Introduction

Significant legal obligations are now being imposed on officers of corporations in jurisdictions where the model work health and safety laws have been enacted.

Under the WHS Act, “officers” of corporations are required to exercise due diligence in relation to work health and safety (WHS) matters relating to work performed by that corporation. That means this duty can be breached merely by failing to apply due diligence, even though there may not have been an actual work health and safety incident.

Failing to exercise due diligence:

  • is a criminal offence;
  • is punishable by a fine of up to $600,000 and/or 5 years imprisonment. These penalties are imposed on officers personally and are over and above any penalty that is imposed on their company;
  • may mean that the officer is not indemnified by the company’s insurance.

This means that it is vital for a corporation to be able to identify who its officers are, so that those people can be included in the corporation’s Due Diligence Framework. A recent decision of the High Court of Australia indicates that the identification of officers will often require detailed consideration of the circumstances of the particular corporation (and the particular officer).

Who is an officer?

The WHS Act incorporates the definition of “officer” which is found in section 9 of the Corporations Act 2001 (Cth), which provides that “officers” are persons:

  • of a prescribed position (e.g. director, company secretary etc).
  • who make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation.
  • who have the capacity to affect significantly the corporation’s financial standing.
  • in accordance with whose instructions or wishes the directors of the corporation are accustomed to act.

Identifying people who are officers because of their “prescribed positions” will usually be straightforward, whereas for officers in the other categories, the position is more complex. The recent case of Shafron v ASIC [2012] HCA 18 sheds further light on the test for identifying a person who is an officer because they “make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation”.

The facts

Mr Shafron was the company secretary and general counsel of James Hardie Industries Ltd (JHIL). Mr Shafron was charged with failing to exercise his powers and discharge his duties as an officer of JHIL with the degree of care and diligence required by section 180 of the Corporations Act.

The question was whether Mr Shafron “made, or participated in making, decisions that affect the whole, or a substantial part, of the business of the corporation”. Mr Shafron argued that it was the Board of JHL which made such decisions. Mr Shafron was not a member of the Board. Accordingly, he argued, he could not participate in the making of decisions if he did not have a vote.

The finding

The Court rejected this argument, and looked to past advice which Mr Shafron had given to the Board. The Court found that Mr Shafron played a large part in formulating proposals to put to the Board and in formulating proposals, went beyond the mere provision of “advice or assistance” to the Board.

For example Mr Shafron had given a proposal to the Board that he and other executives had worked on, which was rejected, and then re-submitted after amendment by Mr Shafron. In that way, Mr Shafron controlled what information the Board would receive. This showed that Mr Shafron had “participated” in the relevant decision, even though he had not voted on it, because he was a moving force behind the proposal on which the Board ultimately agreed.

Lessons for PCBUs

  • The identification of the officers of a corporation is the essential preliminary step to the development of a Due Diligence Framework which will apply to those officers.
  • In determining whether an executive is an officer on the basis of involvement in decision making, it is necessary to assess both the significance of the executive’s role in the decision, and the overall significance of the decision for the affairs of the company.
  • Because the question is not simple, and turns on matters of fact and degree, executives should be included within a Due Diligence Framework if there is any doubt about their role.  The worst that can happen to an executive who is included within a Due Diligence Framework, and later found not to be an officer, is that the executive knows more about work safety than the law requires them to know.  The worst that can happen to an executive who is excluded from a Due Diligence Framework and later found to be an officer, is personal criminal liability.