Laws protecting nature, biodiversity and the environment often impose personal liability on directors for corporate contraventions, but inconsistent approaches to liability make understanding the risks tricky.
For decades, policymakers have debated whether directors — simply because of the office they hold — should be exposed to a penalty when their company breaks the law. This kind of directors’ personal liability for corporate fault is usually referred to as derivative or “deemed” liability, to distinguish it from liability that arises from the director’s own unlawful acts or from their direct involvement, as an accessory, in a company’s contravention.
Deemed liability is rare, but it does exist across many of the Commonwealth, state and territory laws that protect nature, biodiversity and the environment. Keeping track of when deemed liability arises, and what steps a director might take to avoid it, is challenging. Different jurisdictions and different legislation take different approaches.
In 2006, the Corporations and Markets Advisory Committee (CAMAC) flagged “considerable disparities in the terms of personal liability provisions, resulting in undue complexity and less clarity about requirements for compliance” in this area as a cause for concern.
Following CAMAC’s report, the Council of Australian Governments adopted principles limiting the use of deemed liability as a regulatory mechanism and trying to achieve some uniformity of approach. However, in environmental law, those disparities persist.
Regulating for environmental sustainability
Australia’s environmental law system is labyrinthine. For constitutional reasons, the Commonwealth’s coverage in the area is constrained. Its main Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) is limited to addressing nine matters of “national environmental significance”, covering world heritage areas, national heritage places, Ramsar Convention wetlands, listed threatened species and ecological communities, listed migratory species, Commonwealth marine areas, the Great Barrier Reef Marine Park, nuclear actions (including uranium mines) and water resources relating to coal seam gas development or large coal mining development.
Outside these nine matters, the heavy lifting is done by state or territory legislation, administered by local environmental protection agencies or their equivalents (EPAs). There have been efforts to coordinate the different regimes, but as the 2020 EPBC Act review by Professor Graeme Samuel AC found, the “intergovernmental agreements of the 1990s have not delivered an effective framework for cooperation and integration of Commonwealth, state and territory environmental regulation”.
EPAs in each jurisdiction typically administer more than a dozen separate laws addressing impacts on land, air, water and the biota. For example, in New South Wales, EPA NSW administers and enforces the main Protection of the Environment Operations Act 1997 (POEO Act) and 13 other acts related to the environment, of which seven — covering biodiversity, contamination, dangerous goods, hazardous chemicals, ozone protection, pesticides and radiation — create deemed liability for directors.
Deemed liability for environmental breaches
CAMAC found that different approaches to deemed liability add to complexity. Those differences concern firstly, which elements must be present to establish (or avoid) a director’s personal liability for the company’s contravention and secondly, who must prove them.
Most deemed liability provisions include a “reasonable steps” component, and some may include either or both of a “no influence” or “no knowledge” component. A reasonable steps component goes to whether the director has taken all reasonable measures to prevent the company’s contravention. An influence component goes to whether the director was in a position to influence company conduct in relation to the contravention. A knowledge component goes to whether the director knew or was reckless as to whether the contravention would occur.
Depending on the legislation, these components may be expressed either as elements of liability or as defences. The former approach places the burden on the prosecutor to prove the elements to establish personal liability, while the latter shifts the burden of avoiding presumptive liability onto the director.
The EPBC Act is an example of the former. Division 18 of part 17 is headed “Liability of executive officers for corporations” and includes a civil penalty provision and two criminal offences that give rise to deemed liability. The main criminal offence, set out in s 495(2) of the EPBC Act, imposes deemed liability on an executive officer (including a director) if their company commits one of nine specified offences created by the legislation. Reasonable steps, influence, and knowledge components are all included as elements of liability. This means the prosecutor must prove beyond a reasonable doubt that the director knew or was reckless as to whether the contravention would occur, was in a position to influence the company’s conduct in relation to the contravention and failed to take all reasonable steps to prevent it.
Similarly, deemed liability for corporate contraventions of 23 “executive liability” provisions under s 169A of the POEO Act in NSW only arises if the prosecutor can prove reasonable steps and knowledge (but not influence) components — that is, the director knew or ought reasonably to know that the executive liability offence would be or was being committed, and failed to take all reasonable steps to prevent the commission of that offence. In Victoria, s 349 of the Environment Protection Act 2017 (Vic) specifies 16 provisions where similar rules apply — a director is deemed liable for the company’s contravention if the prosecutor proves the director failed to exercise due diligence to prevent the commission of the offence. In deciding whether there was a failure to exercise due diligence, a Victorian court can consider reasonable steps, no influence and no knowledge components.
But provisions like s 169 of the POEO Act work differently. That section creates deemed liability for 21 offences referred to as “special executive liability” provisions. Here, a director is personally liable if the company contravenes the provision unless the director satisfies the court that they were either not in a position to influence the company’s conduct in relation to its contravention, or if they were, they used all due diligence to prevent the contravention. Because of the way the section is constructed, the director bears the legal burden of proving these components on the balance of probabilities.
Section 350 of the Victorian legislation specifies 19 provisions where the director carries the legal burden of establishing a due diligence defence. Section 493 of the Environmental Protection Act 1994 (Qld) also creates deemed liability for corporate contraventions of specified provisions, subject to reasonable steps and no influence defences, while s 118A of the Environmental Protection Act 1986 (WA) is similar.
So far, regulators have been slow to enforce deemed liability against directors outside small companies where an executive director was clearly and directly implicated in the company’s contravention. But as the community’s interest in a nature-positive agenda increases, this complex form of directors’ personal liability for corporate offending will come increasingly into focus, and with it the complexities created by the divergent legal approaches.
Dr Pamela Hanrahan is an Emerita Professor of the University of NSW and a consultant at Johnson Winter Slattery.
This article first appeared under the headline 'Natural Justice’ in the October 2024 issue of Company Director magazine.
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