The proposed amendments to the Environmental Protection Act 1994 (EP Act) are aimed at ensuring sites operated by companies in financial difficulty continue to comply with their environmental obligations.
These amendments will apply to all proponents and the provisions will apply retrospectively. Proponents should carefully consider the extent of the risk to their companies, associated entities and persons related to the company conducting an environmentally relevant activity (ERA).
In this Alert, Partner Sarah Macoun and Associate Thomas Buckley consider the proposed amendments contained in the Environmental Protection (Chain of Responsibility) Bill 2016 (Bill) that were introduced into Parliament on 16 March 2016.
- Environmental protection orders (EPOs) will be able to be issued to persons that have a relevant relationship to the company carrying out the ERA.
- The Department of Environment Heritage and Protection (DEHP) will be able to step in and take action stated in EPOs and also issue cost recovery notices for taking action and monitoring compliance with an EPO.
- Financial assurance can be required where an environmental authority (EA) is transferred to another entity.
- Transitional environmental programs (TEPs) can be required when an EPO has been amended or withdrawn.
- DEHP’s powers to enter land with respect to ERAs have substantially increased.
- Persons can be compelled to answer questions about suspected offences committed against the EP Act.
- The grounds the Court’s must consider or be satisfied of before it can stay a decision about an amount of financial assurance or a decision to issue an EPO have increased.
- If the Bill is passed, the majority of the new provisions will apply retrospectively to persons and activities undertaken prior to the commencement of the Bill.
An EPO can be issued to a “related person” of a company
The Bill proposes introducing a new part of the EP Act that will expand DEHP’s power to issue an EPO to a “related person” of a company that is, or was, carrying out an ERA. This part is the critical element of the Government’s plan to establish a “chain of responsibility” to ensure operators of sites continue to comply with their environmental obligations.
Importantly, a “related person” of a company will be:
- a holding company of the company; or
- the person who owns land on which the company carries out, or has carried out, an ERA (defined as a “relevant activity”); or
- a person with a “relevant connection” with the company.
A person will have a “relevant connection” to the company carrying out the ERA where the person has either benefited financially from the activity or is, or has been at any time during the previous two years, in a position to influence the company’s compliance with its environmental obligations. A person being in a position to influence a company’s conduct includes a person being in that position whether alone or jointly with an associated entity and whether by giving a direction or approval, by making funding available or in another way.
The Bill proposes a non-exhaustive list of factors which can be considered by DEHP in determining whether a person has a “relevant connection” with the company carrying out the ERA. These factors include:
- the extent of the person’s control of the company;
- whether the person is an executive officer of the company, a holding company, or other company with a financial interest in the company carrying out the ERA;
- the extent of the financial interest a person has in the company carrying out the ERA;
- any agreements or other transactions entered into by the company, its holding companies or other companies with a financial interest in the company carrying out the ERA;
- whether the person’s dealings with the company were; at arm’s length, on a commercial footing, for the purposes of providing professional advice, or for the purposes of providing finance or taking a security;
- whether a person complies with a notice under section 451 of the EP Act to provide information relevant to determining whether the person has a relevant connection with the company.
DEHP will be afforded the power to issue an EPO to a related person of a “high risk company”
A high risk company is defined as an externally administered company as well as a company that is an associated entity of the company. The explanatory notes to the Bill provide that the definition encompasses circumstances where the operator of an ERA is externally administered itself and at consequent risk of failing to comply with its environmental and rehabilitation obligations. The inclusion of an associated entity of the high risk company is intended to prevent the company transferring operation of the ERA to another member of its corporate group or other associated entity.
If the recipient of an EPO fails to comply with the EPO, or the operation of the decision to issue the EPO is stayed by the Court, it is proposed in the Bill that DEHP will be able to step in and take any of the actions stated in the EPO. The proposed power is similar to the power that DEHP already has with respect to stepping in and taking actions stated in clean-up notices. Where DEHP steps in to take an action stated in an EPO they will be entitled to issue the recipient with a cost recovery notice for costs or expenses reasonably incurred in taking the action stated in the EPO. DEHP will also be able to issue cost recovery notices for monitoring compliance with the EPO.
A decision that a person is a “related person” in relation to the issue of an EPO will be a decision which is subject to internal review and appeal under Chapter 11, Part 3 of the EP Act.
Financial assurance can be required where an EA is transferred to another entity
Under the EP Act, DEHP may, in certain circumstances, unilaterally amend an EA. Situations where this power is invoked include where an environmental offence has been committed by the holder of the EA. Under the Bill, DEHP’s power will be extended where an EA is transferred to another entity and also where an EPO has been amended or withdrawn. In circumstances where an EA is transferred from the holder to another entity, DEHP will be able to impose a new condition on the EA requiring the holder to provide financial assurance. A transitional provision in the Bill is proposed to capture EAs that are transferred to other entities prior to the commencement of the Bill.
A TEP can be required when an EPO has been amended or withdrawn
TEPs are specific programs used to achieve compliance with an EA or a development approval by reducing environmental harm or detailing the transition to an environmental standard. TEPs are commonly used when it is known what needs to be done to achieve a solution to an environmental problem and the solution is likely to take a long period of time. Under the Bill, DEHP will be entitled to require a TEP to be prepared in circumstances where an EPO has been amended or withdrawn. The amendment is described in the explanatory notes to the Bill as being appropriate if an entity trades its way out of financial difficulty or sells the relevant activity as a going concern. In such circumstances, it may be appropriate to remove obligations from related persons and to instead put in place a program for the operator to rectify any outstanding non-compliance.
DEHP will have broader powers to enter land
Currently, DEHP can enter land to which an EA relates but only where the entry is made when the activity is being carried out, or the place is open for the conduct of business, or the place is otherwise open for entry. The Bill proposes to substantially extend this power. DEHP will now be allowed to simply enter a place to which an EA relates. DEHP will also be allowed to enter land to which an EA has applied to, even if the EA has ceased to have effect.
Persons will be required to answer questions about suspected offences
The Bill will amend section 476 of the EP Act, which contains the offence of failing to comply with a request or notice to answer a question about a suspected offence against the EP Act. It is an offence to fail to comply with such a requirement, unless the person has a reasonable excuse. It is currently a reasonable excuse that the answer to the question might tend to incriminate the person. Under the proposed amendments a person will have to answer the question even if the answer might incriminate them. However, that answer, and any evidence directly or indirectly derived from it, cannot be used as evidence in civil or criminal proceedings against the individual.
The Court’s powers to grant a stay will be limited in respect of decisions of financial assurance and decisions to issue EPOs
The Planning and Environment Court and the Land Court has the power to stay an original decision made by DEHP under the EP Act in order to secure the effectiveness of an internal review that has been made by an applicant and any later appeal. It is proposed in the Bill that that power be limited in respect of decisions about financial assurance and also in respect of decisions to issue EPOs.
Where an application is made to the Court for a stay of decision about the amount of financial assurance to be provided under a condition of an EA, it is proposed that the decision may not be stayed by the Court unless DEHP has been given security for at least 85% of the amount of financial assurance that was decided by DEHP. The explanatory notes to the Bill provide that the provision is intended to ensure that the amount of financial assurance held by DEHP during the stay period and before the determination of an appeal is not significantly lower than the amount that DEHP has decided is required. The obvious concern with this approach is that the proponent will be required to provide security for almost the entire amount of the disputed financial assurance in circumstances where it has not yet been independently determined by the Court that the quantum of financial assurance imposed by DEHP was appropriate.
In respect of EPOs, it is proposed that the Court must refuse the application for a stay of a decision to issue an EPO if it is satisfied that there would be an unacceptable risk of serious or material environmental harm if the stay were granted.
An important aspect of the Bill is that a number of the provisions will apply retrospectively to persons and activities undertaken prior to the commencement of the Bill. Specifically:
- a person who owns land on which the company carries out, or has carried out, an ERA before the commencement of the Bill will be a “related person” to a company;
- acts, omissions and circumstances occurring before the commencement of the Bill may be considered by DEHP in deciding if a person has a “relevant connection” to a company;
- EPOs will be able to be issued to a person that is determined to be a “related person” to a company (or a high risk company) upon introduction of the Bill even if they cease to be a “related person” by the commencement of the Bill;
- EPOs will be able to be issued to a person that is a “related person” to a company (or a high risk company) in respect of activities carried out prior to the commencement of the Bill, or environmental harm caused prior to the commencement of the Bill.
The explanatory notes to the Bill suggest that the catalyst for the amendments to the EP Act were the difficulties that DEHP faced when dealing with the operators of a few select sites. However, the amendments will apply to all proponents and the consequences are significant, with potentially far reaching implications. The provisions will apply retrospectively and proponents should carefully consider the extent of the risk to their companies, associated entities and persons related to the company conducting an ERA.
Industry has also raised some concerns about the powers that will be granted to DEHP. DEHP’s existing powers under the EP Act include numerous enforcement mechanisms and powers to compel the provision of information and answering of questions. The changes proposed to be introduced by this Bill will give DEHP further power including the grounds upon which DEHP may determine that an entity is a “related person” (which are broadly drafted) and some believe that this has been designed to give DEHP the ability to pursue any entity financially equipped to rehabilitate or rectify the environmental damage notwithstanding that the entity may not have been extensively involved.
The Bill has been referred to the Agriculture and Environment Committee for investigation and report by 15 April 2016. Submissions about the Bill must be made to the committee by 31 March 2016.