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The Finnish Supreme Court rules on the Board of Directors’ liability for impairment of the environment (KKO 2016:58)
The Supreme Court of Finland has on 9 September 2016 ruled on the Board of Directors’ liability for impairment of the environment. By way of background, a Finnish limited liability company manufacturing potato flakes had caused contamination of the environment by releasing potato soil sludge (in Finnish: perunamultaliete) into the environment during the years 2004-2006. The question before the court was whether A and B, who were members of a three member Board of Directors of the company, had acted with intent or gross negligence and were, therefore, to be held liable for impairment of the environment.
According to the Supreme Court, A and B had duly taken care of obtaining an environmental permit for the company’s operations. However, they had not familiarized themselves with the content of the relevant permit. The company’s Managing Director had been responsible for the company’s daily operations and the compliance with relevant environmental regulations and orders. A and B claimed that the Managing Director had not informed them about the company’s relevant emission problems and, therefore, they had only become aware of the environmental impairment in 2008.
A and B had not provided the Managing Director with instructions or orders concerning the handling and supervision of environmental matters. Therefore, the Supreme Court concluded that A and B had approved that the handling and supervision of environmental matters belonged to the duties of the Managing Director. Furthermore, A and B emphasized their roles as external advisors and that their duties were linked to providing business law and financial consultation to the company. The Supreme Court concluded, however, that although the Managing Director was responsible for the daily operations of the company, this did not eliminate or diminish the duties and responsibilities of A and B as members of the Board of Directors. The Supreme Court held that the due organization of the company’s production, including the handling of waste in accordance with the environmental permit had been essential to the company’s field of operations. Consequently, it was the Board of Directors’ responsibility to see to that environmental matters and the supervision of the same was arranged appropriately. Since A and B had neglected to fulfill their duty to arrange and supervise the company’s environmental matters, the Supreme Court held A and B liable for impairment of the environment.
The Supreme Court held that A and B’s negligence was gross considering that they had not familiarized themselves with the content of the environmental permit and that they had deliberately neglected their duty to appropriately arrange and supervise the environmental matters of the company. The Supreme Court based the ruling on an assessment of how a diligent member of the Board of Directors should have acted in a similar situation.
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