Why compliance is a clincher

A timely reminder for directors and managers – environmental compliance is as important as ever and a recent decision shows the threat of prosecution is real.

Nick Thomas is a partner at Clayton Utz specialising in environment, planning, water and government law.

In the midst of the current economic crisis, it’s tempting to focus on financial survival at the expense of other corporate issues. A recent prosecution of a senior manager in the NSW Land and Environment Court, however, demonstrates that environmental compliance is as
important as it ever was.

The case of Garrett v Freeman (No. 5) is the first prosecution in NSW of a senior council employee for actions undertaken as part of his job. It is also the latest indication that environment protection agencies are prepared to prosecute, and courts are prepared to sentence, senior managers of corporations large and small, in both the public and private sectors.

Geoffrey Freeman was the Director of Infrastructure at Port Macquarie Hastings Council, which last year was engaged in an environmental remediation project near Port Macquarie. It needed access to several remediation sites and Freeman initiated construction of access roads through some nearby bushland. That bushland was actually the habitat of several threatened species of fauna, which, according to the evidence, the council knew. The access road work therefore constituted a breach of the NSW National Parks and Wildlife Act.

The NPW Act provides some defences to this offence, one of which involves demonstrating compliance with the environmental assessment obligations in the Environmental Planning and Assessment Act. According to the court, however, the council’s environmental assessment in this case was “severely defective” – it was “merely a token effort to comply”, essentially amounting to a non-specific “tick-a-box checklist” done after the activity had begun.

The council was charged with three offences under the NPW Act relating to the clearing of the access tracks, and pleaded guilty to each offence.
Freeman was charged with two offences under section 175B of the NPW Act, in that he was a person “concerned in the management of” a corporation that had committed an offence and was therefore taken to have committed the same offence. He pleaded not guilty, but the court found him guilty on both charges.

He argued that the statutory “no knowledge” defence for directors and managers applied in this case, essentially that the offence occurred without his knowledge (whether actual, imputed or constructive). The court rejected that argument.

On the issue of sentencing, Freeman argued (as a mitigating factor) that he did not have any knowledge of, or training in, environmental assessment. The court also rejected that, saying in his managerial position, “Mr Freeman ought to have made proper efforts to find out what was required for a proper assessment after having become aware that such an assessment was required”.

The cost of non-compliance
The court assessed Freeman’s penalty to be fines totalling $57,000, and also ordered him to pay the prosecutor’s costs, which amount to $167,500.

To put this into context, the council was ordered to pay total fines of $45,500 plus $114,000 in prosecutor’s costs for the offences under the NPW Act, plus fines of $35,000 and prosecutor’s costs of $80,000 for an offence under the Fisheries Management Act.

Most Australian states and territories have provisions of environmental laws that effectively deem certain corporate officers to be guilty of offences their corporate employers commit. The definitions of liable corporate officers, the terms of the deeming provisions and the availability of defences do vary, but in most cases the provisions target directors and persons concerned in management and the available defences are very limited.

In NSW the list of available defences is gradually being reduced. For example, the “no knowledge” defence has been removed from most environmental statutes, usually leaving only the defences of inability to influence the relevant corporate conduct or exercising due diligence to prevent the offence. One suspects the defence won’t survive the next review of the NPW Act.

Environmental regulators do not often prosecute corporate officers under these deeming provisions. Many regulators have policies that indicate they will evaluate the degree of an officer’s culpability (among other things) in deciding whether to prosecute. However, clearly regulators will use the provisions where they consider it appropriate.

Most prosecutions to date under the deeming provisions have involved officers of small companies, where the defendant is effectively the controlling mind of the corporation. However, there is at least one example (in Queensland) of a director of a publicly listed company being prosecuted, while the Freeman case is one of several examples of prosecutions of senior managers in larger corporations.

More from Nick Thomas at nthomas@claytonutz.com