Australia: Executive Officers’ Liability: Development And Environment Offences

Last Updated: 3 April 2007
Article by David Nicholls and Don Battams

The purpose of this presentation is to provide you with a brief overview of risks for directors associated in the context of environmental offences and development offences.

Example– Landfix

Landfix Pty ltd (Landfix) is a company now in liquidation, established by its two directors to conduct a business of reprocessing a by-product of aluminium known as saltcake in order to recover further aluminium.

From September 1997 to approximately November 2002, Landfix operated a saltcake reprocessing facility at Port Alma on land leased from Rockhampton Port Authority. The land leased was reclaimed in the 1950s using fill of unknown origin and abutted intertidal flats on three sides.

The reprocessing included the use and re-use of a quantity of water. The water was contained within a number of open ponds and drains on site, and was repeatedly re-cycled. As a consequence of its repeated contact with the saltcake, this on-site process water had elevated concentrations of nutrients and metals which, from analysis of the process water conducted from time to time, exceeded ANZECC and ARMACANZ guidelines in respect of at least 5 elements. These guidelines indicate concentrations at which metals and nutrients may impact adversely on the aquatic flora and fauna.

Landfix, and its directors were charged with two offences under section 437(1) of the Environmental Protection Act 1994 ("The EP Act"). Committal proceedings were heard in the Magistrates Court at Rockhampton in October 2003 and February 2004 to determine whether the EPA had enough evidence against Landfix and its directors to prosecute its case. The two alleged offences were –

  1. that on or about 25 July 2002, Landfix wilfully and unlawfully caused serious environmental harm and that the release of the ammonia poisoned a person who was an employee of a nearby business, Cheetham Salt Ltd.
  2. that on various dates between on or about 20 September 1997 and 20 November 2002, Landfix wilfully and unlawfully caused serious environmental harm by stockpiling non-metal product ("NMP") on the site resulting in a Potential adverse effect on the quality or physical characteristic of the ‘environment’ (as defined in section 8(a), (b) and (c) of the EP Act) because of a risk that the contaminated material might escape from the site and have a toxic impact on the marine life in the adjacent marine environment.

In a ruling handed down on 26 March 2004, the Magistrate dismissed the two charges on a view that the charges were misconceived as they were in the nature of minor "nuisance" offences under the EP Act. The magistrate found that the prosecution could not prove a real "potential" for "serious" or even the lesser charge of "material" environmental harm in circumstances where the continuous operations of Landfix for five years had produced no measurable impact on the surrounding marine environment. He also expressed concerns that the scientific data upon which the EPA witness based their opinions was incomplete and inadequate and fundamentally flawed.

Presumably that would have been the end of the matter however; the Director of Public Prosecutions as a result of representations made by the Director-General of the Environmental Protection Agency ("the EPA") was persuaded to file an ex officio indictment alleging that the Corporation caused serous environmental harm, contrary to section 437 of the EP Act. The directors were charged for failing to ensure that the Corporation did not cause serious environmental harm pursuant to sections 437 and 493 of the EP Act.

By the time of the Ex Officio indictment was presented the company had gone into liquidation; therefore, the EPA could no longer pursue the charges against the company, but could continue to pursue the charges against the directors for failing to ensure the company did not cause serious environmental harm. The alleged charge was not based on evidence that the company had caused serous environmental harm which would require evidence of causation; instead, the EPA alleged that the company’s activities had the potential to cause serious environmental harm. Therefore, the EPA did not have to show whether there was any causation, but instead whether the activities had the potential to cause serious environmental harm.

The outcome of this case is yet to be determined, however, supposing there is evidence to establish the potential serious environmental harm offence, then it is a defence for directors to establish that they exercised due diligence in carrying out their duties. If this can be established, then regardless of whether there is evidence that the company committed an offence, the directors will not be liable.

The EPA is running the Landfix prosecution as a test case in relation to the reach of the EP Act with respect to environmental harm. An interesting aspect of the case is that guilt or innocence will be determined by reference to expert evidence. The "potential" of a given set of circumstances to cause environmental harm requires a degree of foresight and scientific knowledge to predict. However, because "environmental harm" by definition includes potential harm the offence will be committed if it can be proven that harm was likely to be cause. This places a very high onus on companies and directors. The outcome of the prosecution is awaited with interest.

Queensland – Directors – Development Offence

Development Offences

In Queensland it is an offence to carry out assessable development against the Integrated Planning Act 1997 ("the IPA") without a development permit (s 4.3.1 IPA) and it is an offence to use premises if the use is not a lawful use (s4.3.5 IPA). These offences carry a maximum penalty of $124,875 for an individual and $624,375 for a corporation.

Section 4.4.3 of IPA places an obligation on executive officers of a corporation to ensure the corporation complies with the Act. Often, the prosecution will draft the complaint and summons to include both the corporation and the executive officers, because evidence that a corporation has been convicted of an offence against a provision of the IPA is evidence that each of the executive officers have also committed the offence of failing to ensure the corporation complied with the provisions of IPA. Once the prosecution has established beyond a reasonable doubt that the corporation has committed an offence against a provision of IPA, then the onus is on the directors to establish evidence of their defences. The prosecution needs to provide evidence that the directors failed to ensure the corporation complied with the provision of IPA.

Defences under IPA

If a corporation is found to have committed an offence, there are two defences available to an executive officer.

  1. That the executive officer was not in a position to influence the conduct of the corporation; or
  2. If the executive officer was in a position to influence the conduct of the corporation, it is a defence to establish that he or she exercised reasonable diligence to ensure the corporation complied with the provision of IPA.

What then is evidence to establish "reasonable diligence"? This will depend on the nature of the development and the nature of the contractual arrangements entered into with contractors and subcontractors. The best evidence that can be collected to establish this defence will be a paper trail of all communications between the director and the superintendent or other subcontractors. Specifically, evidence of communication from the director that shows the director made sure the subcontractors possessed copies of the development approvals and were carrying out the development in accordance with those approvals.

These defences pose problems for a corporation and its executive officers when faced with prosecution proceedings. The complaint and summons will always be drafted in such a way so as to include both the company and its directors. Of course the company, will engage a firm to act on its and the directors behalf. However, if the defences need to be exercised this may create a conflict of interest where one firm is representing all of the directors and a company. For example, to establish that a director was not in a position to influence the conduct of the corporation, that director may have to provide evidence that another director had that influence over the conduct of the company. To avoid these conflict issues, it is important for the directors to consider early how they will approach any evidence that may be used for the defences and if necessary whether each of the directors should have their own legal representation.

Consideration needs to be given to the Council’s power of entry on to a development site. In order for a Council to collect evidence of a development offence, it will need to enter the site in order to establish that an offence is being carried out. Under the Local Government Act 1993 ("the LGA") Council officers can not enter a site to gather evidence unless they have a warrant to enter the site or unless they have permission from the occupier to enter the site.1 Therefore, in some cases it may be prudent to consider whether legal advice should be sought before speaking with a Council officer or whether to grant entry to the Council officer to come on site.

Queensland – Directors – Environmental Offences

Environmental Offences

Similar offence provisions exist under the Environmental Protection Act 1994 ("the EP Act"), section 493, ie for failing to ensure the corporation complied with the EP Act. The EP Act, makes it an offence to:

  • fail to notify the EPA that serious or material environmental harm is caused or threatened by their’s or someone else’s act or omission; this also applies to employees (s320, maximum penalty $7,500 for an individual and $375,000 for a corporation);
  • to carry out level 1 petroleum activity without an environmental authority (s426, maximum penalty $30,000 for an individual $150,000 for a corporation);
  • to carry out a level 2 petroleum activity without an environmental authority (s426, maximum penalty $12,375 for an individual $61,875 for a corporation);
  • to carry out a level 1 chapter 4 activity without a registration certificate (s427 maximum penalty $30,000 for an individual $150,000 for a corporation);
  • to carry out a level 2 chapter 4 activity without a registration certificate (s427 maximum penalty $12,375 for an individual $61,875 for a corporation);
  • contravene a condition of an environmental authority (s430, penalties range depending on the authority from $150,000 or 2 years imprisonment for an individual; or $750,000 for a corporation to $18,750 for an individual or $93,750 for a corporation);
  • contravene a condition of a development approval (section 435 maximum penalty ranges from $150,000 or 2 years imprisonment to $124,875for an individual or $750,000 to $624,375 for a corporation);
  • contravention of an environmental management program or site management plan(s432 maximum penalty ranges from $124,875 or 2 years imprisonment to $62,625 for an individual or $624,375 to $313,125 for a corporation);
  • unlawfully causing serious environmental harm (s437 maximum penalty ranges from $312,375 or 5 years imprisonment to $124,875 for an individual or $1,561,875 to $624,375 for a corporation);
  • unlawfully causing material environmental harm (s438 maximum penalty ranges from $124,875 or 2 years imprisonment to $62,625 for an individual or $624,375 to $313,125 for a corporation);
  • unlawfully causing an environmental nuisance (s.440 maximum penalty ranges from $62,625 to $12,375 for an individual or $313,125 to $61,875 for a corporation);
  • contravening, wilfully or otherwise, an environmental protection policy (s.441 maximum penalty ranges from $124,875 or 2 years imprisonment to $6,375 for an individual or $624,375 to $31,875 for a corporation);
  • releasing a prescribed contaminant into the environment (s442 maximum penalty $12,375 for an individual or $61,875 for a corporation);
  • allowing a contaminant to be placed in a position where it could reasonably be expected to cause serious or material environmental harm or environmental nuisance (s443 maximum penalty $12,375 for an individual or $61,875 for a corporation)
  • interfering with any monitoring equipment (s.444 maximum penalty $12,375 for an individual or $61,875 for a corporation).

Defences under EP Act

Again the same defences apply, however are worded slightly differently. It is a defence for an executive officer to prove –

  1. That the officer was not in a position to influence the conduct of the corporation in relation to the offence; or
  2. That if the officer was in a position to influence the conduct of the corporation in relation to the offence – the officer took all reasonable steps to ensure the corporation complied with the provision.2

Evidence to establish that all reasonable steps had been taken may include evidence that the executive officer established a prevention system, was familiar with the industry standards, ensured compliance with industry standards, commissioned professional assessments, systematically reported and conducted environmental audits, established an environmental committee, trained staff and reacted to the environmental offence.3

Environmental offences are determined by the fault or culpability of an executive officer, rather than the damage or type of offences,4 and are easier to establish against executive officers in small corporations.5 To prove offences, the prosecution may provide evidence that goes to the executive officers awareness of an environmental offence, for example when an officer of the EPA contacted them to inform them of an offence having taken place; other evidence may include behaviour that was intentional, reckless or careless,6 or conduct motivated by financial interest and disregard for environmental law.7 Fault may also be established if the executive officer has notice of the environmental offence, as was the case in EPA v Supreme Poultry & Chickens Pty Ltd. In this case the company and directors were issued three previous infringement notices for pollution of waters and were previously convicted for polluting nearby waterways, on that basis the court concluded that the directors were liable because they must have been aware of the possibility of polluting waterways and were in control of corporate activities and did nothing to rectify the offences.

To establish the defence of taking all "reasonable steps"8 the director would need to show that all reasonable and appropriate precautions designed to prevent the offence were taken. It is extremely beneficial if a company has certain environmental management and risk procedures in place so the director can demonstrate how those procedures were complied with, it is not necessary for those procedures to be followed perfectly.9

Sole directors of corporations are particularly susceptible to prosecution because their culpability is easier to establish when they are on-site, actively involved, and personally responsible for all decisions about corporate activities.10 Therefore, for sole directors one the defence that they were not in a position to influence the company is not available. As such, the sole director would need to focus on providing evidence that it took all "reasonable steps"11 to ensure that the corporation complied with the EP Act. For example, in the case of EPA v S J Perry it was found that the sole director was solely responsible for bringing tyres to the site, storing them, and subsequently abandoning the premises and for that reason, was held to be "wholly and actively responsible for the decision".12 Obviously it is more difficult to prove offences against directors who have little influence over the day to day operations of a site or project and are not on-site.

In order to obtain entry an officer investigating an offence, must either obtain a warrant,13 or obtain consent from the owner or occupier.14 Therefore, in some cases it may be prudent to consider whether legal advice should be sought before speaking with an officer from the EPA or whether to grant entry to an EPA officer to come on site.

History of convictions for environmental offences

Recent prosecutions indicate that environmental protection agencies are more willing to pursue executive officers for corporate environmental offences to punish offenders and to make an example of offenders.15 In R v Moore, a penalty of 18 months imprisonment was imposed on a director of a company and subsequently upheld in the Court of Appeal as not being manifestly excessive due to the directors previous convictions for environmental offences in the Magistrates Court. In this case the director was imprisoned for failing to comply with storage conditions of toxic chemical that caused or potentially could cause damage by entering the water. The Court of Appeal held the penalty was appropriate because the director had numerous warnings, knew the significant environmental risks, was fined by a Magistrate, and subsequently committed other offences of serious environmental harm.16

In Williams v Sykes17 where an operator was convicted of wilfully and unlawfully causing serious environmental harm for pumping untreated effluent over nearby land for over three years. Mr Sykes was fined $75,000 and was ordered to pay the EPA’s costs of $27,000 in addition, Mr Sykes received an 18 month suspended jail sentence.

If there is no evidence available for a director to establish that they exercised all "reasonable steps", the court will consider mitigating factors when determining what penalty should be imposed. These include an early plea of guilty, lack of previous offences, expressions of remorse, good character, cooperation with prosecutors, attempts to minimise future offences and attempts to mitigate against the harm caused by the alleged offence.18 A financial penalty may also be reduced if an executive officer has limited financial resources and the proposed amount would be overwhelmingly burdensome.19 However, this is within the court’s discretion and may not be considered in cases exhibiting persistent and ongoing delay.20

Environmental Protection and Biodiversity Conservation Act 1999

Amongst some of the offences under the Environmental Protection Biodiversity Conservation Act 1999 ("the EPBCA") it is an offence to contravene:

  • section 15A (Offences relating to declared World Heritage places);
  • section 15C (Offences relating to National Heritage places);
  • section 16 (Offence to take action that will significantly impact on ecological character of declared RAMSA wetland without approval);
  • section 17B (Offences relating to declared RAMSAR wetlands);
  • section 18A (Offences relating to threatened species);
  • section 20A (Offences relating to listed migratory species);
  • section 22A (Offences relating to nuclear actions);
  • section 24A (Offences relating to marine areas);
  • section 27A (Offences relating to Commonwealth land);
  • section 142A (Offence of breaching conditions of approval).

An executive officer will be liable criminally for any of these offences if:

  • an executive officer was reckless as to whether the contravention would occur; and
  • the officer was in a position to influence the conduct of the body in relation to the contravention; and
  • the officer failed to take all reasonable steps to prevent the contravention.21

These offences by an executive officer can attract imprisonment for the maximum time specified for each offence provision.

The EPBCA deals separately with civil punishment of an executive officer for offences in section 494 of the EPBCA. An executive officer will be liable for a civil penalty if:

  • the executive officer knew, or was reckless or negligent as to whether, the contravention would occur; and
  • the officer was in a position to influence the conduct of the corporation in relation to the contravention; and
  • the officer failed to take all reasonable steps to prevent the contravention.22

Unlike the State legislation, the EPBCA states what an executive officer must do in order to take reasonable steps to prevent the contravention. These include:

(a) what action the officer took directed towards ensuring:

(i) that the corporation arranges regular professional assessments of the company’s compliance with the EPBCA and the regulations;

(ii) that the corporation implements any appropriate recommendations arising from such an assessment;

(iii) that the corporation has an appropriate system established for managing the effects of the corporations activities on the environment;

(iv) that the corporation’s employees, agents and contractors have a reasonable knowledge and understanding of the requirements to comply with the EPCA and the regulations, in so far as those requirements affect the employees, agents or contractors concerned; and

(b) what action if any the officer took when he or she became aware that the corporation was contravening:

(i) the EPBCA; or

(ii) the regulations; or

(iii) any environmental management plan that was prepared by the corporation and approved by the Minister for the EPBCA.23

Therefore, in order to establish a defence under the EPBCA, an executive officer will have to provide evidence of the above.

In the case of Minister for the Environment & Heritage v Greentree (No 2) [2004] FCA 741 directors of a corporation were found to be liable for civil penalties for breaching section 16 of the EPBCA. The site the subject of the case was a declared Ramsar wetland contained within freehold property. It was found that the company and one of its directors damaged the Ramsar site by clearing and ploughing the site to make way for wheat crops. Interestingly, the directors did not put forward any evidence of having taken reasonable steps, instead consideration was given to whether each of the directors charged were in a position to influence the company. The court found that Mr Greentree was responsible for the actions taken since he was the sole shareholder of both of the companies that held shares in Greentree Farming Pty Ltd. Mr Greentree had managed and directed the operations of Greentree Farming on behalf of the Merrywinebone and Auen. There was evidence that Mr Greentree had instructed the operations manager of Greentree Farming to clear and plough an area of land on Windella, including the Windella Ramsar site.

Merrywinebone had a partnership with a shareholding company of Greentree Farming, as such the directors of Merrywinebone were also charged with the offence. The court found that the directors of Merrywinbone could not be held liable as there was no evidence that they were informed of the proposed actions nor endorsed them. The court found that in the absence of any affirmative evidence of their knowledge, that those directors could not be found liable.

Other considerations for the EPBCA

If a company is proposing to undertake development that could be construed as a controlled action for the purposes of the EPBCA eg clearing of vegetation that may contain protected species, section 68 of the EPBCA allows a person to refer that action to the Minister for approval even if they do not think it is a controlled action. The Minister must decide then whether the action is a controlled action pursuant to section 75 of the EPBCA. If the minister decides that the action is not a controlled action and it turns out that the action has an impact, the person who took the action will be protected from any civil penalties that would have been imposed.

The writers would like to pass on their appreciation to Robyn Lamb, Trainee Solicitor, for her efforts in assisting with the paper.

Footnotes

1 s1091 of the Local Government Act 1993

2 s493 of the Environmental Protection Act 1994

3 SPCC v Kelly (1991) 5 ACSR 607, 607-9 (Hemming J); EPA v Broken Hill Pty Co Ltd (Unreported, NSWLEC, Talbot J, 15 April 1994) 7-8; R v Bata Industries Ltd (No 2) (1992) 70 CCC (3rd) 394 (Ormoston J); Universal Telecasters (Qld) Ltd v Guthrie (1978) 18 ALR 531, 534 (Bowen CJ; Nimmo & Frank JJ agreeing).

4 Williams v Malaysia International Shipping & Syed Naeem Jafar (Unreported, Cairns Magistrates Court, 6 February 2001); R v Moore [2003] 1 Qd 205, 210-11 (Williams JA; Jones & Douglas JJ agreeing); Gosford City Council v Build Max Developments Pty Ltd & Ors [2000] NSWLEC 224 [19] (Bignold J).

5 R v Moore [2003] 1 Qd R 205, 208 (Williams JA; Jones & Douglas JJ agreeing).

6 R v Moore [2003] 1 Qd R 205, 208 (Williams JA; Jones & Douglas JJ agreeing); EPA v Eco Cycle Materials Pty Ltd, EPA v Scanlan [2003] NSWLEC 63, [9], 21 (Talbot J); EPA v Capdate Pty Ltd, EPA v Phillips (Unreported, NSWLEC, Stein J, 10 February 1993); Phillips v Spencer & Anor [2005] QCA 317, [1] (de Jersey CJ; McMurdo P & Jerrard JA agreeing); EPA v Supreme Poultry & Chickens Pty Ltd [2001] NSWLEC 215, [20] (Lloyd J).

7 EPA v Richardson, EPA v Behnfeld [2002] NSWLEC 205, [17] (Talbot J).

8 Section 493(4)(a) of the Environmental Protection Act 1994

9 SPCC v Kelly (1991) 5 ACSR 607, 608-9 (Hemmings J).

10 EPA v S J Perry [2004] NSWLEC 715, [25], [30] (Bignold J); Gosford City Council v Beresford & Beresford Concrete Products Pty Ltd [2001] NSWLEC 43 [8] (Pearlman J); EPA v Richardson, EPA v Behnfeld [2002] NSWLEC 205, [17] (Talbot J);

11 Section 493(4)(a) of the Environmental Protection Act 1994

12 EPA v S J Perry [2004] NSWLEC 715, [30] (Bignold J);

13 section 456 and 457 of the Environmental Protection Act 1994

14 section 453 and 454 of the Environmental Protection Act 1994

15 Williams (DEN) v Chemprod Nominees Pty Ltd & Geoffrey Robert Stanford (Unreported, Southport District Court, Newton J, 15 February 1999

16 R v Moore [2003] 1 Qd R 205, 208-9, 211 (Williams JA; Jones & Douglas JJ agreeing).

17 (Unreported, District Court of Maroochydore, Dodds DCJ, 20 June 2000)

18 Penalties and Sentences Act 1992 (Qld) ss9(1), 9(2), 11, 13; EPA v S J Perry [2004] NSWLEC 715, [33] (Bignold J); EPA v Eco Cycle Material s Pty Ltd, EPA v Scanlan [2003] NSWLEC 63, [21], [26] (Talbot J); Gosford City Council v Beresford & Beresford Concrete Products Pty Ltd [2001] NSWLEC 43, [6], [12]-[17] (Pearlman J); CF: EPA v Capdate Pty Ltd, EPa v Phillips (Unreported, Stein J, 10 February 1993); Gosford City Council v Build Max Developments Pty Ltd & Ors [2000] NSWLEC 224 [20]-[21] (Bignold J); EPA v Supreme Poultry & Chickens Pty Ltd [2001] NSWLEC 215, [23] (Lloyd J).

19 EPA v S J Perry [2004] NSWLEC 715, [11] (Bignold J); EPA v Capdate Pty Ltd, EPA v Phillips (Unreported, Stein J, 10 February 1993).

20 EPA v Eco Cycle Materials Pty Ltd , EPA v Scanlan [2003] NSWLEC 63, [26] (Talbot J)

21 section 495 of the Environmental Protection and Biodiversity Conservation Act 1999

22 section 494 of the Environmental Protection and Biodiversity Conservation Act 1999

23 Section 496 of the Environmental Protection and Biodiversity Conservation Act 1999

© Hopgood Ganim

Australia's Best Value Professional Services Firm - 2005 and 2006 BRW-St.George Client Choice Awards

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    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions