Charges Against Company Directors Dismissed in Two Cases in the Industrial Court of New South Wales

Katherine Morris and Simone Alphonse write:

In two recent cases, the Industrial Court of New South Wales has dismissed charges against directors for breaches of the Occupational Health and Safety Act 2000 (NSW). In one case, the directors successfully established the defence of not being in a position to influence the conduct of the corporation. In the other case, the Court exercised its discretion under the Crimes (Sentencing Procedure) Act 1999 (NSW) after finding that the director put in place a comprehensive safety plan and took all steps as he saw necessary to ensure that safety matters were properly addressed.

Inspector Wayne James v Sunny Ngai & Ors [2007] NSWIRComm 203

In this case, an employee of ABC Tissue Products Pty Limited (ABC) was injured when his arm became caught in an unguarded machine. At the time of the incident, the employee was cleaning a paper build up on an embossing roller. The employee suffered a soft-tissue and muscle injury to his right arm.

Charges

Pursuant to section 26(1) of the Occupational Health and Safety Act 2000 (NSW), which deems a director liable for the offences of a corporation, two directors of ABC were charged under section 8(1) for failing to ensure the health, safety and welfare of employees.

While the directors acknowledged that the breach by ABC had been established, the directors pleaded not guilty to the charges brought against them. Relying on the Articles of Association of ABC and the roles and duties allocated to them, the directors sought to establish the defence under section 26(1)(a) of not being in a position to influence the conduct of the corporation in relation to its contravention.

The Articles of Association of ABC authorised the majority shareholder and founder of the company to assume the role of Governing Director. The Articles of Association bestowed wide ranging powers, upon the Governing Director beyond the exclusion of powers available to other directors. The Governing Director fixed the duties of all other directors of ABC. The duties of the two directors in this case were limited to sales, marketing, purchasing paper, and signing cheques and other document. Neither of the directors exercised any management responsibilities beyond these duties fixed by the Governing Director.

Liability

Justice Staff held that in deeming directors liable, and imposing on them the burden of exculpation by satisfying the defence of not being in a position to influence the conduct of the corporation or exercising all due diligence, section 26 expressly recognises that not every director will be held to have contravened the same provisions as the corporation. As such, Justice Staff considered that there was no basis for assuming that every director of the corporation is in the same position to influence the conduct of the corporation. Justice Staff held that the defence available under section 26 was designed to avoid a situation of persons being punished by reason of simply holding the office of director and that in order for a director to be found liable, it must be established that the director was complicit in the contravention.

After considering the evidence, Justice Staff held that the directors, – due to the limitations imposed upon them by the Articles of Association- were not in a position to influence the conduct of ABC because they could only discharge such powers and duties as had been conferred on them by the Governing Director. These powers and duties did not include safety matters and, as such, Justice Staff considered that the directors had no powers in relation to the conduct which gave rise to ABC’s contravention.

The charges against the two directors were dismissed.

Lessons learned

This decision is an unusual one as it appears to depart quite considerably from an existing body of case law which suggests that not being in a position to influence the conduct of a corporation in relation to a contravention will be an infrequent basis for a defence for a director. This is because, by virtue of holding the position of director, a director is able to influence the conduct of a corporation in relation to safety matters, regardless of whether or not a director has specific safety duties.

In suggesting that complicity in the contravention is a necessary requirement of a director’s liability, this case may seem to broaden the scope of the section 26(1)(a) defence. However, the meaning of ‘complicity’ must be read in light of the specific facts of the case where the corporate structure of the company expressly limited the powers of the directors. Directors should ensure that they turn their minds to safety issues and that their company has a safety system in place which achieves legal compliance, regardless of whether or not they have been designated specific safety duties.

WorkCover Authority of New South Wales (Inspector Mulder) v United Admin Pty Limited, Daniel Nicolas and Dasco Construction Pty Limited [2007] NSWIRComm 195

This case involved an incident in which a western brick boundary wall of a building development site collapsed onto a building in the adjacent premises. Dasco Construction Pty Limited (Dasco) was the principal contractor on the building site and had contracted United Admin Pty Limited (United) to provide project management services for the development and Avraysa Constructions Pty Limited (Avraysa) to undertake bricklaying work.

Dasco had prepared an OHS management plan for the site, which required contractors to supply their own OHS plans and Safe Work Method Statements, and relied on United to implement the plan. The director of United, Mr Fiore, had accepted full responsibility on the site for all safety matters.

On the day of the incident, Avraysa had been erecting the wall. However, due to hot weather on the day, Avraysa ceased the work and the wall remained only partially completed. Later, a strong wind caused the wall to topple over and fall onto and through the roof of the adjacent building. The building was occupied however no employees in the building were injured.

Charges

United Admin was charged as a controller of premises under section 10(1) of the Occupational Health and Safety Act 2000 (NSW). Dasco Constructions was charged under section 8(2) for failing to ensure that people other than its employees were not exposed to risks to their health and safety arising from its undertaking while they were at its place of work. Dasco Construction’s director, Mr Nicolas, was also charged under section 8(2), pursuant to section 26(1) which deems a director liable for the offences of a corporation.

All three defendants pleaded guilty.

Liability

Justice Staunton noted that the risk assessment which had been prepared for the construction of the wall was inadequate. Although noting that the belief held by Mr Nicolas that responsibility for safety in relation to the brick work passed to Avraysa was to a certain extent correct, Justice Staunton emphasised that Dasco and Mr Nicolas had an obligation to ensure that subcontractors complied with the OHS management plan. Justice Staunton noted that even though Dasco delegated that task, it did not remove Dasco’s to ensure that all work undertaken on the site was done safely and without risks to safety. Dasco was fined the amount of $35,000.

Similarly, Justice Staunton emphasised that United had an obligation to ensure that the job undertaken by Avraysa was properly risk assessed and that safe work methods were in place. Although United had engaged a site safety consultant, Justice Staunton held that this did not sufficiently discharge United’s obligation as the consultant was only present on site on a fortnightly basis and Mr Fiore’s safety obligations extended further than merely relying on purported expert evidence and included ensuring that all work was carried out safely. United was fined the amount of $45,500.

In relation to the charge against Mr Nicolas, Justice Staunton accepted that Mr Nicolas had put in place a comprehensive OHS plan for the project and found that Mr Nicolas had taken all the steps that he saw necessary to ensure that safety matters were properly addressed on site. Justice Staunton noted that Mr Nicolas visited the site regularly, discussed safety issues with the project manager, and appointed Mr Fiore and the site foreman to be wholly responsible for all aspects of safety on the site and for supervising the work being undertaken on behalf of Dasco. Justice Staunton found that both Mr Fiore and the site foreman were aware of Dasco’s OHS plan and were able to contact Mr Nicolas if there were any problems in carrying out the work. Since they did not do so and since there was a system in place whereby they should contact Mr Nicolas if safety issues arose and this was regularly monitored by Mr Nicolas, Justice Staunton held that Mr Nicolas was entitled to assume that there were no problems. Consequently, Justice Staunton held that the actions taken by Mr Nicolas warranted the exercising of the discretion under section 10(1)(b) of the Crimes (Sentencing Procedure) Act 1999 (NSW) and ordered that the offence by Mr Nicolas be discharged without conviction and on the condition that he enter into a good behaviour bond for eighteen months.

Lessons learned

Employers and directors must ensure that safety at a workplace is constantly addressed. It will not be sufficient for an employer or director to discharge their safety obligations by delegating wholly those obligations to another party. Where employers or directors engage another party and impose safety obligations on that party, their must be in place a system whereby employers and directors monitor and ensure compliance with those obligations.

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