The need for organisations and individuals to comply with their legal duties is an accepted part of daily life and sound commercial practice. Yet in many respects we tend to pay lip service to our responsibilities in that regard. In terms of environmental responsibilities, it is fair to say that the introduction of the Resource Management Act 1991 (RMA), and latterly the Hazardous Substances and New Organisms Act 1996 (HSNO), have brought more focus to bear on the way our activities can adversely affect the environment, and what responsibilities we have to ensure that such effects are minimised.
Particularly in recent years, district and regional councils, the courts and some government agencies have signalled clearly that these responsibilities are to be taken very seriously, and that appropriate sanctions will be visited on those who fail to comply with relevant legal obligations. A topical and interesting development is the recent announcement by Swiss Re, one of the largest re-insurers in the world, that it is surveying current Director and Officer policies to assess corporate compliance plans regarding the regulation of greenhouse gas pollution.
This development is apparently in response to a growing number of shareholder resolutions in relation to global warming – a relatively high profile example being Exxon / Mobil, which apparently accounts for 1% of global emissions. Even though none of the resolutions have apparently been passed, Swiss Re has indicated that it may refuse to cover D&O policies if companies do not develop strategies to reduce emissions. The base concern appears to be that companies will be open to shareholder suits, and insurers are naturally nervous about the consequences.
Returning to the New Zealand context, it is likely that in future insurers will increase scrutiny of the strategies and mechanisms companies employ to ensure compliance with statutory and other legal obligations. Certainly, the present ‘compliance climate’ suggests that if companies are not prepared to take responsibility for such matters, prosecuting authorities and the courts will ensure that hard lessons are learned.
THE SOURCE OF ENVIRONMENTAL OBLIGATIONS
The primary source of environmental obligations is the Resource Management Act 1991, with the Hazardous Substances and New Organisms Act 1996 and the Biosecurity Act 1993 providing for additional, specific frameworks of preventing and managing adverse effects on the environment.
RESOURCE MANAGEMENT ACT 1991
The RMA contains enforcement provisions including issuance of abatement notices and enforcement orders requiring the cessation of anything likely to be noxious, dangerous, offensive or objectionable such as to give rise to an adverse effect on the environment. For example, enforcement orders can be issued to require a person to do something that is necessary to avoid, remedy or mitigate any actual or likely adverse effect on the environment relating to any land which the person owns or occupies (section 314(1)(da)). There is therefore a clear incentive to establish and maintain good ‘house-keeping’ systems, to ensure that there is never a need to respond to such orders.
Of more immediate relevance, however, are the offence provisions of section 338. Subsection 338(1) provides that:
- Every person commits an offence against this Act who contravenes, or permits a contravention of, any of the following:
(a) Sections 9, 11, 12, 13, 14, and 15 (which impose duties and restrictions in relation to land, subdivision, the coastal marine area, the beds of certain rivers and lakes, water, and discharges of contaminants):
(b) Any enforcement order:
(c) Any abatement notice, other than a notice under section 322(1)(c):
(d) Any water shortage direction under section 329.
In addition, subsections 338(2) and (3) provide for additional offences in relation to the "failure to provide certain information to an enforcement officer", and a person "wilfully obstructs, hinders, resists, or deceives any person in the execution of any powers conferred on that person by or under this Act". Recent caselaw has confirmed that council enforcement officers have far-reaching powers, so employee education should ideally include a summary of obligations and appropriate response when confronted with inquiries or an ‘investigation’.
Where an offence is committed, and guilt is established, section 339 of the RMA provides for:
(a) imprisonment for a term not exceeding 2 years; or
(b )fine not exceeding $200,000; and, if the offence is a continuing one
(c) a further fine not exceeding $10,000 for every day or part of a day during which the offence continues
Until recently, the maximum fine exceeded that potentially available under the Health and Safety in Employment Act 1992.
In view of the potentially serious ramifications not only in terms of sentencing, but also in the form of adverse publicity, it is important to note that (as for HSNO) liability under the RMA is strict. That is, it is not necessary for the prosecuting authority to establish intent to commit the offence at issue, and unless a statutory defence is available, once it is proven the offence was committed, a conviction will follow.
Aside from criminal liability, a company can be forced to cease an activity, or undertake clean-up or remedial action – both of which can have far more severe financial implications. Adverse publicity is also an issue that should be of significant concern to directors and officers in particular, as demonstrated by the recent prosecution of resin manufacturer, Nuplex Industries. In March this year, Nuplex was fined $55,000 for a fumes leak (a record for a single pollution charge), and ordered to publish details of the conviction in its annual report – a measure likely to be far more harmful to the company. The company was also ordered to put environmental issues on its board meeting agendas for the next 24 months, and in a previous case it was ordered to notify all staff members of the breach at issue.
The sentencing Judge in the Nuplex case was concerned that the company presented itself as an environmentally responsible corporate citizen, but did not back that up with its actions. In our view, the Nuplex case sets a unique and significant precedent for dealing with corporate environmental failings in New Zealand. Certainly it will be taken very seriously to heart by companies with US and European parents in particular, and must be viewed as a real incentive to take appropriate steps to identify and manage risks in relation to environmental matters, and to ensure that directors, officers and staff-members are appropriately schooled in statutory compliance matters.
Nature of liability, and defences
A principal may be liable for the acts of agents, contractors and employees, and employers will be vicariously liable without proof of knowledge or intent – unless he or she "did not know nor could reasonably be expected to have known that the offence was to be or was being committed", or "took all reasonable steps to prevent the commission of the offence" (section 340(2)(a).
Directors and managers may be found guilty if:
(a) the relevant act or omission took place with their authority or consent; and
(b) the relevant act or omission took place with their authority or consent; and
(c) they failed to take all reasonable steps to prevent it.
In the context of issues this paper addresses, the ‘all reasonable steps’ category assumes primary importance: how can you take all reasonable steps to ensure no offences are committed? In general terms, employers must (having identified areas of risk, and/or a need for improvement) bring relevant environmental procedures / reporting pathways to the notice of employees, agents and contractors. Basic issues would include what to do / not to do both in the ordinary course of business, and in emergency situations.
More is said of education and other risk management methods later in this paper.
HAZARDOUS SUBSTANCES AND NEW ORGANISMS ACT 1996
In a manner similar to the RMA, the purpose of HSNO is to protect the environment and the health and safety of people and communities by preventing or managing the adverse effects of hazardous substances and new organisms. In order to achieve this, an assessment and regulatory approvals process run by ERMA was established.
Potential liability for those who act in a manner contrary to the Act is set out in the offence provisions of HSNO. Briefly, section 109 provides that it is an offence to:
(a) develop in field tests and knowingly import or release a new organism in contravention of the Act;
(b )knowingly, recklessly or negligently manufacture, import, use or dispose of a new organism in contravention of the Act or where any approval is suspended;
(c) fail to comply with a compliance order;
(d) fail to report any significant new information of any adverse effect associated with an approved GMO.
Clause 10 of the Hazardous Substances and New Organisms (Stockholm Convention) Amendment Bill will also make it an offence to "use a persistent organic pollutant in contravention of this Act". In addition, the Ministry for the Environment is currently drafting further HSNO amendments to come into force after the lifting of the GM moratorium. Although the Bill and supporting documentation is yet to be released by the Ministry, the Minister has indicated that the key points relate to a proposed strict civil liability and penalties regime. That proposal has been the subject of significant debate, and it is not yet known what impact the criticism levelled by interested parties will have on the Bill’s content.
The penalties under HSNO are even more significant in dollar terms than those under the RMA, and include a term of imprisonment not exceeding three months or a fine not exceeding $500,000. (Again, until recently, these penalties were far in excess of any potential penalty under the Health and Safety in Employment Act).
Liability is again strict, in that proof of intention or fault is not a prerequisite for liability being established. However, there are a number of defences, including:
(a) an action/event was necessary to save or protect life or health, prevention of serious damage to property or avoid adverse effects on the environment; and reasonable mitigation of the action or event was undertaken;
(b)an action/event was due to an event beyond the defendant’s control (eg sabotage) and was not foreseeable, and reasonable mitigation of the effects of the action occurred;
(c)if the action/event was within the control of the defendant, all reasonable steps to prevent the event and reasonable mitigation of the effects occurred.
As is evident from the offence provisions, the Act does not control new organisms once they have been approved for release into the environment and consequently no liability attaches to a person from that point. The Act is further limited in its application as its focus is on regulatory approvals (including the proposed new limited release category) rather than setting a regime to deal with unintentional releases of organisms.
In addition to offences, HSNO provides (in section 104) that a compliance order can be served to:
(a) require a person to cease, or prohibit them from commencing, anything that contravenes or is likely to contravene HSNO, regulations or an approval;
(b) require a person to cease, or prohibit them from commencing, anything that relates to a new organism and is likely to be dangerous;
(c) do something necessary to ensure that a person complies with HSNO, regulations or controls imposed by an approval or is necessary to avoid, remedy or mitigate any actual or likely adverse effects.
The compliance order mechanism is therefore available to the enforcement agencies to, say, mitigate effects on people and the environment as a result of a breach or a potential breach of the Act, for example, failure to comply with conditions on approved trials. In addition, compliance orders are also available to mitigate unauthorised releases.
BIOSECURITY ACT 1993
The Biosecurity Act is less frequently relevant to day to day business (except for that conducted by importers, for example). Its purpose is to assist in the exclusion, eradication and management of pests and unwanted organisms.
Each of the three of the statutes addressed plays an important role in protecting the environment from adverse effects caused by the actions or omissions of companies and individuals. The offence provisions of the RMA and the Biosecurity Act are both directed to society’s response when things go wrong and environmental damage is likely.
RISK MANAGEMENT STRATEGIES
Why have them?
The factors to be taken into account by the Courts when sentencing offenders under the RMA were set by the Court of Appeal in Machinery Movers v Auckland Regional Council. Those assuming particular significance here are:
(a) the deliberateness of the offence;
(b) the attitude of the accused pre and post-offence;
(c) whether appropriate in-house corporate environmental policies are in existence; and
(d) the extent to which an environmental compliance program has been observed.
The size of ‘the Big Stick’ and the potential consequences of it being wielded by the courts should therefore be clear. Given the far-reaching nature of those consequences, knowledge of risks, and the most appropriate response to them is responsible throughout corporate entities. Breaking the levels down into convenient groups, knowledge is important to:
(a) Directors, given:
(b) Their general obligations to shareholders;
(c) Their and the company’s need for informed and effective decision-making; and
(d) The potential for personal liability for offences under the RMA in particular.
Managers and company officers, given:
(a) Their and the company’s need for informed and effective decision-making;
(b) Their responsibility to analyse employee training needs, and formulate appropriate programs;
(c) The potential for personal liability for offences under the RMA in particular; and
(d) The desirability of them appreciating and understanding concerns directors may have.
In-house counsel, given:
(a) Their responsibility to provide directors and officers with informed advice and recommendations;
(b) The clear desirability of effective and informed analysis of risks, risk areas, and the need for an appropriate response;
(c) The need to assess management measures proposed by others; and
(d) The need to establish, maintain and improve ongoing monitoring and reporting structures.
Employees (and agents / contractors), given:
(a) Their need to know what responsibilities they and their employer have, and what the sanctions are in the event of breach;
(b) The desirability of potential issues being identified in the course of their duties;
(c) The need for them to know and ‘own’ reporting and response structures; and
(d) The desirability of identifying training needs.
What is the context?
In order to most effectively and efficiently identify environmental legal risks, an organisation must first identify and understand the context. At a very basic level, this will arise out of a company’s core business activities. However, different questions need to be asked depending on what the exact context is. For example:
What does the company do?
(a) does it hold all necessary resource consents for its activities; are all consent conditions complied with; does it have a program to ensure that replacement consents are applied for in advance of expiry; are all other environmental permits held and complied with, etc.
(b) given the nature of its activities, what areas of the relevant processes may be susceptible to accidental discharge of contaminants, and does it have review systems to ensure that current standards are met.
If the company is purchasing a business or an asset:
(a) does the target hold all necessary resource consents and other permits, and has the target company or occupier complied with consent conditions;
(b) do current or past activities (on either the relevant site or neighbouring properties) give rise to a risk that the land is contaminated;
(c) what environmental management systems are in place at the target company.
Once the context has been established as, say, current business activities, a full and informed review should be undertaken of existing processes, mechanisms and activities. By informed, we mean that the reviewer needs to establish:
(a) current legislative controls, and the responsibilities arising according to those controls;
(b) new legislation (which will impose new / additional responsibilities or requirements from the date(s) on which its provisions come into force; and
(c) proposed legislation.
Next, it is wise to subject any proposed new processes, mechanisms and activities to the same informed review, so that nothing is left to chance when making future investment decisions, for example.
This review exercise leads to the identification of risks, and risk areas, which must then be subjected to separate assessment to determine the appropriate response.
Who undertakes these tasks?
Exercises of this kind can be led, and performed in-house, or an external consultancy can be engaged to take assigned management personnel through it. One approach is to engage such a consultancy to complete an environmental audit, which can be defined as:
A systematic, documented verification process of objectively obtaining and evaluating evidence to determine whether specified environmental activities, events, conditions, management systems, or information about these matters conform with audit criteria and communicating the results of this to the client.
(AS/NZS ISO 14011: 1996)
This "definition" can usefully be contrasted with a "due diligence audit", with which many will be more familiar. A due diligence audit determines the effectiveness of management systems to demonstrate that all reasonable precautions are in place in the event that an offence is committed, and assesses environmental liabilities.
In the context of this paper, the exercise envisaged is an amalgam of both "audit" types, and is designed ultimately to ensure that environmental best practice measures are adopted, employed, and constantly reviewed to ensure ongoing compliance with statutory obligations.
Once risks have been identified, a decision needs to be made as to how they are to be ranked and/or prioritised. Whatever method is selected, the issues that arise, the conclusions reached and the recommendations made by the reviewer need to be documented and circulated as appropriate.
Managing identified risks
Post-assessment, those driving the process first need to be sure that the company is committed to taking matters forward – that any plan developed and approved will be put into action. That established, time and resources need to be devoted to:
(a) staff (and management) training sessions;
(b )formulating, publicising and refining reporting structures;
(c) formulating, publicising and refining "emergency" response plans – what to do if things do go wrong; and
(d) delegating and publicising roles and responsibilities.
At all stages, awareness is key. Special attention may need to be given to helping staff-members (in particular) deal with changes to routines and/or processes, but once new or revised systems are in place, awareness needs to be constantly maintained, and if necessary, reinforced. In that regard, regular refresher sessions are advisable, so that retained staff are able to recall their responsibilities, and to ensure that staff turn-over does not mean that the wider knowledge-base is lost.
Even then, this is not the end of the ‘process’. At least two further stages are advisable, if not essential, for a robust and effective risk management process.
Self-evaluation and follow-up
This part of the process involves the monitoring of both identified risks and risk areas, and of the processes put in place to address and manage them. In order that such monitoring is informed, and therefore useful, reporting structures and performance measures need to be established (and publicised), so that feedback is received and evaluated.
Again, it is important that awareness and competencies are maintained, and scheduled self-evaluation is an essential part of ensuring that standards and response mechanisms are kept up to date, and that they continue to relate to current activities.
Equally, it is important to subject the assessment process itself to objective scrutiny. Questions need to be asked along the following lines:
(a) was the original assessment correct;
(b) have action plans met the desired objective(s);
(c) have new risks arisen;
(d) has communication within the organisation, and between the organisation and its agents and contractors been effective; and
(e) can things be improved still further.
Environmental risk management is not a facet of modern business life in relation to which companies can rest on their laurels. Performance standards and assessment criteria in district and regional plans are constantly being updated and improved, and businesses operating in a regulatory environment subject to constant change and more demanding yardsticks need to be vigilant.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.