Today, when someone is injured at your workplace, there is no longer a single piece of legislation that you need to refer to. You could have someone injured that works for you, is an invitee, is a sub-contractor or an employee of a labour hire agency. You must now comply with and have regard to the:
- Workers’ Compensation & Rehabilitation Act;
- Personal Injuries Proceedings Act (and the flaw on legislation such as the Civil Liability Act);
- Workplace Health & Safety Act.
Each of these pieces of legislation, together with the duties imposed on you by the common law, will have an impact on the company.
How then, does each of these impact on the liability of the directors?
Workers’ Compensation & Rehabilitation Act ("WCRA")
As you are no doubt aware, directors are not considered to be ‘workers’ under the WCRA (see s.11(3)) and Schedule 2, Part 2 of the WCRA.
Therefore, in the event of a director suffering a workplace injury whilst performing duties for the company, he or she is unable to obtain workers’ compensation benefits normally paid to workers. Of course, the director can take out his or her own policy with either WorkCover or a private insurer to protect themselves in the event of an accident occurring.
But what of the worker being injured? Section 48 of the WCRA requires an employer to enter into a policy of workers’ compensation insurance with WorkCover Queensland (unless of course a self insurance licence is held).
If the company does not have such a policy in place then Section 51 of the WCRA enables WorkCover to recover from the employer unpaid premiums. However, if compensation is paid by WorkCover by way of damages for an injury, then the amount of compensation paid, together with penalties of 50% of that payment may also be recovered. However, the WCRA does not go on to hold a director personally liable if a workers’ compensation premium has not been taken out by the company.
Therefore, a director will have no liability towards either WorkCover or the injured worker for any claim made by the injured employee pursuant to the WCRA.
The law has long recognised that employers have a duty of care at common law for the health and safety of their workers. The law has always said that where the employer is a company, it is the company itself, rather than the individuals who own and operate it, that owe that duty of care. The duty is not owed by individual directors or employees and this principle holds even in the case of a company that is a one person company (that is, always assuming that the company is not a sham Lee v Lee’s Air Farming Limited1.
This follows directly from the separate legal entity principle articulated in Salomon v Salomon & Co2. This principle has been reiterated by the High Court in various cases, including recently in Andar Transport Pty Ltd v Brambles Limited where the Court stated that:
Therefore, the principle is that there is not going to be any liability for a director except in very unusual circumstances and an example of that is dealt with below.
Personal Injuries Proceedings Act ("PIPA")
A claim against your company to which PIPA (and of course the Civil Liability Act) applies may arise in any number of ways. You may, for example and for very sound reasons, engage a labour hire agency to have workers at your premises who are injured performing the tasks or alternatively, or you may have subcontractors or other invitees on site who are injured.
PIPA has not greatly deviated from the common law, so that it will only be in a small number of negligence cases where a Court will be hold a director personally liable for torts committed in the course of the Company’s business. For example, the decision of WAH TAT Bank Limited v Chan 4.
In that case, the respondent was a managing director of a shipping company. Various monies were advanced to the shipping company by banks and the shipping company failed to repay the money. The banks brought an action against not only the shipping company, but also its managing director claiming damages and ultimately on appeal to the Privy Council, the managing director was held liable for the reason that he procured or directed the commission of a tort (in this case conversion) and therefore assumed personal responsibility for the performance of that duty.
Therefore the corporate veil can be pierced if the director procures or directs the commission of a tort, or assumes personal responsibility for the performance of a duty. It would only be in very rare cases that this would occur for an injury claim.
As you are all no doubt aware, PIPA does require companies who are named as a respondent to a Notice of Claim, pursuant to section 9, to take certain steps (for example s.10, 12 and 20). Now, there is a very real risk that if those steps are not taken, the director(s) may be attacked personally. The following is a case that I was involved in last year where this happened. My client had an inhouse lawyer looking after various matters. The client was involved in the hospitality trade and engaged a security firm to provide security services for various venues throughout Brisbane. The following occurred:
- An assault occurred on 4 November 2001. The assault was on a patron by a security guard employed by the security firm;
- On 18 December 2003, the Claimant’s solicitors serve a PIPA Notice of Claim on my client;
- The requirements of sections 10 and 12 of PIPA are not complied with by my client within the timeframes of PIPA (or at all);
- The Claimant’s lawyers write to my client on 4 March 2004 seeking a response to the Notice of Claim;
- There is no response;
- On 31 May 2004, the Claimant’s lawyers again write to my client asking for a response and serving various medical reports that they had obtained in relation to their client’s injuries;
- On 29 June 2004, the Claimant’s lawyers telephoned my client’s employee to enquire as to what is occurring;
- Despite undertakings in that telephone call, the in-house lawyer does nothing;
- On 3 August 2004, the Claimant’s lawyers again write to my client;
- On 17 September 2004, there is a further telephone call with my client’s employee;
- Despite that telephone call, on 20 September 2004, there is still no response as required by PIPA to the Notice of Claim by my client;
- The limitation period is looming and on 4 November 2004, an Application is made to the Court for leave to commence proceedings pursuant to PIPA by the Claimant;
- Her Honour, Judge O’Sullivan, grants leave and proceedings are commenced within the limitation period. Damages of $250,000.00 are claimed;
- The proceedings are served on my client company on 4 November 2004;
- No Defence is filed and the Claimant does what they are required to do;
- Default Judgment is obtained on 27 June 2005;
- The Claimant’s lawyers conduct searches and ascertain that a settlement notice has been lodged over certain properties owned by my client. These properties are worth millions of dollars and are under contract. They are due to settle in several months;
- On 17 October 2005, an Application (ex parte) is made to the District Court in Brisbane which only names my client company as a Respondent and which seeks a Mareva Injunction against that company, so that it is prevented from selling or disposing of any assets or removing any assets from Queensland;
- On 17 October 2005, the District Court makes that Order (ex parte) against the company only;
- The matter returns to Court on 25 October 2005 for the interim Marevas to be extended. His Honour, Judge Forno DCJ, extends those Marevas, but also orders that the sole director of the company swear an Affidavit which must be filed and served within 7 days, in relation to the company’s assets;
- Various communications pass requesting the Affidavit. No Affidavit is forthcoming;
- An Application is filed on 17 November 2005 in which the director is named personally and the Orders sought by the Claimant are:
1. Punishment of the company and its director for contempt;
2. That an enforcement officer seize and obtain all real and personal property owned by the company and the director;
- I am finally consulted on 10 November 2005.
As you can see, this is a very unusual factual matrix and I am sure no one here today would allow this to happen, but in circumstances like that, a director can be attacked personally. The attack was possible because there was an absolute disregard for the procedure and Orders of the Court.
On a positive note, I can say that we did get the Mareva lifted, the Judgment set aside and stopped the contempt proceedings. The properties were sold. The Court was, however scathing in its comments about my client and costs were awarded against it.
Workplace Health & Safety Act ("WHSA")
This, is by far the greatest exposure that a director (or other senior officer of a company) faces to any personal liability for an injury that occurs at the workplace. This exposure is heightened when you add to the strength of the legislation, the officers who are policing it. The scenario becomes a recipe for disaster.
This legislation is being described generally as "piercing the corporate veil and attributing a form of primary liability, concurrently with the corporation, to its directors and managers" 5
The principal section, that is of relevance, is section 167 which provides:
"167 Executive Officers must ensure corporation complies with Act.
(1) The Executive Officers of a corporation must ensure that the corporation complies with this Act;
(2) If a corporation commits an offence against a provision of this Act, each of the corporation’s Executive Officers also commits an offence, namely, the offence of failing to ensure the corporation complies with the provision. Maximum penalty for subsection (2) – the penalty for the contravention of the provision by an individual.
(3) Evidence of the corporations being convicted of an offence against a provision of this Act is evidence that each of the Executive Officers committed the offence for failing to ensure that the corporation complies with the provision.
(4) However, it is a defence for an Executive Officer to prove:
(a) If the officer was in a position to influence the conduct of the corporation in relation to the offence – the officer exercised reasonable diligence to ensure the corporation complies with the provision; or
(b) The officer was not in a position to influence the conduct of the corporation in relation to the office".
An Executive Officer is defined in the Act to be:
"Executive officer, of a corporation means a person who is concerned with, or takes part in, the corporation’s management, whether or not the person is a director or the person’s position is given the name of executive officer."
It is therefore possible, for not only directors to be caught by section 67 but also others such as inhouse Counsel. However, at this stage, there has been no such prosecution in Queensland of any in-house Counsel.
The principal penalty for directors/officers convicted is a fine. However imprisonment may be an option where the safety breach results in death.
Under the WHSA the maximum fine that can be imposed is $150,000 (2000 penalty units) or 3 yrs imprisonment. (section24) A review of the recent fines that have been imposed by the Courts, show that increasingly, the fines are linked to the seriousness of the result of the safety breach.
In light of this, one would not have to have too vivid an imagination to think that the Department will press for an imprisonment of a director in the not too distant future. I think this prospect is also heightened by what is occurring in other jurisdictions.
In New South Wales now, under that State’s occupational health and safety legislation, where the conduct of a person with occupational health and safety duties causes the death of another person in any place of work and the person is reckless as to the danger of death or serious injury, that person may be imprisoned for a period of up to five years 6.
On a practical approach, I have not yet had any instances where charges have been laid against an Executive Officer in addition to the company and this even includes matters involving workers’ deaths I have been involved in. My experience has been that as soon as an investigator from the Department arrives, you need to have representation present and to have that representation deal with them throughout. Each time I have adopted such an approach, I have been able to ensure that charges were only laid against the company.
However, even more important than simply the company being charged is how to avoid a prosecution altogether.
As most of you are aware, the principal obligations are contained in section 28 of the WHSA. That provides: "Obligation to persons conducting business or undertaking:
(1) A person the (relevant person) who conducts a business or undertaking has an obligation to ensure that the workplace health and safety of the person, each of the person’s workers and any other persons is not affected by the conduct of the relevant person’s business or undertaking.
(2) The obligations discharged of the person, each of the person’s workers and any other persons are not exposed to risks to their health and safety arising out of the conduct of the relevant person’s business or undertaking.
(3) The obligation applies:
(a) Whether or not the relevant person conducts the business or undertaking as an employer, self-employed person or otherwise; ‘and
(b) Whether or not the business or undertaking is conducted for gain or reward; and
(c) Whether or not a person works on a voluntary basis?"
The obligation under the WHSA is therefore to ensure the workplace health and safety of: (a) Each of your workers; and (b) Any other person (eg visitors, members, contractors) who may be affected by the conduct of your business or undertaking.
The first thing to note is that the use of the term "ensure", which appears in a number of sections of the WHSA. This provides for an absolute obligation, focussing on outcome not process. That is, if there is an injury then, unless one of the defences is established (the onus of which rests on you), you will be in breach of the WHSA. In this regard, the WHSA approaches strict liability. This position is most easily illustrated from the following passage from the decision of President Forde in Twigg v Hughes & Hessey Pty Ltd 7.
"The obligations imposed by the Act verge on absolute. Observance of the statutory obligations may require the doing of more than is reasonable and the expenditure of more than is reasonable. The Act does not create an exception for small business and does not provide a defence of impecuniosity. Rather, the approach of the Act, understandably in light of its objects, appears to be that those who cannot afford to ensure safety in embarking upon the undertakings and activities which are the subject of the Act, should refrain from embarking upon the undertakings and activities at all. Whilst it is appropriate to examine the financial circumstances of a Respondent, with a view to avoiding impression in sentencing, there is no justification for the granting of such indulgence to small and struggling businesses as to undermine the incentive to comply with the obligations imposed by the Act".
The facts in this case were:
- A worker was injured when his right hand came into contact with the moving bit of a copy router;
- His ligaments were severed;
- He sustained orthopaedic, nerve and soft tissue injuries;
- His hand came into contact with a bit of the router as he was trying to position the aluminium door jams in order to perform certain operations upon it;
- The machinery was designed so that the operator could switch it off and bring the bit to a halt before positioning items;
- The employee, who, amongst other things, had responsibility for training incoming staff in the use of the router, knew that the bit could be brought to a halt and knew that for safety reasons, it was important to bring the bit to a halt;
- The employee was 54 years of age and had approximately 20 years experience in the use of copy routers;
- He had been employed by the Company for about 6 ½ years;
- When he commenced work he had been assessed and identified as competent to use the router. His skills developed so he actually trained other workers;
- The sole director of the employer was aware of the hazard and the supplier of the reuter had been contacted in relation to the availability of any safety guard (this was before the incident);
- The supplier had informed the Company that no such safety guard was available;
- There was a plea of guilty and on appeal, the initial fine of the Industrial Magistrate of $12,000.00 was set aside and a fine of $30,000.00 was imposed;
As you can see, this was not a renegade employer. Yet despite this and the worker’s experience, President Hall still made the comments.
There are also the obligations that are imposed by section 29 of the WHSA which must be considered. Section 29 provides:
"What obligations under section 28 include:
Without limiting section 28, discharging an obligation under the section includes, having regard to the circumstances of any particular case, doing all of the following:
(a) Providing and maintaining a safe and healthy work environment;
(b) Providing and maintaining safe plant;
(c) Ensuring the safe use, handling, storage and transport of substances;
(d) Ensuring safe systems of work;
(e) Providing information, instruction, training and supervision to ensure health and safety."
There are also a range of other obligations which a person conducting a business or undertaking may have and these are found at sections 30 through to section 35 of the Act. I will not bore you with those now, but I would urge you, if you have not read them recently to do so again. I have attached copies to my paper to assist.
Sections 26 and 27 of the WHSA provide three ways in which workplace heath and safety obligations can be discharged, namely:
1. If there is a regulation or ministerial notice dealing with the area – by following that regulation or notice;
2. If there is a prescribed code of practice covering the area – by following that code of practice;
3. Otherwise – by taking reasonable precautions and exercising proper diligence.
These are, in broad terms, also the defences to a prosecution which are prescribed by section 37 of the WHSA (again, a copy is attached). It must be remembered and I can not stress enough that the onus of establishing the defences lies with the person who is being prosecuted. The onus is REVERSED!
All potential methods of managing exposure to workplace health and safety risks revolve around a five step process. That five step process is now enshrined in the WHSA at section 27A which provides:
"Managing Exposure to Risk
(1) To properly manage exposure to risks, a person must:
(a) Identify the risk;
(b) Assess risks that may result because of the hazards;
(c) Decide on appropriate control measures to prevent, or minimise the level of, the risks; and
(d) Implement control measures; and
(e) Monitor and review the effectiveness of the measure.
(2) To properly manage exposure to risk, a person must consider the appropriateness of control measures in the following order:
(a) Eliminating the hazard or preventing the risk;
(b) If eliminating the hazard or preventing the risk is not possible, minimising the risk by measures that must be considered in the following order:
(i) Substituting the hazard giving rise to the risk with a hazard giving rise to a lesser risk;
(ii) Isolating the hazard giving rise to the risk from anyone who may be at risk;
(iii) Minimising the risk by engineering means;
(iv) Applying administrative procedures;
(v) Using personal protective equipment.
(3) However, this Act also specifies particular ways in which workplace health and safety must be ensured in particular circumstances;
(4) Compliance with subsection (1) does not excuse a person from an obligation to ensure workplace health and safety or a particular obligation imposed on the person under this Act".
Therefore, the primary documents that you need to be aware of in conducting any risk assessment of workplace activities and to properly prepare yourself to deal with a reversed onus should that fateful day arrive, are the codes of practice. Some of the most commonly applicable codes of practice are:
1. Risk management – 2000
2. Manual tasks – 2003
3. Manual tasks involving the handling of people – 2001
4. Noise – 2004
5. Plant – 2005
6. Prevention of workplace harassment – 2004
7. Hazardous substance – 2003
8. Asbestos management and removal.
All current codes of practice are readily accessible on line at:
The Hazard and Risk Assessment
There is no doubt that the critical part of any process involving workplace health & safety is a properly documented hazard and risk assessment of all day to day operations of the business. Without this document there is no prospect whatsoever of defending a charge so as to enable the Court to hand down a verdict of not guilty.
It goes without saying, that over the diverse range of businesses that are here today, there are many potential hazards.
But a mere example, which also illustrates how the WHSA imposes an almost strict liability on employers is the decision of President Hall in Raging Thunder Pty Ltd v Walter Frederick Dare 8.
In that case, President Hall considered the facts where a white water rafting guide drowned after becoming entrapped in a natural tunnel that had formed in rock below the water. This was an appeal from the Industrial Magistrates Court, where the Industrial Magistrate had convicted the company on the basis that it failed to identify the hazard of the tunnel in the rocks. However, on appeal, President Hall found that the evidence did not establish, beyond a reasonable doubt, that by reducing the river’s water level by adjusting turbines (which could occur upstream), would have identified the risk. Notwithstanding this critical finding, he still found that the employer had failed to put in place an adequate safety system. The safety system that was in place provided that certain guides were allocated to follow the rafts by foot or boat to ensure the safety of customers who fell out. Nevertheless, the President found that the system did not cover the last guide. As a result, there was a breach of the WHSA and that breach had been made out.
As an aside, where does one draw the line on these facts? How many guides must follow one another? Surely if this decision is taken to its logical conclusion then there will be a never ending stream of guides.
Deciding Upon and Implementing Control Measures
Who performs this will depend upon the business and the skills and qualifications of the people employed in that business. The task may require the engagement of an external expert. At this point, I would like to remind you again of Section 27A(2) of the WHSA, which now requires you to consider control measures in the prescribed descending order. Therefore, if you wish to rely upon a lower ranking control measure (for example training), you must show that you had first considered all higher ranking control measures.
This is clearly demonstrated by the decision of the Industrial Court in Finn v Devan Management Pty Ltd9.
In this case, the employer was convicted for failing to consider installing physical devices to protect the driver of a "plastic picker uperer". The employee was using this piece of equipment to roll up plastic that had been laid in rows in a paddock. The piece of equipment was attached to the back of a tractor and comprised two cylindrical cone drums that rotated under hydraulic power to roll and collect plastic. Whenever the plastic broke, which apparently happened rather frequently, operators were instructed to stop the tractor and turn off the hydraulics to stop the cones from revolving, before tying the plastic back onto the cones and resuming work. The employer had gone so far as to affix a warning sign to the tractor to this effect.
Even so, on this fateful afternoon, an employee unsuccessfully tried to tie the plastic back onto the cones while the cones were still operating at high revolution. Unfortunately, the employee was trapped among the plastic and died.
At first instance, the Industrial Magistrate found that the complaint should be dismissed as the result of the administrative control that had been implemented by the employer. This would appear to be a sensible decision given what the employer did.
However, the ever vigilant Department appealed.
On Appeal, President Hall, found that if the employer had considered clause 5.3 of the Risk Management Advisory Standard 2000, he would have undoubtedly considered whether physical devices were available to protect the driver from the hazards. President Hall took into account the fact that after the incident, the employer devised a hydraulic mechanism that ensured that when the tractor operator’s foot came off the pedal, the hydraulics turning the cones stopped. The President made it clear that if an employer does not turn their mind to the question of whether physical devices are available before adopting administrative controls then that employer has failed to exercise proper diligence or taken reasonable precautions to prevent contravention from occurring.
The result of the appeal was a fine of $60,000.00 being imposed.
As an aside, this type of thinking is not limited to Queensland and decisions in other jurisdictions also highlight the need to consider engineering controls, prior to attempting to modify worker behaviour. See for example, Linfox Armaguard Pty Ltd v Lee 10 which is a South Australian decision.
The Need for Regular Review
Whatever control measures are implemented, you simply cannot say that they are now in place and that is the end of the matter. You cannot walk away and forget about them.
All of your measures that are in place must be regularly reviewed to ensure:
1. That they are being implemented – the most carefully developed, documented and implemented process is of little use if, after a short period of time, it has not been followed on the factory floor.
2. They continue to be appropriate.
Latest Case on Director’s Liability
The latest case on a director being found personally liable was handed down by the New South Wales Industrial Relations Commission on 28 February 2007.
That case is WorkCover Authority of New South Wales v Manildra Pty Ltd and heard at the same time, the decision of WorkCover Authority of New South Wales v Lesley Ronald Fletcher 11 (Mr Fletcher being the managing director of the Company).
The facts of that case were:
1. Manildra operated a fuel storage depot at Port Kembla.
2. Mr Fletcher was the managing director of Manildra.
3. Craig Merton was employed as a casual boilermaker and on the date of the incident, had been employed for approximately four months. Mr Merton had a trade certificate as a boilermaker and 25 years experience.
4. On the same day, there were a number of other men employed as labourers on site.
5. There were nine above ground tanks which were used for the storage of dangerous goods.
6. One of the tanks contained Ethanol (almost 5 million litres).
7. Prior to the incident, Manildra commenced to upgrade the tank and on the day in question, Mr Merton was instructed to weld half inch sockets onto five pipes.
8. Unfortunately, on the day in question, Mr Merton, commenced to weld with the pipes in situ rather than removing them.
9. His welding caused sparks and the inevitable happened – the Ethanol tank exploded.
10. At the time of this occurring, two labourers were on top of the tank.
11. Fortunately, no one died, but there were some horrific injuries. The tank lid was blown several kilometres, huge fires occurred and there was carnage everywhere.
12. The company entered a plea of guilty and was fined $80,000.00.
13. The director was also found guilty and ordered to pay $8000.00 for each of the offences.
14. Manildra entered an early plea and so obtained the discount that was available. They had also fully cooperated with the investigators and had even gone so far as to express contrition and remorse. Manildra had never, in all of its time operating, had any previous workplace health and safety prosecution and the Court found them to be a good corporate citizen.
15. Of course, there were also the consequential cost orders.
Further Developments for Directors
Now, not only is New South Wales the jurisdiction with imprisonment provisions, the ACT has also followed suit. The ACT has gone even further than New South Wales as its provisions are contained in its criminal legislation.
The ACT Crimes Act provides that, where the director’s policies and decisions are what actually caused the death of a worker, or the director allows a corporate culture to develop that disregards workers’ safety that results in a death, the company and the director can be convicted of "industrial manslaughter".
Section 49D provides that an employer can be held responsible where the employer is "reckless about causing serious harm to the worker … or is negligent about causing the death of the worker, by its conduct." This criminal recklessness or negligence is required to be proven beyond reasonable doubt, a burden of proof that is tougher then the civil standard of on the balance of probabilities.
The offence of industrial manslaughter will apply to senior officers. In government employers this will include Ministers and chief executive officers. Officers will include directors, people who make decisions that affect the whole of the business, including receivers, liquidators, administrators and trustees appointed to employers.
The key thing to take away is the reversal of the onus of proof, from a starting point of strict liability. As an employer you are up against it. You need to have your eye on the ball at all times.
In order to attempt to avoid a prosecution, you will need to establish evidence of the "five step process", namely:
- Identifying hazards;
- Assessing risks which may result because of the hazards;
- Deciding upon appropriate control measures to prevent or minimise the level of risks;
- Implementing those control measures; and
- Regularly monitoring and reviewing the effectiveness of measures.
So what are the tips that we can draw from today:
1. Make sure that the appropriate insurances are in place to protect directors as relates to the WorkCover regime and the PIPA regime.
2. If an incident occurs at work, ensure that workplace health and safety are notified in the approved form as required.
3. Deal with the inspectors in such a way so as to minimise the prospect of any charges being laid against directors.
4. Make sure written documentation is in place and that that documentation is regularly reviewed, and I would recommend this be at least annually plus whenever there is an incident or near miss.
5. The Workplace Health & Safety Act is when you look at it, quite daunting and really does require your full attention to be paid to protect your interests.
6. Be vigilant. Too much is never enough in this area.
1  AC 12, 26
2  AC 22
3  AC A28, paragraph 49
4  AC 507
5 Harold Forde, RP Austin, IM Ramsay, Company Directors: Principles of Law & Corporate Governance, 610 (12th ed 2005)
6 OHS amendment (Workplace Debts) at 2005 (NSW), Schedule 1
7  QIC65
8  QIC 9
9  QIC 70
10  SAIRC 74
11  NSW RI Comm 35
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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.