Australia: Upstream OHS duty-holders in focus: maximum penalty for supplier/manufacturer of plant in Commonwealth OHS Act prosecution

In a rare prosecution of upstream duty-holders under the Commonwealth OHS legislation, on 27 July 2011 the Federal Court imposed the maximum penalty for breaches of plant manufacturer and supplier duties under the Occupational Health and Safety Act 1991 (Cth) (OHS Act).¹

This update provides duty holders with the lessons arising from Comcare v Subsee Explorer Pty Ltd², a prosecution arising from an incident in October 2005 in which two employees of the Department of Immigration and Citizenship (DIAC) and three members of the public, including a child, drowned after the Immigration Response Vessel, Malu Sara, sank in the Torres Strait.³

Why is this case important?

The decision demonstrates that Regulators will pursue and enforce OHS compliance by "upstream" duty-holders, such as manufacturers and suppliers of plant. Accordingly, the decision has important implications for suppliers and manufacturers of plant throughout Australia.

Background to the incident

In early 2005 Subsee Explorer Pty Ltd (Subsee) was contracted to supply DIAC six vessels, including the Malu Sara, to be used by DIAC employees at work in the Torres Strait. The contract required the vessels to be of aluminium construction, 6 metres in length, and designed to carry up to six people. The contract also required the vessels to comply with key safety aspects of Shipping Laws Code Class 2C (USLC 2C) and Australian Standards 1799 (Small Craft—General Requirements for Power Boats) and 1665 (Welding of Aluminium Structures).

Subsee supplied DIAC with a prototype vessel for limited sea trials in May 2005. The prototype was not designed or constructed in accordance with critical requirements of USLC 2C or AS 1799 and 1665 (including buoyancy and watertight compartment requirements). This was not disclosed by Subsee nor discovered by DIAC at the time of the sea trial.

DIAC, lacking the specialist expertise which Subsee possessed, accepted the prototype vessel subject to some minor modifications that did not improve the structural deficiencies. Subsee continued to build the remaining five vessels which were completed in August 2005.

During the construction process, a representative from DIAC visited the boat yard, but this person had no relevant expertise to competently assess whether any of the vessels were constructed in compliance with the contract. Subsee did not have the Malu Sara assessed or inspected by a qualified person to determine whether the vessel met the contract requirements or USLC 2C, AS 1799 and AS 1665 requirements.

No independent survey of the vessels was arranged to confirm they met their contractual safety specifications.⁴

Subsee also issued a false certificate of positive flotation to DIAC which incorrectly declared that the vessels were able to float in an upright position when filled with water.

Judgment

In imposing the maximum penalty, the Federal Court concluded that this was the worst category of case for breaches of the duties imposed on manufacturers and suppliers of plant, finding that:

• Subsee had designed, manufactured and supplied to the Commonwealth vessels which not only failed to meet the requirements of the contract between the parties, but were dangerously unseaworthy and unsuited to the conditions in which they were required to operate. For instance, the structural integrity of the vessels was compromised as there was insufficient buoyant material in the hull to ensure the vessel remained floating in an upright position if swamped.
• During the manufacturing and supply process, Subsee did not conduct any simple, well-known precautions to detect whether the vessels were safe for use. For instance, Subsee did not conduct any testing or research to ensure that the vessels carrying the requisite load would remain buoyant.
• Subsee had actively attempted to mislead DIAC (a body with no specialist expertise in boat building) as to the flotation characteristics of the vessels by issuing flotation certificates which were false in almost every respect.

Back to basics: lessons for manufacturers and suppliers

This case highlights how critical it is to attend to the basic OHS requirements when manufacturing or suppling plant. These lessons are equally applicable to the supply of substances and structures. Manufacturers and suppliers need to:

• Ensure you know what the plant, substance or structure is to be used for and manufacture and supply for that purpose – This includes having an understanding of who will be using the thing that has been supplied or manufactured and the context in which it will be used. One of the arguments raised by Subsee in mitigation in this case was that it did not know how DIAC intended to use the vessels. This argument got no sympathy with the Court, with Collier J stating that this in no way obviated the obligation for Subsee to undertake testing and research to ensure the vessels were seaworthy and agreeing with the regulator's oral submissions that in essence, a failure to understand the use for which it was to be provided was something indicating that the offence was more serious rather than mitigating the seriousness of the offence.⁵
• Ask yourself if you are meeting the relevant testing and examination requirements prior to supply – Subsee failed to meet the OHS Act requirements (both as supplier and manufacturer) to ensure that research, testing and examination was carried out that was necessary to identify and eliminate or minimise, risk to the health or safety of Commonwealth employees that may arise from the use of the Malu Sara. Such testing requirements exist under OHS legislation throughout Australia and under the requirements contained within the new model Work Health and Safety Act.⁶ Indeed, there was an active misleading of DIAC as to the state of the vessels through the provision of a positive flotation certificate declaring the vessel would remain afloat when the vessel filled with water. Testing of the other vessels following the incident indicated that the declaration contained within that certificate was false. Subsee did not conduct swamp tests or sea trials on the Malu Sara for the purpose of verifying the accuracy of the statements made in the positive flotation certificate.
• Cover yourself by ensuring that independent, qualified assessment and certification against relevant standards is conducted prior to use – Obtaining a documented independent assessment by a qualified person that the plant/substance/structure you have supplied or manufactured is appropriate and safe for the use it has been designed is critical. Subsee did not undertake any such assessment in the provision of the Malu Sara. Under the contract, Subsee was due to provide 6 certificates (including confirmation that the vessels met the USLC 2C standard and complied with the requirements of AS 1799 and AS 1665). Other than the false positive flotation certificate, none of the other 5 certificates were provided to DIAC with the supply of the vessel.
• In some circumstances, it may be more appropriate to negotiate that the organisation to which you are supplying your product makes arrangements for this independent assessment. Where that is the case, manufacturers and suppliers should ensure there are clear provisions set out in the contractual documentation that this aspect of the arrangements is being provided by another service provider and is not within the scope of your contractual obligations.
• Ensure you are providing all relevant information to parties you are supplying to – Under all OHS legislation in Australia and under the new model Work Health and Safety legislation due to commence on 1 January 20127, there are requirements for the provision of adequate safety information at the time of supply. In that regard, manufacturers and suppliers need to provide information about:
  • each purpose(s) for which the plant/substance/structure was designed or manufactured
  • design and construction details
  • the results of any tests, calculations and analysis including information regarding any hazardous properties identified during testing and analysis, and
  • any conditions that are necessary to ensure the plant/substance/structure is safe for use when used for a purpose for which it was designed or manufactured.
• Ensure you have a plan to meet the contractual specifications & you have factored those requirements into your costings – There were significant failures to meet the contractual safety requirements in the supply of the vessels by Subsee. The contractual failures were used by the regulator as the framework for investigating and establishing the failures under the OHS Act. Suppliers and manufacturers should use checklists for meeting both statutory and contractual safety requirements and should factor compliance with safety requirements into the costs quoted.

1. See ss 18 and 19 of the OHS Act.

2. [2011] FCA 837.

3. The case is a separate but related proceeding to Comcare v The Commonwealth of Australia [2010] FCA 1331, in which DIAC was also fined the maximum penalty of $242,000 for breaching its duties to employees and members of the public.

4. The vessels were not required at law to be surveyed because they were "Commonwealth ships" for the purposes of the Navigation Act 1912 (Cth).

5. See Collier J at [58]-[59].

6. See ss 23(3) and 25(3) for manufacturer and supplier obligations respectively under the model Work Health and Safety Act (draft issued 23 June 2011).

7. See ss 23(4) and 25(4) for manufacturer and supplier obligations respectively under the model Work Health and Safety Act (draft issued 23 June 2011).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.