A recent decision of the Industrial Court of New South Wales in Kumar v David Aylmer Ritchie [2006] NSWIRComm 323 provides a timely reminder to directors and chief executive officers of the extent of their liability for breaching occupational health and safety legislation.
Facts
In January 2003, an employee of Owens Container Services Australia Pty Ltd (the Company) was fatally injured in a shipping tank explosion. The Company was charged with breaching its duties as an employer under section 8 of the Occupational Health and Safety Act 2000 (NSW) (the NSW Act). Mr Ritchie, a director and CEO of the Company, was also charged under s8, and further, under s26 of the NSW Act. This section stipulates that if a company contravenes the NSW Act, directors and managers are taken to have also contravened the provision unless they can satisfy the Court that they were either not in a position to influence the company’s conduct that led to the breach, or, if they were in such a position, they applied due diligence to prevent the company’s breach.
The Company pleaded guilty, but Ritchie, the director and CEO, pleaded not guilty.
In Argument
At the time of the incident, the Company had 80 offices around the world and employed 1600 workers. It conducted various services, ranging from repair, cleaning, storage and transportation.
As director and CEO, Ritchie was based in New Zealand but travelled to all divisions, including Australia. Ritchie spent two to three days in Australia every two months and spent up to three hours visiting the facility where the incident occurred.
Ritchie argued that, as the Company was a large, international company, he could not be personally involved in the management of occupational health and safety in each division. Ritchie further submitted that he lacked sufficient expertise in occupational health and safety, and so he was reliant upon monthly reports and meetings of the managers in each division.
Ritchie submitted that his role was as a "real world" director, where, due to his remoteness from the workplace, he was properly reliant upon the advice and expertise of others in the fulfilment of his role. As such, he did not have effective control or the ability to influence the Employer’s conduct in relation to the breach.
Decision
Ritchie was held to be guilty under both sections 8 and 26 of the NSW Act, the Court stating that he had the ability and the authority to influence the corporation with respect to the safety breach.
The Court determined that Ritchie’s liability did not necessarily necessitate his involvement "in day-to-day operations in a hands on way but required effective reporting lines and recommendations from those with expertise…as a director, he had to be active and diligent in requiring information about the nature of the business".
The Court rejected Ritchie’s "real world" director argument, saying that he has simply chosen not to influence the Company’s conduct in relation to occupational health and safety.
Implications for Business
This decision has clear implications for our New South Wales clients – CEO’s, directors and managers have a direct duty with respect to occupational health and safety. Corporate structure cannot be used to shield such persons from liability. In such positions, you must actively require information in respect to corporate occupational health and safety obligations, and implement measures, including policies, procedures and practises, to ensure your company is meeting these obligations.
Though this case does not provide a strict legal precedent for clients in other jurisdictions, it is a timely reminder that senior management must be active in ensuring compliance with occupational health and safety legislation.
While s26 of the NSW Act has no absolute counterpart in other jurisdictions, there are analogous provisions. In South Australia, the Occupational Health, Safety and Welfare Act 1986 (SA) (the SA Act) provides that the responsible officer(s) of a body corporate must ensure compliance by the business with the SA Act. Failure to do so may result in a penalty equivalent to that imposed on a corporation. In addition, s21 of the SA Act provides clear duties for all other persons employed by organisations, including other senior managers.
The practical difference between the NSW and SA provisions is subtle but significant. Section 26 of the NSW Act has wider application than the South Australian provision, as it extends liability for a corporate breach to all levels of management. It also reverses the onus of proof from the prosecuting body to the director or manager. In other words, the director or manager is taken to have breached the provision unless they can show why they should not be liable by virtue of their lack of ability to influence the conduct resulting in the breach or their due diligence in attempting to prevent the breach.
There are also differences in terms of the penalty. In NSW, a director or manager could face a penalty of $55,000 for a first offence, as compared to SA, where an initial breach by a responsible officer could attract a $100,000 fine.
Of interest to our local government clients, s26(4) of the NSW Act stipulates that elected members of councils will not be considered to be a director for the purposes of assigning liability for occupational health and safety breaches. There is no equivalent provision in the SA Act.
The contents of this newsletter are for information only and should not be taken as advice on the law.
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