An increased focus on workplace safety and an upwards trend in the value of WorkSafe prosecution penalties being imposed is significant not only for employers but also their insurers, who often provide cover for such penalties.

Background

Since the Victorian Court of Appeal decision of DPP v Vibro-Pile (Aust) Pty Ltd[1] in 2016, there has been an increase in the severity of fines issued by the courts. Vibro-Pile has changed the landscape for WorkSafe prosecution penalties in Victoria, setting a new standard of significantly higher penalties for breaches of the Occupational Health and Safety Act 2004 (Vic) (OHS Act). This trend has not been confined to Victoria, with the recent landmark decision in New South Wales of Stephen James Orr v Cudal Lime Products Pty Ltd; Stephen James Orr v Simon Shannon,[2] marking the first prosecution of a category one offence under the Work Health and Safety Act 2011 (NSW) (NSW Act).[3] With the increasing risk of severe fines, it is prudent for insurers to consider the implications of these risks, including in relation to breadth of cover and premium.

Decision in Cudal Lime Products

Cudal Lime Products Pty Ltd (CLP) operated a mine in Cudal, New South Wales. An employee of CLP and his partner were permitted to live in a cottage located 200 metres from the mine. Relevantly, electricity was supplied to the cottage by the mine. In August 2014, the employee’s partner was fatally electrocuted in the shower. It was found that there was a dangerous electrical voltage present in the metallic fixtures of the cottage as a result of a fault in the voltage system of the mine.

CLP was charged under section 31 of the NSW Act with one offence of engaging in conduct that exposes an individual to a risk of death or serious injury (without reasonable excuse) and being reckless to the risk. The offence carries a maximum penalty of $3 million for companies.

Relevantly, there was evidence of a history of electrical issues at the mine. Significantly, in the months prior to the incident, CLP had directed an employee (who was also prosecuted) to conduct electrical work, instead of engaging a qualified electrician. There was also significant non-compliance with the relevant Australian Standard for electrical installations in the mine, such as the absence of an earth-neutral link to the mine’s switchboard, insufficient insulation of cables and ineffective automatic disconnection of the electrical supply.

In considering the objective seriousness of the breach, the District Court found that there were a number of steps it was reasonably practicable for CLP to take to minimise or eliminate the risk of electrocution and that these steps were simple and easily implemented. CLP accepted, by its plea, that the risk was reckless, with the Court finding that “the direction of an unqualified person to install the switchboard to save costs was an act devoid of social utility, so that the foresight of the possibility of the risk of serious injury or death arising was sufficient to constitute recklessness”. It was further held that CLP’s recklessness was aggravated by the history of electrical issues at the mine, which had not been properly rectified. Noting that CLP had also taken steps to implement some safety systems, the Court concluded that the offence was “in the mid range of objective seriousness.”

The Court held that the appropriate fine was $1.2 million however, applied a discount of 25%, to take account of CLP’s guilty plea. On that basis, the fine imposed on CLP was reduced to $900,000. In addition, CLP was also ordered to pay the prosecutor’s costs.

Review of fines in Victoria

Although not necessarily determinative of future penalties, a review of the penalties recently issued in Victoria following the decision in Vibro-Pile provides some context to the current landscape. Looking specifically at the penalties issued in Victorian courts over the last twelve months, there have been about a dozen prosecutions finalised against companies for breaches of sections 21, 23 and 26 of the OHS Act.[4] These offences relate to employers, or persons in management or control of a workplace, failing to ensure that, as far as reasonably practicable, the workplace is safe and without risks to health for both employees and persons others than employees.

The average fine in these matters has exceeded $350,000, with the highest fine of $1.3 million imposed by the Victorian Court of Appeal in Director of Public Prosecutions v Downer EDI Works Pty Ltd.[5] The matter involved a traffic management worker who was struck and killed by a sweeper vehicle while aligning bollards at the road worksite. The second highest fine of $700,000 was imposed by the Melbourne County Court in Director of Public Prosecutions v Jacbe Builders Pty Ltd,[6] which involved a fatal fall from heights by an apprentice carpenter. The company director was also fined $180,000.

While both of these matters involved deaths, it is important to recognise that offences under the OHS Act are risk based, rather than outcome based, meaning there is the potential for significant fines even in the absence of an incident involving death.

Implications

Recent decisions of the Victorian and NSW courts serve to emphasise both the higher standards courts are imposing on workplaces in relation to safety issues as well as the harsher penalties that are likely to be imposed for breaches of those standards.

Generally, there are two types of cover for OHS prosecutions, namely, those that provide limited cover for the legal costs of defending an investigation or prosecution and those that, in addition to legal costs, also provide cover for any penalties imposed. In light of the increasing awareness of workplace safety issues and the upwards trend in penalties being imposed by the courts, insurers, brokers and policyholders alike should bear in mind the significant differences in cover available, along with applicable limits of indemnity, when considering their potential exposure in this area. In particular, underwriters would do well to review the breadth of cover offered and premium charged, particularly where OHS prosecutions have historically attracted significantly lower fines well below the statutory maximums.