New Zealand Law Society - Directors’ personal liability for RMA offences – can it be avoided?

Directors’ personal liability for RMA offences – can it be avoided?

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The stigma of a personal criminal conviction is no less painful if it comes indirectly - via a company’s Resource Management Act 1991 (RMA) offending, attributed to its director under s340(3) RMA. 

Yet that is what faces a director who fails to take all reasonable steps to prevent such offending.  Many directors who have deliberately distanced themselves from the day-to-day management of their company, having employed or contracted others to do so instead, still find themselves facing convictions when those others commit offences under the RMA. They become personally liable, with a maximum penalty of $300,000 per offence or imprisonment. 

Hans van der Wal
Hans van der Wal

This is because if a council can prove that the director either permitted, authorised or consented to the company’s offending, or knew or ought to have known about it, and failed to take all reasonable steps to prevent it, then under s340(3) that director is personally liable for that offending. The Courts have held that directors who fail to take all reasonable steps to prevent offending have “permitted” or ought to have foreseen and provided against it. 

In this way, a director who was neither present on site nor participated in the commission of an offence by their company, can still be personally liable for it. 

The drafters of s340(3) RMA did not however intend that directors will always be liable for their companies’ offending. What has to be proven in order to hold them liable amounts to a requirement that the director somehow had a hand in causing the offending by failing to do what they, as a director, could reasonably have done to prevent it.  

However, the words “could reasonably” signal that there is no checklist of what a company director must do to prevent offending, but it will depend entirely on their circumstances, thereby introducing uncertainty – cold comfort to a worried director. That uncertainty can never be eliminated, but it can be reduced by proper management.

How, then does that occur?

More will be expected of a director who has a direct operational management role than one whose involvement is limited to board meetings. For example, more will be expected of a dairy farming company director who designed an effluent management system, lives on a farm and directly supervises the manager in charge of it. Less will be expected from one who lives off farm, has had no such involvement and has been given information and regular reports that lead them to believe all is well-managed, with little risk of a mishap.  

The former is not invariably liable, as it is possible, albeit harder, for them to take all reasonable steps to prevent the offending, like having a best practice, regularly checked, well maintained, effluent system certified by an external expert, and engaging staff properly qualified to run the system who are properly vetted, trained, supervised and performance managed in the operation of that system. Having the necessary records to prove this is critical, as those will be determinative in any investigation as to whether all reasonable steps were taken.

Likewise, the off-farm director with low involvement cannot simply avoid liability entirely by disengaging. In their case, their responsibilities as a director will still require them to take all reasonable steps to prevent offending, even though those steps will be less onerous. For example, if they fail to ensure they have all the information that as a director with their degree of involvement they ought to have on proper management of effluent on farm or become aware of a risk of an unlawful discharge and fail to do what they as director could do to address that, they will still be liable if the risk materialises; for failing to take all reasonable steps to prevent it. While they do not need to take the types of steps an on-farm director would have to, they will need to ensure that they receive information and updates that are sufficiently detailed and regular, and do whatever they as director can, to be and remain satisfied that the company is taking such steps. 

To manage their exposure, they could:

  • Only take on as much involvement and responsibility they are confident they can properly discharge;
  • Ascertain what the “reasonable steps” for that involvement and responsibility entail; and
  • Consistently implement and document those steps.