The new Chain of Responsibility (CoR) laws will bring recast obligations for chain parties underpinned by significantly increased penalties for breach.
The 'headline' obligation is the Primary Duty set out at section 26C to ensure, so far as reasonably practicable, the safety of the party's transport activities relating to a vehicle.
The headline Category 1 penalty which is designed to catch the attention of all directors and officers is the potential for up to five-years imprisonment where a person, without reasonable excuse, engages in conduct related to the Primary Duty that exposes an individual to a risk of death or serious injury or illness while being reckless to that risk.
The Category 2 penalty (without the element of recklessness) still carries a fine of up to $150,000.
The public policy element is relatively clear: individuals cannot hide behind the corporate veil when it comes to CoR. The stakes are now too high.
This is consistent with and underlined by the principle of shared responsibility set out at section 26A. While sub-section 26A(1) refers to "each party" in the chain of responsibility, sub-section 26A(2) is clearly referable to individuals rather than incorporations.
Under the current CoR a director of a corporation in breach could also be charged with that offence where that executive authorised or permitted the conduct.
If the executive knew or ought reasonably to have known of the conduct and that there was a substantial risk that the offence would be committed the executive might be liable unless he or she exercised reasonable diligence to ensure the corporation complied or was not in a position to influence the conduct of the corporation.
Under the new CoR an executive has a personal obligation to exercise due diligence to make sure the company complies with the duty.
Due diligence is defined to include taking reasonable steps to ensure the legal entity;
- has, and uses, appropriate resources to eliminate those hazards and risks; and
- has, and implements processes;
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- to eliminate those hazards and risks and
- for receiving, considering and responding in a timely way to information about those hazards and risks and any incidents; and
- for complying with the legal entity's duty under section 26(c).
These personal obligations on the executive raise a difficult question: what is an executive to do if he or she is not satisfied that the company is complying with its obligations under CoR?
A related question is how should the company respond if it and its executives are charged with breaches of CoR?
Does the company have a whistle-blower policy?
Best principles of corporate governance require companies to have a whistle-blower policy under which an officer or employee can alert a designated third party about concerns without fear of being punished. It also facilitates a culture under which breaches can be dealt with in a timely and deliberate fashion without an appearance that problems should be swept under the carpet.
Such a policy hopefully allows the board to be alerted about situations before it's too late.
Independent legal representation?
It is common when a company and its executives are charged for one lawyer to represent all defendants. But is this wise?
The advantages are largely from a perspective of costs. But that is perhaps the only compelling reason.
Firstly, from the lawyer's perspective, can the lawyer be said to be able to represent the best interests of all clients equally? Can the lawyer for example advise an executive that it may be in his or her best interests to plead guilty and give evidence against the company?
Similarly from a client's perspective, can they be sure that the company (and its lawyer) will not try to blame the executive for failing to alert the board as to his or her concerns?
The potential for conflicts appear to be substantial and it would be ill-advised for the parties to share the shame legal representation.
Directors and Officers Insurance?
Most corporations have Directors and Officers insurances. It may be worth checking that insurance policies will cover any issues arising under CoR and provide for separate legal representation.
Conclusion
When considering what steps you need to take to prepare for the new CoR, liability of executive officers should be high on your list.
The new CoR is expressly a shared responsibility that applies to parties within the organisation as much as it applies to parties across the supply chain.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
