The push to harmonise the law surrounding the imposition of health and safety duties on officers has largely been achieved in the Work Health and Safety space and more broadly, while the process appears to have stalled in the petroleum operations arena.
Over time the regulation of the activities of officers and directors had developed so that it could be said to fall within three broad categories of liability, namely, direct, accessorial or derivative:
Direct liability refers to situations where the officer is held liable because of his or her own conduct.
Accessorial liability is a form of direct liability and is applicable where the officer intentionally or knowingly participates in, has aided or abetted or conspired with others to effect, a contravention by a company.
Derivative liability imposes guilt as a consequence of the person's position within a company or operational responsibility in relation to the conduct that contravened the law. This class of liability attaches to the officer without the need to establish that the person themselves directly breached any law or was otherwise an accessory to the misconduct of the company.
Work Health and Safety
Due diligence duty on officers
Under the model Work Health and Safety (WHS) laws now operating in most Australian jurisdictions – see our earlier update here, officers of a PCBU (person conducting a business or undertaking) are required to exercise due diligence to ensure that the PCBU is complying with its obligations under the WHS laws. The duty of due diligence specifically requires an officer to take reasonable steps to:
- acquire and possess current knowledge of work health and safety matters;
- gain an understanding of the nature of the operations and any hazards and risks the operations may include;
- ensure that the PCBU has available resources and processes and uses them appropriately to minimise risks to health and safety;
- ensure that the PCBU has processes for receiving and considering information regarding incidents, hazards and risks and responding in a timely manner;
- ensure that the PCBU has, and implements, processes for complying with any duty or obligation the PCBU is required to uphold; and
- verify that those processes are implemented.
The list is not exhaustive, and some circumstances may warrant other reasonable steps for the officer to undertake.
Who is an 'officer' for the purposes of the WHS laws?
An officer is defined, with some exceptions, as an officer within the meaning of section 9 of theCorporations Act 2001 (Cth), which includes:
- directors or secretaries of a corporation;
- a person who makes, or participates in making, decisions that affect the whole, or a substantial section of the organisation of a corporation;
- a person who has the capacity to significantly affect the corporation's financial standing; and
- a person who provides instructions to directors of a corporation, which are subsequently followed by the directors.
The definition of officer has potentially broad reach and may capture employees performing middle management roles.
How does this differ from the previous model?
The imposition this positive duty on officers differs significantly from the traditional approach to the work health and safety laws. Previously, work health and safety laws:
- imposed accessorial liability on officers or other key management personnel;
- prescribed general obligations which allowed for flexibility for duty holders to adopt a suitable approach to managing risk within the structure of their organisation.
As explained when the WHS laws were introduced, the imposition of a due diligence duty reflects a deliberate policy shift away from applying accessorial liability to officers. The positive obligation to exercise due diligence requires officers to continuously be proactive to ensure the PCBUs compliance with its duties and obligations under the WHS laws. An officer will only be seen to comply with their duty by taking an active and inquisitive role in planning and performing health and safety initiatives.
Under the WHS laws, officers may be liable for failing to exercise due diligence despite the fact that the PCBU is complying with its obligations, or even without an incident in the workplace occurring.
Although there is some guidance material available in relation to the duty, there is no case law yet defining the scope of due diligence under the WHS laws.
Prosecution and Penalties
Proceedings under the WHS laws against officers are 'quasi' criminal proceedings. There is no requirement to prove the mental element of the offence, except for category one offences, which require recklessness.
Irrespective of the mechanics of the proceedings, a breach of the duty is a criminal offence and significant pecuniary penalties apply.
The categories and penalties are as follows:
Click here to view the table.
Case study: first prosecution of an officer under the due diligence provisions
In March 2012, Kenoss Contractors Pty Ltd (Kenoss Contractors) was performing work at a site in the Australian Capital Territory (ACT) when truck driver Michael Booth was electrocuted and killed when his truck trailer made contact with a power line at a dumping station. WorkSafe ACT identified that the power line was in a low position and that a properly conducted risk assessment would have eliminated the risk if the dumping station had been placed in a different location.
A senior officer and project manager of Kenoss Contractors, Munir al-Hasani, was prosecuted in relation to the incident under the ACT's harmonised Work Health and Safety laws for allegedly failing to exercise due diligence. Mr al-Hasani was charged with two category 2 offences.
Mr al-Hasani pleaded not guilty to both charges on the grounds, we understand, that the dumping ground had been transferred to another contractor, Mr Booth had been told not to use the dumping station and that he should, in any case, have used small machinery due to the position of the power lines.
Also in issue was whether Mr al-Hasani was an officer of Kenoss Contractors, or a related company.
On 23 June 2015 Industrial Magistrate Lorraine Walker dismissed the charges against Mr al-Hasani on the ground that it had not been established that he met the definition of an 'officer'. The learned Magistrate found that Mr al-Hasani's role reflected an operational one with only "speculative" evidence that the role went beyond this. Accordingly, the learned Magistrate was not satisfied beyond reasonable doubt that he had a large enough level of control or influence in Kenoss Contractors to be classified as one of its officers.
As the charges were dismissed on this threshold issue, it was not necessary for the learned Magistrate to consider whether Mr al-Hasani breached the due diligence obligation imposed on officers. Interestingly, however, we understand the learned Magistrate found he had breached his duty as an employee of Kenoss Contractors but as he had not been charged with any offence as an employee this could not be taken any further.
The judgment is expected to be published shortly.
Directors' Liability Reform
The substance of the reform
Harmonised changes to the liability faced by officers are also happening more generally across Australia with potential consequences reaching far beyond the WHS space. These changes will have an impact on an officer's potential liability for safety related offences relating to a range of issues, including dangerous goods, mining operations, radiation and railways.
As with the changes made in the WHS arena, the Council of Australian Governments agreed to reform directors' liability with respect to deemed criminal liability.
The essence of the changes is to limit and standardise provisions which impose criminal liability on officers of a body corporate, as defined in the Corporations Act, 2001 (Cth) when the corporation commits an offence.
The standard provisions create 3 different levels of liability as follows:
Click here to view the table.
At the heart of the standardised liability is the requirement to take all reasonable steps to prevent the body corporate committing an offence and to move away from the harm that results from derivative liability. Consequently, the standardised levels of liability are neither accessorial, direct nor derivative. Having said that, the changes are not intended to remove the imposition of direct, accessorial or even derivative liability where considered appropriate.
In determining whether things done or omitted to be done by an officer constitute reasonable steps, a court must have regard to:
- what the officer knew, or ought to have known, about the commission of the offence by the body corporate; and
- whether the officer was in a position to influence the conduct of the body corporate in relation to the commission of the offence; and
- any other relevant matter, which is likely to include matters which are held to be relevant in determining due diligence under the WHS laws.
There are clear similarities between the due diligence position under the WHS law and the substance of the requirement to take all reasonable steps. Furthermore, like the WHS law, an officer who is found to have failed to take all reasonable steps in a particular circumstance may be charged with, and convicted of, an offence whether or not the body corporate is charged with or convicted of the offence.
Status of the reform process
The majority of states and territories have now enacted legislation implementing these changes. Tasmania and the Northern Territory have not yet passed their proposed legislation and the Western Australian Government is presently considering a report from the Standing Committee on Uniform Legislation and Statutes Review Committee on its Directors' Liability Reform Bill 2015 that was tabled in the WA parliament on 21 April 2015.
In those jurisdictions where the laws have come into effect a considerable number of liability provisions have been removed and many remaining provisions have been modified to Type 1 liability provisions.
There have been some differences in application, however, including:
- both NSW and Queensland imposing, with limited exceptions, only Type 1 and 'deemed' liability provisions, which are similar to accessorial liability provisions. Essentially, these changes reflected a desire to steer away from provisions which involved some form of a reversal of the onus of proof (such as Type 2 and 3 offence);
- the use, other than in South Australia, of an expanded definition of 'officer' that extends the range of persons potentially liable beyond the already broad definition of officer within the meaning of section 9 of the Corporations Act 2001 (Cth); and
- the application in a number of NSW Acts of an express definition of 'reasonable steps'.
There is no case law yet addressing these new laws.
What's happening with petroleum safety laws?
Historically, personal liability has not been imposed on individuals for contraventions by a company of Australian petroleum safety laws.
In late 2012 the Australian federal government announced its intention to introduce legislation imposing a due diligence duty on officers involved in offshore petroleum operations. It was expected that when those changes were made they would be adopted by the states and territories in accordance with the National Partnership Agreement to Deliver a Seamless National Economy and would therefore apply to officers of petroleum companies operating in state and territory waters.
However, at this time, no amendments to the Offshore Petroleum and Greenhouse Gas Storage Act 2006(as amended) (OPGGS Act), or any corresponding state or territory laws, have been introduced to impose a due diligence duty on officers involved in offshore petroleum operations.
There have been a number of other amendments recently made to the OPGGS Act to implement the Australian Government’s response to the Report of the Montara Commission of Inquiry. These have included amendments to strengthen the regulatory regime by ensuring that enforcement measures for contraventions of the OPGGS Act are appropriate, including by increasing the penalties that apply to OHS duty holders for a failure to comply with duties of care.
Although we may learn some more about the criteria for meeting the definition of 'officer' when the Kenoss Contractor decision is published, there remains little direct judicial guidance on the due diligence duty under the WHS laws, the reasonable steps requirement more generally and to what extent harmonisation of officer health and safety duties has been achieved.
We will continue to monitor developments and provide further updates in due course.