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Keeping Ireland Clean and Green - A Look at Directors’ Environmental Liability

DATE: 23.06.2011

 

The tragic incidents of the Gulf of Mexico oil spill in 2010, and the earlier Buncefield oil depot fire in 2005 (which was Europe’s biggest peacetime fire), have led many company directors, managers and other officers to re-examine the extent of their potential personal liability for environmental incidents.

Company officers, including directors, can be held personally liable under Irish civil and criminal legislation for pollution and environmental damage. In the words of our High Court judges, the Irish corporate protection of limited liability for companies, ‘must yield to the superior imperatives of’ European environmental legislation. Therefore, under Irish environmental legislation which implements European law (as much of the Irish legislation does), directors, managers, shareholders, owners of land and others involved in the activity that caused the pollution may be held liable for clean-up costs and for compensation costs, in circumstances where the company cannot pay.

Under most of Ireland’s environmental legislation, directors, managers or other officers of a company may be prosecuted with the company for criminal offences. This applies where the offence is proven to have been committed by the company with the consent, connivance or is attributable to any neglect on the part of the particular individual. Often, the Irish legislation applies the criminal offence regime not only to people who are specifically appointed as directors but also to persons who purport to act in any such capacity. In addition, an important minority of Irish environmental legislation provides that shareholders who act to “manage” the company, or others who “control” the company, are also potentially liable. The concepts of management and “control” are not defined in the legislation, and a broad interpretation is possible.

Up until now, with the exception of the waste sector, the potential multi-million euro fines, penalties and costs available in Irish law have typically not been levied by the courts, or pursued by environmental regulators. Today, there is a stronger focus on enforcement in Ireland. The Irish Environmental Protection Agency set up an Environmental Liability Unit in June 2009, and the net may well be cast wider to bring other sectors under further scrutiny.

What then is the possible exposure for the directors, managers or other officers of a company under Irish environmental legislation if there is a serious environmental incident?

Criminal liability: Directors who are found guilty of environmental crimes face substantial fines and imprisonment of up to 10 years. The maximum quantified fine per offence under any Irish environmental legislation is €15 million. These fines can be levied in addition to civil clean-up costs. However, the risks of this should not be overstated. To date, the principal personal liability imposed on directors has been the responsibility to pay to clean up.

Civil liability: Under Irish environmental legislation, clean-up and compensation costs can cover wide-ranging measures such as the interim re-stocking of water courses with fish, or the purchase of neighbouring land to re-create the affected amenity where the damaged land cannot be fully restored to its baseline condition.

If the company that caused the pollution does not have adequate funds to clean-up, the Irish courts have shown a repeated willingness to pierce the corporate veil of limited liability. The courts have fixed the individuals or entities who “controlled” and benefited from the activity with liability. While these findings have principally been made in the waste sector, the legal reasoning for the courts’ approach would apply equally to other sectors. With the increasing number of insolvencies in Ireland, the potential for those behind the company to be liable for clean up has come in to focus in the Irish courts.

This “piercing of the veil” of limited liability is currently being challenged in the Irish High Court and the outcome of that case is awaited. The High Court is expected to hear from the Attorney General before ruling on whether directors of company can be held liable for clean up costs where the company cannot pay.

In practice, the Irish regulatory authorities often sue or prosecute all corporate parties involved in an activity if a pollution incident occurs. Decisions about the individuals to be joined are made on a case by case basis. Given the broad scope of Irish environmental legislation to fix the blame on directors, the increasing attention being given to environmental compliance in Ireland, and the effects of the economic crisis, it is possible that the powers to pursue directors, managers and other officers will be more widely utilised. The question then will be whether, on the facts, a particular individual may have a defence based on the extent of his or her involvement in the decision or neglect that led to the environmental pollution or damage.

Directors should also be aware that many types of insurance policies (even those appearing to cover pollution) do not respond to certain of the environmental remedial costs under Irish legislation and specifically tailored policies may be required.

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