CORPORATE LIABILITY IN IRISH ENVIRONMENTAL LAW SOME KEY ISSUES Tom Flynn Barrister-at-law

Introduction  A necessarily selective overview  Issue of corporate liability in Irish environmental law is a complex issue  Issue of fundamental importance given most environmental activity is conducted through corporate entities/limited liability companies  Liability arises in Criminal/Civil context  Focus of this presentation is on a number of key issues 2

Background 3  In law a limited liability company has a ‘separate legal personality’ from its shareholders, directors, managers & employees – a fundamental principle of Irish company law  The so called ‘corporate veil’ of incorporation  In limited circumstances e.g. fraud the protections conferred by incorporation can be set by aside ‘lifting the corporate veil’

Corporate Criminal Liability 4  Corporate Criminal liability poses particular (but not unique) difficulties in context of environmental law  Related to nature of environmental crime - Frequently prosecutions rely on indirect/circumstantial and technical/scientific evidence of environmental crime - Difficult to establish evidential chain in accordance with strict evidential rules governing criminal prosecutions and investigations -Privilege against self-incrimination ( EPA v Swalcliffe [2004] 2 I.R. 549) - Difficult to discharge criminal burden of proof ‘beyond reasonable doubt’ in practice

Corporate Criminal Liability 5  Long recognised that criminal liability may attach to a ‘body corporate’ but difficult to apply traditional principles of criminal liability to corporate bodies because those principles were developed with human beings i.e. natural persons in mind  In practising fixing liability is difficult as it requires establishing criminal intent – ‘mens rea’  The ‘ identification doctrine’ developed - certain individuals in a corporate body – its director(s), senior management, or a dominant figure such as a majority shareholder – can be seen as “the directing mind and will” of the corporate body - (Tesco Supermarkets Ltd v Nattrass (UK House of Lords, 1972), - In re Supply of Ready Mixed Concrete (No.2) (UK House of Lords, 1994): - Meridian Global Funds Management Asia Ltd v Securities Commission (Commonwealth Privy Council, 1995):

Corporate Criminal Liability 6  The ‘identification doctrine’ increasingly criticised and there is move towards alternatives models  In the ‘organisational model’ of criminal liability focus is on whether company has procedures or systems in place which deter or prevent criminal wrongdoing  Criminal liability is imposed by presenting evidence of corporate policies, procedures, practices and attitudes, deficient chains of command and oversight, and corporate cultures that tolerate or encourage criminal offences

Corporate Criminal Liability 7  Solutions to these problems include introduction of ‘absolute or strict liability’ offences and measures to impose liability on corporate officers – vicarious liability  Legislative intervention: e.g. 8(2) of the Environmental Protection Agency Act 1992 which provides that:  “Where an offence under this Act is committed by a body corporate or by a person acting on behalf of a body corporate and is proved to have been so committed with the consent, connivance or approval of, or to have been facilitated by any neglect on the part of any director, manager, secretary or any other officer of such body, such person shall also be guilty of an offence.  Provision replicated in most environmental legislation but difficult to establish “consent, connivance or approval” to criminal standard of proof

Corporate Criminal Liability 8  Different approach - s.270 of Companies Act, 2014 provides for the liability of an officer of a company who “authorises or who, in breach of his or her duty as such officer, permits” a default under the 2014 Act by that company  The 2014 Act also provides that where it is proved that the defendant was aware of the basic facts concerning the default, it shall be presumed that the defendant permitted the default.  The defendant can rebut this presumption by showing that he or she took all reasonable steps to prevent the default, or that, by reason of circumstances beyond the defendant’s control, was unable to so do  Could this approach be applied to environmental legislation ?

What is appropriate sanction ? 9  Criminal sanction upon conviction is typically fines and/or imprisonment (EPA Act -€10M/10 years imprisonment)  How effective a deterrent given possible profits to be made from illegal activity and defendants frequent inability to pay ?  How to measure costs to environment ?  Are courts willing to impose sufficient sanction deterrent or view as “a regulatory offence”  Evidence is somewhat mixed – (DPP v– Jenzsoph Ltd ( Company convicted on 2 counts of illegal waste activity fined €20M in a trial involving over 25 witnesses and lasting almost three weeks)

Corporate Criminal Liability 10  No specific sentencing policy on environmental crime in Irish Law – normal principles apply  DPP v. Cavan CC & Oxigen Environmental Ltd [2015] IECA appeal against fines of 260K/780K relating to illegal disposal of waste contrary to s.39 WMA 1996 – licensed landfill with odours due to legacy issues – 2 previous convictions  CAA – “sentencing corporate offenders in environmental cases should in principle be similar to the sentencing of private individuals in ordinary criminal cases though relevant factors may receive different emphasis”  In instant case judge had overestimated seriousness of case & CAA allowed appeal reduced fines to 50K each

Corporate Criminal Liability 11  People (DPP) v South East Recycling Ltd [2010] IECCA 1 O’Donnell J  Appeal by SERL against the severity of a €350,000 fine imposed by the Circuit Court for a breach of its waste licence. SERL argued, method of calculating the fine was wrong as evidence showed profit made by SERL as a result of the breach was less than half of the €350,000 fine imposed.  Also relied on s.10 WMA 1996 (Crt. must take into account the risk/extent of environmental pollution when imposing a sentence). SERL argued the fact that there was no impact on the environment arising out of the breach of the licence should be taken into account to reduce the fine.  CCA fine calculated at a level that ensures no benefit is gained by the wrongdoer, and provides a significant disincentive to break the law. Whilst there was no damage done to the environment, there was damage done to respect for the law as breach was deliberate. Fine reduced to €200,000  - “ it should never be an option for a licensee to consider that it is sensible or wise or even profitable to proceed and breach any provision of any licence”

Civil Liability 12  Corporate bodies subject to a civil liability under a wide range of environmental legislation – EPA Act 1992, WMA 1996, APA 1987  Less problematic due to lower burden of proof and less onerous evidential standards  Wide range of remedies available including injunctions, and orders to restore or repair environmental damage in so far as practicable  Reliefs also available to a wide range of persons not just enforcement authorities

Civil Liability – Problems 13  Problem (?) of the ‘corporate veil’ remains to limit effectiveness of enforcement in this area  Clear reluctance of Courts to ‘lift the corporate veil’ absent express statutory authority to do so e.g. Case- law on ss.57/58 WMA 1996 is unclear - Wicklow County Council v Fenton (No.2) [2002] 4 I.R. 44. (directors personally liable) - Environmental Protection Agency v Nephin Trading Ltd & others IEHC 2011 (Directors not personally liable – Fenton doubted) - John Ronan & Sons v Cleanbuild Ltd & others and South Dublin County Council v Cleanbuild Ltd & others [2011] IEHC 350. ( On facts directors liable, Fenton/ Neiphin Trading distinguished)

Problem of Insolvency 14  Problem of imposing liability for environmental damage on an insolvent corporate defendant  Law is complex and unclear - Irish ISPAT Ltd (In voluntary liquidation) [2004] IEHC 143. (receiver is prima faice entitled to disclaim IPC licence and thus not responsible for costs of remediation) EPA v Greenstar /CLM v Greenstar (2014 IEHC 178) (Landfill gate fees not required by law to be used by the licensee solely for the purpose of paying for the closure, restoration, remediation and aftercare of the landfill)  Is insolvency being used to evade environmental liabilities ?  Is legislative intervention necessary – Clark J in Cleanbuild ?  Should preference given to environmental liabilities over other liabilities/creditors in the insolvency process ?

Conclusions 15  Problems imposing corporate criminal liability not unique to environmental law  Law Reform Commission Consultation on Regulatory Enforcement & Corporate Offences  Consultation is not focused on environmental law but raises issues of relevance e.g. - Is general test for determining or attributing the criminal liability of corporate bodies adequate ? - Should we adopt new models for determining the personal criminal liability of senior corporate decision-makers ? - Should we consider alternative sanctions e.g. negotiated compliance agreements, deferred prosecution agreements

Conclusions 16  Courts are reluctant and will remain reluctant to ‘lift the corporate veil’ absent express statutory authority  Recent CCA decision on sentencing policy deserves further consideration and debate  Clear trend is towards greater corporate liability for corporate actions which have environmental consequences  A challenge for both corporations, regulators and their advisors !