Directors in the firing line for environmental non-compliance

Two recent court decisions regarding forestry operations provide a useful reminder of the ways in which directors can be in the firing line for environmental non-compliance.

The first decision concerned applications by the Gisborne District Council for enforcement orders under the Resource Management Act (RMA). The enforcement orders were sought against the company that owned a commercial forestry block, a forestry management company that was contracted to harvest the forestry and the directors of both companies.

Enforcement orders are an RMA tool that can require people to stop doing something or take positive action to achieve compliance.

In Gisborne District Council v Woodlett Investments Ltd the Court imposed the orders sought by the Council against both companies and their directors, even though the forestry management company had handed back the site to the landowner. When deciding that it was appropriate to make orders against the directors, the Court stated:

It is clear to us that the [management company] directors were involved in the harvest of the forest. Each director had different roles, but all were aware of what was happening in the forest and involved (if only peripherally for some …) in decisions that were made. The directors have previously been issued with abatement notices and did not appeal or challenge them. As …sole director [of the forest owning company], Mr Woodhouse was aware of the progress of the harvest and was involved in decision-making as to applications for resource consent, variations, replanting among others.

The decision is significant because the enforcement orders impose positive obligations:

1. On directors personally (in addition to the companies they direct)
2. Separate to contractual allocation of responsibility for environmental consenting (contractual relationships cannot override the statutory responsibilities imposed by the RMA)
3. After the forestry management company had handed back the site

Directors can be criminally liable for environmental offences committed by the companies they direct

While decisions that impose enforcement orders on directors are comparatively rare, criminal prosecution of directors are common. Section 340 of the RMA provides that directors and managers can be guilty of environmental crimes committed by their companies:

(3) If a person other than a natural person is convicted of an offence against this Act, a director of the defendant (if any), or a person involved in the management of the defendant, is guilty of the same offence if it is proved-

(a) that the act or omission that constituted the offence took place with his or her authority, permission, or consent; and

(b) that he or she knew, or could reasonably be expected to have known, that the offence was to be or was being committed and failed to take all reasonable steps to prevent or stop it.

Any person who is convicted of an offence under the RMA can be imprisoned for up to two years or fined up to $300,000 ($600,000 for companies). Further penalties apply for continuing offences (e.g. ongoing unconsented discharges of contaminants).

When company and director are both fined

When prosecuting under the RMA, councils will often bring charges against both a company and its directors in relation to the same RMA breach. The recent decision Waikato Regional Council v Savill is an example of this approach.

The forestry company Seaview Logging Limited and its director, Graeme Savill, had both been convicted of charges for breaches of RMA regulations relating to plantation forestry. The charges related to a lack of stormwater control, unstabilised areas of soil and ineffective erosion and sediment control measures. In her sentencing decision, the judge fined Seaview Logging Limited $67,000 and fined the director of the company $45,000.

How should directors protect against these risks?

While it is not possible to completely protect against liability, directors can limit their exposure by taking these steps:

1. Understand the company you direct – what activities does it carry out? How are these regulated? How does the company ensure RMA compliance? Ignorance of RMA requirements is not a defence.
2. Continue to take an interest in these issues, even if environmental compliance is contracted to another entity. Contracting out will not protect against RMA liability.
3. If you learn that an RMA offence is being committed, take all reasonable steps to prevent or stop it.
4. Co-operate with environmental regulators (councils and the Environmental Protection Authority), both on any investigations and to ensure ongoing environmental compliance.
5. Review any insurance held against RMA fines (but note that the Resource Management (Consenting and Other System Changes Amendment) Bill proposed to make insurance against fines unlawful).