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The NSW EPA has recently announced a new framework which can be used to force environmental offenders to pay back any profits which they have made due to their offending behaviour. This will be done by way of a monetary benefit order (MBO) made by a Court, which can be imposed in addition to any other penalty such as a fine, publication order or order to pay the EPA’s costs.
The power for the EPA to seek a court order requiring an offender to pay back monetary benefits lies in section 249 of the Protection of the Environment Operations Act 1997 (NSW) (POEO Act). The amount of any MBO is not subject to any maximum amount of penalty provided under the Act. While the EPA has had the power to seek orders for MBOs since the introduction of the POEO Act, this is the first time where the EPA has provided guidance on how the power will be applied. The NSW EPA has stated that it is seeking to use MBOs both as a deterrent and to level the playing field by ensuring that operators who do the right thing are not financially advantaged.
Monetary benefits from environmental offences are the financial advantage which an offender gains from either:
Monetary benefits can be in the form of capital costs (such as costs of equipment or infrastructure), operational costs (such as consultant fees, costs of maintaining equipment or sampling), illegal profits (such as profits earned by operating an unlawful facility or operating above licence limits) or an illegal competitive advantage (such as using costs saved from non-compliance to capture more market share). However, the EPA has stated that it won’t be focussing on illegal competitive advantage as this difficult to prove.
Examples of common monetary benefits that can be gained by breaching EPA requirements include saving on paying waste disposal costs, obtaining additional profit by exceeding an extraction limit contained in a licence or avoiding operational costs by failing to maintain equipment to the required standard.
Monetary benefits arise in most cases the EPA prosecutes. The EPA has released ‘Guidelines on Recovering Monetary Benefits from Environmental Offenders’ (Guidelines) which outline the basis on which the EPA will seek a MBO from the Court (though it is ultimately up to the Court to determine whether or not to grant a MBO). These Guidelines indicate that the EPA will determine whether to seek a MBO based on (amongst other things) the nature of the offence, the subjective factors of the offender and the relative significance of the monetary benefit. The EPA has indicated that it is most likely to seek a MBO where the cause of the offence was a result of intent, recklessness or negligence, the offence was not an accident and could have been prevented, the environmental harm was significant or potentially significant, there is a history of non-compliance and the operations of the offender have a low level of environmental risk management. Importantly the monetary benefit amount only needs to be proved on the balance of probabilities, and not beyond reasonable doubt.
In determining what level of compliance is required, the Guidelines state that the EPA will adopt the ‘least cost mode of compliance’ and will not hold offenders to the highest possible standard of compliance. The EPA may rely on evidence and independent experts to determine the monetary benefit gained.
The EPA has also released a Protocol for Calculating Monetary Benefits (Protocol), which is to be used when calculating the monetary benefit gained. The Protocol is a technical document designed to be used by financial accountants. Essentially, the method outlined in the Protocol considers the size and timing of cash flows and then calculates the monetary benefit from being able to re-invest the benefits from non-compliance, taking into account tax impacts and inflation. The complexity of MBOs and their calculation (which in many cases will require expert evidence) is likely to add significant cost and time to environmental prosecution proceedings.
The EPA intends to formally prescribe the Protocol as the method for calculating monetary benefits in the Protection of the Environment Operations (General) Regulation 2009. However, prior to prescribing the Protocol the EPA is seeking feedback on the Protocol from suitably qualified persons.
In addition to the Protocol, the EPA has released a Non-Compliance Economic Assessment Tool (the NEAT Model) which is a simple tool based on the Protocol and can be used by the EPA and other interested parties to estimate a monetary benefit. The EPA will use the NEAT Model to make a preliminary assessment of the monetary benefit of a case and determine whether to pursue the monetary benefit.
Although MBOs are fairly widely used in America, NSW is the first state in Australia to implement a regime for recovering the proceedings of environmental crimes. The NSW EPA has stated that it hopes that other States and Territories will soon follow suit.
It remains to be seen exactly how the EPA chooses to use the MBO power in the context of the new Guidelines and Protocol, however the scope of the framework is very broad and has the potential to be applied in numerous environmental cases. It is also not known how the Land and Environment Court (LEC) will view any request for an MBO. There is no maximum amount for an MBO but is unclear if the LEC will be willing to impose very high MBOs, particularly in circumstances where clean-up costs or financial penalties are significant. If the EPA is satisfied with the use of MBOs under the POEO Act, it may seek to use existing powers for MBOs under other legislation such as the Contaminated Land Management Act 1997.
The latest actions by the EPA are further evidence of the need for full compliance with environmental laws and the potentially high cost of failure to comply.