Liability of Directors in terms of Environmental Legislation

By Jessica Frost
As stated by Judge Innes in the 1920 Appellate Division case of Dadoo Ltd v Krugersdorp Municipal Council, a registered company is a legal persona distinct from the members who compose it. In terms of section 19(2) of the Companies Act, 71 of 2008 (“Companies Act”), a person is not, solely by reason of being an incorporator, shareholder or director of a company, liable for any liabilities or obligations of the company. However, there are instances in our law, especially in respect of environmental legislation, where directors of companies could be held personally liable.

Environmental Legislation

Any person convicted of an offence in terms of the Mineral and Petroleum Resources Development Act, 28 of 2002 (“MPRDA”) could be liable, depending on the offence, to a fine (ranging between R10,000 and R500,000) or to imprisonment (ranging between 6 months and 10 years) or to both such fine and imprisonment or, in certain cases, to the penalty that may be imposed in a magistrate’s court for a similar offence.

Section 24N(8) of National Environmental Management Act, 107 of 1998 (“NEMA”) provides that notwithstanding the Companies Act or the Close Corporations Act, 69 of 1984, the directors of a company or members of a close corporation are jointly and severally liable for any negative impact on the environment, whether advertently or inadvertently caused by the company or close corporation which they represent, including damage, degradation or pollution.

Section 34(7) of NEMA relates to criminal proceedings and stipulates that any person who is or was a director of a firm at the time of the commission by that firm of an offence under any provision listed in Schedule 3, shall himself or herself be guilty of the said offence and liable on conviction to the penalty specified in the relevant law, if the offence in question resulted from the failure of the director to take all reasonable steps that were necessary under the circumstances to prevent the commission of the offence; provided that proof of the said offence by the firm shall constitute prima facie evidence that the director is guilty.

Schedule 3 of NEMA lists various pieces of national and provincial legislation, an offence under which would trigger the provisions of section 34(7) of NEMA. It is noteworthy that Schedule 3 does not only refer to mining legislation, but includes, inter alia, the Animals Protection Act, 71 of 1962, the Dumping at Sea Control Act, 73 of 1980 and the National Forests Act, 84 of 1998. Accordingly, non-mining companies could also be caught by the provisions of section 34(7) of NEMA, read with Schedule 3, depending on the activities of such companies.

A person convicted of an offence in terms of NEMA could be liable to a fine not exceeding R10 million or to imprisonment for a period not exceeding 10 years, or to both such fine or such imprisonment.

Similarly, the National Water Act, 36 of 1998 (“NWA”) and the National Environmental Management: Air Quality Act, 39 of 2004 (“Air Quality Act”) also provide that a person is guilty of an offence and liable to a fine and/or imprisonment if certain provisions of those statutes are contravened.

Case Law

In the unreported cases S v Anker Coal and Mineral Holdings (Pty) Ltd (Ermelo Regional Court case: ESH 8/11, Sheepmoor CAS 26/06/2009), S v Golfview Mining (Pty) Ltd (Ermelo Regional Court case: ESH 82/11, Ermelo CAS 462/07/2009) and S v Blue Platinum Ventures 16 (Pty) Ltd and others (Naphuno Regional Court case: RN126/2013) the courts enforced contraventions of environmental legislation. In the Blue Platinum-case a criminal complaint was made against the company by a community-based organisation and the company and its directors were charged with acting in contravention of 14 different environmental provisions of the MPRDA, NEMA, the NWA and the Regulations on Use of Water made under the NWA. The managing director of the company plead guilty to a contravention of section 24(F)(1) of NEMA – commencing with listed activities without an environmental authorisation. The court sentenced the managing director to 5 years imprisonment, wholly suspended for a period of 5 years on condition that the accused is not convicted again of contravening the provisions of section 24(F)(1) of NEMA during the suspension and on condition that the managing director rehabilitates all the areas which were damaged by the mining activities within a certain period.

The case law demonstrates that the state (as well as non-governmental organisations) are enforcing environmental legislation against non-compliant companies and that the “polluter pays principle” is not only a principle to be enforced against the polluting company, but that the directors of such companies are also being held liable for environmental damaged caused.

Jessica Frost
Associate
Malan Scholes Inc