Directors and managers exposed to greater criminal liability 6 min read
The recently passed Environment Legislation Amendment Act 2022 (NSW) (the Amendment Act) exposes directors and managers of companies to additional criminal and civil liability for breaches of environmental laws.
It is now more important than ever that companies have robust processes in place to ensure they are operating in an environmentally satisfactory manner. It is also critical for directors and managers (and those who advise directors and management) to understand their potential exposure to criminal liability for actions taken (or not taken) by companies.
- Directors and managers should be aware that if they benefit financially from any conduct of a company that breaches the Protection of the Environment Operations Act 1997 (the POEO Act) (eg by polluting land, water or air) they will also be guilty of an offence and could be exposed to:
- a criminal prosecution for the offence; or
- civil proceedings to recover the amount of the monetary benefit.
- A director or manager who receives a monetary benefit resulting from a breach will be liable even if they had no knowledge of the offending conduct, and no capacity to control or influence the offending conduct.
- If the NSW Environment Protection Authority (the EPA) investigates a company for potentially criminal conduct, any directors or managers of the company should consider their potential exposure to criminal liability and obtaining legal advice on how to protect their interests during the investigation.
- The extension of the monetary benefits provisions to related companies limits the ability of a corporate group to rely on its corporate structure to avoid criminal liability or minimise exposure to a monetary benefits penalty.
- The Amendment Act also increases the number of offences under the POEO Act that attract potential gaol time, including imposing a maximum of 18 months' imprisonment for any individual convicted of giving information to the EPA that they know is false or misleading in a material respect, even if that information was provided voluntarily. This could include consultants who provide information to the EPA on behalf of companies.
Existing provisions: criminal liability of directors and managers
There are a number of existing circumstances where a director, or a person involved in the management of a company, will be personally criminally liable if a company breaches the POEO Act. In particular:
- if a company commits an offence that attracts special executive liability (eg water pollution, air pollution, land pollution or breach of a condition of an Environment Protection Licence (EPL)), any director or manager of that company will also be taken to have committed an offence unless they can satisfy the court that they were either not in a position to influence the conduct of the corporation in relation to its contravention or they used all due diligence to prevent the contravention;
- if a company contravenes a provision that attracts executive liability (eg failure to comply with a clean-up or prevention notice, emission of offensive odours or noise pollution), all directors and any managers who were in a position to influence the conduct of the corporation in relation to the commission of the offence will be taken to have contravened the provision if they knew, or ought reasonably to have known, that the offence was being committed and failed to take all reasonable steps to prevent this; and
- in all cases where a corporation commits an offence, any director or manager who was in a position to influence the conduct of the corporation in relation to the commission of the offence will be taken to have contravened the provision if they were an accessory to the offence.
A director or manager can be prosecuted under any of these existing provisions even if the company is not prosecuted or convicted.
New provisions: criminal liability for directors and managers who receive monetary benefits
The Amendment Act was passed by the NSW Parliament on 24 February 2022 and commenced on 4 March 2022, when it received the Governor's assent.
In addition to the existing liability provisions outlined above (which will not be changed), if a company commits a proven offence under the POEO Act, any director, manager or related body corporate (or director or manager of the related body corporate) who receives, acquires or accrues a monetary benefit as a result of the offence will also be guilty of an offence.
The term 'monetary benefits' is defined to mean monetary, financial or economic benefits. The following circumstances could potentially constitute the receipt of a monetary benefit for the purposes of these provisions:
- a company earning increased profits as a result of the commission of an offence or a company delaying or avoiding expenditure, where the director or manager's remuneration is linked to the company's financial performance;
- a director or manager receiving a divided that a company was in a position to make because it committed an offence; or
- a director or manager receiving an incentive payment that is in some way connected to the commission of the offence.
The prosecutor would be required to prove beyond reasonable doubt that the defendant received, acquired or accrued a monetary benefit as a result of the commission by a corporation of a proved offence. However, the prosecutor would not be required to prove:
- the value of the monetary benefit earned (or that the amount was significant); or
- that the defendant was motivated by the potential for financial gain.
Unlike the existing executive liability provisions, a director or manager who receives a monetary benefit from an offence will be criminally liable even if they had no knowledge of the offending conduct, no capacity to control or influence the offending conduct, or took reasonable steps to prevent the commission of the offence.
An individual or related company can only be prosecuted under the new monetary benefits provisions if the company itself has been successfully prosecuted. However, the prosecutor will have 12 months from the date on which a court finds the underlying offence proved in which to commence proceedings against the individual or related company.
This is an important consideration to keep in mind if the EPA investigates a company for a potential offence. Even if a director or a manager is not a formal target of that investigation, they could still be investigated or prosecuted after criminal proceedings against the company are concluded.
Directors and managers should therefore consider what steps they should take to protect themselves in any EPA investigation. Eg if a director is served with a notice requiring them to attend an interview with the EPA and answer questions, they should object to providing any information that could incriminate them. While the director would still be required to answer the question (and the response could be used as evidence in criminal proceedings against the company), the response would not be able to be used as evidence in any criminal proceedings against the director.
Equivalent provisions will also be inserted into the Contaminated Land Management Act 1997 (NSW), the Pesticides Act 1999 (NSW) and the Radiation Control Act 1990 (NSW).
If a court convicts a corporation of an offence against the POEO Act, the Contaminated Land Management Act 1997 (NSW), the Pesticides Act 1999 (NSW) or the Radiation Control Act 1990 (NSW) the prosecutor can seek a monetary benefits order from the court.
A monetary benefits order can require a director, a manager, a related body corporate or a director or manager of a related body corporate to pay an amount representing the amount of monetary benefit received, acquired or accrued by that person as a result of that offence.
A monetary benefits order can be made against someone even if they are not convicted of an offence. However, the EPA would be required to prove, on the balance of probabilities, the actual amount of monetary benefit earned and that this monetary benefit was earned as a result of the commission of the offence.
The fact that an order can be made against a related body corporate means that a corporate group cannot rely on its corporate structure to avoid a monetary benefits penalty.
These new provisions do not apply to offences committed under the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act). The Land and Environment Court already has the power to impose a monetary benefits penalty when sentencing a company or individual for an offence against the EPA Act. However, a director or manager of a company that breaches the EPA Act will not be exposed to additional civil or criminal liability simply for earning a monetary benefit from the offence.
There are a number of offences under the POEO Act that currently attract gaol time if committed by individuals. These include offences designated as 'tier 1 offences' (which attract a maximum penalty of seven years' imprisonment if committed wilfully or four years if committed negligently); knowingly supplying false or misleading information about waste (maximum 18 months' imprisonment); and repeat waste offences (maximum two years' imprisonment).
The following additional offences under the POEO Act will now also attract potential gaol time:
- knowingly making a false or misleading statement in a report required under a Clean Up Notice or Prevention Notice (maximum 18 months' imprisonment);
- knowingly giving false or misleading information to the EPA (maximum 18 months' imprisonment). This would extend to any consultant who provides information to the EPA on behalf of a company;
- knowingly providing false or misleading information to an auditor or knowingly failing to providing materially relevant information to an environmental auditor (maximum 18 months' imprisonment). An environmental auditor who knowingly includes false or misleading information in an audit report prepared under the POEO Act, or knowingly fails to include materially relevant information, will also be exposed to a maximum penalty of 18 months' imprisonment; and
- failing, without lawful excuse, to comply with a requirement of a notice to furnish information and records or a notice to attend an interview and answer questions (maximum penalty 18 months' imprisonment).
Other changes to note include:
- If a company fails to comply with a Clean Up Notice or Prevention Notice issued by the EPA, the EPA can issue a supplementary notice to one or more current or former directors or managers of the company. The EPA can also issue a supplementary notice to a related body corporate. This supplementary notice can require the recipient to take the actions specified in the notice (which might be different from the actions required by the original notice).
- The EPA will have the power to impose restrictive covenants or public positive covenants on land for the purposes of enforcing the conditions of an EPL or the conditions of the surrender of an EPL.
- If a vehicle is used to transport waste to a place that cannot lawfully be used as a waste facility, the owner of the vehicle will be guilty of an offence (in addition to the operator of the vehicle and the owner of the waste). This could have significant implications for businesses that own fleets of waste transport vehicles.
- When the EPA is considering whether a company is a fit and proper person to hold an EPL, it can currently consider the compliance history of any current directors of the corporation. The EPA will now be able to consider the compliance history of any former directors of the corporation.