Two questions frequently arise in the context of environmental liability: are an organisation’s directors and officers personally liable for environmental breaches, and whether or not anorganisation is liable for pollution or contamination at sites it has previously owned or occupied.
Personal liability of directors and managers
In all jurisdictions, environmental laws provide various mechanisms by which senior people directing an organisation can be held liable for environmental breaches of their organisation. The rationale for this being the public interest in ensuring that those running operations place environmental protection at the core of the business.
As environmental law is principally criminal in nature, breaches of environmental laws are predominantly criminal offences.
Who is liable?
Environmental laws are different in each state and territory, so the question as to who is potentially liable depends on where the offence was committed and not necessarily where the organisation’s directors or senior managers are domiciled.
The type of individual who might be liable differs between jurisdictions. For example, some states refer to directors and officers (as defined in the Corporations Act) whilst others refer to directors and “persons concerned in the management of the corporation”, such as managers.
How does liability arise?
In essence, there are three main types of liability:
- derivative or deemed liability - where the individual, by virtue of their position alone, is automatically held to have committed the same offence as the organisation.
- direct liability - where the director or manager was the person who committed the offence (ie mostly applicable to small businesses, where directors may be more actively involved in operations).
- accessorial liability - where the director or manager is, by virtue of their acts or omissions, liable as an accessory to the commission of the crime.
CHECKLIST FOR DIRECTORS AND MANAGERS
- Gain an understanding of the nature of the operation of the organisation and general environmental issues associated with those operations.
- Acquire and keep up-to-date knowledge of environmental matters relevant to the organisation.
- Ensure that people engaged in the business have appropriate processes for receiving and considering information regarding environmental incidents, hazards and risks, and respond in a timely way to that information.
- Take action to ensure your employees, agents and contractors are provided with information, training, instruction and supervision appropriate to them to enable them to comply with legal requirements.
- Ensure that there are appropriate resources available and processes in place for use by employees and contractors to eliminate or minimise both risks to the environment and non- compliance with licences (and ensure that these are actually used).
- Ensure that those engaged in the business or undertaking implement processes for complying with any duty or obligation of the organisation, including complying with licence conditions and notices served.
- Assess compliance with legal requirements arising under environmental and planning laws.
- Take action towards ensuring that the organisation’s plant, equipment and other resources, and the structures, work systems and other processes are appropriate, principally by ensuring the allocation of appropriate capex and opex.
- Take action towards creating and maintaining a corporate culture that does not direct, encourage or tolerate non-compliance.
How to minimise liability
In order to ensure that directors and managers are able to minimise the risks of a successful prosecution against them, they should seek to:
- understand their organisation’s environmental obligations and put in place adequate environmental compliance systems to prevent direct liability; and
- implement environmental governance structures that will enable directors and managers to demonstrate compliance, and therefore present a defence. This includes taking reasonable steps or exercising due diligence to avoid commission of the offence.
Are we liable for contaminated sites that we formerly owned or occupied?
This question is commonly asked by clients seeking to dispose of a contaminated site, or a site that is proposed to be remediated prior to sale. The answer is complex and depends on a range of factors.
If you are the vendor of a site that you have contaminated as the primary polluter, or you have contributed to the contamination by your activities, you will usually be liable to clean up the site under the “polluter pays” principle.
All States and Territories have environmental protection laws which provide some recourse for the environmental regulator to require the original polluter to clean up contamination, or for a subsequent occupier or site owner to be served with such a requirement and have the ability to recover the costs of compliance from the original polluter. Whilst it may be possible to contractually allocate contamination risk, in most jurisdictions it is not possible to “contract-out” of statutory liability as an “original polluter”.
The likelihood of being required to clean up a site depends largely on the condition of the site and whether or not remediation has occurred. A potential way, therefore, to minimise future risk of liability to clean up a site is to ensure that prior to disposal there is appropriate remediation. This has the dual benefit of ensuring that the remediation is within your control in terms of cost and timeline. It also potentially means that the remediation is cheaper than it would otherwise be if the site was left contaminated with the liability deferred (by which time contamination may have migrated and the costs of clean up increased). In the context of a sale of business or land, it also minimises the prospect of a transaction falling through if contamination is discovered by a potential buyer when undertaking their own due diligence process.
Yours, mine or ours?
Contamination present at any site may not be wholly attributable to your activities. Rather, activities from previous occupants may have contaminated the site. In this scenario, the best way to minimise liability would have been for your organisation to have undertaken a baseline assessment of contamination when it originally acquired the site. This strategy may be successful in placing beyond doubt, or at least accurately delineating, the extent of contamination for which your organisation was not responsible (ie that which occurred prior to acquisition) and to cap the level of contamination for which you are responsible.
At the point of sale, a vendor should seek advice on potential claims that could be made against previous owners, as well as undertaking some remediation if appropriate. Further, a baseline assessment of contamination may be the most practical way of limiting future claims against your organisation by enabling you to defend any future proceedings and delineate what was actually present at the point of sale. Delineating contamination years after you have disposed of the property can be complex and expensive.
For sites where the status of contamination is either unknown or not considered a problem, warranties, indemnities and other contractual provisions may provide some protection against future liability from prospective owners and occupiers. However, such contractual provisions may be open to challenge, and so it is important to always seek legal advice prior to disposing of property where contamination could become an issue.
Representations and disclosure
An emerging area of law in contaminated land litigation concerns the pre-contractual representations that are made by vendors prior to sale, including during the marketing of the property (ie well before those contractual terms are executed). Essentially it depends on the level of information that is disclosed to a prospective purchaser about the site condition. The question as to how much, or little, information should be provided to a purchaser, depends on a range of factors. These include the:
- State and Territory where the property is located. Environmental laws may prescribe the range of information that is required to be disclosed to prospective purchasers (such as where the site appears on a register of contaminated sites);
- relative sophistication of the parties; and
- proposed use of the site.
There is no hard and fast rule as to disclosures. Each sale should be carefully considered to minimise potential liability and avoid claims of misleading and deceptive conduct that may set aside the transaction and result in other claims.
- Always seek specific advice on environmental compliance and governance systems for the States and Territories in which your organisation operates - a one size fits all approach is not always effective.
- As a vendor or purchaser, consider the potential liability of the parties with respect to contamination and put in place effective contractual terms to protect your position. Consider whether remediation would minimise potential future liability and cost.
- Before undertaking any assessment of your organisation’s environmental compliance or contamination of property for the purpose of understanding liability, always consider whether it would be beneficial for your organisation to engage lawyers or external consultants under legal professional privilege to assess the situation and potential liability.