PROPERTY UPDATE: DIRECTORS’ LIABILITY FOR CORPORATE OFFENCES

04/01/13

Until recently, directors could personally be held criminally liable for over 1000 offences committed by corporations in breach of New South Wales laws. The Miscellaneous Acts Amendment (Directors’ Liability) Act 2012 (NSW) (the Amendment Act), which commenced on 11 January 2013, has reduced this to around 150 offences. In addition, the Amendment Act has altered the proof requirements for many of the remaining directors’ liability offences and expanded the basis on which a director can be held criminally liable as an accessory to the commission. In this article, Elizabeth McDonald of our property and planning team, considers new amendment laws which have reduced the personal liability of directors for over 1000 offences committed by corporations.

Over 50 NSW laws were altered by the Amendment Act across a broad spectrum of areas including long service leave, workplace injury management and workers compensation, gaming machines, explosives, food, veterinary practices and water industry competition. In this article we focus on the laws which relate to land and land development.

What does the Amendment Act mean for directors involved with property development?

The amendments are generally very beneficial for directors. However, all persons responsible for the management or oversight of a company should bear in mind the points outlined below.

  • Many state laws continue to contain provisions which impose individual criminal liability on directors or other corporate officers for company offences[1] (Directors’ Liability Provisions).
  • The Protection of the Environment Operations Act 1997 continues to contain some Directors’ Liability Provisions which assume a director, or corporate officer, is guilty of an offence unless the director (or corporate officer) can satisfy the court otherwise (discussed further below).
  • Directors and corporate officers can be criminally liable as an accessory to the commission of a wide range of corporate offences if, for example, they are in any way (whether by act or omission) knowingly concerned in, or party to, the commission of a corporate offence.
  • Penalties for corporations and employees who commit offences in the course of business operations have not changed as a result of the Amendment Act.
What should directors and corporate officers do?

Directors and corporate officers should continue to be prudent and take all reasonable steps to minimise the risk of corporate offences generally. Such steps could include:

  • Regularly reviewing the company’s compliance with its statutory obligations regarding land development.
  • Ensuring that staff and contractors are aware of all statutory obligations relevant to their roles and of any individual and corporate penalties associated with breaching those obligations.
  • Managing risk when contracting with various subcontractors and consultants involved with land development.

These steps will assist in managing the risk of the company or its employees / contractors committing an offence, which in turn provides protection for directors and corporate officers.

Why were the amendments made?

The amendments bring NSW laws into line with principles developed by the Council of Australian Governments (COAG) to deliver a nationally-consistent approach to the use of Directors’ Liability Provisions. These principles were adopted in light of concerns that Directors’ Liability Provisions were being imposed too regularly and often inconsistently within and across jurisdictions. Other states and territories are also amending laws to reflect the COAG principles.

What land-related laws are affected?

The land-related laws affected including the following:

What was the position before the amendments were made?

Generally, the onus of proving that a person is liable for a criminal offence falls on the party prosecuting the offence. In limited circumstances, a law may reverse this onus of proof so that, rather than being presumed innocent, the prosecuted person is presumed to have committed an offence unless that person can prove otherwise (reverse onus of proof).

Previously, there were a wide range of NSW laws which applied a reverse onus of proof to directors’ liability for corporate offences. This meant that, if a company committed an offence, a director could also be taken to have committed that offence unless the director could prove that he or she was not in a position to influence the conduct of the company or used all due diligence to prevent the offence from occurring.

What has changed?

The amendments removed most of the Directors’ Liability Provisions from the laws, leaving around 150 of these provisions. As well as applying to directors, the Directors’ Liability Provisions which remain apply to any individual who is involved in the management of the corporation and who is in a position to influence the conduct of the corporation in relation to the commission of the offence

In the case of Land Development, apart from the Protection of the Environment Operations Act 1997, all of the laws which retained the Directors’ Liability Provisions were amended to remove the reverse onus of proof. The Protection of the Environment Operations Act 1997 retains reverse onus of proof provisions in relation to a number of offences including:

  • wilfully or negligently disposing of waste in a manner that harm the environment;
  • wilfully or negligently causing any substance to leak, spill or otherwise escape in a manner that harms or is likely to harm the environment; and
  • polluting water or land.

If a company commits these offences, a director (or a corporate officer) will be deemed guilty of an offence as well unless the director can satisfy the court that he / she was not in a position to influence the conduct of the corporation in relation to its contravention or, if he / she was in such a position, he / she used all due diligence to prevent the contravention.

A new accessorial liability was introduced to confirm that directors, or corporate officers, can be held criminally liable as an accessory to an offence committed by a corporation if the director or corporate officer:

  • aids, abets, counsels or procures the commission of the corporate offence;
  • induces, whether by threats or promises or otherwise, the commission of the corporate offence;
  • conspires with others to effect the commission of the corporate offence; or
  • is in any other way, whether by act or omission, knowingly concerned in, or party to, the commission of the corporate offence.
EXAMPLE: Aboriginal Cultural Heritage Offences

The Directors’ Liability Provisions in relation to Aboriginal cultural heritage offences committed under the National Parks and Wildlife Act 1974 (the Wildlife Act) give rise to very serious criminal penalties. The relevant laws are not as widely discussed or understood as many other environmental arid land related laws but illustrate how material this area of law is when developing land.

The offence

The Wildlife Act contains various prohibitions on causing harm or desecration to an Aboriginal object or an Aboriginal place (Aboriginal Cultural Heritage Laws).[2]

Harm” in this context is defined to include any act, or even an omission, that:

  • destroys, defaces or damages the Aboriginal object or place;
  • moves the object from the land on which it had been situated; or
  • causes or permits the Aboriginal object or place to be harmed in these ways.

Significant personal penalties as well as corporate fines can be imposed for a breach of this law. Some of these penalties are summarised in the following table.

Offence Individual penalty
(max)
Company penalty
(max)
Harming an Aboriginal object – section 86(2) $55,000 $220,000
Harming an Aboriginal object in the course of carrying out a commercial activity – section 86(2) $110,000 $220,000
Harming or desecrating an object that the person knows to be an Aboriginal object – section 86(1) $275,000 and / or 1 years’ imprisonment $1,100,000
Harming or desecrating an object that the person knows to be an Aboriginal object in the course of carrying out a commercial activity – section 86(1) $550,000 and / or 2 years’ imprisonment $1,000,000
Harming or desecrating an Aboriginal place – section 86(4) $550,000 and / or 2 years’ imprisonment $1,100,000

Importantly, the offences of harming an Aboriginal object or harming / desecrating an Aboriginal place are offences of strict liability (the defence of honest and reasonable mistake of fact applies).

Executive Liability

If a corporation commits an offence under the Aboriginal Cultural Heritage Laws, then a director or corporate officer of the corporation also commits an offence if:

  • the director knows or ought reasonably to know that the offence (or an offence of the same type) would be or is being committed; and
  • the director fails to take all reasonable steps to prevent or stop the commission of that offence.

The maximum penalties for directors or corporate officers are the same as the individual penalties outlined above.

Proof requirements and accessorial liability

The prosecution bears the legal onus of proving the offence. In the past, the director would have been taken to have committed an offence unless the director proved that he / she was not in a position to influence the conduct of the corporation in relation to its contravention of the Aboriginal Cultural Heritage Law or, if the director was in such a position, he or she used all due diligence to prevent the contravention by the corporation.

Directors and corporate officers should be aware that they can also be criminally liable as an accessory to an offence committed by a corporation under the Aboriginal Cultural Heritage Laws (or any offences under the Wildlife Act).

Steps companies can take to minimise the risk of breaching Aboriginal Cultural Heritage Laws

  • Inform every person involved in land clearing, development or other activities which have a physical impact on land of the significant personal and corporate penalties that causing harm to Aboriginal objects or Aboriginal places can attract.
  • Provide all staff and contractors involved in land impact activities (including a supervisory role) with thorough Aboriginal cultural heritage awareness training, including advice on how to identify Aboriginal objects and places.
  • Conduct consultations with Aboriginal owners and Local Aboriginal Land Councils carefully and develop a thorough process for identifying and managing Aboriginal objects on the relevant land.

For more information regarding the laws affected by the Amendment Act and steps your company can take to minimise the risk of committing offences under these laws, please contact our property team.

[1] That is, beyond what would normally apply to a person who had directly committed, or had been an ordinary accessory, to the offence.

[2] Exemptions from these prohibitions, and defences to committing an offence under the Aboriginal Cultural Heritage Laws, apply.

This article is not legal advice.  It is intended to provide commentary and general information only.  Access to this article does not entitle you to rely on it as legal advice.  You should obtain formal legal advice specific to your own situation.  Please contact us if you require advice on matters covered by this article.