Australia: Environmental chains of responsibility—ties that bind and bite

In what is, at least in part, a response to the issues surrounding the Yabulu Nickel Refinery, the Queensland Government has introduced a bill to Parliament, which seeks to significantly increase the range of people who can be pursued in the event of non-compliance with the Environmental Protection Act 1994 (Qld) (EP Act) or with conditions of an environmental authority.

The Environmental Protection (Chain of Responsibility) Bill 2016 (the Bill) was read for the first time on 15 March 2016 and has now been referred to the Agricultural and Environment Committee to report back by 15 April 2016. People who wish to make a submission on the Bill must do so by Thursday 31 March 2016.

The Bill aims to ensure that the people responsible for causing environmental harm and who are unable or unwilling to carry out the remediation works are held accountable, and that elaborate corporate arrangements cannot be used to avoid responsibility. The Bill applies to all environmental authorities and is not limited to resources projects.

Concerns have already been expressed about the Bill, for example by the Association of Mining and Exploration Companies, about how there has been no consultation on the Bill.

The Bill raises an important risk awareness issue, in that companies associated with resource companies or other companies that hold environmental authorities need to be aware they may potentially become liable for certain failures by the environmental authority holder.

Extension of liability to the chain of companies

The Bill allows the regulator to look behind and beyond the corporate veil to see who controls or has influenced the company and allows them to be pursued for environmental default. Liability could be extended to related bodies corporate and to other persons, such as shareholders and financiers.

The Bill allows the chief executive to issue environmental protection orders against both an environmental authority holder and any person who is a "related person" of the environmental authority holder (where the environmental authority holder is a company). Both the environmental authority holder and the related person are then required to take the necessary steps to comply with the environmental protection order.

A related person of an environmental authority holder is:

  • a holding company of the environmental authority holder,
  • a person who owns land on which the environmental authority holder carries out, or has carried out, a relevant activity, or
  • a person who the chief executive decides has a "relevant connection" to the environmental authority holder.

For related persons who are landowners, this would seem unusual for environmental authorities for resource authorities given that the landowner may be completely unrelated to the resource authority holder, have no control over the activities carried out on the land and, indeed, be entirely unsupportive or have even objected to the project.

"Relevant connection" test

The relevant connection test has the potential to be applied very broadly. A person will be a related person if the chief executive is satisfied that:

  • the person is capable of benefiting financially, or has benefited financially, from the carrying out of a relevant activity by the environmental authority holder, or
  • the person is, or has been at any time during the previous two years, in a position to influence the company's conduct in relation to the way in which, or the extent to which, the environmental authority holder complies with its obligations under the EP Act.

In making the assessment, the chief executive is to consider factors such as:

  • the extent of the person's control over the environmental authority holder
  • where the person is an executive officer of an environmental authority holder or its holding company
  • the extent of the person's financial interest in the environmental authority holder
  • the extent to which a legally recognisable structure or arrangement makes or has made it possible for the person to receive a financial benefit from the carrying out of a relevant activity by the environmental authority holder
  • any agreements or other transactions entered into by the person with the environmental authority holder or its holding company, and
  • the extent to which any dealings between the person and the environmental authority holder or its holding company are at arm's length on an independent, commercial footing, for the purpose of professional advice or for the purpose of providing finance (including taking a security).

High risk companies

The chief executive may also issue an environmental protection order to a related person of a high risk company (whether or not an environmental protection order has also been issued to the high risk company itself). A high risk company is a company that is an externally administered body corporate or is an associated entity of a company that is an externally administered body corporate [as those terms are defined in the Corporations Act 2000 (Cth)].

The purpose of this provision is to ensure that, if a company is under external administration and may have insufficient funds to meet its commitments, another company could be pursued to ensure compliance. As the group comprising associated entities is broader than related companies, the regulator can potentially look outside the immediate corporate structure of the environmental authority holder to find an entity with the necessary funds to meet any unsatisfied environmental commitments.

Unintentional exposure

While the Minister stated in his first reading speech of the Bill that "the chain of responsibility will not attach itself to genuine arm's length investors, be they merchant bankers or mum-and-dad investors", the terms of the legislation potentially allows for those persons to be targeted. The Bill says that factors such as the extent of a person's financial interest (e.g. a mum-and-dad shareholder) and the extent to which dealings are at arm's length (e.g. banks or financiers) are to be considered by the chief executive when deciding whether or not a person is a related person. The legislation does not say that such people will never be related persons and are, therefore, not protected by the Bill as of right. Whether such persons are considered related persons will ultimately be a policy decision made by the government of the day.

There also seems to be no obligation on the administering authority to choose the "most" related person or the person with the "most" relevant connection, meaning that any or all related persons could equally be pursued. Further, there would appear to be no recourse of one related person against any other related persons for a contribution to any environmental costs in the event that the chief executive decided to pursue only one person.

At its broadest, the Bill could allow the chief executive to pursue any related person with substantial financial resources (even if they had no control of the activities that caused the environmental default, as long as they received a financial benefit) if the holder of the environmental authority has insufficient funds. While this may not be the intent of the legislation, it is open for such an interpretation to be formed.

There is an argument that this issue could be better addressed by ensuring that environmental authority holders have adequate financial assurance, as this would ensure that the funds are already in place to meet any environmental commitments without the need to look behind and beyond the corporate structure of the holder.

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.

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