Entities can reduce their risk profile by having in place systems and clear documentation identifying all parties who are identifiable as “a related person” for the “chain of responsibility” laws under the Environmental Protection Act 1994 (EPA 1994).
On January 27, 2017, the Queensland government approved by regulation the statutory guideline to provide more certainty in the decision-making process for issuing an environmental protection order (EPO) to a "related person."
The objectives of the 2016 amendments to the Act were to facilitate enhanced environmental protection for sites operated by companies in financial difficulty and avoid the State bearing the costs for managing and rehabilitating sites in financial difficulty. Under EPA 1994, a "relevant connection" may exist where a person has received a significant financial benefit from a company's activities, or is (or was) in a position to influence the company's compliance with the Act.
A "related person" can be a natural person or other entity, including those falling into the following categories:
- a holding company
- landowners (other than for resource activities)
- associated entities
- a person that the chief executive of the Department of Environment and Heritage Protection decides has a "relevant connection" with the company.
In response to concerns raised by the community regarding the breadth of the definition of a "related person," the guideline seeks to clarify how the decision to issue an EPO to a “related person” would be made, specifically providing guidance on what is (1) a "significant financial benefit" and (2) a "position to influence." Under the EPA 1994, the chief executive must have regard to the Guideline in deciding whether to issue an EPO to a “related person.” The Guideline identifies key enforcement principles, including the following:
- Prior to a related person(s) receiving an EPO, culpability will need to be established, with no pre-determined order in which related persons will be pursued.
- Where the primary company at fault has avoided, or attempted to avoid, its environmental obligations, the Department will consider issuance of a “related person” EPO.
- Enforcement action taken will be proportionate to the seriousness of the matter.
- A security or bank guarantee will not be required under an EPO, where the EPO relates to the same matter for which financial assurance is already held, provided:
- It is sufficient to cover the cost of complying with the requirements of the EPO, and
- Where the existing security or bank guarantee is not sufficient the new security or bank guarantee will only be for the shortfall.
Determining the costs associated with restoration is likely to one of the points of contestability in enforcing “related person” EPOs. The Guideline identifies that a "position to influence" may occur where a person is acting in an official (e.g. an appointed company director) or unofficial (e.g. someone acting as a shadow director) capacity, identified through:
- The nature and duration of the relationship between the person and the company
- The potential for the person to make decisions to direct the company’s conduct, such as the ability to direct funds to particular activities (e.g. prevention of environmental harm)
- The potential for the person to provide advice or expertise in order to influence the company’s conduct, and/or
- Any implications of other legislation or law on the exercise of powers by the “related person” (such as the Corporations Act 2001 (Cth)).
Contractors who do not discharge their contractual responsibilities and who cause harm may face liability. However, a contractor whose services are discontinued by the company is unlikely to be in a position to influence how the company complies with its environmental obligations.
By inference, a contractor or consultant who discharges appropriate and defensible recommendations, and the recommendations are ignored in part, or in full, should not be identified as a “person of influence” or a “related person.” This matter may need to be tested through court or other means.
The Guideline also identifies that determining a financial benefit will largely be a matter of fact (e.g. a shareholding exists). The more complex issue is the definition of "significant" as it relates to the matters found in the EPA 1994. The following may be considered in determining what is "significant":
- The proportion of the benefit derived from the actions which are the subject of the EPO relative to:
- The total assets or benefit available from the activities carried out under the company's environmental authority, or
- The costs of restoring or rehabilitating the environment, or of protecting the environment from harm
- Where abnormal benefits are available to a party , for example benefits received by parties who enter into uncommercial transactions with a company, or who have large shareholdings with profits that are significant by comparison to the company's annual net profit from the preceding year may be considered to have a "significant financial benefit."
The Guideline notes also that a related person EPO will only be considered when:
- The company has avoided, or attempted to avoid, its environmental obligations under the Environmental Authority (EA) or Environmentally Relevant Activity (ERA), and the “related person” is alleged to have participated in this conduct (i.e. culpability), and
- Enforcement action against the (EA) holder or operator of the (ERA) is not available, or
- Enforcement action against the EA holder or operator of the ERA will not achieve restoration of the environment or the protection of the environment from harm.
The Guideline recognises it is not always appropriate to pursue all “related persons.” Where there are multiple "related persons" the relative culpability of each “related person” will be considered (presumably) within the guidelines of “position of influence” and “significant financial benefit.” Where a “related person” is considered culpable but undertook "all reasonable steps in the circumstances" a “related person” EPO is not likely to be issued. As for all matters in law, each case will need to be considered on its merits. Some objective measures for the determination of culpability include:
- The relevant facts and circumstances of the nature of the relationship between the company and the “related person”
- The state of knowledge at the time, and in the lead up to, the issue or incident by the company and the “related person”
- The foreseeability and probability of the issue or incident occurring by the company and the “related person.”
The Guideline also notes that should two or more related persons be considered culpable for an issue or incident and who failed to take all reasonable steps, these related persons might be held jointly and severally liable for compliance with an EPO, including costs.
The Guideline reinforces the importance of entities (individuals and other non-natural entities) to exercise due diligence and environmental responsibility in their management of dealings with companies who are owners of environmental authorities and environmentally relevant activity approvals in Queensland. The Guidelines and the precedents set by the regulator, through the issuance of “related person” EPOs, provide a clear pathway for EA and ERA holders:
To minimise the opportunity for an EPO to be issued, entities need to take steps to reduce their risk profile by having in place systems that demonstrate that they:
- Have taken all reasonable steps in managing environmental risk and communication strategies, including in their dealings with third parties
- Have clear documentation about directions and responsibilities relevant to environmental protection, compliance and restoration
- Understand the baseline environmental conditions prior to development of a site or the installation of new equipment and practices that relate directly to the EA and ERAs held
- Have clear and articulated crisis and emergency management policy and plans implemented
- To train and maintain internal competencies in environmental management and machinery/equipment operation and maintenance
- Conduct regular machinery/equipment/policy and plan reviews to ensure risk levels are managed to sustainable levels
Through being proactive in managing environmental, reputational and compliance practices, organisations and related parties should minimise the potential for a breach of the Environmental Protection Act 1994 to occur and an EPO to be issued.