the previous three years and the former owner or occupier must have held tenure when the relevant environmental impact occurred.

In light of the above, the COR laws operate with a degree of retrospectivity.

What are the consequences of failing to comply with a compliance notice?

Under the COR Act, a compliance notice issued to a related person may impose any requirement that can be imposed on the relevant high risk entity under an environment protection notice issued under the EP Act, or under a prescribed direction issued under a prescribed Act. The practical effect of the latter is that through further legislative amendments, the COR framework can be broadly applied for the purpose of rehabilitating the environment and mitigating environmental damage that occurs as a consequence of onshore petroleum activities. For example, by prescribing the Petroleum Act 1984 (NT) in regulations as a prescribed Act, the COR laws could operate to extend enforcement powers to statutory environmental obligations under the Petroleum Act 1984 (NT). Under that Act, the Minister has broad powers to issue a notice to a permittee or licensee giving directions in relation to the protection of the environment and environmental security, for which failure to comply is an offence under the Act. Liability under that notice could potentially be extended to a related person of the permittee or licensee under the COR framework, in certain circumstances as discussed above.

A compliance notice issued to a related person may also impose different requirements to the conditions of the environment protection notice previously issued to the relevant high risk entity.

Can a decision to issue a compliance notice be reviewed?

The person to whom a compliance notice is issued, including a related person, may apply to the Northern Territory Civil Administrative Tribunal for a review of the decision to issue the notice.

Extending the chain of responsibility beyond onshore petroleum industry

In the Northern Territory’s consultation submissions outcomes summary, the Territory Government explained that the COR laws “have been drafted in a way to facilitate ready expansion of the laws to other industries that can cause harm to the environment, including the mining and extractive industry”. Accordingly, through future legislative amendments the chain of responsibility framework can be applied to other industries, in addition to the onshore petroleum industry.

If you would like to understand how COR laws could apply to you and your company, as a related entity, please contact us.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.