Proposed New South Wales environmental laws to extend directors’ and managers’ liability for environmental offenses

Current and former directors of an environmental offender and its related companies will face much greater legal exposure, a variety of new offenses will be added, and the EPA will gain broader powers to require cleanup, if a proposed legislation currently in NSW Parliament is passed.

Following calls for environmental regulators to have broader powers and take a tougher line on enforcement, the New South Wales Government has presented the New South Wales Parliament with the draft Environment Law Amendment Act 2021, proposing far-reaching reforms to a range of environmental laws.

Although the EPA said the reforms “are only for those who deliberately choose to circumvent the law,” the text of the bill’s provisions has a much broader application. The proposed changes will affect all NSW operators, members of their group of companies, as well as current and former directors and managers.

Key changes include (among others):

  • new powers for the EPA to target directors, officers, and related corporations (and their directors and officers) for criminal penalties, cleanup and/or other regulatory notices, and reimbursement of benefits arising from harms a legal person;
  • extended provisions on the liability of directors and accessories;
  • new environmental violations, including providing false or misleading information to EPA (knowingly or unknowingly) in any context;
  • significantly tougher penalties;
  • heavier penalties for a person who commits a specific waste offense twice in 5 years; and
  • new powers for the EPA to:
    • issue clean-up notices under the Environmental Protection Operations Act 1997 (POEO Law) in respect of land as soon as it is notified under the Contaminated Land Management Act 1997 (CLM law), regardless of whether it is determined to be “significantly contaminated” under the CLM Act or whether there is already an order or voluntary management agreements approved for this land;
    • issue cleanup notices under the POEO Act to persons reasonably suspected of contributing to (rather than causing) a pollution incident; and
    • impose covenants on land titles and require financial security to support ongoing remedial action or permit conditions.

We have commented in more detail on a selection of the main changes, and those which more particularly concern executives and managers.

Increased exposure for directors, managers and related entities

One of the bill’s stated goals is to prevent people and entities from using corporate structures to circumvent environmental laws. The bill seeks to achieve this goal in four ways.

Personal Cleaning Notice

The bill would empower the EPA to issue cleanup notices and preventative notices under the POEO Act directly to current and former directors of a corporation, corporate entities related to a corporation, and their current and former directors. , if the company fails to comply with an environmental protection notice issued under the POEO Act.

Recovery of proceeds of environmental crime

The bill would empower the EPA to recover any monetary benefit from any of the following persons who have benefited or (in the opinion of the court) will benefit from the commission of an offense by a corporation under the POEO Act or the CLM law:

  • a person who is or was, at the time of the offence, a director or person concerned with the management of the company;
  • a related legal person; and
  • a person who is, or was, at the time of the offence, a director or a person involved in the management of related legal persons.

The proposed definition of “monetary benefits” is broad, but not very clear.

Extended Criminal Liability for Receiving Monetary Benefits

The bill would make it an offense for any of the following persons to receive, acquire or accumulate a monetary benefit as a result of the commission of an offense by a corporation under the POEO law or the CLM law:

  • a person who is or was, at the time of the offence, a director or person concerned with the management of the company;
  • a related legal person; and
  • a person who is, or was, at the time of the offence, a director or a person involved in the management of related legal persons.

Extended scope of the “fit and proper person” test

The bill would allow the EPA to consider the environmental record of current and former directors of a company or its related entities when making decisions about a license held by the company.

The first three changes represent an extraordinary extension of the exposure of directors, officers and legal persons, potentially covering events of which they were not concerned or aware, or which they were powerless to prevent.

While we expect these new enforcement powers to be used sparingly, there’s no guarantee they won’t be used in any particular situation.

This will present new challenges for individuals considering board or management positions, those considering appointing such positions, corporate transaction teams, and companies requiring EPA licenses, among others. The availability, terms and premiums of D&O insurance could also become more problematic.

New offense of providing false or misleading information to the EPA

The bill would introduce a new general POEO Act offense of providing false or misleading information to the EPA. Currently, a similar offense applies only in the context of statements conditional on an EPA license or responses to regulatory notices. It would also be an offense of directors’ liability, which means that directors and officers of a company providing false or misleading information could also be personally liable.

This appears to have been prompted by the fact that the EPA has seen more and more instances where false or misleading information is provided to it to avoid enforcement action or delay an investigation.

To successfully raise a defense, directors and managers would have to demonstrate that they took all reasonable steps to ensure that any information provided to the EPA was not materially false or misleading. To contribute to this, directors and managers should, among other things:

  • take appropriate steps to ensure the accuracy of any information to be provided to EPA before it is provided;
  • periodically audit the company’s compliance processes and systems to ensure they are effective and adequate; and
  • ensure that personnel involved in any communication with the EPA are properly trained and supervised.

Conclusion

The bill would strengthen ESG considerations, as it would significantly expand the legal liability of directors and officers for the acts and omissions not only of the companies they manage but also, in some cases, of their related corporate entities. Directors and managers should carefully review the changes and improve their compliance programs to manage their exposure to liability.

The government has said the bill will update and modernize current environmental legislation and ensure NSW “continues to set the benchmark”. There is no doubt that many of the proposed changes significantly raise the compliance bar.