Directors and the Occupational Health and Safety Act (2000) NSW - Be Very Scared!
By Philip Stern, Partner
8 February 2007
Directors should be aware of the recent decision of Inspector Kumar v Ritchie [2006] NSWIRComm 323 in relation to their personal liability under the Occupational Health and Safety Act (2000) (NSW) ("the Act").
As a result of this decision directors and/or each person concerned in the management of a corporation should ensure that he or she has discharged their duties under the Act adequately.
Background
The case involved the death of an employee of Owens Container Services Australia Pty Ltd ("Owens"), a large international corporation operating in Australia and around the world. The employee, Mr Howie, in the course of cleaning a tank using a highly flammable solvent in the company's premises in Sydney, was killed when the tank exploded. The defendant, Mr Ritchie was a resident of New Zealand and was the Chief Executive Officer of Owens.
Mr Ritchie, by his position as a director of Owens, was prosecuted by the WorkCover Authority under s26 of the Act. Pursuant to this section, if a corporation is found to have contravened the Act, s26 imposes the same liability on a director or "person concerned in the management of the corporation", as applied to the corporation unless the director establishes one of the nominated defences, being that he or she was not in a position to influence the conduct of the corporation in relation to its contravention, or he or she, being in such a position, used all due diligence to prevent the contravention. Section 26 thus reverses the onus of proof, by, in effect, rendering the defendant guilty until proven innocent. Essentially then, it is a strict liability offence.
"Persons concerned in the management of the corporation" are persons who have decision making and policy powers such as those exercised by directors: Ritchie. It also includes receivers and managers: see Inspector Benbow v Scales [2002] NSWCIMC 184.
The Decision
The NSW Industrial Court found the defendant had contravened s26 of the Act. Haylen J rejected the defendant's submissions that, as a director at boardroom level of a large corporation, remote from the workplace and the day-to-day running of Owens and reliant upon others for compliance with the Act, he was not in the position to influence the conduct of the corporation, thus was absolved of liability under the Act. The essence of the defendant's argument was that directors at the apex of a corporation, and thus remote from its daily operations, should be less liable than hands-on directors, who are heavily involved in the everyday running of the corporation. In the alternative, the defendant argued that he had exercised all due diligence to prevent a contravention of the Act.
Haylen J rejected both the defendant's arguments. In relation to the former, His Honour stated that the notion that s26 provided a preliminary test of "hands-on involvement", or that the section operated to delineate certain classes of directors was misconceived. Haylen J stated that the defence was limited to allow liability to be avoided only if the director could demonstrate that he was not in the position to influence the conduct of the corporation, or, alternatively, used all due diligence to prevent the contravention by the corporation. Haylen J gave a theoretical example of when a director might successfully argue he was not in a position to influence the conduct of the corporation, as that of a director in a minority on the Board in urging a more costly but effective system of safety that the other directors did not adopt. Further Haylen J rejected the defendant's argument that he exercised all due diligence as, Haylen J found, he had failed to show, inter alia, that he had "laid down a proper system to provide against contravention of the Act and had provided adequate supervision to ensure that the system was properly carried out" (at 177).
Haylen J also rejected the defendant's contention that a director could rely on the expertise of others to overcome any liability under the Act. His Honour stated that neither of the defences under s26 recognised "that liability [could] be avoided because of legitimate reliance on the expertise of others" (at 175).
Further, Haylen J remarked on the irony of the defendant seeking to avail himself of both defences, the elements of which were seemingly incompatible. For example, to adduce evidence on the exercise of all due diligence would, theoretically undermine any argument that he was not in the position to influence the corporation.
Conclusion
This case should act as a warning to directors (particularly those at boardroom level who have, until now, been content to rely upon the expertise of others) and "others concerned in management of companies" to ensure that they have implemented, and consistently supervise, a legally compliant occupational health and safety system in corporations of which they are a director.
To avoid liability under the Act, directors and other relevant individuals should take pro-active steps to implement adequate systems and minimise any potential risks in relation to occupational health and safety. For example, directors should be satisfied that the corporation:
- has in place a systematic approach designed comply with the Act; and
- a system appropriate to comply with the Act which is regularly reviewed and updated; and
- properly enforces and polices the system to prevent contraventions of the Act.
Directors and officers should also be aware that their relevant insurance policies may not cover them for risks under the Act, particularly as there are likely exclusions for criminal liability (which the Act imposes under section 26). We suggest that all directors and officers insurance policies are reviewed.
There may also be a prohibition in the constitution of companies from persons remaining as directors if they are convicted of a criminal offence.
Directors should be aware that for a first offence they could be fined $55,500 under the Act, thereafter for a second offence they could be fined $82,500 and also be imprisoned for two years! To the extent they are individually fined, the corporation is not able to indemnify them for the commission of the crime.