The recent report of the Royal Commission on the Pike River Coal Mine tragedy (the Commission) calls for urgent legislative, structural and attitudinal change on the part of employers, workers and regulators alike. The Commission's proposal for reform contains 16 recommendations. While most of the recommendations relate to the underground coal mining industry, some have wider relevance. In particular, the Commission recommends legislative change to improve corporate governance at board level.
We set out below three recommendations which, if adopted, would impact significantly on directors' responsibilities for health and safety in the workplace and good governance.
The statutory responsibilities of directors for health and safety in the workplace should be reviewed to better reflect their governance responsibilities. An additional duty on directors in the "other duties" section of Part Two of the Health and Safety in Employment Act (HSE Act) should be imposed. A failure to meet this duty would constitute an offence.
Directors should rigorously review and monitor their organisation's compliance with health and safety law and best practice.
The health and safety sector should issue an approved code of practice to guide directors on how good governance practices can be used to manage health and safety risks.
Current position of directors under HSE Act
Currently, directors' liability under the HSE Act is in the nature of secondary liability. The HSE Act does not impose an express duty on the board of directors, or individual directors. Unlike other duty-holders under the HSE Act, directors can only be liable where the company (which has primary liability) has failed to comply with its obligations under the HSE Act and is liable for an offence.
A director will face potential criminal liability where it is clear the director directed, authorised, assented to, acquiesced or participated in the company's failure to comply with a provision of the HSE Act. This may mean that directors of small companies are more at risk than directors of larger companies, who are more removed from operational decision-making.
In practical terms, a director may face liability where he or she had clear knowledge that the situation was unsafe or otherwise contrary to the HSE Act. Relevant factors include:
what the director knew about the matter concerned;
the extent of the director's ability to make or participate in the making of decisions that affect the company in relation to the matter concerned; and
whether the company's failure to comply with the provisions of the HSE Act is attributable to an act or omission of the director (this is more likely to be the case for small closely-held companies where the directors and managers are, in effect, the company).
The HSE Act does not contain an express statutory defence to a prosecution. While there are few reported cases on prosecutions against directors, a director may defend proceedings by showing:
a complete absence of fault;
the company had taken all practicable steps to comply with its duties under the HSE Act and therefore has not "failed to comply with a provision of the HSE Act"; or
the director was not a party to or guilty of the company's failure.
Directors may take out insurance indemnifying themselves for the costs of defending a prosecution under the HSE Act and for any liability to make reparation to a victim of a serious harm incident. However, to the extent that an insurance policy indemnifies a director's liability to pay a fine, the policy will be unlawful and of no effect.
Proposed corporate governance amendments
The Commission has made significant proposals relating to directors' health and safety responsibilities, based on its understanding that deterrence is most effective when applied to the appropriate individual decision-makers. If implemented, these amendments would have significant implications for boards of directors in relation to governance.
The report concluded that statutory responsibilities of directors for health and safety in the workplace should reflect their responsibilities for good governance. The Commission commented that directors are best placed to influence the organisation's health and safety systems through their leadership, strategic decision-making and allocation of resources. The Commission's report suggests that directors should:
ensure that the company has a comprehensive health and safety management plan;
ensure that the plan is fit for purpose and reviewed regularly;
provide adequate resources and time for that plan to be implemented; and
obtain independent evidence of the effectiveness of that plan.
Looking to Australia and the United Kingdom
In the course of its inquiries, the Commission examined the regime in Australia and the United Kingdom and found their experiences to be informative.
As a result of the harmonisation process in Australia resulting in the Model Work Health and Safety Act (WHS), an officer of a corporate entity has a proactive duty to "exercise due diligence to ensure that the person conducting a business or undertaking (PCBU) complies with [their] duty of obligation".
The WHS laws impose a positive duty on officers and define the scope of that duty by using the concept of due diligence.
An "officer" is defined in section 9 of the Corporations Act 2001 to include "persons who make, or participate in making, decisions that affect the whole or a substantial part of the business". This means that an officer can breach the duty even when the PCBU has not contravened its obligations. In practical terms, a PCBU's primary obligation to ensure, as far as is reasonably practicable, the health and safety of workers, is therefore supplemented by the company's officers' duty of due diligence.
"Due diligence" requires an officer to take reasonable steps to understand the business risks and hazards, and ensure that adequate resources and information, compliance and verification processes are in place.
In the United Kingdom, the Health and Safety at Work Act 1974 (UK) contains a similar provision for offences committed by a company with the "consent or connivance" of a director. However, the provision is broader than the New Zealand equivalent because directors are also liable where the offence was attributable to "neglect" on the part of any director. Additionally, the UK government has developed a code of practice, which provides guidance on the role of directors in promoting health and safety.
The Prime Minister has confirmed that the Government will be broadly accepting the Commission's recommendations and will be working to implement them as quickly as possible.