09 Dec 2021

Proposed NSW environmental laws to expand director and manager liability for environmental offences

By Nick Thomas, Claire Smith, Brendan Bateman, Wagih Doueihi and Vincent Collins

Current and former directors of an environmental offender and its related companies will face much greater legal exposure, a variety of new offences will be added, and the EPA will gain broader powers to require clean-up, if a Bill currently in the NSW Parliament is passed.

Following calls for environmental regulators to have expanded powers and to take a tougher line on enforcement, the NSW Government has introduced into the NSW Parliament the Environment Legislation Amendment Bill 2021, proposing far-reaching reforms to a raft of environmental laws.

Although the EPA has expressed that the reforms are "aimed solely at those who deliberately choose to circumvent the law", the text of the provisions in the Bill have much broader application. The proposed changes will affect all operators in NSW, members of their corporate group, and current and former directors and managers.

The key amendments include (among others):

  • new powers for the EPA to target directors, managers and related bodies corporate (and their directors and managers) for criminal sanctions, clean-up and/or other regulatory notices and repayment of benefits derived from the corporate wrongs of a body corporate;
  • expanded executive and accessorial liability provisions;
  • new environmental offences, including giving false or misleading information to the EPA (whether knowingly or not) in any context;
  • significantly tougher penalties;
  • increased penalties for a person who commits a specified waste offence twice in 5 years; and
  • new powers for the  EPA to:
    • issue clean-up notices under the Protection of the Environment Operations Act 1997 (POEO Act) in relation to land as soon as it is notified under the Contaminated Land Management Act 1997 (CLM Act), regardless of whether it is determined to be "significantly contaminated" under the CLM Act or there is already an order or approved voluntary management arrangements for that land;
    • issue clean-up notices under the POEO Act to persons reasonably suspected of having contributed to (rather than causing) a pollution incident; and
    • impose covenants on land titles and require financial assurance to support ongoing remediation or licence conditions.

We have commented in more detail on a selection of the key changes, and those affecting directors and managers in particular.

Increased exposure for directors, managers and related entities

A stated aim of the Bill is to prevent persons and entities from using corporate structures to circumvent environmental laws. The Bill seeks to achieve this in four ways.

Personal clean-up notices

The Bill would empower the EPA to issue clean-up notices and prevention notices under the POEO Act directly to the current and former directors of a corporation, the related bodies corporate of a corporation and their current and former directors, if the corporation does not comply with an environment protection notice issued under the POEO Act.

Recovering proceeds of environmental crime

The Bill would empower the EPA to recover any monetary benefits from any of the following persons who benefitted or (in the court's view) will benefit from the commission of an offence by a corporation under the POEO Act or the CLM Act:

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

The proposed definition of "monetary benefits" is broad, but not very clear.

Extended criminal liability for receiving monetary benefits

The Bill would make 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 POEO Act or the CLM Act:

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

Extended reach of the "fit and proper person" test

The Bill would allow the EPA to consider the environmental record of current and former directors of a corporation or of its related bodies corporate when making licensing decisions about a licence held by the corporation.

The first three changes represent an extraordinary extension of exposure for directors, managers and bodies corporate, potentially covering events in which they were not concerned or aware, or were powerless to prevent.

While we expect these new enforcement powers would be used sparingly, there is no guarantee that they would not be used in any particular situation.

This will present new challenges for persons considering directorships or executive roles, those who consider appointing such positions, corporate transaction teams and businesses who need EPA licences, among many others. D&O insurance availability, terms and premiums could also become more problematic.

New offence of providing false or misleading information to the EPA

The Bill would introduce a new general POEO Act offence of providing false or misleading information to the EPA. Currently, a similar offence applies only in the context of statements under a condition of an EPA licence or responses to statutory notices. It would also be an executive liability offence, meaning that directors and managers of a corporation providing false or misleading information could also be personally liable.

It appears this was prompted by the EPA seeing increasing instances where false or misleading information is provided to it to avoid enforcement action or delay an investigation.

To successfully raise a defence, directors and managers would need to demonstrate that they took all reasonable steps to ensure that any information provided to the EPA was not materially false or misleading. To assist with this, directors and managers should, among other things:

  • take appropriate steps to satisfy themselves of the accuracy of any information to be provided to the EPA before it is provided;
  • have the corporation's compliance processes and systems periodically audited to ensure that they are effective and adequate; and
  • ensure that staff involved in any communications with the EPA are appropriately trained and supervised.

Conclusion

The Bill would put a hard edge on ESG considerations, as it would significantly extend directors' and managers' legal responsibility for the acts and omissions of not only the companies they manage but also, in some cases, their related bodies corporate. Directors and managers should carefully consider the amendments and enhance their compliance programs to manage their exposure to liability.

The Government has said the Bill will update and modernise current environmental legislation and ensure that NSW "continues to set the benchmark". Undoubtedly, many of the proposed changes raise the compliance bar significantly.

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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.