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What you need to know
- On 27 January 2017, a new statutory guideline took effect in Queensland relating to the issuing of 'chain of responsibility' environmental protection orders to 'related persons'.
- Related persons (those who have significantly benefitted financially from the carrying out of a relevant activity by a company, or are in a position to influence the company's conduct) are now at risk of being issued with an environmental protection order where a company has avoided environmental obligations and the related person has participated in this conduct.
- Shareholders, banks, executive officers, secured creditors and external administrators are now potentially related persons, and should ensure they carry out adequate due diligence and risk-assessments, for the particular circumstances of the matter.
Background: amendment to the Environmental Protection Act
On 27 April 2016, the Queensland Government introduced the Environmental Protection (Chain of Responsibility) Amendment Act 2016 (Qld) (CoRA) which amended the Environmental Protection Act 1994 (Qld) (the Act).
The CoRA gave the Department of Environment and Heritage Protection (the Department) greater powers to enforce compliance with environmental obligations to ensure that companies and their related parties bear the cost of managing and rehabilitating sites. The new powers allow the Department to issue an environmental protection order (EPO) to 'related persons' of companies. An EPO is designed to protect the environment by encouraging or, where deemed necessary, legally forcing a person or organisation to undertake or stop an activity.
The new Guideline
Who is in the chain?
On 27 January 2017, the generously worded 'Issuing 'chain of responsibility' environmental protection orders under Chapter 7, Part 5, Division 2 of the Environmental Protection Act 1994 Guideline' (Guideline) took effect. The Department must have regard to the Guideline, and it is to be read in conjunction with the Department's other guidelines, the Enforcement Guidelines (particularly principles relating to establishing culpability).
The Guideline lists a set of key principles to be used to guide decision-making and enforcement by the Department for CoRA EPOs. In brief:
- being a related person does not of itself trigger the issue of a CoRA EPO – culpability of the related person must be established before a related person receives a CoRA EPO
- the Department will only consider issuing a CoRA EPO to a related person where a company has avoided, or attempted to avoid, its environmental obligations and the related person has participated in this conduct
- any enforcement action taken by the Department will be proportionate to the seriousness of the matter
- there is no pre-determined order in which the Department will pursue related persons.
Who is a related person?
The Department may decide that a person has a relevant connection with a company if it is satisfied that the person:
- is capable of significantly benefitting financially, or has significantly benefited financially, from the carrying out of a relevant activity by the company 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 its compliance with obligations under the Act.
What is a 'significant financial benefit'?
Determining a financial benefit will be a matter of fact. There is complexity involved in determining whether a benefit is 'significant', as this will vary depending on the specific circumstances. The Guideline notes that something is significant when it is 'important, notable, or of consequence, having regard to its context'. Further, the degree of significance may depend on:
- the proportion of the benefit relative to the total assets or benefit available from the activities carried out under the environmental authority or
- the proportion of the benefit, relative to the costs of restoring or rehabilitating the environment, or protecting the environment from harm or
- the abnormality of benefit received.
Who is in a 'position to influence'?
The Guideline describes being in a position to influence as any position in which a person is capable of influencing the decisions or actions of the company in relation to its compliance with the Act, whether in an official or unofficial capacity. This can include external administrators and financial institutions. Matters to be considered by the Department include:
- the nature and duration of the relationship between the person and the company
- the potential for the person to exercise decision making powers to direct the company's conduct
- the potential for the person to provide advice or expertise to influence the company's conduct
- any implications of other legislation or law on the exercise of powers by the related person (for example, the Corporations Act 2001 (Cth)).
Have 'reasonable steps' been taken?
In determining whether to issue a CoRA EPO to a related person, the Department will consider whether the related person has taken all reasonable steps to ensure that the company has complied with the Act and that there has been adequate provision to fund rehabilitation. This will be determined having regard to the extent to which the person was in a position to influence the company's conduct.
Determination as to what are reasonable steps in the specific situation will be made through an investigation by the Department, with consideration given to the following factors:
- the legal and practical ability of the related person to influence the company's conduct in relation to its environmental activities
- the extent of actual and expected knowledge of the related person in relation to the environmental obligations of the company
- whether the related person exerted their position to influence in a positive or negative way to ensure environmental harm was avoided and adequate provision was made for rehabilitation
- the reliance that the related person placed on others to ensure that the company complied with its obligations and adequately provisioned funds, and whether this was reasonable.
It is important to note that the Department's decision to issue a CoRA EPO will inevitably depend on the circumstances of the matter.
Individuals and organisations such as shareholders, banks, executive officers, secured creditors and external administrators are now among those who could be considered to be 'related persons' and who may potentially be issued with an EPO. They should therefore make sure they carry out adequate risk-assessment, which includes:
- taking all reasonable steps to ensure that the company has complied with its environmental obligations
- ensuring, to the extent of their power, that there has been sufficient provision for the funding of any rehabilitation that might be required in the event of non-compliance with those obligations.
This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories