Health and Safety Reform Bill – Implications for Directors

Health and Safety Reform Bill – Implications for Directors

Introduction

Last week the Supreme Court provided some much-needed clarity about the role of criminal penalties in commercial matters by noting that:

“It is not easy to think of cases from any area of the criminal law in which imprisonment has been seen as an appropriate response to offending where culpability arises out of a misjudgement by people who took their responsibilities seriously and where the consequences have been economic and have not involved physical injury or death.”

I made the comment that I hoped that clarity would filter through to the Commerce Minister’s efforts to criminalise ‘egregious’ breaches of directors’ duties under the Companies and Limited Partnerships Amendment Bill which is currently before Parliament.

On a different, but related, tack the media coverage over the weekend about the CTU having been granted permission from the Court to take a private prosecution against a forestry contracting business over the death of a forestry worker and the recent, high-profile, conviction of a company and its sole director under the HSE Act over the demise of the fishing vessel ‘Easy Rider’ have raised the profile of health and safety issues and their implications for companies and directors.

Whilst prosecutions of directors under the HSE Act are rare, this may change as a result of health and safety reforms that are due to come into effect next year. Under the Health and Safety Reform Bill, which is presently before Parliament, directors will face significantly greater exposure to liability as a result of being imposed with a proactive duty to exercise due diligence to ensure that their company complies with any duty or obligation under the Bill.

Recap: The current position

At present, under the HSE Act, the exposure of company directors is only that of the potential of secondary liability. That is, in keeping with a number of other pieces of ‘public order’ legislation, a director may be exposed to liability if they have participated in, contributed to, or acquiesced in any failure of the company to comply with the HSE Act.

As a result, a director can only be liable where their company has been shown to have breached the HSE Act. To be liable under the HSE Act, a director (or officer or agent) must be found to have directed, authorised, assented to, acquiesced in, or participated in, the failure of the company.

Health and Safety Reform Bill

By contrast, the Health and Safety Reform Bill impose on directors a personal (proactive) duty to undertake due diligence – to ensure that their company complies with its HSE duties and obligations. This duty is a primary one – and must be discharged personally – regardless of whether or not the PCBU has been found to have committed an offence.

The Bill has been described as the outcome of a series of developments triggered by the Pike River Coal Mine disaster in 2010. Pike River, and the Royal Commission that followed, led to:

• a joint Institute of Directors / Ministry of Business, Innovation & Employment guideline on good governance for managing HSE risks ; and
• the report of the Independent Taskforce on Workplace Health and Safety, appointed by the Government in June 2012 – which recommended that New Zealand follows the Australian Model Law (passed by the Australian Federal Government in 2011 and followed by almost all of the State governments).

What is a PCBU?

The Bill introduces a new concept of a PCBU – which is defined broadly to include all persons conducting a business or undertaking alone or with others and regardless of whether it is for profit or gain. A PCBU is defined widely and the concept is broad enough to include all types of functional arrangements. There are some exclusions to the definition including:

• people who work in, or are officers of, a PCBU; and
• volunteer associations – being a group of volunteers working together for 1 or more community purposes where none of them, alone or jointly with anyone else, employs any person to carry out work for the volunteer association.

A PCBU has primary responsibility for HSE compliance.

Duty of care

Where a duty is imposed on a person under the Bill then, in terms of the key principle of managing risks, that person is required to:

• eliminate risks to health and safety, so far as is reasonably practicable; and
• (if it is not practicable to eliminate risks to health and safety) – to minimise those risks so far as is reasonably practicable

The term “reasonably practicable” in relation to the health and safety duties imposed on PCBUs and other persons means that which is, or was, at a particular time, reasonably able to be done in the circumstances taking in account and weighing up all relevant matters.

Implications for officers

The Bill imposes a duty on officers (see below) of a PCBU to exercise due diligence to ensure that the PCBU complies with any duty or obligation under the Bill.

An ‘officer’, in relation to a PCBU, is defined to mean:

• in the case of a company – any person occupying the position of a director of the company by whatever name called;
• for a general a partnership – any partner;
• for a limited partnership – the general partner; and
• for any other a body corporate or unincorporated body, any person occupying a position in the body that is comparable with that of a director of a company.

The definition then goes on to include:

“any other person who makes decisions that affect the whole, or a substantial part, of the business of the PCBU (for example, the CEO)..”

The due diligence duty of an officer of a PCBU includes taking reasonable steps to:

• acquire and keep up-to-date knowledge of work health and safety matters;
• gain an understanding of the nature of the operations of the business and generally of the hazards and risks associated with those operations;
• ensure that the PCBU has available for use, and uses, appropriate resources and processes to eliminate or minimise risks to health and safety from work carried out as part of the conduct of the business;
• ensure that the PCBU has appropriate processes for receiving and considering information regarding incidents, hazards, and risks and for responding in a timely way to that information;
• ensure that the PCBU has, and implements, processes for complying with any duty or obligation under the Act; and
• verify the provision and use of the resources referred to above.

An officer of a PCBU may be convicted or found guilty of an offence (of failing to exercise due diligence) whether or not the PCBU has been convicted or found guilty of an offence relating to the duty or obligation.

Penalties

The Bill includes three tiers of offences with maximum penalties which are substantially higher than the penalties currently available under the HSE Act.

The maximum penalties for an individual who is a PCBU or an officer of a PCBU, for an offence of reckless conduct in respect of a health and safety duty, is a term of imprisonment not exceeding 5 years or a fine not exceeding $600,000 (or both). For corporates – the maximum fine is $3 million.

Insurance / Indemnity

The Bill carries over the provision in the HSE Act and a number of public good statutes which provide that insurance against fines or penalties are unlawful. However, there may be some scope for obtaining insurance cover and/or indemnify protection in relation to the costs of remedial orders and the costs of defending a prosecution.

Compliance obligations

These provisions represent a significant step-change from the current compliance and liability regime under the HSE Act.

One of the key lessons from the GFC and the finance company cases, particularly, is that in relation to matters which are regarded as key elements of corporate governance and directors cannot simply delegate their duties to management or advisers. Importantly, directors will be increasingly unable to simply vote to approve matters that they did not understand and are simply relying on the assurance of others.

Under the existing HSE Act, the Courts are seen as increasingly willing to entertain arguments that directors who ignore red flags which should have alerted them to risks had acquiesced in the failure of the company to take “all practicable steps”. Acquiescence may mean the director was aware of the circumstances (but not necessarily aware that there was an offence) and were in a position to do something about it – but failed to do so.

The recent joint publication by MBIE and IoD – ‘Good Governance Practices Guideline for Managing Health and Safety Risk’ is likely to be of considerable assistance in applying the due diligence obligations of officers under the Bill. That publication emphasises the need for good governance in relation to HSE obligations and provides guidance on both baseline actions and recommended practice.

Timeline

The Government has signalled that it expects the Bill to be passed into law before the end of this Parliamentary term and to come into force in April 2015. As well as the outcome of the election, the timing of commencement is also dependent on new regulations being developed, including regulations for high hazard industries such as mining.

Further information

If you would like more information about any of the matters discussed in this note, please contact me.