After an unprecedented series of corporate disasters, Australia’s corporations are circling the wagons. And the weapon of choice for the new corporate strategist? Risk management - with effective Occupational Health & Safety [OHS] management moving to a new found position at the heart of the armoury. Scarcely an echelon of society has not been rocked by at least one of the series of corporate collapses and scandals that have characterised the corporate landscape in recent years. With repercussions spanning continents and touching the lives of individuals, institutions and regulators, it’s small wonder that scrutiny has turned to what appears to be a common factor in most, if not all of the recent disasters: evidence of rampant disregard for even the most fundamental precepts of responsible governance. This evidence begs the frightening question: if such practice has been common among some of the world’s [formerly] leading and seemingly unassailable corporate entities, then how are others shaping up? By way of answer, an increasing number of companies are turning their attention to the development of more effective risk assessment and management capabilities across all areas of their operations. A further critical driver for the move toward this more comprehensive, less ad hoc approach to risk management is the growing awareness of the extent of directors’ and managers’ personal liabilities in relation to their corporate activities.
Certainly, hefty organisational and personal fines and even prison terms for directors and managers have been part of the corporate legislative arsenal for some time; but never before has their potential for application been quite so undeniably evident as now.
LEGAL LIABILITY
In 1995 there were fifteen OH&S related prosecutions against company directors and managers before the NSW Industrial Relations Commission. Five years later there were 124, an eight fold increase. Potential
maximum personal fines range from $10,000 in South Australia up to $82,500 in NSW and $500,000 in New Zealand (where hazardous substances are involved, otherwise $100,000). Further, only Western Australia, Tasmania and Northern Territory do not have imprisonment terms for serious offences, which in the other jurisdictions including New Zealand, range up to 5 years. In addition at least 3 jurisdictions are currently developing laws to hold directors and senior managers personally liable when a person is killed or injured. This punitive course of action is growing in popularity internationally with a USA CEO jailed for 17 years for knowingly endangering an employee’s life and two owners of an Italian dye factory gaoled for 6 years after 13 workers died of bladder cancer. Section 26 of the NSW OH&S Act 2000 deems each director of a corporation and each person concerned in the management of a corporation guilty of offences committed by a corporation, unless they can prove one of two defences on the balance of probabilities. In essence the onus of proof is reversed. Once the offence against the corporation is proven, directors and managers etc are guilty of the same offence. The two defences against prosecution by directors and managers are:
• (s)he was not in a position to influence the situation that lead to the contravention, or
• (s)he used all due diligence to prevent the contravention.
It is important to also note that “Ignorance” is no excuse. This is borne out in Dawson v Waugh [1995] NSWIRC 14, where WorkCover appealed the sentence against a company director. In this case an employee sustained serious and multiple injuries to his arms and hands when he was caught in an unguarded conveyor. The defendant originally pleaded guilty, and applying her discretion under the Crimes Act 1900 (NSW) the judge did not record a conviction. This was overturned by the Full Bench of the IRC and a fine of $10,000 imposed.
In its judgement the Full Bench said:
“The Act and commonsense require the management who employs persons daily in an admittedly dangerous industry know the elementary facts about guarding dangerous parts of machines and safe working. Ignorance of this kind is not only not an excuse, it amounts to an aggravation of the offence”
NO INFLUENCE DEFENCE
Directors will find this defence more difficult to establish due to their positions. “Influence” is wide ranging and would extend to less obvious positions such as the Finance Director, who has responsibility for resources and capital upgrade as well as to an operational director/manager in respect to plant breakdowns.
DUE DILIGENCE DEFENCE
Actions that an individual can take to demonstrate due diligence were spelt out in R v Bata Industries Ltd (No2) (1992) 7 CELR (NS) 245. They were;
• they were familiar with their OH&S obligations and relevant codes of practice and industry standards;
• they had a system in place to manage OH&S risks and that they adequately supervised compliance with that system;
• the system complied with industry standards and practices;
• company officers reported back to the board on the operation of the system and safety concerns were reported in a timely manner;
• they reacted personally and immediately upon becoming aware of the system failure.
Lea Constantine, Senior Associate Blake Dawson and Waldron, (Safety Seminar, August 2002. P8) suggests the following considerations to eliminate or minimise exposure by being pro-active and being involved.
• Ensure implementation of systems of risk management, hazard identification and reporting
• Ensure policies and procedures are enforced
• Ensure training is made available and is undertaken
• Communication at all levels- clear, consistent and documented
• Review on an on-going basis.
In summary, it is quite clear from the direction the respective OH&S jurisdictions are taking across Australia/New Zealand that a greater emphasis is being placed on the OH&S responsibility of company directors and managers. Keith Brown, CEO WorkCover Corporation, South Australia sums this attitude up, when he says “Ultimately, it is the senior management of an organisation - the CEO, the board, the responsible officers - who set the tone for how seriously OH&S is taken within their business. There can be great policies and a great framework, but if management does not back that with a 100% commitment to the task - particularly in galvanising people to believe it is to be taken seriously - then there will be a failure somewhere involving someone getting injured”.
DUE DILIGENCE
Legal obligations of company Directors for all aspects of management in the broadest sense are covered by the Corporations Act, a Commonwealth statute applicable to all states and territories. This
deals primarily with financial management issues and the mechanics of running various types of companies. It includes (Corporate Law Reform Act 1992) provisions for disqualification of directors and
also provides in Section 232(4) the duty of care and diligence, ie Directors and officers shall at all times exercise a reasonable degree of care and diligence in the exercise of their powers and the discharge of their duties.
A reasonable degree of care was not defined in this legislation but state governments also hold directors personally liable in a range of legislation, including OH&S, Environmental Protection, Trade Practices and Equal Opportunity, etc. In these statutes, the scope of due diligence is more evident. Given the continued high toll of employees dying or being injured as a result of work, even 20 years after the introduction of the modern OH&S Acts, there is increasing interest in use of other statutes to impose more severe penalties, particularly using the Corporations Act and the Crimes Act. Due diligence does not mean a standard of perfection but courts have describes it as requiring a mind concentrated on the likely risks, eg SPCC v Kelly - Land & Environmental Court NSW. The concept of due diligence therefore involved “active
and practical steps to ensure that the company follows best practices in management, using the standard of the reasonable man”.
The protection for all directors and managers is to exercise due diligence via an appropriate program and to introduce safe systems of work for the organisation concerned. A typical due diligence program can include:
• Identification of hazards
• Assessment and control of risks
• A detailed appraisal of relevant legislation
• Assessment of current compliance
• Allocation of responsibilities for OH&S management
• Implementation of control and monitoring systems
• Establishment of communication systems and reporting procedures
• Implementation of training programs
• Production and exercise of emergency procedures
• Policies for continuous review of the OH&S management system
Newsletter
THE “REASONABLE PERSON”
In common law, each case is decided on its merits and the courts determine whether the action taken by the employer is reasonable in any particular case. They consider the way a hypothetical “reasonable person” might behave in each situation, to determine the standard of care which should apply in any particular case. It is based on the values of the society of the day and, in the end, will involve a value judgment.
There is no legal definition of how a reasonable person would behave (although there is considerable case law or precedents), and the final decision would depend upon the facts of each situation. For employers, there is emphasis on the increased level of care that would be considered reasonable by today’s standards. In a High Court of Australia decision, the following comment was made regarding the employer’s obligation:
“. . . what reasonable care requires will vary with the advent of new methods and machines and with changing ideas of justice and increasing concern with safety in the community . . . What is considered to be reasonable in the circumstances of the case must be influenced by current community standards.” from Bankstown Foundry case final appeal: Mason, Wilson and Dawson JJ (160 CLR 301).
The employer’s position is covered very well in the following summary:
• “The overall test is the conduct of a reasonable and prudent employer taking positive thought for the safety of his workers in light of what he knows or ought to know;
• where there is a recognized and general practice which has been followed for a substantial period in similar circumstances without mishap, he is entitled to follow it unless in the light of common sense or newer knowledge it is clearly bad;
• where there is developing knowledge, he must reasonably keep abreast of it and not be too slow to apply it; and
• where he has in fact greater than average knowledge of the risks, he may therefore be obliged to take more than the average or standard precautions.”
from a statement by Swanwick J. Stokes v Guest, Keen and Nettlefold (Bolts and Nuts) Ltd (1968) 1 WLR 1776. Article adapted piece of writing cited in the Safety Solutions Group Newsletter. Nov. 2008. www.safetysolutionsgroup.com
