Further to the
Alert issued by Jones Day in March, the Queensland Parliament
passed the Environmental Protection (Chain of Responsibility)
Amendment Act 2016 (Qld) (Amendment Act) on 22 April
2016.
Before the Amendment Act was passed, the Queensland Government
referred the original version of the legislation to the
Parliament's Agriculture and Environment Committee
("Committee") for examination. In its final report tabled
in Parliament, the Committee noted that the Government introduced
the original legislation without stakeholder consultation,
purportedly because of the "urgent nature of the Bill and to
prevent companies from acting to avoid the operation of the Bill as
soon as they became aware of its potential introduction". In
the Committee's view, the lack of consultation created
"significant unintended consequences" from the operation
of the legislation.
As foreshadowed in our previous Alert, of greatest concern
to the Committee was the width of the definition of "related
persons" who could be held liable for a company's cleanup
responsibilities under an environmental protection order if deemed
by the Environmental Protection Agency ("EPA") to have a
"relevant connection" with the company. Referring to
submissions received from industry stakeholders such as the
Queensland Law Society and the Queensland Chamber of Commerce and
Industry, the Committee noted the potential for the legislation, as
originally drafted, to apply to persons capable of deriving
financial benefits from a company's activities (such as
shareholders, financiers and suppliers) even if those persons were
not in a position to directly influence the conduct of the company
that created the relevant environmental harm.
As noted in our Alert, while the original version of the
legislation proposed to allow the EPA to take into account a range
of prescribed factors (to be set out in section 363AB(4) of the
Environmental Protection Act 1994 (Qld) ("EP
Act")) in deciding whether a person has a relevant connection
with a company, including whether dealings were conducted with a
company on an ordinary commercial and arm's-length basis, it
was not mandatory for the EPA to do so, and there was a lack of
definitive guidance as to the potential liability of a wide range
of corporate stakeholders.
If passed in its original form, the legislation may have had a
significant adverse impact on investment in Queensland's
already struggling mining and resources sector.
In its report, the Committee also viewed as inequitable provisions
of the original legislation that automatically deemed land owners
to be "related persons" who could be made liable for a
company's environmental cleanup bill even if they had no
influence or control over the activities conducted by the company
on the land.
Under the Amendment Act as passed, land owners are no longer
automatically considered to be related persons. This is a welcome
development and means that farmers, graziers, native title parties
and others with an ownership interest in freehold land will not be
personally responsible for rectifying environmental damage caused
by a company undertaking activities on the land absent any
influence or control over those activities.
Additionally, a person can now be found to have a relevant
connection with a company that has caused environmental harm only
if the person is (or was at any time in the previous two years) in
a position to influence the company's compliance with the EP
Act or is otherwise capable of significantly benefiting
financially from the company's activities (the legislation
as originally drafted excluded the word "significantly").
While it is still not mandatory for the EPA to consider the
prescribed factors in section 363AB(4) of the EP Act in assessing
whether a relevant connection exists, the EPA is now required to
develop and take into account express statutory guidelines designed
to control the exercise of the EPA's discretion.
This amendment has the potential to provide certainty to corporate
stakeholders with respect to their environmental cleanup
obligations. While the precise terms of the statutory guidelines
have not yet been finalised, the Government has indicated that, in
contrast to the hasty introduction of the original legislation, it
will consult widely with stakeholders to ensure the intended
objectives of the Amendment Act are achieved. The Government
intends to make it clear that third parties will not face personal
liability for a company's environmental cleanup obligations if
they were not in a position to influence or control the
company's activities and they derived financial benefits only
from ordinary arm's-length transactions with the company, such
as financing arrangements and share transactions.
While the Amendment Act as passed therefore addresses concerns
about adverse repercussions on investment in the energy and
resources sector in Queensland, it remains the case that directors
will almost certainly face the prospect of personal liability under
the Amendment Act (in the form of remediation costs and/or criminal
liability) for the environmental cleanup obligations of a company,
regardless of whether they have acted responsibly, in good faith
and in accordance with evidence-based decisions with respect to
environmental management issues. Despite strong objections raised
by stakeholders, including the Australian Institute of Company
Directors, the Government chose not to limit the prospective
liability of directors under the Amendment Act. The Government also
chose not to introduce a statutory defence excusing directors from
liability if they were in a position to influence the conduct of
the company that gave rise to the relevant environmental obligation
or liability but nevertheless took all reasonable steps to ensure
the company's compliance with the EP Act.
The liability faced by directors under the Amendment Act appears to
be inconsistent with the Council of Australian Governments'
Personal Liability for Corporate Fault Guidelines, under
which all Commonwealth, State and Territory Governments agreed to
minimise the regulatory burden on directors and to ensure that any
liability provisions are drafted "to achieve a result that is
equitable and does not impose any unfair burden" on
directors.
The potential for directors to incur civil and criminal liability
as a result of the imposition of an environmental protection order
under the Amendment Act, even if they have not acted dishonestly or
improperly, does not strike a fair and equitable balance between
the protection of the environment in the public interest and the
reasonable expectations of honest, diligent directors.
While it is possible the statutory guidelines, when drafted, may
reduce directors' environmental responsibilities, that appears
unlikely in light of the EPA's view, noted in the
Committee's report, that the risk of environmental harm is
"of significant public concern and considered to be a
compelling policy justification for imposing liability on directors
who have the ability to influence a company's environmental
conduct or who have benefited financially from carrying out an
environmentally relevant activity".
As a result, the Amendment Act may create significant disincentives
to the uptake of directorships and management positions in the
energy and resources sector in Queensland. As noted by the
Queensland Law Society in its submission to the Committee,
"[t]his will be to the significant detriment of not only
business development but decision making in these industries around
governance and risk management, including the monitoring of
compliance".
If the Amendment Act is enforced strictly as written, it will be
important for directors, managers and all related parties of an
entity that is liable for environmental rehabilitation to do what
they can to ensure the entity has sufficient funds to pay full
rehabilitation costs in all scenarios. This will include carrying
provisions for rehabilitation liability that are:
- Based on worst-case technical evaluation and assumptions as to the necessary rehabilitation;
- Based on worst-case economic assumptions as to life of the facility; and
- Not discounted based on expected timing of costs.
Even then, these steps may not provide full protection from personal liability for related parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
