Thanks to a decision of the Industrial Court of the Australian Capital Territory on 3 August 2015, we are starting to have some clarity about when a manager might be liable to be prosecuted as an ‘officer’ for failing to ‘exercise due diligence’ under the new(ish) model workplace safety laws.
In this case, the Court dismissed the criminal prosecution of a project manager under section 27 of the Work Health and Safety Act 2011 (ACT) (WHS Act).
Section 27 was a controversial addition to the WHS Act, as it imposed a new positive duty on directors and ‘officers’ to ‘exercise due diligence’ in ensuring that a company complied with its health and safety obligations.
The prosecution arose out of the death of a worker who was electrocuted while delivering materials to a road-building project site in Canberra. The worker was driving a tip truck when his bucket made contact with overhead power lines.
The project manager at the site, Mr Al-Hasani, was the first person to be charged as a company ‘officer’ under the WHS Act or any of the corresponding legislation elsewhere in Australia. Mr Al-Hasani was employed by the company managing the site, Kenoss Contractors Pty Ltd (Kenoss). He was not a director of Kenoss. He did however hold a senior operational position with responsibility for management of the relevant site and also various other Kenoss building developments.
The Court determined that there were a number of failures in safety procedures that contributed to the death of the worker. The power lines were hanging at a low level and obscured by trees. There were no distinctive warning signs about the lines either at the site or on the lines themselves, no site inductions for those accessing the site, and no adequate safe work method statements or risk assessments. A number of other actions – some very simple – could have been taken to mitigate the risk at the site.
The Court found that Kenoss had failed in its general duties under the WHS Act, and it was convicted for breaches of the WHS Act. However, the focus of the prosecution was on the charge against Mr Al-Hasani and the critical question of whether he was an ‘officer’ of the company for the purposes of section 27. Clearly, whoever in the company had the ‘due diligence’ duty had not discharged it. However, the Magistrate found that Mr Al-Hasani was not an ‘officer’ of Kenoss at the relevant time who could be prosecuted for that breach.
The WHS Act adopts the Corporations Act 2001 definition of ‘officer’, which extends beyond directors who are on the record and includes other persons such as those:
- who make or participate in making decisions that affect the whole or a substantial part of the business of the company; or
- who have the capacity to affect significantly the corporation’s financial standing; or
- whose instructions or wishes are customarily followed by the directors.
In assessing the case against Mr Al-Hasani, the Magistrate noted that a work health and safety prosecution is a criminal offence, and the onus rests on the prosecution to prove the offence beyond reasonable doubt. A finding as to whether Mr Al-Hasani was an officer was a question of fact requiring proof beyond reasonable doubt.
While Mr Al-Hasani played a very active role on behalf of Kenoss as a project manager at various sites, he was not the ultimate decision-maker. The company was effectively run by its general manager, Mr Brendas and his wife who was the named director of Kenoss. Mr Al-Hasani was not involved in the financial decision-making of the organisation.
In coming to her conclusion, the Magistrate relied upon legal authority arising out of the interpretation of ‘officer’ as defined by the Corporations Act 2001. In doing so she adopted the reasoning of the High Court, that a court must look at an individual’s role in the corporation as a whole rather than limit it to the person’s particular role in the specific identified matter (ie in this case, the safety shortcomings at the worksite). While Mr Al-Hasani had a significant role to play as a project manager, he had a limited role in the activities or the business of the company as a whole.
Accordingly, the Court found that Mr Al-Hasani did not have control or responsibility for the business or the undertakings of the company. While he had operational responsibility for delivery of specific contracts, his role was to implement these projects rather than make or participate in the making of the decisions which affected the overall or substantial part of the business of Kenoss. As Mr Al-Hasani was not an officer, the prosecution had not made out its case and the Magistrate dismissed the charge.
This case is important because it is the first of its kind dealing directly with the section 27 due diligence obligations of the WHS Act.
When the WHS Act was introduced in early 2012, there was concern that the positive duty of care imposed by section 27 would extend liability beyond nominated directors of companies to those in day-to-day positions such as middle management, project managers and the like. This result should provide some comfort to middle or senior managers who are not involved in the overall decision-making of a company or have little control of its affairs. It is a useful precedent for managers defending themselves against alleged breaches of the due diligence provisions.
This judgment will interest insurance companies issuing directors’ and officers’ liability insurance products.
However, it should also be noted that Mr Al-Hasani could have been prosecuted for an alleged breach of his safety responsibilities as an employee (rather than as an officer under section 27).
Finally, the judgment does not disclose whether the prosecuting authority took any action against the hands-on general manager, Mr Brendas, or indeed his wife and sole director, Mrs Brendas for potential breaches of the due diligence obligations.
Footnote – Victoria and Western Australia have yet to adopt the WHS Act which applies in every other jurisdiction in Australia. The corresponding Victorian legislation has officers’ duties but does not impose a positive duty of due diligence. Businesses in Victoria and Western Australia should obtain their own advice if concerned about directors’ duties.