The Miscellaneous Acts Amendment (Directors' Liability) Act 2012 (NSW Directors Liability Act) was passed by the NSW Government, and will commence on 11 January 2013. The Act clarifies, and in many cases, significantly alters, the statutory responsibilities of individuals acting in a corporate capacity under NSW legislation, including numerous pieces of environmental protection legislation.
The NSW Directors' Liability Act has been introduced in response to the Council of Australian Governments (COAG) commitment to deliver a nationally-consistent and principles-based approach to personal criminal liability for directors and other corporate officers for corporate related offences, as set out in the Personal Liability for Corporate Fault - Guidelines for applying the COAG Principles (Guidelines).
These amendments seek to address what many believe to be the inconsistent application of directors' liability provisions throughout Australia's jurisdictions and will reduce the number of directors' liability provisions that currently exist in NSW legislation from more than 1,000 to about 1501.
Other State jurisdictions are also in the process of amending legislation in accordance with the COAG Guidelines. The Queensland and ACT Governments have introduced the Directors' Liability Reform Amendment Bill 2012 (Qld) and the Directors Liability Legislation Amendment Bill 2012 (ACT) on 28 and 29 November 2012 respectively.
Once commenced, the NSW Directors' Liability Act amendments variously provide that:
- a corporation will have a separate identity from that of a director or manager;
- directors and managers will no longer automatically be criminally responsible for an offence committed by the corporation, unless separate provisions for this exist. This includes the introduction of new "executive liability" offences; and
- a director or a manager can be prosecuted as an accessory to an offence (such as by aiding and abetting its commission), under what is described as "accessorial liability".
This update focuses on those pieces of legislation that address individual and company liability for environmental offences; however it is important to be aware that the NSW Directors' Liability Act, once commenced, will have an even broader impact on the scope of director's liabilities in NSW.
Amendments to NSW environmental legislation
The NSW Directors' Liability Act will amend the following pieces of legislation, which contain offences involving the protection of the NSW environment:
- Contaminated Land Management Act 1997
- Environmentally Hazardous Chemicals Act 1985
- Forestry Act 1916
- Heritage Act 1977
- Mining Act 1992
- National Parks and Wildlife Act 1974
- Native Vegetation Act 2003
- Pesticides Act 1999
- Protection of the Environment Operations Act 1997
- Sydney Water Catchment Management Act 1998
- Threatened Species Conservation Act 1995
- Water Industry Competition Act 2006
The majority of the changes will "downgrade" the potential criminal liability of individuals by reversing the burden of proof where previously "directors and officers were deemed to have committed the offence unless they can prove their innocence by showing that they took all reasonable steps to avoid the particular offence occurring"2. The exception to this is the Protection of the Environment Operations Act 1997 (POEO Act), which will include various new offences that keep the onus on directors and managers under offences known as "special executive liability" offences.
The changes also narrow the range of employees that may be held liable for an offence under certain pieces of legislation. For example, currently an employee of a corporation that commits an offence can be prosecuted under the Heritage Act 1977 (NSW). Once the NSW Directors' Liability Act commences, only those employees involved in the management of the corporation can be liable for an offence under the Heritage Act (NSW).3
What is the new "executive liability offence"?
In an effort to more clearly define and separate the actions of a corporation from the actions of a manager or director, the NSW Directors' Liability Act introduces a new category of offence known as an "executive liability offence".
There are different types of executive liability, being a general "executive liability offence" and a "special liability offence". These types of liability are distinguished by whether the onus is on the individual director or the prosecutor to prove the elements of the offence, including whether reasonable steps were taken by the director or manager to prevent or stop the commission of an offence by the corporation (the responsibility element).
Importantly, the NSW Directors' Liability Act only deals with personal liability for criminal offences, not civil penalty provisions and further, does not alter the responsibilities of directors under the Commonwealth Corporations Act 2001.
"Watering down" of directors' liability?
One of the main objects of the NSW Directors' Liability Act is to amend NSW legislation so that the liability of directors and managers for certain offences are no longer presumed. In doing so, the NSW Directors' Liability Act will, for a large range of offences, effectively reverse the burden of proof such that the prosecutor is now required for certain offences to demonstrate that the manager or director:
- knew or ought reasonably to have known that the offence would be or is being committed; and
- failed to take all reasonable steps to prevent or stop the offence being committed.
These types of offences are known as an "executive liability offence". The term "reasonable steps" is defined in each offence, and involves demonstrating that there is action towards ensuring:
- employees are provided with sufficient training;
- plant and equipment are appropriate in all circumstances; and
- there is a culture that does not encourage or tolerate non-compliance with the provision that creates the executive liability offence, amongst other things.
This change in the burden of proof has received criticism on the basis that it reduces the accountability of managers and directors for offences caused by their corporations, but has been seen as necessary by some as a measure to reduce unnecessary red tape on Australia's economic activity.
Despite this change in the burden of proof, directors and managers can now also be liable for what the NSW Directors' Liability Act describes as "accessorial liability". This is a new liability where directors and managers can also be prosecuted for offences committed by a corporation if they acted as an accessory to the offence, such as by aiding and abetting the commission of the offence.
What are the changes under the Protection of the Environment Operations Act 1997?
Whilst the NSW Directors' Liability Act proposes significant amendments to key NSW environmental legislation, the NSW Directors' Liability Act will not alter the liability for certain offences under the POEO Act that are considered, for public policy reasons, to be more serious.4
For these offences, now known as "special liability offences", the responsibility element continues to be presumed and the director (or manager) bears the burden of proving, on the balance of probabilities, that they were not in a position to influence the conduct of the corporation and that they used all due diligence to prevent the corporation committing the offence. This includes certain Tier 1 and Tier 2 offences such as failing to comply with the conditions of an environment protection licence, polluting waters and failing to notify a pollution incident.
For those less serious offences under the POEO Act (such as a failure to hold a licence when carrying out a premises based scheduled activity) the prosecutor now bears the burden of proof.
How does this impact you and next steps
The NSW Directors' Liability Act will provide a more structured separation of the actions and responsibilities of the corporation and the actions and responsibilities of managers and directors.
It is important to be aware that whilst these legislative amendments make it tougher for managers and directors to be held liable for certain corporate activities, prosecutions of this kind are likely to continue (particularly in regard to the more serious offences under legislation such as the POEO Act). Arguably, individuals could face greater penalties if found liable for an executive liability offence and as an accessory to the commission of an offence by the corporation.
In light of these changes, companies should review their processes and procedures to identify new obligations relevant to directors and managers that commence on 11 January 2013. This review should address measures to demonstrate that reasonable steps have been taken, including adequate training, to ensure compliance with environmental legislation relevant to company operations.
1Second Reading Speech, Miscellaneous Acts
Amendment (Directors' Liability) Bill 2012 (NSW), Legislative
Assembly, 17 October 2012, (The Honourable Greg Smith, SC
2Second Reading Speech, Miscellaneous Acts Amendment (Directors' Liability) Bill 2012 (NSW), Legislative Assembly, 17 October 2012, (The Honourable Greg Smith, SC MP).
3Section 159(2)(b) of the Heritage Act 1977 (NSW).
4Explanatory Note to the Miscellaneous Act Amendment (Directors' Liability) Bill 2012.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.