Liability of directors and managers for false information provided to the Environment Protection Authority

Introduction

The NSW Environment Protection Authority (EPA) has stepped up its monitoring and enforcement of laws relating to the accuracy of information provided to it by licence holders.

The recent decision of the Land and Environment Court (Court) in Environment Protection Authority v Davis [2019] NSWLEC 79 (Davis) underscores the importance of implementing adequate governance systems for ensuring compliance with reporting duties under an environment protection licence (EPL).

For managers and directors, it highlights the danger of personal criminal liability for “special executive liability” offences under the Protection of the Environment Operations Act 1997 (POEO Act).

In Davis the EPA demonstrated it will prosecute individuals for special executive liability offences even where zero or little risk of environmental harm is at issue.

Offence of providing false or misleading information & special executive liability

Mr Davis, the general manager of Wollondilly Abattoirs Pty Ltd (Wollondilly Abattoirs), was charged under the special executive liability provisions of the POEO Act with providing false or misleading information to the EPA in purported compliance with a condition of the EPL held by Wollondilly Abattoirs.¹ 

These provisions make it possible for managers and directors who are not involved in the actual conduct that constituted the offence to be held responsible for that conduct. Although the corporation was prosecuted in this case,² a director or manager can be charged and convicted independently of the company whose operations they oversee.³

To avoid being convicted, a director or manager must satisfy the Court that:

1. they were not in a position to influence the conduct of the corporation in relation to the contravention; or
2. they used all due diligence to prevent the contravention.

The circumstances of the offending

The key facts in Davis are:

• Wollondilly Abattoirs held an EPL for livestock processing activities. Effluent generated by its operations was treated onsite and required environmental monitoring and reporting of results to the EPA;
• The general manager’s wide-ranging responsibilities included the general running of the abattoir, overseeing staff, working on the abattoir floor, authorising payments and ensuring compliance with the conditions of the EPL;
• The general manager collected the soil and effluent samples from the premises, approved payments to the courier and laboratory that performed the testing but deferred responsibility for other administrative tasks to the “office manager” who prepared all paperwork for submission to the EPA;
• In 2017, the office manager submitted four quarterly reports and one annual return to the EPA containing false information, including  forged certificates of analysis of soil and effluent samples; and
• The annual return was signed by two directors of Wollondilly Abattoirs without either having read the document or understanding its contents.

Conclusions of the Court on sentencing

The Court found that the general manager was neither criminally reckless nor negligent.

Justice Pain accepted that he was left without adequate resources or internal systems to ensure that the requirements of the EPL were being complied with and found that there was no “obvious risk” of fraud by the office manager in a small office.⁴

Critically, her Honour pointed out there was no system in place to check whether the samples that had been collected were returned from the laboratory, with the general manager relying on his intuition and memory.⁵

Her Honour also pointed to the lack of oversight of the day-to-day operations of the business by the board of directors, which contributed to the general manager’s role being “unsustainable.”⁶

Having found that no aggravating circumstances had been established by the EPA, the Court fined the general manager $12,000 and ordered him to pay the EPA’s legal costs of $40,000.⁷ (None of the directors of Wollondilly Abattoirs were prosecuted by the EPA and the company itself escaped with no monetary penalty being imposed).⁸ 

Take outs from Davis – you are only as good as your weakest link

Although the Court considered that the office manager’s actions in forging the certificates of analysis were exceptional, the message for managers and directors of EPA licence holders is clear – criminal liability can flow from the actions of poorly resourced or uninformed staff, not only in relation to the licence holder’s operations, but in relation to the provision of information to the EPA.

Even where fraudulent reporting by a staff member is not an obvious risk, as in this case, managers and directors can still face criminal liability for the actions of rogue employees.

In those circumstances, to avoid conviction, a manager or director must be able to establish that they were not in a position to influence the conduct of the corporation in relation to the contravention (which may be difficult to prove) or that they exercised due diligence.

Managers and directors must implement governance systems and procedures for compliance that are appropriately adapted to the scale of the business’s operations and the conditions of the EPL, including any reporting requirements.

Ordinarily, this would include:

1. Clear chains of command and responsibilities distributed appropriately between employees with regard to their professional qualifications, capabilities and capacities;
2. Compliance verification procedures so that directors and managers can be satisfied that information submitted to the EPA is accurate and complete; and
3. Adequate supervision by directors and senior managers of governance systems and employees who are tasked with implementing and maintaining that system.

In the prevailing regulatory environment, legal advice is a critical source of certainty for managers and directors seeking to ensure that their governance systems and procedures effectively reduce the potential for personal criminal liability for non-compliance with an EPL.

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1. POEO Act ss 66(2) and 169(1).
2. Environment Protection Authority v Wollondilly Abattoirs Pty Ltd [2019] NSWLEC 72.
3. POEO Act s 169(2).
4. Davis at [61].
5. Davis at [59].
6. Davis at [54]. In the proceedings against Wollondilly Abattoirs, the “new and comprehensive system of management for compliance with its EPL” put into effect following Mr Davis’s time at the company was noted as a factor in sentencing: Environment Protection Authority v Wollondilly Abattoirs Pty Ltd [2019] NSWLEC 72 at [73].
7. Davis at [102].
8. [2019] NSWLEC 72 at [79]. Although the company was ordered to pay the EPA’s legal costs of $40,000.

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Liability limited by a scheme approved under Professional Standards Legislation.
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