The Personal Liability of Company Officers for Company Breach of Workplace Health and Safety Duties
Neil James Foster BA/LLB (UNSW), BTh (ACT), DipATh (Moore)
Presented in fulfillment of the requirements for the Master of Laws (LLM) at the University of Newcastle
February 2003
I hereby certify that the work embodied in this thesis is the result of original research and has not been submitted for a higher degree to any other University or Institution.
(Signed) ______
I am grateful for the invaluable help and encouragement given in the preparation of this thesis by my supervisor, Professor Anne Finlay, by Professor Neil Rees who also acted as supervisor for a time, and by my colleagues in the Law School at the University of Newcastle, especially John Anderson and Greg Pearson who have put up with my questions on criminal and company law!
I dedicate this thesis with all my love to my wife Robyn and my children Rachel, James, Claire and Miriam.
TABLE OF CONTENTS
CHAPTER 1- INTRODUCTION: WORKPLACE SAFETY AND THE CORPORATE SHIELD 1 1. Injury and Death in the Workplace ...... 2 2. Workplace Employment and the Corporate Structure...... 4 3. Workplace Safety and the Corporate Veil...... 7 4. The Question of Individual Managerial Responsibility ...... 14
CHAPTER 2- PERSONAL LIABILITY OF COMPANY OFFICERS FOR COMPANY TORTS 17 1. The Corporate Veil and Civil Liability- General Principles...... 18 a. Limited Liability and Legal Personality ...... 18 b. Early decisions on directors’ tortious liability- “direct and procure” ...... 19 c. “Making the tort his own”...... 22 d. Representation torts- Trevor Ivory and beyond...... 25 (i) Negligent misrepresentation ...... 25 (1) Trevor Ivory ...... 25 (2) Williams v Natural Life...... 26 (3) Example of “Assumption of Responsibility” ...... 28 (ii) Fraudulent Misrepresentation by Director...... 29 (1) Standard Chartered Bank- the Court of Appeal decision...... 30 (2) UK Response to Standard Chartered Bank...... 33 (3) Standard Chartered Bank Over-turned...... 38 e. The Australian position...... 41 2. Is there a different rule for different types of tort? ...... 47 3. Application of the law to workplace injuries...... 51 (a) Liability for Personal Injuries...... 55 (i) Liability under the “Directed and Procured” test ...... 55 (ii) Personal duty of care owed by the director...... 56 (1) General principles governing personal injury in the workplace ...... 57 (2) Personal (active) negligence by director leading to injury ...... 62 A. Cases Holding Directors Personally Liable for Workplace Injuries 63 B. Are Employees “Voluntary Creditors”? ...... 74 C. Policy Arguments for Denying Personal Liability...... 76 (3) Liability for directors who are “passive”...... 79 (4) Vicarious Personal Liability for directors? ...... 84 (iii) Liability of a director as “joint tortfeasor”...... 84 (b) Liability for Economic Loss Related to Personal Injuries...... 85 (i) Workplace Injury and Insurance...... 86 (ii) Possible Tort Liability where Insurance is Ineffective...... 86 4. Conclusion ...... 95
CHAPTER 3- COMPANY OFFICERS’ LIABILITY FOR COMPANY WORKPLACE SAFETY BREACH UNDER GENERAL CRIMINAL LAW 99 1. General Principles...... 101 (a) Commission of Criminal Offences by Companies ...... 103 (i) Direct Liability ...... 104 (1) Identification Liability- Tesco and Meridian ...... 105 (2) Identification Liability- Unnecessary where there is a failure of duty?108 (3) Identification Liability in Australia...... 113 (4) Aggregation of Fault of Individuals...... 115 (ii) Indirect (vicarious) criminal liability...... 115 (iii) Criminal Liability under the Commonwealth Criminal Code...... 118 (b) Accessorial Liability of an Officer when the Company has committed an offence...... 124 2. Manslaughter ...... 126 (a) Manslaughter generally...... 127 (i) Manslaughter by criminal negligence...... 127 (ii) Unlawful and dangerous act manslaughter...... 128 (b) Manslaughter by negligence while acting as a company officer ...... 131 (i) Duty of care for manslaughter purposes ...... 132 (ii) Application of manslaughter to company officers...... 132 (1) Australia...... 133 (2) United Kingdom ...... 134 (3) Manslaughter by Overall Management Decision...... 137 (c) Corporate manslaughter...... 139 (i) Corporate manslaughter under the current law...... 139 (ii) Proposals for new offences related to manslaughter...... 147 (1) United Kingdom ...... 148 (2) Victorian Proposals...... 150 (3) Other Australian Proposals...... 153 (d) Accessorial liability for corporate manslaughter ...... 155 (i) Accessorial liability for manslaughter ...... 155 (ii) Accessory to corporate manslaughter...... 158 3. Other offences ...... 162 4. Conclusion ...... 163
CHAPTER 4- COMPANY OFFICERS’ PERSONAL LIABILITY FOR CORPORATE WORKPLACE-SAFETY-SPECIFIC BREACHES 165 1. Introduction...... 166 2. Section 26 NSW OHS Act 2000 and related provisions- overview...... 167 (a) The NSW legislation ...... 167 (b) Other Australian legislation ...... 169 (c) The UK legislation ...... 179 3. Issues arising under the statutory provisions...... 179 (a) The law in operation- prosecution of company directors in practice ...... 180 (i) Majority “Directors” as opposed to “Managers” ...... 181 (ii) Directors prosecuted mostly directly involved in incident...... 181 (iii) Most companies small ...... 182 (b) Legal issues in applying s 26 to Directors...... 183 (i) Allocation of Penalty between Company and Director ...... 184 (ii) Effect of the “deeming” provisions ...... 188 (iii) The Meaning of “due diligence”...... 192 (iv) Considerations in sentencing under s 26 ...... 197 (v) Section 26 and the privilege against self-incrimination...... 201 (1) Proving the Contravention by the Company...... 204 (2) Could Evidence Inadmissible against the Officer be Admitted against the Company?...... 206 (vi) Where there is a requirement to prove “Connivance” etc...... 209 (vii) Application of the term “director” to government and quasi-government instrumentalities ...... 211 (c) Other officers: the meaning of “concerned in the management of” ...... 213 (i) Approach to Statutory Interpretation ...... 214 (ii)Analysis...... 214 (1) Existing cases ...... 214 (2) General rules of construction & Extrinsic Material ...... 216 (3) Provisions of other statutes...... 221 A. Other Australian OHS Legislation ...... 221 B. UK Legislation ...... 222 C. Decisions on “concerned in management” in company law...... 227 D. Environmental legislation...... 235 (4) Conclusions: the Scope of “Concerned in the Management” ...... 237 (d) Defences: the relationship between s 26 and s 28 ...... 239 4. Conclusion ...... 243 Category A- Company Directors...... 246 Category B- Other managers (non-Directors) ...... 249 Notes...... 250
CHAPTER 5- INSURANCE AND INDEMNITY 253 1. Insurance ...... 253 (a) Tort Liability...... 254 (b) Criminal liability insurance...... 255 (i) The normal rule- no insurance for crime ...... 255 (ii) Exceptions to the rule for crime based on negligence ...... 256 (iii) Exceptions to the rule for “deemed” offences?...... 257 2. Indemnity for criminal activity ...... 258 (a) Statutory provisions dealing with indemnity for criminal fines...... 259 (b) Common law principles on indemnity for criminal penalty...... 260 3. Conclusion ...... 263
CHAPTER 6- CONCLUSION 265 1. Inter-relationships...... 265 2. Implications ...... 267
Bibliography Table of Cases Table of Legislation
SYNOPSIS
Workplace-related death, injuries and illness remain a major concern for Australian society in the 21st century. This thesis addresses one aspect of the prevention of avoidable risks to occupational health and safety - the issue of how a company officer, whether a board member or other manager, may be held personally accountable for the consequences of such risks. Research shows that the potential for such personal liability is a major factor which focusses the attention of company officers on the need for due diligence in implementing safety systems. This thesis explores the limits of the legal liability of officers, both for awards of damages under civil law, and for criminal penalties. The thesis aims, as a legal doctrinal study, to demonstrate that the existing common law and statutory personal liability of company officers is already much wider than is commonly assumed. It suggests that this liability may be relied on to further the goals of effective compensation for, and prevention of, workplace accidents. It demonstrates that a company officer is not always protected by the “corporate veil” from the consequences of negligent actions or omissions which lead to death or injury of workers. A duty of care will often exist between the individual officer and workers whose safety is put at risk by a company culture which ignores or downplays safety issues. Breach of this duty may result in a substantial award of damages against the officer personally. The criminal law may also be invoked against a company officer. Where a death is involved a company may be found guilty of manslaughter. An officer may also be convicted of manslaughter, either through their own actions or omissions, or through their complicity with the company. While cases where these options will apply are rare, company officers are already subject, under specific workplace safety statutes such as the Occupational Health and Safety Act 2000 (NSW), to personal criminal liability if the company commits an offence. The operation and interpretation of deeming provisions in this and similar statutes in other States is explored, through an analysis of a number of decided cases, and suggestions made to improve the effectiveness of the provisions. In particular it is recommended that these and the more general criminal provisions be used more often, in appropriate cases, to target board members of larger corporations. As recent amendments to NSW legislation confirm, a systems-based approach to the improvement of workplace safety holds out the best hope for workplace risks to be effectively dealt with. In many cases death or injury flows from a systemic management failure rather than simply from the careless action of an individual manager. Ensuring that board members are aware of their potential liability, even when they are not directly involved in the workplace, will hopefully lead to more attention being paid at higher levels to improving the culture of workplace safety in a company. Many companies already have proper workplace safety procedures in place. But for those which continue to put profit above the life and safety of workers, increased awareness of the personal liability of officers will remind managers of the need to pay due attention to these issues.
Chapter 1- Introduction 1
CHAPTER 1 INTRODUCTION: WORKPLACE SAFETY AND THE CORPORATE SHIELD
1. Injury and Death in the Workplace ...... 2 2. Workplace Employment and the Corporate Structure...... 4 3. Workplace Safety and the Corporate Veil...... 7 4. The Question of Individual Managerial Responsibility ...... 14
This study, while it addresses the topic of the liability of corporate officers, had its origins in concerns for workplace safety. The suggestion is often made (especially following a major workplace disaster such as an explosion) that one factor in improving safety in the workplace is making individual corporate decision- makers more accountable for those decisions which affect safety. The aim of this study is to review the possible grounds for personal legal liability of company directors and managers, so that discussion in this area can proceed from an accurate starting point. Recent calls in Australia and elsewhere for the introduction of a new offence of “corporate manslaughter”, for example, need to be evaluated on the basis of the possibilities of the existing law. This study reveals that there is already a substantial body of law affirming personal civil and criminal liability of company officers for company breach of duty in the workplace. Both those seeking to improve workplace safety and those advising company officers need to be aware of this law. It should be noted at the outset that this thesis approaches the question from a doctrinal, rather than an empirical, basis. Rather than seeking to establish the effectiveness of the imposition of clear personal liability on company officers in improving corporate health and safety performance, it builds on existing studies (to be mentioned in this chapter) which point to this fact. The aim of this paper is the modest, but nevertheless critical, one of clarifying the circumstances in which courts will currently impose personal civil and criminal liability on company officers. It aims to show that these circumstances are already more extensive than is currently assumed. Where this study departs slightly from other recent treatments of similar topics is in the decision to include, not only criminal liability, but also civil liability of officers for negligent management decisions. It is often, but wrongly, assumed that the “corporate veil” was designed to shield company officers from Chapter 1- Introduction 2
responsibility for all company wrongs. After setting the scene in this chapter by describing the workplace safety situation in Australia, and its connection with corporate management structures, the study sets out, in chapter 2, to correct some myths about the protection offered to officers of a company against civil actions. In chapters 3 and 4 the topic of personal liability for criminal offences is addressed. In the most serious case, of workplace death, the law at the moment allows a company officer to be prosecuted for manslaughter (and it will be seen that a number of such prosecutions have been successful in recent years in the UK). It is also possible that the company itself might be convicted of that crime, and individual officers convicted as accessories to the crime. Some proposals for “corporate manslaughter” offences will be briefly discussed. Chapter 4 addresses another form of personal criminal liability which is already present- a deemed liability which applies to company officers where the company is guilty of an offence against specific workplace safety statutes. The NSW provision, s 26 of the Occupational Health and Safety Act 2000 (NSW), is considered in some detail as an example of this type of provision, which has been used fairly extensively in this State over a number of years. Some of the implications of these findings on personal liability are traced in chapter 5, where insurance of, and indemnities for, officers are discussed. Finally some of the linkages revealed by the study are discussed and some suggestions offered for the future.
1. Injury and Death in the Workplace Occupational health and safety has become a major concern in Australia today. A Federal Industry Commission report in 1995 estimated that every year more than 500 people in this country die as a result of a traumatic injury at work.1 The report estimated that up to 2000 people every year die because of a work-related disease, the majority from cancer induced by exposure to hazardous materials. This may be an under-estimate. For example, the Foreword to the NSW Legislative Council Standing Committee on Law and Justice’s Report on the Inquiry
1 Industry Commission Work, Health and Safety: Inquiry into Occupational Health and Safety (Report No 47; Canberra: AGPS, 1995) (2 Vols) , 1:xviii-xix (Overview). Chapter 1- Introduction 3
into Workplace Safety- Interim Report2 suggests that in 1996-97: “2,900 people died from workplace accidents and occupational diseases in Australia.” By way of comparison the Report adds: “During the same period there were 2,030 people killed on the roads”. Chapter 2 of the Committee’s Final Report3 contains a summary of other statistical information drawn from Workers Compensation statistics. While these offical figures may under-state the problem, even on this data in 1996/97 there were 173 deaths from employment injuries in NSW alone.4 More recently there has been an attempt to collate statistics from workers compensation schemes around Australia in a series of Comparative Performance Monitoring reports produced by the Workplace Relations Ministers’ Council. The latest report available, for 2000-2001, indicates that around Australia in that year there were 206 compensated fatalities.5 Over and above deaths, about 200,000 people in Australia are unable to work at all due to injury or disease contracted in the workplace.6 Clearly this is a major social problem which needs to be addressed.7 The Industry Commission report, and many other reports, have tried to analyse the
2 Report No 8, December 1997. 3 Released on 26 November 1998. 4 See para 2.1.2 of the Final Report. This figure has probably improved in recent years. In the Government Response to the NSW Workplace Safety Summit (Nov 2002) at 3 it is noted that NSW workers compensation records for 2000-2001 show 139 compensated fatalities. 5 See the report, available at
causes of the problem and suggest solutions. Part of that solution inevitably involves the use of law, both the criminal and civil law, to change the behaviour of those responsible for workplace safety.
2. Workplace Employment and the Corporate Structure Much of the Australian workplace is dominated today by employers and others in corporate form. Unfortunately, accurate statistics on the percentage of the workforce employed or engaged regularly by companies are difficult to obtain. The corporate structure is widely utilised. As at 31 January 2002 there were 1,251,927 companies registered in Australia.8 A number of these, of course, may be “shelf companies” or otherwise inactive. A better measure of “active” companies may come from taxation statistics. The latest available taxation statistics indicate that in the tax year 1999-2000, 596,934 companies lodged tax returns.9 What percentage of workers in Australia are employed by companies? One indication of the extent of “coverage” of the corporate model is referred to by Creighton and Stewart as follows:
[T]here are many small to medium employers in Australia who do not have corporate status, but instead operate as sole traders or partnerships. In 1997, for example, the ABS estimated that around 26% of all employees in the private sector were working in such businesses.10
This would mean, of course, that some 74% of workers are employed by companies. Further estimates, slightly better, are available in discussion papers issued by the Department of Employment, Workplace Relations and Small Business under the general heading “Towards a Simpler National Workplace Relations System”.11 The papers discuss the possibility of regulating workplace relations using the
8 Australian Securities and Investment Commission website- see
corporations power in the Constitution,12 and in the course of doing so provide some information (incorporating unpublished ABS data) on the percentage of Australian workers employed by corporations. The Departmental papers estimate that 85% of Australian workers could be covered by the new proposed system.13 Table 1 below is taken from that paper.
Employees NSW VIC QLD SA WA TAS NT ACT AUST (‘000) In proposed system 1892 1849 1000 419 574 114 75 151 6073.9 and in private sector 1619 1545 846 359 499 94 53 83 5097.2 In State system 466 0 307 112 146 43 0 0 1074.6 Total employees 2358 1849 1307 531 721 157 75 151 7148.5 and in the private 1905 1545 1016 420 575 119 53 83 5716.9 sector per cent Percentage of all 80.2 100 76.5 78.9 79.7 72.5 100 100 85.0 employees in proposed system As a percentage of 85.0 100 83.2 85.4 86.8 78.7 100 100 89.2 all private sector employees
Table 1: Estimated coverage of a new system, (non-farm) employees, February 2000 (Figures are rounded)14 Source: ABS, Survey of Employment and Earnings (unpublished data)
These figures need to be discounted for present purposes, however, as the table assumes that 100% of workers in Victoria, the ACT and the Northern Territory could be covered.15 The Department has advised that the figures in these jurisdictions cannot be easily disaggregated from existing data. As a rough estimate, however, the NSW percentage (80.2%) could be applied to Victoria, and the Tasmanian percentage (72.5%) to the two smaller jurisdictions. If this is done then the the figures provided in Table 2 below would suggest that some 79% of Australian workers are employed by corporations.
Employees NSW VIC QLD SA WA TAS NT ACT AUST (‘000) In proposed system 1892 1486 1000 419 574 114 54 109 5648 In State system 466 363 307 112 146 43 21 42 1500 Total employees 2358 1849 1307 531 721 157 75 151 7148 per cent Percentage of all 80.2 80.2 76.5 78.9 79.7 72.5 72.5 72.5 79.0 employees in proposed
12 Constitution, s 51(xx). 13 Discussion Paper 2, A New Structure (23 October 2000), in Appendix B. 14 Table 1 in Discussion Paper No 2, noted above. 15 Based on the existing reference of powers over industrial relations from Victoria, and the Commonwealth’s plenary legislative power in the Territories. Chapter 1- Introduction 6
system
Table 2: Estimated coverage of a new system, (non-farm) employees, February 2000 (Figures are rounded)- Victorian, NT and ACT figures adjusted as indicated in text (indicated in bold); separate figures for “private sector” excluded
Even though these estimates are very rough, it seems safe to say that a large majority of Australian workers (about three-quarters) would be employed by companies. For the purposes of considering the potential health and safety duties and liabilities of company officers, however, it is necessary to cast the net even wider than that of pure “employees”. Companies, of course, also engage individuals to perform work under “independent” contracts as well as contracts of employment.16 Both common law and statute may impose duties of care on companies in relation to these “contractors” as well as in relation to employees.17 In addition, companies who manufacture or supply equipment for use in the workplace, or make premises available as places of work, have duties of care to those who use the equipment or perform work on the premises.18 When these additional duties are taken into account, the potential impact on overall workplace safety of any measures that improve company attention to safety issues can be seen to be extremely significant. This is not surprising, as there seems to be no doubt that the company is the preferred model for most modern operations, and especially for large entities where much capital is invested. Since the decision in Salomon’s case the separate legal
16 For the current Australian law on the distinction between these two categories of paid worker, see the landmark High Court decisions in Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16, and Hollis v Vabu Pty Ltd (2001) 207 CLR 21. 17 For common law decisions affirming that a duty of care may be owed to contractors or the employees of contractors (though one of a slightly lower standard than that owed to direct employees) see for example Stevens v Brodribb itself, per Mason J at 160 CLR 31; Le Cornu Furniture and Carpet Centre Pty Ltd v Hamill (1998) 70 SASR 414; White v Malco [1999] NSWSC 1055; Rauk v Transtate Pty Ltd [2000] NSWSC 1020 at [27]-[28]; Wilke v Astra Pharmaceuticals Pty Ltd [2001] NSWCA 135; Thomas v Sydney Training & Employment Ltd [2002] NSWSC 970; TNT Australia Pty Ltd v Christie [2003] NSWCA 47; Rockdale Beef Pty Ltd v Carey [2003] NSWCA 132. In terms of statutory, criminal, liability, s 8(2) of the Occupational Health and Safety Act 2000 (NSW) imposes a duty to ensure safety on an employer in relation to those who are not employees “while they are at the employer’s place of work”. Similar duties in relation to non-employees are imposed in all other Australian safety statutes. 18 For possible common law civil liability on manufacturers or those making premises available as a workplace, see for example Taylor v Rover Co Ltd [1966] 2 All ER 781; Wright v Dunlop Rubber Co Ltd (1972) 13 KIR 255; Lapcevic v Collier [2002] NSWCA 300. Statutory liability in such circumstances is dealt with under ss 10 and 11 of the Occupational Health and Safety Act 2000 (NSW). Chapter 1- Introduction 7
identity of the company and the limited liability of shareholders has driven the company as a business model all over the world.19
3. Workplace Safety and the Corporate Veil One of the problems with the “corporate veil”, however, excellent as it seems to have been for encouraging investment, is the shield that may be offered in some cases to incompetent or self-interested management decisions affecting safety in the workplace. A number of serious workplace accidents in recent years have brought these issues to prominence. In the United Kingdom, incidents directing attention to workplace safety and company law issues include the sinking of the ferry Herald of Free Enterprise in 1987, the 1988 Piper Alpha oil rig disaster, and major rail accidents.20 In Australia, mine explosions offer a good example, and more recently the Longford Gas explosion. In many cases it is suggested, with good reason, that a board of directors and management who are concerned primarily with the interests of shareholders have failed to set up proper procedures and systems for workplace safety. In his detailed review of the factors behind the Longford Gas explosion, for example, Andrew Hopkins refers to a number of management failures which arguably contributed to the accident, and notes:
If culture, understood as mindset, is to be the key to preventing major accidents, it is management culture rather than the culture of the workforce in general which is most relevant.21
The Royal Commission into the Longford Gas explosion also identified a number of serious management failures which contributed directly to the accident, including a failure in training of workers to deal with an identified hazard, a
19 Salomon v Salomon & Co Ltd [1897] AC 22 is usually taken to be the major decision establishing the separate legal personality of companies, and the limited liability of shareholders. Mr Salomon and six members of his family were the sole members of the company and clearly controlled it, but were held not to be personally liable for its debts. For a recent review (and defence) of and its effects, see Lord Cooke’s Turning Points of the Common Law (London: Sweet & Maxwell, 1997), ch 1 “A Real Thing”. 20 These are discussed in a number of UK articles dealing with corporate criminal responsibility. See, eg, Clarkson, CMV “Kicking Corporate Bodies and Damning Their Souls” (1996) 59 Modern Law Rev 557-572. 21 A Hopkins, Lessons from Longford: The Esso Gas Plant Explosion (Sydney: CCH, 2000), at 76; see also his earlier book Managing Major Hazards: The Lessons of the Moura Mine Disaster (Sydney: Allen & Unwin, 1999). Chapter 1- Introduction 8
decision to remove engineers from the plant to “head office” which led to a lack of expert advice “on site” when an emergency situation arose, and a failure to conduct a major hazard assessment of the plant involved which would have identified the danger of the accident happening.22 Increasingly it is being recognised that injuries in the workplace are more often related to overall management decisions about safety procedures, and a “culture” of concern or lack of concern for safety, rather than individual acts of carelessness. If board members were made aware that by participating in management and failing to adequately address safety issues, they may be personally liable for the consequence of injuries or fatalities, then this should provide great incentive for change. This would reinforce and support current calls for the introduction of “systems-based” safety regimes.23
There are a number of existing corporate incentives for improving safety. Common law actions for workplace negligence, as well as the statutory workers compensation schemes, have a financial impact. Even where insurance fully covers common law liability, insurance premiums under the workers compensation schemes rise with a bad industrial safety record. And criminal legislation in all Australian jurisdictions provides for safety offences which, when committed by companies, now carry fairly hefty fines.24 But the nature of the company is that such financial burdens generally fall only upon company funds. Even given the strong incentives for directors to be seen to be conducting business profitably, in the end the worst that can happen in most cases is insolvency for the company. Suggestions have been growing over a number
22 See generally The Esso Longford Gas Plant Accident: Report of the Longford Royal Commission (Commissioners, the Hon Sir DM Dawson & Mr BJ Brooks), June 1999 esp paras 13.7 (training deficiencies), 13.54 (failure to conduct a “HAZOP” [hazardous operations] risk assessment of the plant where the accident occurred, despite this being acknowledged as necessary by Esso’s own guidelines), 13.83 (removal of experienced engineers off-site to Melbourne). The Royal Commission at para 15.7 concluded that there had been a breach of the Occupational Health and Safety Act 1985 (Vic), a conclusion that was re-affirmed by the subsequent conviction of Esso and fine of $2 million- see DPP v Esso Australia Pty Ltd (2001) 107 IR 285, [2001] VSC 263. 23 See, for example, the approaches discussed in N Gunningham & R Johnstone, Regulating Workplace Safety: System and Sanctions (Oxford: OUP, 1999). 24 See, for example, s 12 of the Occupational Health and Safety Act 2000 (NSW), which provides for a maximum penalty of 5000 penalty units in the case of a corporation. On the current Chapter 1- Introduction 9
of years that directors and managers, who are making decisions that affect safety, must be made to feel the impact of those decisions more personally. This of course is not the only solution to the problem of encouraging responsible corporate behaviour. Many writers over the years and recently have put forward creative models which aim at improving “corporate citizenship”.25 But a number of converging lines of recent research suggest that focussing on the individual responsibility of corporate officers is a primary way that corporate behaviour can be changed. Figure 1 is a “pyramid” representing the strength of various factors influencing decision-making by corporate officers, taken from a paper presented by Bryan Horrigan, Director of the National Centre for Corporate Law and Policy Research.26
Figure 1- Factors influencing corporate decision making (Horrigan, 2000)
Corporate Citizenship
Business ethics
Market incentives and dynamics
Policy and regulatory incentives
Profitability and financial returns
Institutional liability and regulatory requirements
Personal sanctions and liabilities
“exchange rate” this amounts to $550,000- see s 17 Crimes (Sentencing Procedure) Act 1999 (NSW). 25 See, for example, the work of Ayers, Fisse and Braithwaite, discussed below, the study by Fiona Haines Corporate Regulation: Beyond ‘Punish or Persuade’ (Oxford: Clarendon, 1997) and Christine Parker, The Open Corporation: Self-Regulation and Corporate Citizenship (Cambridge: CUP, 2002). 26 B Horrigan, “Dynamic Interaction and Tension for Government and Non-Government Corporations Between Profit-Making, Corporate Governance, Corporate Citizenship, Corporate Regulation, Business Ethics, Human Rights and a Civil Society in the Era of the Internet, Globalisation and Interconnectedness”, Attachment 4; paper presented to the Chapter 1- Introduction 10
In the well-known Maslow “Hierarchy of Needs”, until the lowest level of needs are met, others will be deferred. In this pyramid the lowest level represents the strongest incentive to change corporate behaviour. Horrigan suggests that the foundational, primary concerns for directors are the issues of “Personal sanctions and liabilities”. Managers will primarily be concerned with making decisions that will avoid imposition of personal sanctions, before they start to attend to issues of institutional liability. Hopkins makes a similar point in his review of the causes of a mine disaster at Moura in Queensland:
The financial costs of disasters such as at Moura do not appear to be sufficient to provide the necessary incentives. The threat of personal legal consequences is probably the best way of concentrating the minds of senior managers on questions of health and safety.27
To the same effect is recent research by Gunningham. In a study commissioned by the National Occupational Health and Safety Commission, Gunningham comments:
In the literature review, regulation was identified by a large majority of studies as the single most important driver of corporations, and the threat of personal criminal liability (in particular of prosecutions brought against them as individuals) as the most powerful motivator of their CEOs to improve OHS… Prosecution of individuals within the corporate structure has both specific and general deterrent effects, particularly if the prosecution is widely publicised.28 (emphasis added)
He and Johnstone make a number of suggestions to the same effect elsewhere:
A primary reason for imposing criminal liability for OHS contraventions on individual corporate officers is that the imposition of civil or criminal penalties on corporations for these offences can simply be seen by corporations as a cost of doing business, and passed on to consumers, shareholders, or employees. One solution is to impose criminal liability on corporate officers…OHS prosecutions should be targeted at individual corporate decision makers, not just the organization itself, because
Australasian Law Teachers’ Association Conference, University of Canberra, July 2-5, 2000. 27 A Hopkins “Repeat Disasters: The Lessons of the Moura Coal Mine” in C Mayhew & CL Peterson Occupational Health and Safety in Australia (St Leonards: Allen & Unwin, 1999) 140-157, at 157. 28 N Gunningham, CEO and Supervisor Drivers: Review of Literature and Current Practice (Report prepared for the NOHSC, October 1999), at 39-40. Chapter 1- Introduction 11
individuals who are vulnerable to personal sanctions have both a much greater incentive and a greater capacity to avoid these penalties than do fiduciaries.29
Suggestions for increasing the possible personal liability of company officers have not enjoyed universal support. Fisse and Braithwaite, for example, have argued that what they call the strategy of “individualism” is ineffective to improve compliance with workplace safety laws.30 In fact, however, when the arguments they present are analysed carefully, to a large extent the strategy of “individualism” as they define it seems to be a “straw man”. “Individualism” is defined as the view that corporate responsibility should be abolished, and individuals only prosecuted.31 While there may be some who have put forward this view,32 the vast majority of recent commentators (perhaps accepting Fisse & Braithwaite’s arguments) recognise that a variety of approaches is needed, including a willingness to prosecute individual company officers. In fact, in the end this is Fisse and Braithwaite’s position as well:
A more commendable approach is to adopt a mixed strategy, retaining corporate as well as individual liability, and improving the capacity of corporate liability to achieve accountability at the level of internal discipline.33
And the major “rule of action” which they use towards the end of their 1993 monograph is the following:
Seek to publicly identify all who are responsible and hold them responsible, whether the responsible actors are individuals, corporations, corporate subunits, gatekeepers, industry associations or regulatory agencies themselves.34 [italics original, bold emphasis added]
29 N Gunningham & R Johnstone Regulating Workplace Safety: System and Sanctions (Oxford: OUP, 1999), 217-218, footnotes omitted. See generally the discussion at 217-223. 30 B Fisse and J Braithwaite “The Allocation of Responsibility for Corporate Crime: Individualism, Collectivism and Accountability” (1988) 11 Sydney Law Rev 468-513; Corporations, Crime and Accountability (Cambridge University Press: Cambridge, 1993). 31 See, for example, the summary of the position in Fisse & Braithwaite (1988) above, n 30, at 473: “The strategy of Individualism… is to abolish corporate criminal liability and to rely instead on individual criminal liability” [emphasis added]; and see Fisse & Braithwaite (1993), above, n 30, at 57. 32 Perhaps in recent years T’sai comes closest when he argues that while corporate responsibility should still be enforced, “it should only apply where no individual can be said to be responsible for a crime”- see LW T’sai, “Corporations and the Devil’s Dictionary: The Problem of Individual Responsibility for Corporate Crimes” (1990) 12 Sydney Law Rev 311- 345, at 344. 33 Fisse and Braithwaite (1988), above, n 30, at 499. 34 Fisse and Braithwaite (1993), above, n 30, at 134. Their 20 “Desiderata” reflect the same principle: see Desiderata 1 and 7 which deal specifically with individual accountability, at pp135-136. Chapter 1- Introduction 12
Gunningham & Johnstone, supported by others such as Haines,35 have been successful in establishing that, if “individualism” (or, to be more accurate, individual managerial accountability) is not on its own the only prescription for the problem, it is at least a part, and a major part, of the overall solution.
We are not here arguing that OHS agencies should focus on either corporations or individual corporate officers at the exclusion of the other… Rather, our argument is that an effective OHS prosecution strategy should ensure a mix of prosecutions.36
They persuasively point out that the “stigma” of a criminal conviction, and the possibility of a gaol sentence, are powerful deterrents which weigh heavily on the minds of company officers, and which cannot be “externalised” and passed on to the company through indemnities.37 Ledermann, in a detailed review of models for company liability, warns that whatever the benefits of models which recognise “corporate culture” and the like for imposing criminal liability on companies, ignoring the personal liability of company officers would undercut fundamental principles of our legal system:
[I]ndividual autonomy, which is based on the principle of freedom of will and of choice (and, as a result, personal liability) are the cornerstones of criminal law. Violating this notion undermines the central foundation of criminal law.38
Smith, writing about prosecution for environmental crimes and comparing the situation in Australia with that in the United States, notes:
In my view, the sole advantage of criminal prosecutions over civil and administrative enforcement lies in the ability to throw someone in gaol. There is little point to criminal prosecution of corporations and other organisations except in conjunction with the prosecution of responsible corporate managers and directors.39
35 See generally F Haines, Corporate Regulation: Beyond ‘Punish or Persuade’ (Oxford Socio-Legal Studies; Oxford: Clarendon Press, 1997). 36 Gunningham & Johnstone (1999), above, n 29, at p 218. 37 For discussion of the extent to which indemnities against fines in this area may be offered by companies, see Chapter 5 below. Whatever the resolution of this issue, though, imprisonment and the “stigma” of conviction will be borne by the individual officer. 38 E Lederman, “Models for Imposing Corporate Criminal Liability: From Adaptation and Imitation toward Aggregation and the Search for Self-Identity” (2000) 4 Buffalo Criminal Law Review 641, at 703. Chapter 1- Introduction 13
Smith responds to some of the objections to individual liability. To the objection that corporations will nominate officials as “scapegoats” she responds that careful investigation will usually be able to establish where the true responsibility lies. To the oft-repeated assertion that corporations will appoint a “vice-president for going to gaol” she responds that the existence of such a person is illusory.
I have never encountered anyone who was willing to be the vice president in charge of spending several years in a federal penitentiary. Indeed, there is strong, albeit anecdotal, evidence that corporate environmental managers are extremely concerned about potential environmental criminal liability and therefore are able to insist upon corporate actions, such as strong environmental auditing and remedial action, to avoid potential criminal liability.40
Wise puts it this way in summarising personal liability for environmental offences:
Punishment is more likely to have a deterrent effect when an individual such as a corporate officer, as compared to a legal entity like a corporation, is held responsible for violating the law. Being named in a pleading, put on trial, forced to make a public apology, required to pay a fine, or serve time in jail, are often expensive, professionally damning and personally humiliating consequences - results most individuals, including corporate officers, prefer to avoid.41
All of which is to reiterate the comments made in a seminal article on the subject of corporate criminal responsibility by Coffee as long ago as 1981:
[L]aw enforcement officials cannot afford to ignore either the individual or the firm in choosing their targets, but can realise important economies of scale by simultaneously pursuing both…Thus, a dual focus on the firm and the individual is necessary. Neither can be safely ignored.42
This dual focus helps to place the question to be considered in this paper in the context of other proposals flowing from workplace disasters, such as the call to prosecute companies for manslaughter.
39 SL Smith, “An Iron Fist in the Velvet Glove: Redefining the Role of Criminal Prosecution in Creating an Effective Environmental Enforcement System” (1995) 19 Criminal Law Jnl 12- 20, at 14. 40 Smith (1995) above, n 39 at 16. 41 N Wise, “ Personal Liability Promotes Responsible Conduct: Extending the Responsible Corporate Officer Doctrine to Federal Civil Environmental Enforcement Cases” (2002) 21 Stanford Environmental Law Jnl 283, at 285-286. 42 J C Coffee, Jr “ ‘No Soul to Damn: No Body to Kick’: An Unscandalized Inquiry into the Problem of Corporate Punishment” (1981) 79 Michigan L Rev 386-459, at 387, 410. Chapter 1- Introduction 14
From time to time the suggestion has been made that companies should be prosecuted for manslaughter rather than for offences under the specific workplace safety legislation.43 One basis for the suggestion is that this legislation is popularly viewed as “regulatory” and not “seriously criminal”, and that a manslaughter conviction will carry a greater public stigma. But these proposals may have limited effect. The reason is simple: even a finding that a company is guilty of manslaughter will, as noted before, at worst result in insolvency for the company. It may leave individual directors still able to take advantage of the corporate veil, unless their personal liability is clarified. Wells, who has written extensively in the area of corporate criminal liability, commented on public response to the Southall rail disaster in 1997:
The cultural [popular] understanding of “corporate manslaughter” actually conveyed a concern to blame individual directors as opposed to the sea-level, or train and track- level workers. Whereas I, with many others, have been struggling with “the company” as a separate concept from the individuals who comprise it, should the concern rather have been with the company’s management as manifested in the human personnel, rather than with the company as a juridical person?44
The answer, as suggested above, is that both aspects (corporate and individual liability) need to be pursued.
4. The Question of Individual Managerial Responsibility This study addresses the individual side of the equation, leaving proposals for enforcement against the company itself aside for these purposes (while acknowledging that a fully rounded approach to the issue of improving workplace safety in corporate workplaces will need to also address those issues). It aims to clarify the present legal liability of individual company officers for breach of workplace safety standards which the company bears responsibility for. The question considered here, then, is: in what circumstances will the law of Australia impose personal liability for workplace injuries or fatalities on company officers? This study takes as a given the point made by the above commentators about the value of such liability in improving workplace safety, and examines in
43 Corporate manslaughter is discussed in more detail in chapter 3, below, in the context of the personal liability of the directors of the company involved. Chapter 1- Introduction 15
detail the scope for imposing such liability, both as the law now stands and under proposals for reform which are now being suggested. Chapter 2 starts in what may seem to be an unusual place- it addresses this issue in the area of civil liability. But as Coffee points out, in the overall scheme of legal sanctions, an award of civil damages may be much higher than a criminal penalty, and may constitute a major incentive to comply with the law:
[W]hile courts are reluctant to impose high penalties to punish or deter, they tolerate enormous damages awards to compensate victims… [P]rivate enforcement… offers two distinct advantages: (1) private enforcers are able to raise the total of penalties exacted from the corporation to a level well in excess those which either the criminal law or public enforcement generally can levy, and (2) by acting as “private attorneys general”, civil plaintiffs multiply society’s enforcement resources and thereby increase the probability of detection.45
Coffee writes in the context of corporate liability, but the same seems to be equally true of individual managerial liability. If individual liability is established, the amount of damages that may be awarded by way of compensation for personal injury is likely to substantially exceed some of the penalties that can be imposed on individuals under the “general duties” occupational health and safety legislation. The next chapter, then, examines the issue of personal tort liability and comes to what some managers may find to be startling conclusions about managerial exposure to awards of damages against them personally.
44 C Wells, “Corporate Killing” (1997) 147 New Law Jnl 1467. 45 Coffee, above, n 42, at 434-435. Coffee actually goes on to doubt whether the second proposition is true in the context of the particular type of litigation he is using as an example in his discussion, anti-trust litigation. But as a general comment it seems to be true. In a similar way, it is clear that many of the concepts that are used in criminal occupational health and safety prosecutions, for example, derive from individual civil claims in negligence made by plaintiffs over a number of years. Chapter 2- Tort Liability of Directors 17
CHAPTER 2 PERSONAL LIABILITY OF COMPANY OFFICERS FOR COMPANY TORTS
1. The Corporate Veil and Civil Liability- General Principles...... 18 a. Limited Liability and Legal Personality ...... 18 b. Early decisions on directors’ tortious liability- “direct and procure” ...... 19 c. “Making the tort his own” ...... 22 d. Representation torts- Trevor Ivory and beyond...... 25 (i) Negligent misrepresentation ...... 25 (1) Trevor Ivory ...... 25 (2) Williams v Natural Life...... 26 (3) Example of “Assumption of Responsibility”...... 28 (ii) Fraudulent Misrepresentation by Director ...... 29 (1) Standard Chartered Bank- the Court of Appeal decision ...... 30 (2) UK Response to Standard Chartered Bank ...... 33 (3) Standard Chartered Bank Over-turned...... 38 e. The Australian position...... 41 2. Is there a different rule for different types of tort? ...... 47 3. Application of the law to workplace injuries...... 51 (a) Liability for Personal Injuries ...... 55 (i) Liability under the “Directed and Procured” test ...... 55 (ii) Personal duty of care owed by the director...... 56 (1) General principles governing personal injury in the workplace ...... 57 (2) Personal (active) negligence by director leading to injury ...... 62 A. Cases Holding Directors Personally Liable for Workplace Injuries 63 B. Are Employees “Voluntary Creditors”? ...... 73 C. Policy Arguments for Denying Personal Liability...... 76 (3) Liability for directors who are “passive” ...... 79 (4) Vicarious Personal Liability for directors?...... 83 (iii) Liability of a director as “joint tortfeasor” ...... 84 (b) Liability for Economic Loss Related to Personal Injuries...... 85 (i) Workplace Injury and Insurance...... 85 (ii) Possible Tort Liability where Insurance is Ineffective ...... 86 4. Conclusion...... 94
One aspect of allocating appropriate responsibility for creation of risks in the workplace by companies is the question of the personal liability of company officers for torts committed by the company. If, as suggested in the previous chapter, making company officers more accountable individually will focus attention on improving safety, then personal tort liability may be one place to start. Chapter 2- Tort Liability of Directors 18
This chapter starts by addressing the general law on civil liability of company officers, before focussing specifically on personal liability for workplace injuries. As will become apparent, the question of personal tort liability for company directors is one that is a subject of fierce debate at the moment, and the subject of conflicting court decisions both within Australia, and across other Commonwealth jurisdictions. As Finkelstein J put it in Root Quality Pty Ltd v Root Control Technologies Pty Ltd:
Much has been written about the liability of directors and other officers for corporate wrongdoing. The cases present a confusing picture on an issue that has persistently vexed the common law. In recent years the uncertainty has increased partly by reason of divergent decisions and partly for other reasons. 1
But there are some general principles that are well accepted, and a number of strong indications, based not only on overseas decisions but the trend of Australian law, that personal directorial liability for company workplace injuries will be acknowledged by Australian courts in the near future.
1. The Corporate Veil and Civil Liability- General Principles
a. Limited Liability and Legal Personality The basic principle of company law is that a company is a separate legal person from its members, and that the members of a company have their liability for company debts limited to their liability for the price of their shares. This principle was articulated clearly in the seminal case of Salomon v A Salomon & Co Ltd.2 In the words of Lord Macnaghten:
The company is at law a different person altogether from the subscribers… and though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers, as members, liable in any shape or form, except to the extent and in the manner provided in the Act.3
1 [2000] FCA 980, at para [115]. 2 [1897] AC 22; although, as Meagher JA noted in Briggs v James Hardie & Co Pty Ltd (1989) 7 ACLC 841, at 847, the principle of separate corporate personality had been well established long before Salomon’s case. 3 Above, n 2, at 51. Chapter 2- Tort Liability of Directors 19
In Australia today the principles above are expressed clearly in the Corporations Act 2001 (Cth). Section 119 provides for the company to “come into existence” on registration, and s 124(1) provides that it has “the legal capacity and powers of an individual”. Section 516 provides for the limited liability of shareholders. A fundamental reason for the doctrine of separate legal identity of companies is the protection this provides to the personal funds of company members. Company money is put at risk in company decisions, but the houses and other personal assets of the shareholders are kept safe. It is important to remember, however, that it is shareholders, and not directors as such, who are protected by the “limited liability” provisions such as s 516. Insofar as there is protection of directors from personal liability, this flows as an implication from the doctrine of separate legal personality, and not from a general principle that anyone associated with a company has limited liability.4 As Lord Steyn noted in Williams v Natural Life Health Foods Ltd: “What matters is not that the liability of the shareholders of a company is limited but that a company is a separate entity, distinct from its directors, servants or other agents.”5
b. Early decisions on directors’ tortious liability- “direct and procure” From an early stage the courts have drawn the logical implications of “separate legal personality”, and declined to find that individual directors of companies were personally liable for breaches of contract committed by the company. This is a fairly obvious implication- the company has been set up to operate in the commercial sphere,
4 Indeed, in an introductory aside to his recent major review of the area covered by this Chapter, Robert Flannigan challenges the normal view that shareholders can rely on limited liability for torts, and suggests that “the better view… is that shareholders (like any other actor) remain personally responsible for their own tortious conduct”- “The Personal Tort Liability of Directors” (2002) 81 Can Bar Rev 247, at 261. This Chapter was substantially complete before Flannigan’s article came to notice, and had already reached similar views. But the article is essential reading for the area. 5 [1998] 2 All ER 577, at 581j-582a. See the text below accompanying note 35 for detailed discussion of Williams. See also R Grantham and C Rickett “Director's Tortious Liability: Contract Tort or Company Law?” (1999) 62 ModLR 133-139, at 135: “The principle of limited liability protects the company’s shareholders, and not the company or its officers. It thus has no bearing where a director is not a shareholder, and even where, as is common in small companies, directors are also shareholders it is far from clear why the individual’s status as a shareholder should foreclose the normal consequences of other capacities in which the individual acts.” Chapter 2- Tort Liability of Directors 20
and it alone should be liable for its operation in that sphere.6 But the courts have always been less certain that directors are exempt from liability for torts committed by the company. Enforcing contractual obligations against a company alone seems reasonable, but why should legal personality intervene when a wrong is done against another party? The case which set the tone for subsequent decisions was the House of Lords decision in Rainham Chemical Works Ltd (In Liq) v Belevedere Fish Guano Company Ltd.7 The company Rainham Chemical Works Ltd (RCW) had been set up to manufacture a chemical needed for the production of ammunition for use by the British Army in World War I. In 1916 a massive explosion on the premises caused severe damage to the neighbouring business, the Belevedere Fish Guano Company. Because RCW had been declared insolvent, Belvedere joined the directors of RCW, Feldman and Partridge. The action was taken on the basis of the decision in Rylands v Fletcher,8 and so depended on the plaintiffs being “in occupation” of the land from which the dangerous substance had escaped. There was no real dispute that the action should succeed on the Rylands v Fletcher claim; as Lord Buckmaster put it: “The only matter for determination is against whom the action should be brought”.9 In other words, should an order be made against the company, or against the directors personally? The House of Lords was unanimous in holding that the directors in this case were not personally liable on the basis of the company’s liability alone. Lord Buckmaster commented that, although the company was incorporated to take over a business which Feldman and Partridge had already started, there was no basis for finding that it was a “sham”. He went on:
A company … which is duly incorporated, cannot be disregarded on the ground that it is a sham, although it may be established by evidence that in its operations it does not act on its
6 Even here, of course, there are occasions when courts have “pierced the corporate veil” to ascribe liability to individual shareholders. This paper, however, will not deal with the general topic of piercing the veil; for a recent overview and statistical analysis see I M Ramsay & D B Noakes, “Piercing the Corporate Veil in Australia” (2001) 19 Company and Securities Law Journal 250- 271. See also S Watson, “Who Hides Behind the Corporate Veil? Finding a Way out of ‘The Legal Quagmire’” (2002) 20 Comp & Sec LJ 198-214. 7 [1921] 2 AC 465. 8 (1866) LR 1 Ex 265. 9 Above, n 7, at 472. Chapter 2- Tort Liability of Directors 21
own behalf as an independent trading unit, but simply for and on behalf of the people by whom it has been called into existence.10
And in words which have been much quoted ever since, he concluded on this point:
If the company was really trading independently on its own account, the fact that it was directed by Messrs Feldman and Partridge would not render them responsible for its tortious acts unless, indeed, they were acts expressly directed by them. If a company is formed for the express purpose of doing a wrongful act or if, when formed, those in control expressly direct that a wrongful thing be done, the individuals as well as the company are responsible for the consequences, but there is no evidence in the present case to establish liability under either of those heads.11
In the circumstances of this particular case, however, the directors were found personally liable on another ground. They had been personally in “occupation” of the property under a lease before the company was formed, and the court took the view that they had not effectively transferred the lease to the company.12 As a result they were still individually liable as occupiers under the rule in Rylands v Fletcher. The only other member of the House to address in any detail the liability of the directors for the actions of the company was Lord Parmoor. He agreed with Lord Buckmaster’s analysis, noting:
No liability is incurred by the appellants from the fact that they occupied the position of governing directors, with the control of the business of the company conferred on them by… the articles of the association.13
His Lordship expressed similar views later in his judgement:
The appellants cannot be held liable, either directly or indirectly, as governing directors of the company, and to hold them so liable would be inconsistent with established principles. The appellants, as governing directors, incurred no personal liability. Directors of a company, which has been bona fide established, cannot be regarded as principals for whom the company act as agents.14
10 Above, n 7, at 475. 11 Above, n 7, at 476. 12 There was a specific clause in the lease to the directors prohibiting assigning or underletting, and indeed the landlords had received a personal assurance from the directors that the property had not been sublet. 13 Above, n 7, at 486-487. 14 Above, n 7, at 488. Chapter 2- Tort Liability of Directors 22
The comments of Lord Buckmaster in particular were expanded slightly by Atkin LJ in Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd.15 He stated the general principle as:
Prima facie a managing director is not liable for tortious acts done by servants of the company unless he himself is privy to the acts, that is to say unless he ordered or procured the acts to be done.16
Having quoted from the above words of Lord Buckmaster in the Rainham case, His Lordship went on:
Perhaps that is put a little more narrowly than it would have been if it had been intended as a general pronouncement without reference to the particular case; because I conceive that express direction is not necessary. If the directors themselves directed or procured the commission of the act they would be liable in whatever sense they did so, whether expressly or impliedly.17
In that case the director of a company which had engaged a band to play in a theatre was held not to be personally liable for the performance of music which infringed the plaintiff’s copyright. The director did not specifically authorise the performance of the particular songs, and was out of the country at the time. The situation following Rainham and Ciryl, then, seems to have been reasonably clear: a director of a company might be personally liable for a company’s tort if he or she had (1) incorporated the company for the purpose of carrying out a tort; (2) expressly “directed or procured” that the tortious act be done; or (3) impliedly so “directed or procured”.
c. “Making the tort his own” In the latter half of the 20th century, however, there were a number of cases which seemed likely to narrow considerably the grounds on which a director could be
15 [1924] 1 KB 1. 16 Above, n 15 at 14. 17 Above, n 15 at 15. Chapter 2- Tort Liability of Directors 23
held liable.18 The origin of this line of authority was the Canadian decision of Mentmore Manufacturing Co Inc v National Merchandising Manufacturing Co Inc.19 The judgement of Le Dain J in the Federal Court of Appeal of Canada included the following restatement of the applicable test:
What, however, is the kind of participation in the acts of the company that should give rise to personal liability? It is an elusive question. It would appear to be that degree and kind of personal involvement by which the director or officer makes the tortious act his own.20
To “make an act his own” presumably a director must do more than simply direct that the act take place. If this test were adopted there must, as later cases held, be some sort of personal involvement in the action. After Mentmore a number of UK cases adopted this narrower test. Nourse J in White Horse Distillers Ltd v Gregson Associates Ltd21 did so with the following comment:
Before a director can be held personally liable for a tort committed by his company he must not only commit or direct the tortious act or conduct but he must do so deliberately or recklessly and so as to make it his own, as distinct from the act or conduct of the company.22
These cases have been mentioned only briefly because it now seems fairly clear that the Mentmore “make it his own” approach is not the preferred legal test in either the UK or in Australia. In the UK the test was rejected by the Court of Appeal in C Evans & Sons Ltd v Spritebrand Ltd.23 In that case, a copyright infringement suit, the director of the company alleged to have infringed applied to have the personal action against him dismissed summarily. He did so on that basis that the pleadings simply alleged that he
18 See, for an overview of these developments, two articles by JH Farrar: “The Personal Liability of Directors for Corporate Torts” (1997) 9 Bond LR 102-113, and (discussing Williams) “Bypassing the Corporate Veil” (March 1999) Proctor 22-25. Flannigan, above, n 4, also discusses and critiques Mentmore at 279-282. 19 (1978) 89 DLR (3rd) 195. 20 Above, n 19, at 203. 21 [1984] RPC 61. 22 Above, n 21, at 91. 23 [1985] 2 All ER 415. Chapter 2- Tort Liability of Directors 24
had “authorised, directed and procured” the infringement, and did not (in accordance with the Mentmore test) further allege that he had done so “knowingly” and in such a way as to make the infringement “his own”. The Court of Appeal unanimously ruled that the action against the director should not be struck out. Referring to Rainham and Ciryl, Slade LJ for the whole Court said:
The mere fact that a person is a director of a limited liability company does not by itself render him liable for any torts committed by the company during the period of his directorship… Nevertheless, judicial dicta of high authority are to be found in English decisions which suggest that a director is liable for those tortious acts of his company which he has ordered or procured to be done.24
His Lordship went on to clearly state that the test put forward in Mentmore and the White Horse case was too narrow.
[I]n my judgment, with great respect to Nourse J (and to Whitford J who has since followed him), in expressing a principle in the White Horse case said to be applicable to all torts, he expressed it in terms which were not sufficiently qualified. I readily accept that the statements of Lord Buckmaster and Atkin LJ, to which I have referred, themselves cannot be regarded as a precise and unqualified statement of the principles governing a director's personal liability for his company's torts; I do not think they were so intended. In particular, I would accept that if the plaintiff has to prove a particular state of mind or knowledge on the part of the defendant as a necessary element of the particular tort alleged, the state of mind or knowledge of the director who authorised or directed it must be relevant if it is sought to impose personal liability on the director merely on account of such authorisation or procurement; the personal liability of the director in such circumstances cannot be more extensive than that of the individual who personally did the tortious act. If, however, the tort alleged is not one in respect of which it is incumbent on the plaintiff to prove a particular state of mind or knowledge (eg, infringement of copyright) different considerations may well apply.25
The Court of Appeal affirmed, then, the “directed and procured” test. Slade LJ did go on, however, to note that it would not always be easy in particular cases to determine whether someone had done this:
In contrast, on other hypothetical facts, difficult questions of degree might arise as to whether a director had ordered or procured the relevant acts to be done in the sense of the principle broadly expressed by Atkin LJ - simply, for example, if the sole part which he had
24 Above, n 23, at 419-420. 25 Above, n 23, at 424a-e. Chapter 2- Tort Liability of Directors 25
played in the relevant tortious act had been that of voting in favour of a relevant resolution at a board meeting.26
As will become apparent, this is a key issue for the area of personal liability in relation to workplace accidents. The later Court of Appeal decision in Mancetter Developments Ltd v Garmanson Ltd27 was primarily concerned with other substantive legal issues, but incidentally reaffirmed the “direct and procure” approach; see, for example, the judgement of Dillon LJ:
If a director of a company gives instructions for the commission of a tort by the company, the director may be personally liable in damages to the injured party for the tort although the tort was the act of the company… [T]he personal liability of the second defendant must follow, on the authorities mentioned above, because he directed and procured those acts.28
It will be necessary to consider the impact of these different approaches to personal liability of directors in Australia. But first it will be helpful to refer to the powerful influence in this area of the law of a New Zealand decision dealing with a negligent misrepresentation.
d. Representation torts- Trevor Ivory and beyond (i) Negligent misrepresentation
(1) TREVOR IVORY In Trevor Ivory Ltd and Trevor Ivory v Anderson,29 Mr Ivory was the sole director of a one-man company providing agricultural advice which turned out to cause damage to the owners of a raspberry plantation. The contract to provide the advice was entered into with the company. The New Zealand Court of Appeal refused to allow a separate action for negligent misstatement against the director, holding that as the contract was with the company, it was the company alone that had a duty of care.
26 Above, n 23, at 425e. 27 [1986] QB 1212. 28 Above, n 27, at 1217B, F, citing Rainham and Cyril. Sir George Waller agreed, citing the decision of the Privy Council in Wah Tat Bank Ltd v Chan Cheng Kum [1975] AC 507 in further support- see 1220G. 29 (1992) 6 NZCLC 67,611. For an early comment see DA Wishart, “The Personal Liability of Directors in Tort” (1992) 10 Companies and Securities Law Jnl 363-365. Chapter 2- Tort Liability of Directors 26
Before a director would be individually liable there must be special facts amounting to a personal “assumption of responsibility”. What is important to note is that Trevor Ivory involved someone who voluntarily chose to deal with the company. In this type of case it makes perfect sense to speak of whether or not the director “assumed responsibility” or not to the plaintiffs. This is an important feature which characterises many of the recent decisions where directors have been found not to be liable. It also distinguishes this type of case from, say, the copyright infringement cases, where it is alleged that a company with no prior relationship to the plaintiff has misappropriated property. It may be appropriate, then, to use the terminology adopted by Payne, and to distinguish “representation” torts (mainly, deceit and misrepresentations of the Hedley Byrne sort30) from other types of tort.31 Borrowdale and Simpson discuss other New Zealand single judge decisions following Trevor Ivory,32 noting that, in some, directors were found not to be personally liable: Livingston v Bonifant,33 Laughland v Stevenson.34 In each case the judge concerned found that the directors had not “assumed responsibility”, partly on the basis that they did not have sufficient “control” over the company’s activities. In Livingston, for example, decisions about management of foreign exchange dealings were shared around a number of employees, and not simply taken by the defendant director. The view was taken that there was no extra assumption of responsibility above and beyond that assumed by the company.
(2) WILLIAMS V NATURAL LIFE Subsequently the House of Lords addressed the issue in Williams v Natural Life Health Foods.35 The plaintiffs had entered into a franchise agreement with the defendant company, whose director was a Mr Mistlin. When the plaintiffs’ business
30 See Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. 31 See J Payne, “The Attribution of Tortious Liability between Director and Company” [1998] JBL 153- 168, at 160. 32 A Borrowdale & MA Simpson, “Directors’ Liability in Tort: Recent Developments” (1995) 13 Companies and Securities Law Jnl 400-402. 33 (1995) 7 NZCLC 260,657. 34 [1995] 2 NZLR 474. 35 [1998] 2 All ER 577. Chapter 2- Tort Liability of Directors 27
failed they sued both the company and Mr Mistlin. The company was wound up, but the personal action against the director proceeded. Lord Steyn, delivering a decision in which all the other members of the House concurred, essentially adopted the approach in the Trevor Ivory case which had been eloquently supported extra-judicially by Lord Cooke of Thorndon36 (who as Cooke P had presided over that case in the New Zealand Court of Appeal). Lord Steyn held:
A director of a contracting company may only be held liable where it is established by evidence that he assumed personal liability and that there was the necessary reliance. 37
The reference to “reliance” is probably specific to the type of case in which this particular claim was made, that of negligent misrepresentation causing economic loss. But the key to personal liability still seems to be the director’s “assumption of responsibility”. What would amount to such an assumption is a difficult question. If the Canadian decisions referred to in His Lordship’s judgement were to be followed, there might need to be a specific assumption of financial responsibility, which would seem to be a very high standard.38 On the other hand, Lord Steyn refers to the possibility of “personal exchanges” between Mr Mistlin and the plaintiffs (which had not taken place in this case), and generally to
Conduct crossing the line which could have conveyed to the plaintiffs that Mr Mistlin was willing to assume personal responsibility to them.39
Griffin in his comment on Williams says that the key question asked by Lord Steyn is:
Whether the defendant, or anybody on his behalf, conveyed directly or indirectly to the prospective franchisees that he, the defendant, was to assume personal responsibility towards the prospective franchisees.40
36 See Lord Cooke’s 1997 Hamlyn Lectures, published as Turning Points of the Common Law (London: Sweet & Maxwell, 1997), in ch 1 “A Real Thing”, discussing Salomon’s case, esp at 18-22. 37 Above, n 35, at 584g. 38 See the reference to “reasonable reliance on the employee’s pocket-book” in the words of La Forest J in London Drugs Ltd v Kuehne & Nagel International Ltd (1992) 97 DLR (4th) 261 at 316, quoted at [1998] 2 All ER 583f. 39 [1998] 2 All ER at 585c-d. Chapter 2- Tort Liability of Directors 28
Borrowdale supports the judgement on the basis that, if “assumption of responsibility” is part of the tort of negligent misrepresentation, then it was the company, not the director, which “assumed responsibility”.41 On the other hand, Todd criticises both Trevor Ivory and Williams on the basis that they seem to contradict fairly well-established principles of the law of agency, that an agent who commits a tort remains personally liable, whether or not the circumstances create vicarious or direct liability for the principal.42 He also challenges the emphasis by Lord Steyn on “assumption of responsibility”, noting that in previous cases this has simply involved the question whether the defendant chose to speak in certain circumstances without adding a disclaimer.
[I]n what sense is there an assumption of responsibility in any successful Hedley Byrne action? Defendants hardly ever in fact agree to shoulder responsibility. Courts simply impose responsibility on them where negligent words are relied on by a sufficiently proximate plaintiff.43
The High Court of Australia has also from time to time expressed doubts about the value of the notion of “assumption of responsibility”.44 So far the Court has not addressed the issues raised by Williams directly.
(3) EXAMPLE OF “ASSUMPTION OF RESPONSIBILITY” An unreported UK decision provides an illustration of the difference between relying on a company, and relying on a director. In Ojjeh v Waller45 Mr Ojjeh had purchased (through the company Galerie Moderne Ltd) some art which turned out to be
40 See S Griffin, Personal Liability and Disqualification of Company Directors (Oxford: Hart Publishing, 1999), at 21. 41 A Borrowdale, “Directors’ Liability in Tort” (March, 1999) New Zealand Law Jnl 51-52. 42 S Todd, “Liability of agents in tort” (1998) 14 Professional Negligence 136-142. See also on this point Flannigan, above, n 4, at 252. 43 Above, n 42, at 141. 44 See Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 298-299 per Gummow J, and the brief overview of the cases by McHugh J in Perre v Apand Pty Ltd [1999] HCA 36, at paras [124]-[127], where His Honour preferred the category of “vulnerability” as more helpful. Given this background it seems unlikely that courts in Australia would follow the suggestion made in S Watson & A Willekes “Economic Loss and Directors’ Negligence” [2001] Jnl of Business Law 217-252 that there is a separate developing tort which the authors call “assumption of responsibility”. Chapter 2- Tort Liability of Directors 29
a partial forgery. Mr Waller was the director and manager of Galerie Moderne, and was sued as personally liable for the loss, based on claimed misrepresentations. The claims against the company for breach of implied conditions as to correspondence with description were successful. In considering the personal liability of Mr Waller, Buckley J cited the decision of the House of Lords in Williams. He commented that in this sort of case “it must be difficult to find circumstances, short of an express personal warranty, where the director has assumed personal responsibility”. There were five separate contracts in question, and in relation to the first three his Honour found that any promises and undertakings, being given on company notepaper and in the normal course of operation of the company, were made on behalf of the company, and did not involve any personal “assumption of responsibility”. However, in relation to the final two contracts, on the facts his Honour found that Mr Waller had “crossed the line” from company representative to giving a personal assurance of authenticity. Mr Waller said: “I’m happy to confirm my guarantee of the authenticity” of the works, and, in a particularly unfortunate comment (as it turned out): “I re-iterate my absolute belief that this is a real discovery… I have no hesitation in staking my 20 year reputation as a specialist dealer on this collection- an assurance I would not give lightly”. In light of the fact, as Buckley J pointed out, that the company had not been in existence for 20 years, the court held that Mr Waller was staking his personal reputation, not the gallery’s, and hence was personally liable for these two transactions. The case well illustrates the difference in a contractual case between a director acting simply as a director, and one who crosses the line to take personal responsibility.46 However, questions remained in the area of “representation” torts involving fraud as opposed to mere negligence. Would a deliberately fraudulent director be protected by the corporate shield? (ii) Fraudulent Misrepresentation by Director
45 Queen’s Bench, Buckley J; 14 December 1998. 46 Another case illustrating this point is Fairline Shipping Corporation v Adamson [1975] 1 QB 180, where the director of a company was found liable as a bailee because on what Kerr J called “the special facts of this case” [at 191B] the director had assumed a personal responsibility for the care of the goods. Chapter 2- Tort Liability of Directors 30
(1) STANDARD CHARTERED BANK- THE COURT OF APPEAL DECISION Following Williams, the decision of the Court of Appeal in Standard Chartered Bank v Pakistan National Shipping Corporation (No 2)47 took the immunity of directors to what seemed to be a new level. In a complicated chain of events involving false statements in a bill of lading, Mr Mehra, director of a company called Oakprime International Ltd, made various false statements on Oakprime letterhead. Evans LJ in the Court of Appeal noted:
The judgment [of the lower court] … spells out in devastating detail the steps which Mr Mehra on behalf of Oakprime then took in order to obtain a bill of lading and other documents which falsely stated that a full cargo answering to the contract description was loaded by Oct 25… There was a blatant attempt to produce false, and in some cases forged documents so that an appearance of conforming documents could be achieved by the latest date for presentation, Nov 10. The Judge was left in no doubt but that the falsity was deliberate and that Mr Mehra's evidence denying it, which he rejected, was manifestly false.48
The Bank suffered huge losses as a result of these fraudulently prepared documents. By the time the matter came to litigation, Oakprime was in liquidation. Mr Mehra, as director, was sued as personally liable. Creswell J at first instance found against Mr Mehra. He held:
In the present case Mr Mehra authorized, directed and procured the acts complained of with full knowledge that the acts complained of were tortious. He is accordingly personally liable.49
With respect, a seemingly obvious application of the existing law to the facts.50 But the Court of Appeal disagreed. In a fairly brief comment Evans LJ noted the approach of the House of Lords in Williams,51 and concluded that
47 [2000] 1 Lloyd’s Rep 218. 48 Above, n 47, at para [12]. 49 Quoted from the judgement at first instance, [1998] 1 Lloyd’s Rep 684, at 706, in para [62] of the judgement of Evans LJ on appeal- see above, n 47. 50 See, eg, The Thomas Saunders Partnership v Harvey (1989) 30 ConLR 103, where the director of a flooring company was held personally liable for a fraudulent statement made about the compliance of a floor he was to install with a particular standard. For a Canadian decision where directors of a company were held personally liable for fraud, see the decision of the British Columbia Court of Appeal in BG Preeco I (Pacific Coast) Ltd v Bon Street Developments Ltd (1989) 60 DLR (4th) 30, discussed in JW Neyers “Canadian Corporate Law, Veil-Piercing, and Chapter 2- Tort Liability of Directors 31
The House of Lords' judgment is based on the pre-eminence given to the separate legal personality of the company: see the commentary by Ross Grantham and Charles Rickett Director's Tortious Liability: Contract Tort or Company Law? (1999) 62 MLR 133. It is thus necessary, in my view, to apply the principles of tortious liability strictly in accordance with this rule of company law.52
Aldous LJ gave the more extensive judgement on the issue of Mr Mehra’s personal liability. But with respect, his Lordship’s judgement does not offer very cogent reasons for ignoring the active involvement in fraudulent behaviour by Mr Mehra. His Lordship commented, for example, about the misrepresentations that
They are all on Oakprime headed paper or clearly stated to be from Oakprime. Mr Mehra's name appears as the person signing the documents as managing director of or on behalf of Oakprime. In my view the representations were made by Oakprime and all the evidence points to the conclusion that SCB relied upon them as being representations by Oakprime.53
But to conclude (as was undoubtedly right) that Oakprime bore responsibility for the statements made by Mr Mehra (whether vicariously or more directly), is not a reason for concluding that Mr Mehra himself is cleared of responsibility for those statements. Yet this is the step His Lordship seemed to take a few paragraphs later in his judgement, when he said:
First, if a director or an employee himself commits the tort he will be liable. An example is the lorry driver who is involved in an accident in the course of his employment. Although Mr Mehra was the person who was responsible for making the misrepresentations, he did not commit the deceit himself. For reasons I have already stated the representations were made by Oakprime and not by him. Further, SCB relied upon them as representations by Oakprime and not as representations by Mr Mehra. 54
His Lordship did not offer any reason for distinguishing the case of the lorry driver who will be held personally liable for injuries, from that of Mr Mehra. Nor did
the Private Law Model Corporation” (2000) 50 Univ Toronto Law Jnl 173-240, at 236-237. See also Felton v Johnson, n 87 below, for a similar New Zealand decision. 51 Williams v Natural Life Health Foods [1998] 2 All ER 577, above, n 35. 52 Above, n 47, at para [67], Evans LJ. 53 Above, n 47, at para [14], Aldous LJ. 54 Above, n 47, at para [16], Aldous LJ. Chapter 2- Tort Liability of Directors 32
his Lordship’s other two suggested categories of personal liability, assumption of personal liability and “procuring and inducing”,55 seem to advance the argument. True, a director will be liable if he has “assumed a personal liability”, and the discussion in Williams shows that in dealings with others a director may “cross the line” in holding themselves out as the source of advice so that they may be sued. But that such a category of personal liability does exist, does not mean that other categories have been excluded. It seems that the Court of Appeal in this case, in focussing on Williams, were led to conclude that the Williams type of personal liability was now all that needed to be considered. But the better view would seem to be that while Williams represents the law in the specific area of economic loss caused by negligent misrepresentation (which has always borne a “quasi-contractual” nature), the decision has not over-turned the previously well-established line of authority on the personal responsibility of directors in other situations. The third type of case where Aldous LJ conceded that there would be personal liability for a director was where the director had “procured and induced another, the company, to commit the tort”.56 But His Lordship went on to say “there are good reasons to conclude that the carrying out of duties of a director would never be sufficient to make a director liable”.57 His Lordship’s meaning is a little elusive. Perhaps he is suggesting that where the director believes he is acting as a director for the good of the company (rather than for merely personal gain?) then he can never be liable for the company’s torts. The question whether or not the director believes they are acting for the benefit of the company has been rejected as a criterion by the Canadian courts.58 In any event on this third point in the Standard Chartered Bank case Aldous LJ held that the pleadings did not clearly allege the Mr Mehra was sued as a joint tortfeasor with the company (on the basis of “procuring and inducing”), and that an amendment
55 Above, n 47, at paras [17], [20], Aldous LJ. 56 Above, n 47, at para [20] (Aldous LJ). 57 Above, n 47, at para [21] (Aldous LJ). 58 See the discussion of the ADGA case, n 195 below. Chapter 2- Tort Liability of Directors 33
would not be allowed. Technically His Lordship’s judgement left open the possibility that a personal action against a director on this ground might succeed in the future.
(2) UK RESPONSE TO STANDARD CHARTERED BANK Immediately after the decision of the Court of Appeal in Standard Chartered Bank (No 2) there were a number of expressions of judicial discontent with the decision. A good illustration of this can be found in the judgement of Rimer J in the Chancery Division in MCA Records Inc v Charly Records Ltd.59 The case involved a claim for copyright infringement by the company Charly, but also involved a personal action against Mr Young, managing director of Charly. Rimer J reaffirmed the line of authority noted above, which he summed up with the following proposition:
It has also for long been recognised that a director or other officer of a company may in certain circumstances be personally liable for the company's torts, although he will not be liable merely because he is an officer: he must be personally involved in the commission of the tort to an extent sufficient to render him liable. Whether he is sufficiently involved is a question of fact, requiring an examination of the particular role played by him in the commission of the tort.60
In particular his Honour referred to recent Court of Appeal decisions which reaffirmed these principles.61 He discussed the Williams case, and in particular some comments of Lord Steyn which, it had been argued, had changed the law, but concluded that the comments were directed to issues peculiar to the tort of negligent misrepresentation, and that it was highly unlikely that Lord Steyn had been intending to overrule the long line of earlier authority without referring to it.62 He reviewed the Standard Chartered Bank case,63 but ruled that the failure to find Mr Mehra liable in that case stemmed mainly from the failure to specifically plead “procurement or inducement” in the early stages of the case. He concluded:
59 [2000] EMLR 743 (22 March 2000). 60 Above, n 59, at para [12]. 61 Such as the Spritebrand case, above, n 23, and Mancetter Developments Ltd v Garmanson Ltd [1986] 1 QB 1212, [1986] 1 All ER 449; see para [16] of Rimer J’s judgement, above, n 59. 62 Above, n 59, at para [21]. 63 Above, n 47. Chapter 2- Tort Liability of Directors 34
I do not read the case as shedding any direct light on the true extent of the observations of Lord Steyn in Williams to which I have referred. I do, however, read it as recognising as still being good law the principles as to a director's liability for a company's torts as explained in cases such as Spritebrand and the earlier authorities.64
In the end Rimer J seems to have determined that without clearer guidance he should continue to apply the older line of authority. Having examined the evidence given by Mr Young and others about his involvement with the company, his Honour concluded that despite Mr Young’s claims to the contrary, he was the “key man” in the company and the one who made the relevant decisions to infringe MCA’s copyright, even when he had been put on notice that this was alleged. There was no evidence that he had ever issued an express directive to the employees requiring the infringing activities. But his involvement with the company was such that he had clearly impliedly procured the infringment. His Honour commented:
The simple fact is that he fully supported CRL's Chess activities and intended that they should continue as long as possible. He had, I find, the authority to stop them but did not. He knew that they were continuing and played his own personal part in their direct promotion. It may be that he gave no express direction, or passed any express resolution, to the effect that CRL should copy the Chess recordings and issue them to the public. But it is not necessary to prove the making of an express direction or procurement.…. In the circumstances I have outlined, I regard it as clear that Mr Young must be taken at least to have impliedly directed or procured the tortious acts of infringement by CRL of which MCA complains. 65
In the end his Honour ordered that Mr Young personally be found jointly liable with the company for the infringement. On appeal, in MCA Records Inc v Charly Records Ltd,66 Simon Brown, Chadwick and Tuckey LJJ in the Court of Appeal affirmed Rimer J’s judgement and (in general) his comments on the applicable law. Chadwick LJ, who delivered the judgement of the Court, emphasised that the claim against the director was that he was a joint tortfeasor with the company.67 His Lordship cited with approval the statement of
64 Above, n 59, at para [24]. 65 Above, n 59, at para [187]. 66 [2001] EWCA Civ 1441; 5 October 2001. 67 See n 66 at paras [31]-[35], discussing in particular the judgement of Mustill LJ in Unilever Plc v Gillette (UK) Ltd [1989] RPC 583. Chapter 2- Tort Liability of Directors 35
Rimer J noted above beginning with “It has also for long been recognised…”. He added the following comments:
With the qualification that, if he is liable for the company’s tort, it is because he is liable with the company as a joint tortfeasor, so that the relevant enquiry is whether he has been personally involved in the commission of the tort to an extent sufficient to render him liable as a joint tortfeasor, I would accept that as a correct statement of the law.68
He went on to review the other cases mentioned previously, and in particular the Williams decision. His Lordship’s comments on Williams are instructive. After quoting the words of Lord Steyn he said:
In my view it is impossible to read into that passage a general proposition that a director can never be liable as a joint tortfeasor with the company. The basis of Lord Steyn’s rejection of joint liability in that case, as it seems to me, is that Mr Mistlin could not himself be liable to the plaintiffs, whether jointly or severally, because he was not a party to the special relationship which had given rise to an assumption of responsibility and upon which, alone, liability could be founded. But, if I were wrong in that view, and Lord Steyn did intend, in that passage, to propound a more general proposition, I would respectfully decline to follow it. The point did not arise for decision; the relevant authorities, including the decisions of the House of Lords in Rainham Chemical Works v Belevdere Fish Guano Company [1921] 2 AC 465 and CBS Songs v Amstrad Consumer Electronics [1988] AC 1013 were not cited or considered; and the observations are plainly obiter.69
Commenting on the decision in Standard Chartered Bank, His Lordship distinguished that case on the basis that liability as a joint tortfeasor had not been properly pleaded.70 Finally, Chadwick LJ set out four propositions which he regarded as supported by authority:71 (1) That a director will not be liable as a joint tortfeasor “if he does no more than carry out his constitutional role in the governance of the company, that is to say, by voting at board meetings”. (2) However, a director may be liable as a joint tortfeasor with the company if he participates or is involved in the company “in ways
68 Above, n 66, at para [37]. 69 Above, n 66, at para [43]. 70 Above, n 66, at para [46]. 71 The propositions are set out at paras [49]-[52], above, n 66. Chapter 2- Tort Liability of Directors 36
which go beyond the exercise of constitutional control”, and if he would be so liable even if he were not a director of the company. (3) In the area of intellectual property joint liability would be established where “the individual intends and procures and shares a common design that the infringement takes place”. (4) This is the case whether or not there is a separate “tort” of “procuring an infringement of a statutory right”, as suggested in some cases. With respect, there are some uncertainties about these criteria, especially criteria (1) and (2) which are relevant for the purposes of workplace injuries. Surely his Lordship cannot mean that a director who does not propose a motion or even speak at a meeting, but who nevertheless votes in favour of a course of action which will mean commission of a tort, can be held to be entirely immune from later action? Or suppose a director who steadfastly votes against proposals to spend money to improve workplace safety, despite clear evidence that such expenditure is necessary to avoid future injuries. Is that director immune from suit simply because he or she is exercising a “constitutional role” by voting? Nevertheless, the appeal in Charly demonstrated the growing body of UK cases either refusing to follow the holding in Standard Chartered Bank, or carefully distinguishing it. Another example was the decision of a differently constituted Court of Appeal in SX Holdings Ltd v Synchronet Ltd.72 There the Court openly acknowledged the force of arguments made by counsel that the decision in Standard Chartered Bank might not be the last word on the subject. In that case Potter LJ, having cited the comments of Aldous LJ noted previously about the over-riding force of company law,73 commented:
[T]here is much to be said for the view that there are strong countervailing reasons of policy why personal liability should not be avoided simply on the basis that the representation was purportedly made, and understood to be made, in the representor's capacity as a company director, particularly when he is the controlling shareholder and moving spirit in relation to that company, use of whose name is adopted as part and parcel of his own fraudulent scheme.74
72 Court of Appeal (Civil Division), Potter, May, Tuckey LJJ: 10 October 2000; [2001] CP Rep 43. 73 Above, at n 37. 74 Above, n 72, at para [25]. Chapter 2- Tort Liability of Directors 37
The Court of Appeal in SX Holdings allowed an amendment to the pleadings which added an allegation that the director of the company involved was liable as a joint tortfeasor for any tort of deceit committed by the company on the basis that he had procured and induced it (or its solicitors) to make the false representations relied on. The comments of Potter LJ, as noted, indicated that not all members of the Court of Appeal were entirely happy with the holdings in the Standard Chartered Bank case. 75 Other single judge decisions either declining to follow, or distinguishing, Standard Chartered Bank were Noel v Poland76 and Daido Asia Japan Co Ltd v Rothen.77 In Noel, Toulson J refused to strike out a possible claim in deceit against a company director. His Honour distinguished between a claim for negligent mis- statement (which, he said, required proof of a “special relationship”), and a claim in deceit, which does not.78 After a careful review of cases dealing with the fraud of an agent, his Honour turned to the Standard Chartered Bank case and concluded that it was unable to be reconciled with earlier authorities which had not been cited to the
75 A note by P Watts, “The Company’s Alter Ego- An Imposter in Private Law” (2000) 116 LQR 525- 530, at 525-526, describes the reasoning in the Court of Appeal in Standard Chartered Bank as “misconceived”, noting that it has always been assumed in deceit cases that even where an agent has spoken on behalf of a principal, the agent remains personally liable. The case is described as an “egregious” example of decisions extending the immunity of directors. See also a more detailed review of some recent New Zealand cases P Watts, “The Company’s Alter Ego- a Parvenu and Imposter in Private Law” [2000] NZLR 137-153. It may also be relevant to note the decision of the Court of Appeal in Merrett v Babb [2001] EWCA Civ 214 (15 Feb 2001), where Aldous LJ (dissenting) would have applied the reasoning in Williams to disallow an action by purchasers of a property who had relied on a report by a surveyor. His Lordship’s reasoning was that, as the surveyor was employed by a surveying firm at the time, the purchasers relied on the firm, not the employee. May & Wilson LJJ, on the other hand, following the earlier House of Lords decision on almost identical facts, Smith v Eric S Bush [1990] 1 AC 831, held that the surveyor owed a personal duty of care despite the fact of his employment. With respect, Aldous LJ’s dissent in this case was an early indication that His Lordship had misunderstood Williams, and that the judgement in Standard Chartered Bank would be in doubt should the matter go to the House of Lords. The note by McKendrick & Edelman, “Employee’s Liability for Statements” (2002) 118 LQR 4-11, supporting Standard Chartered Bank against Babb on this point is, again with respect, unconvincing. For a case following Standard Chartered Bank and distinguishing Babb see Bradford & Bingley PLC v Hayes (QBD, McKinnon J, 2001 WL 1560784). 76 2001 WL 606328; Toulson J, QB, 14 June 2001. 77 2001 WL 825034; Lawrence Collins J, Ch D, 24 July 2001. 78 Above, n 76, at para [21]. Chapter 2- Tort Liability of Directors 38
court, including decisions of the House of Lords.79 On that basis he refused to summarily dismiss the claim in deceit. In Daido, Lawrence Collins J held that as a first instance judge he was bound by Standard Chartered Bank,80 but was able to distinguish the particular claim against a director in that case because there were personal dealings between the plaintiff and the individual director, and also because in Daido there was a specific pleading that the director “authorised, directed and procured” the deceit.
(3) STANDARD CHARTERED BANK OVER-TURNED This course of judicial doubt following the Court of Appeal decision was ultimately vindicated by the decision of the House of Lords on appeal from the decision, in Standard Chartered Bank v Pakistan National Shipping Corporation.81 The decision also involved a question of contributory negligence which is irrelevant for present purposes.82 But on the issue of the personal liability of Mr Mehra, the House overruled the Court of Appeal and held that Mr Mehra was personally liable for his deceit. Lord Hoffmannn said:
Mr Mehra says, and the Court of Appeal accepted, that he committed no deceit because he made the representation on behalf of Oakprime and it was relied upon as a representation by Oakprime. That is true but seems to me irrelevant. Mr Mehra made a fraudulent misrepresentation intending SCB to rely upon it and SCB did rely upon it. The fact that by virtue of the law of agency his representation and the knowledge with which he made it would also be attributed to Oakprime would be of interest in an action against Oakprime. But that cannot detract from the fact that they were his representation and his knowledge.83
His Lordship made it clear that the Williams case was distinguishable on the basis that the tort of negligent misrepresentation was “analogous to contract”, and so it was reasonable to require a specific “assumption of responsibility”. But
This reasoning cannot in my opinion apply to liability for fraud. No one can escape liability for his fraud by saying "I wish to make it clear that I am committing this fraud on behalf of
79 Above, n 76, at para [52]. 80 Above, n 77, at para [40]; although note that he also referred to extensive previous authority which suggested problems with the Standard Charted Bank analysis, at paras [24]-[39]. 81 [2002] UKHL 43, handed down on 6 November 2002. 82 The House held that contributory negligence is not available to reduce damages awarded for an intentional tort like deceit- see, eg, Lord Hoffmannn at para [18]. 83 Above, n 81, at [20]. Chapter 2- Tort Liability of Directors 39
someone else and I am not to be personally liable." Sir Anthony Evans framed the question ([2000] 1 Lloyd's Rep 218, 230) as being "whether the director may be held liable for the company's tort." But Mr Mehra was not being sued for the company's tort. He was being sued for his own tort and all the elements of that tort were proved against him. Having put the question in the way he did, Sir Anthony answered it by saying that the fact that Mr Mehra was a director did not in itself make him liable. That of course is true. He is liable not because he was a director but because he committed a fraud.84
Lord Rodger of Earlsferry, who delivered the only other substantive judgement in the case, agreed. His Lordship pointed out that the decision need have nothing to do with the separate legal personality of the company, nor with the protection of limited liability.
Although Aldous LJ referred to lifting the corporate veil, the question of the limited liability of shareholders is irrelevant to the present issue since Standard Chartered do not seek to make Mr Mehra liable as a shareholder in Oakprime. Nor do Standard Chartered seek to make Mr Mehra liable, by virtue of his position as a director, for the deceitful acts of Oakprime or its employees or other agents. Rather, they seek to do no more than hold him liable for deceitful acts that he himself performed. So no question arises as to whether he directed or procured the doing of tortious acts by others and the C Evans & Sons Ltd v Spritebrand Ltd line of cases is not in point…
Where someone commits a tortious act, he at least will be liable for the consequences; whether others are liable also depends on the circumstances..85
Indeed, his Lordship commented that, unlike the position in Williams, where the existence of a duty of care was the primary issue, there was no need to establish a duty where the claim was in deceit.
There is no such requirement in the case of deceit. Liability for deceit is so self-evident that we do not consider it as resulting from a breach of duty (Tony Weir, Tort Law (2002), p 30). Mr Mehra set out by his fraudulent acts to make Standard Chartered pay under the letter of credit. He succeeded. He is accordingly personally liable for the loss which he thereby caused them.86
It should also be noted that a decision in the High Court of New Zealand, Felton v Johnson,87 indicates that courts in that country were never tempted to follow Standard
84 Above, n 81, at [22]. 85 Above, n 81, at [38], [40]. 86 Above, n 81, at [41]. 87 (2000) Aust Torts Rep ¶81-559. Chapter 2- Tort Liability of Directors 40
Chartered Bank.88 There is a comment on the issue of the personal dishonesty of a director by Cooke P himself in Watson v Dolmark Industries Ltd:89
A case of personal dishonesty [of the kind involved in that case] is distinguishable from the question whether the owner of a one-man company comes under a duty of care. This distinction is explicitly recognised in Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517.90
For US authority supporting the view that an action in deceit or fraud may lie against individual directors see, for example, Van Dam Egg Co v Allendale Farms, Inc, and John Puglisi,91 where a director who had personally assured a creditor that funds were available to pay a debt was held personally liable.92
To offer some concluding remarks on the impact of the Standard Chartered Bank litigation: the decision of the House of Lords is to be welcomed. In many ways the discussion of the litigation has been a distraction from the main purpose of this paper, to consider liability in negligence for personal injury. But what has been clarified is that
88 In that case false statements were made by the defendant which were held to have induced the plaintiffs to enter into franchise agreements for businesses which sold a glass treatment process. Two actions were taken: one in deceit, and one in negligence. Negotiations for the sale of the franchises were made through a company, Clear-Shield Auckland Ltd. An interesting aspect of the case is that the judge, Goddard J, considers the issues raised by Williams in his consideration of the negligence claim, but does not raise these issues in dealing with the deceit claim. The report does not specify whether or not the false claims were made under company letterhead, but it seems likely that they would have been, given that Mr Johnson had formed the company for the purpose of franchising the product. The assumption that Goddard J makes is that Mr Johnson is personally liable for the false statements that he made inducing the plaintiffs to enter franchise agreements, whether or not those statements could be seen as coming from the company in some sense. This seems, with respect, the correct approach to an action in deceit. As a result of the finding of liability for deceit, Goddard J did not find it necessary to resolve the issues raised by the negligence claim. 89 [1992] 3 NZLR 311, at 316. 90 I am grateful to Neil Campbell, Lecturer in Law, Auckland University for bringing this comment to my attention. See also his note, “Directors’ Liabilities to Third Parties” in [1998] Company and Securities Law Bulletin 34-36. For further critical comment on Trevor Ivory see G Shapira, “Liability of Corporate Agents: Williams v Natural Life in the House of Lords” (1999) 20/5 Company Lawyer 130-138; and S Todd et al The Law of Torts in New Zealand (3rd ed; Wellington: Brookers, 2001) at 360-367. 91 Superior Court of New Jersey, Appellate Division; 199 NJ Super 452; 489 A2d 1209 (1985): “A corporate officer or director is liable to persons injured by his own torts, even though he was acting on behalf of a corporation and his intent was to benefit the corporation” (Cohen JAD, at 199 NJ Super 457). 92 For brief comment on this and other cases, see DW Leebron, “Limited Liability, Tort Victims and Creditors” (1991) 91 Columbia LR 1565-1650, at 1626-1627. Chapter 2- Tort Liability of Directors 41
the Williams decision, despite what at first seem to be wide-ranging remarks about personal liability of directors, is essentially a decision in the confined area of negligent misrepresentation causing economic loss. It does not establish a heirarchy where “corporate” law trumps “tort” law.93 It is irrelevant to an action for deceit, where no duty of care needs to be separately established. It is arguably irrelevant to an action for negligence where the damage caused is not economic loss but personal injury. This will be discussed below when the question of liability for workplace injury is discussed, after briefly considering the development of the general law in Australia on director’s liability for tort.
e. The Australian position The Australian position on the question of personal liability of directors for company torts can probably best be summed up as following the traditional “direct and procure” test in Rainham and Ciryl, with one or two dissenting voices. Perhaps the best starting point to illustrate the influence of the different approaches is King v Milpurrurru.94 In a copyright infringement case involving the misappropriation of indigenous artwork, the Full Court of the Federal Court dismissed an action against two directors of a company, Beechrow Pty Ltd, which had been found to have infringed copyright. Another director, Bethune, was found to have played an active part in the importation and did not appeal the trial judge’s finding of personal liability. The liability of the two remaining directors, appellants in this case, was claimed to stem from a failure to stop the importation once they knew that it was happening. The decision to overturn the finding of personal liability was a majority decision of the Full Court, Lee J dissenting on the facts. But a careful analysis of the reasoning in
93 A view presented in R Grantham, “Attributing Liability to Corporate Entities: A Doctrinal Approach” (2001) 19 CSLJ 168, at 178: “The doctrinal basis of the organic approach, however, suggests that where this approach is applied it does exclude the personal responsibility of the director”, and especially at 179: “company law doctrines… must be accorded primacy to the extent that they preclude the normal incidents or consequences of… general rules”. This view of course relies heavily on the decision of the Court of Appeal in Standard Chartered Bank, and must be seen as having been shown to be wrong by the House of Lords. 94 (1996) 136 ALR 327 (Jenkinson, Lee and Beazley JJ). Chapter 2- Tort Liability of Directors 42
the case would suggest that Lee J and Jenkinson J represent the majority view of the law. Jenkinson J said:
But for tortious liability to be imposed on the respondents what is required is that they confer on Mr. Bethune and Beechrow their authority to commit the torts so that they can be said to have agreed in the commission.95
His Honour’s comments, while slightly ambiguous, seem on balance, and in light of the cases cited to support them, to represent a formulation of the “direct and procure” test. This is certainly the view taken by Lee J. His Honour referred to recent developments in the law governing the duty of directors to the company, and commented:
By limiting the liability of members of a corporation to the capital subscribed and by recognizing a corporation as an entity at law, encouragement is given to use corporations as risk-takers in businesses operating in industry, trade and commerce. However, regard for the interests of parties who have business dealings with corporations enjoying such advantages requires the development of the duty of care and diligence owed by a director to the corporation as a counterpoise to ensure that the natural persons responsible for the control of a corporation effect due management and governance of the corporation.96
His Honour clearly adopted the “direct and procure” test, and went even further in spelling out that there could be an “implied” direction stemming from a failure to exercise proper oversight of the company.
Where Atkin LJ stated in Performing Right Society at p.15 that a director may be liable for impliedly directing or procuring the commission of a wrongful act by a corporation, such implied direction or procurement is to be found in the approval of, or acquiescence in, that wrongful act, inferred from the breach of duty by the director the circumstances of which support the conclusion that the director has refused to enquire, or to act, to avoid learning, or dealing with, the obvious. (See: Metal Manufacturers per McHugh JA at p.329.) 97
His Honour’s comments would extend the personal liability of directors fairly broadly, and the question whether this is a legitimate development of the law is discussed below. But it is clear that at the least the “direct and procure” test is applied. In the circumstances his Honour found that the two directors had been put on notice of
95 Above, n 94, at para [7] (Jenkinson J). 96 Above, n 94, at para [17] (Lee J). 97 Above, n 94, at para [24]. Chapter 2- Tort Liability of Directors 43
infringement, and should have done more to find out whether it was still occurring or not and to put a stop to it. By contrast, Beazley J preferred what she called the “higher test” for personal liability flowing from Mentmore.98 This potential clash of authority in the Federal Court at the Full Court level was addressed at the trial level by Lindgren J in Microsoft Corporation v Auschina Polaris Pty Ltd.99 In a lucid judgement which has often since been referred to,100 his Honour initially noted101 that it was important to distinguish three separate ways in which a company director might be held liable for a tort committed by the company. These were: (i) under a specific statutory provision imposing liability for “authorisation”;102 (ii) through the general principles relating to the liability of “joint tortfeasors”; (iii) through the general principles relating to the liability of directors for company torts. In the Auschina case the first two options were not relevant, and his Honour went on to discuss the third, the special liability rules for directors. He distinguished two types of cases under these rules where personal liability was sought to be imposed on directors. The two types differed depending on whether or not there had been “dealings” between the plaintiff and the corporate wrongdoer. In “dealings” cases it made sense to ask questions about whether a director had or had not “assumed” liability
98 Above, n 94, at paras [53]-[54] (Beazley J). 99 (1996) 71 FCR 231. 100 See, for example, Henley Arch Pty Ltd v Clarendon Homes (Aust) Pty Ltd [1998] 863 FCA (Merkel J); Lott v JBW & Friends P/L & Endeavour Corp [2000] SASC 3 (Mullighan J); Oakley Inc v Oslu Import and Export Pty Ltd [2000] FCA 700 (Finn J) at [35]; Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980 (Finkelstein J) at [123]; Microsoft Corporation v Goodview Electronics Pty Limited [2000] FCA 1852 (Branson J) at [41]; Pioneer Electronics Australia Pty Ltd v Lee [2000] FCA 1926 (Sundberg J) at [45]-[46]; McCallum & Co Pty Ltd v Allen Manufacturing Co Pty Ltd [2001] FCA 488 (Gyles J) at [30]; Sony Music Entertainment (Australia) Ltd v CEL Music Pty Ltd [2002] FCA 193 (Conti J) at [26]. 101 Following the comments of Gummow J in WEA International Inc v Hanimex Corp Ltd (1987) 17 FCR 274 at 283. 102 Such as, for example, s 36 of the Copyright Act 1968. Chapter 2- Tort Liability of Directors 44
for statements or promises. It also followed that usually a plaintiff had voluntarily103 chosen to do business with a corporate entity. In other cases, however, there had been no relevant dealings between the plaintiff and the company. A copyright infringement case, such as Auschina Polaris was, provided a common example of that. His Honour also distinguished cases where the law imposes an independent personal liability on a director in relation to the specific activity, from those where it does not. The example he gave was the one of careless driving. The law imposes a personal duty on drivers to keep a proper look-out, regardless of their occupation or status within a corporation. In the instant case there was no personal duty separately imposed on Mr Lagos, the director, because the Copyright Act 1968 (Cth) made “importation” of the offending item a condition of liability. In his Honour’s view it was clear that Mr Lagos himself had not “imported” the item; rather, it had been imported by the company. But the question remained whether or not he might be held personally liable for the company’s actions.104 In the end, after reviewing the course of previous authority, and expressing disagreement with the Mentmore line of cases, Lindgren J concluded as follows:
The authorities in England, Canada, Australia and New Zealand have been helpfully reviewed by Beazley J in King v Milpurrurru, supra. With great respect, however, I find the "directed or procured" test more satisfactory than the "making the tortious act his own" test. In any event, the former test is supported by Australian authority which I should follow unless convinced that it is clearly wrong. I am not convinced that it is clearly wrong. 105
Given that Beazley J’s view was only one in a three-member Full Court, his Honour was clearly at liberty to so decide. Since that decision Lindgren J’s judgement
103 In some sense; as discussed below, in the case of employees this word begs some important questions. 104 As will be noted below, it will be important for this study to distinguish between a situation where a director has a personal duty of care, and where liability arises independently of the director’s personal duty. 105 Above, n 99, at 246B. Previous single-judge decisions adopting the “directed and procured” test included Australasian Performing Right Association Ltd v Valamo Pty Ltd (1990) 18 IPR 216; Kalamazoo (Aust) Pty Ltd v Compact Business Systems Pty Ltd (1985) 5 IPR 213, 84 FLR 101; and Martin Engineering Co v Nicaro Holdings Pty Ltd (1991) 20 IPR 241, 100 ALR 358, cited by Lindgren J in Auschina at 36 IPR 239. Chapter 2- Tort Liability of Directors 45
in Auschina Polaris has been followed by a number of single judges in the Federal Court106 and in the Supreme Court of South Australia.107 The “direct and procure” test was also adopted by Batt J in the Supreme Court of Victoria, in Private Parking Services (Vic) Pty Ltd v Huggard.108 In that case a security firm had clamped and towed away the appellant’s car without authority, and he sued not only the company but also the company director who was in charge of the local operations. The director knew of the facts which meant that the company had no authority to remove the appellant’s car. Having reviewed the sequence of authority discussed above, his Honour held that the test to be applied in an Australian court was that derived from the judgement of Atkin LJ in Cirryl, the “direct and procure” test, and not the narrow Mentmore test.109 In the circumstances the director was held personally liable as a joint tortfeasor in the tort of detinue. In Oakley Inc v Oslu Import and Export Pty Ltd,110 however, Finn J in the Federal Court, in a case based on a breach of a registered design under the Designs Act 1906 (Cth), commented:
While judges in this Court in other intellectual property settings have discussed the nature of this liability… such are both the controversies surrounding it in the common law world and its implications for small companies…. that, in the absence of argument directed to the foundation of the tort - and in particular to whether it properly is to be regarded in the present setting as an intentional tort - I am not prepared to assume liability from the fact that, as the company's alter ego, Mr Tao directed the actions that gave rise to the infringements. Accordingly, I will defer resolution of this question and will invite further submission on it.111
106 See, for example, Merkel J in Henley Arch v Clarendon Homes (1998) 41 IPR 443; Burchett J in Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd and Others (1998) 42 IPR 111; Branson J in Microsoft Corporation v Goodview Electronics Pty Limited [2000] FCA 1852 at para [41]; and Sundberg J in Pioneer Electronics Australia Pty Ltd v Lee [2000] FCA 1926 at [46]. 107 See Lott v JBW & Friends Pty Ltd [2000] SASC 3. Note, however, that in Leonardis v Theta Developments P/L & Ors [2000] SASC 402 (23 November 2000) Williams J in the South Australian Supreme Court declined to find individual directors liable for a patent infringement, on the basis that insufficient evidence had been led as to the particular involvement in the relevant decisions by the different directors 108 Unrep, 15 Feb 1996; 1996 VIC LEXIS 831. 109 Above, n 108, at page [80]. 110 (2000) 48 IPR 32. 111 Above, n 110, at para [35]; references omitted. Chapter 2- Tort Liability of Directors 46
The issues are also discussed in some detail in the judgement of Finkelstein J in Root Quality Pty Ltd v Root Control Technologies Pty Ltd,112 a patent infringement case. The issue there was whether Mr Rivett, a director of Root Quality, could be found personally liable for an alleged infringement of a patent held by Root Control Technologies. His Honour spent some time discussing the possible liability of a director for “procuring the violation of the legal rights of another”.113 He pointed out some of the difficulties that flow when this doctrine is applied to the actions of a director who may authorise a tortious act carried out by the company. The decision in Said v Butt114 holds that a director cannot be held personally liable for procuring the company to breach a contract, as in that case the defendant would have two separate actions each of which might result in a different amount of damages: one against the company, the other against the director. The logical point made in this case and others which seem to have followed it is that the action of the director in these contractual cases is the action of the company. While this doctrine is clearly applicable in the area of procuring breach of contract, it cannot be the final resolution of the issue in relation to other torts, as Finkelstein J acknowledged. His Honour referred to the decision in Trevor Ivory, but went on:
Be that as it may, Trevor Ivory should not be regarded as authority for the proposition that it will only be in the case of “an assumption of liability” that a director or officer will be found liable for a personal tort: Banfield v Johnson (1994) 7 NZCLC 260,496.115
His Honour’s final conclusion, after examining the Mentmore line of decisions, was that the situation was unclear:
The director’s conduct must be such that it can be said of him that he was so personally involved in the commission of the unlawful act that it is just that he should be rendered liable. If a director deliberately takes steps to procure the commission of an act which the director knows is unlawful and procures that act for the purpose of causing injury to a third party, then plainly it is just that liability should be imposed upon him. Lesser conduct may suffice. For example, if the director is recklessly indifferent as regards whether his
112 [2000] FCA 980 (1 August 2000). 113 Above, n 112 at paras [118] ff. 114 [1920] 3 KB 497. 115 Above, n 112, at para [140]. Chapter 2- Tort Liability of Directors 47
company’s act was unlawful and would cause harm, that may also suffice. In the end it will depend upon the facts of each particular case. Where the boundary lies, between the non- tortious conduct of a director who acts bona fide within the course of his authority and the tortious conduct of a director who acts deliberately and maliciously to cause harm, cannot be stated with any precision.116
As his Honour indicates, the test so articulated is not very precise. In the case of Mr Rivett his Honour held that there was insufficient evidence of the precise state of his knowledge or his authorisation of possibly infringing activities.117 In Pioneer Electronics Australia Pty Ltd v Lee118 Sundberg J in the Federal Court summarised the recent approaches to the issue and concluded that the clear preponderance of authority in Australia was in favour of the “direct and procure” approach.119
2. Is there a different rule for different types of tort? Before proceeding to discuss the specific issue of personal liability for workplace injuries, it is worth noticing that some of the confusion about the general rules for directors’ liability in tort may stem from a failure to recognise that courts tend to apply slightly different rules in relation to different torts.120 Even a cursory review of the cases establishes, for example, that many of the cases where a director has been found personally liable are copyright infringement cases. As Lord Atkin put it succintly in Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd: “Infringement of copyright is a well known tort”. 121 But in this area it is a tort where the courts have developed a tradition of holding company directors
116 Above, n 112, at para [146]. 117 Above, n. 112, at para [148]. 118 [2000] FCA 1926, esp at paras [45]-[46]. 119 In Red Bull Australia Pty Limited v Sydneywide Distributors Pty Limited [2001] FCA 1228 at para [75] Conti J very briefly considered an issue about the personal liability of a director for deceptive and misleading conduct contrary to s 52 of the Trade Practices Act 1974 (Cth), citing Auschina but not discussing the matter in any depth. 120 And, it need hardly be said, different rules again are applicable should there be an issue of civil liability under statute as opposed to the general law. For a recent example of judicial consideration of a director’s personal liability under statute see the decision of the NSW Court of Appeal in Fair Trading Administration Corpn v Smith [2001] NSWCA 435, where as an issue of statutory interpretation the director was found to be not liable. But Priestley JA at para [6] was careful to point out that this judgement had nothing to do with any general law liability of the director. Chapter 2- Tort Liability of Directors 48
personally liable.122 Claims in other tort areas are not always so easy to resolve. Rainham,123 of course, was a claim in nuisance, but the directors would have been found not liable if they had not been in personal occupation; Standard Chartered Bank124 was a case in deceit where, as noted above, the House of Lords has now held that the director concerned was liable. In the Canadian decision of Craig v North Shore Heli Logging Ltd125 the sole director of a logging company was found to be a joint tortfeasor with the company in a case of trespass and conversion, where the company had logged the plaintiff’s land and the director knew that the plaintiff had not given permission. The courts themselves have recognised that different tort areas may warrant different treatment. Perhaps the most compelling analysis of this sort, coming as it does in what must today be regarded as one of the leading decisions in this area, is given in the judgement of Cooke P in Trevor Ivory.126 His Honour commented:
If the present case were in the personal injuries field, I might have been disposed in alignment with Willmer J in Yuille127 to have found a personal duty of care on Mr Ivory, on the basis of the very obvious risk to health in handling herbicides… Where damage to property or other economic loss is the basis of a claim, it may well be possible to sheet home personal responsibility for an intentional tort such as deceit or knowing conversion. And of course if the individual defendant has placed himself in a fiduciary position towards the plaintiff, he will be personally liable for breach of his fiduciary duty. But if an economic loss claim depends on establishing a personal duty of care, it is especially important to consider how far the duty asserted would cut across patterns of law evolved over the years in the process of balancing interests.128 {emphasis added)
121 [1924] 1 KB 1, at 13; above, n 15. 122 Even so, of course, there will be no liability if the directors did not authorise the commission of a tort: see Prichard & Constance (Wholesale) Ltd v Amata Ltd and Others (1924) 42 RPC 63. 123 Above, n 7. 124 Above, n 81. 125 (1997) 34 BCLR (3d) 330; Smith J, in the British Columbia Supreme Court. 126 Above, n 29. 127 His Honour is referring to Yuille v B & B Fisheries (Leigh) Ltd [1958] 2 Lloyd’s LR 596, discussed further below. 128 Above, n 29, at 524 lines 15-30. Chapter 2- Tort Liability of Directors 49
Here the category of “personal injury” is carefully distinguished from that of “economic loss”, and his Honour also distinguishes cases of “intentional torts” such as deceit from others.129 That this more refined analysis is the appropriate one was also signalled by the influential judgement of Lindgren J in Microsoft v Auschina Polaris,130 where as previously noted his Honour distinguished cases where there have been “dealings” between the parties from cases where there have not. This approach is also found in the careful approach of Goddard.131 In an extensive review of the law on the subject of personal liability, Goddard identifies the two major categories of cases as those involving “Voluntary Transactions” and those involving “Involuntary Creditors”. He argues strongly that limited liability of directors is a clearly fair policy option in relation to those who voluntarily choose to enter into dealings with the company. Voluntary transactions, he notes, “internalise” risk to the company because those who deal with the company have the choice of adjusting their price, credit terms and other features of the bargain to account for the fact that they are dealing with a company whose members and directors have limited liability.132 Goddard recognises, however, the potential for injustice occasioned by the doctrine of limited liability where the company interacts with others who have not chosen to do so.
Limited liability does (in principle) give rise to potentially significant externalities in the case of involuntary creditors- in particular, the victims of torts and other civil wrongs committed by the firm.133
For this reason he supports as a matter of policy, and notes that the courts have supported, the sort of tort liability rules discussed here.
129 For another example of a welcome nuancing of the discussion in this area, see the note by Jillian Seymour, “Williams v Natural Life Health Foods Ltd: Liability of Directors for Negligent Corporate Advice” (1998) 16 Companies & Securities Law Jnl 663-668, at 663: “This note… is confined to consideration of directors’ personal liability for negligence causing economic loss, and does not consider liability for other torts or for breaches of copyright”. 130 Above, n 99. 131 D Goddard, “Corporate Personality- Limited Recourse and its Limits” in CEF Rickett & RB Grantham Corporate Personality in the 20th Century (Oxford: Hart, 1998) at 11-64. 132 Above, n 131, at 26 ff. 133 Above, n 131, at 32. Chapter 2- Tort Liability of Directors 50
As Rogers AJA in the NSW Court of Appeal in Briggs v James Hardie & Co Pty Ltd noted:
It seems to me reasonable, as indeed Goff LJ suggested in DHN Food Distributors Ltd & ors v London Borough of Tower Hamlets (1976) 3 All ER 462, that different considerations should apply in deciding whether to pierce the corporate veil in actions in tort from the criteria applied in actions in contract or, for that matter, revenue or compensation cases. 134
Goddard notes that in two cases there will be personal liability in a company director where a tort is committed by that person even when in some sense acting “on company business”. One is the situation of a personal injury inflicted on a stranger while engaged on company business- if Mr Salomon runs down a passer-by in his carriage while on company time, he cannot avoid liability by claiming to be incorporated. The second is where the director has “directed or procured” the commission of the tort, in the Rainham line of cases. But Goddard makes the point that an area of difficulty in modern law has arisen from two closely related developments: the acceptance of a liability in tort for negligent misstatement based on “assumption of responsibility”, and the acceptance of concurrent liability in contract and tort.135 In his view cases involving “assumption of responsibility” by an advice-giver ought to fall within the category of “voluntary interactions”, with the result that the person receiving the advice is taken to have (in most cases) accepted the advice as given by a company, not an individual. If this is not the result then effectively the rules of contract law, which allow a person who contracts to do something to limit their liability, will be circumvented in inappropriate ways.136 In essence Goddard’s argument is that incorporation means that anyone who voluntarily deals with a company is taken to accept an implied term in their contract that liability for breach is limited to the company’s assets, and recourse cannot be had to
134 (1989) 7 ACLC 841, at 863. 135 Above, n 131, at 45. 136 Above, n 131, at 46: “Normally, where the business (such as providing advice) is carried on through a company, it is the company, not the employee [or director], which assumes that responsibility. And the recipient of the advice, etc, is a voluntary creditor of the company who has chosen to look to it and rely on it, on whatever terms may have been agreed… There is no externality here. So we should not have any concern about tort creditors where their claim is based on an assumption of responsibility- they, like contract creditors, are voluntary creditors.” Chapter 2- Tort Liability of Directors 51
the personal assets of directors. Where there has been such a term implied into a relationship, he argues that it is then inappropriate for a plaintiff who loses money based on that contract to seek to avoid the terms of the contract by suing on a parallel duty created by tort law. In this way Goddard supports the result in Trevor Ivory, and strongly criticises the result at the Court of Appeal level in Williams; his article was written before the House of Lords’ decision in Williams over-turned the Court of Appeal, and hence provided further support for his thesis. In a similar way, Gosnell argues that the decision of the House of Lords in Williams provides a good example of the fact that the legal tests for liability in relation to personal injury and economic loss ought to be carefully distinguished. As he puts it, liability for economic loss caused by negligent misrepresentation “is a closer cousin of contract- and the method of analysis clearly demonstrates that- than of foreseeability alone”.137
3. Application of the law to workplace injuries The distinctions that the courts and commentators have drawn between different types of tort actions point to the need for careful characterisation of possible liability in the area of workplace injuries. Two areas need to be considered: liability for personal injuries, and (for reasons spelled out further below) liability for economic loss. A preliminary question, however, may be posed. Is there some factor about workplace injury claims in negligence which distinguish these from other types of tortious action where personal liability of directors has been generally accepted by the courts? Is there a difference, say, in the fact that breach of copyright will normally involve a single, specific decision (say, “issue a copy of that sound recording”), whereas a workplace injury may result from the interaction of a complex of factors over a period of time? While the cause of any specific workplace injury or fatality may indeed sometimes be complex, possibly involving a number of decisions over time, this does not seem to be a good reason to say that all such incidents can be described in this way.
137 C Gosnell, “English Courts: The Restoration of a Common Law of Pure Economic Loss” (2000) 50 Univ of Toronto Law Jnl 135-171, at 170. Chapter 2- Tort Liability of Directors 52
It may indicate that in many cases a breach of duty will be hard to identify, and that under the “calculus” approach all has been done that could have been done by a person in the position of the director. But it does not seem a good reason to completely exclude a duty of care altogether. It is easy to imagine cases where an injury can be primarily traced to a specific careless decision of a specific company officer (eg “let’s defer expenditure on safety equipment until next month so we can offer a higher dividend to shareholders”). A distinction which is often ignored in this area but which may be crucial to a correct resolution of the issues is brought out by Gosnell.138 He points out that there are two situations in which the question of tort liability of a director can arise. One (which might be called “vicarious responsibility”) is where the company is liable in tort through either the actions of an employee or some other officer, or by the operation of a statute of strict liability. In that case the defendant director is possibly liable in tort for an action which he or she was not personally involved in. The second type of case (“personal responsibility”) is where the director concerned was indeed personally careless or reckless in some way, and the issue arises as to whether that carelessness should not only be attributed to the company but also removed from the director. The first type of case, that of a truly “imputed” liability, seems to be one where the separate corporate personality of the company should be clearly maintained. But the second type of case, where the director is attempting to transfer a personal liability, is the type of case where courts have often found that corporate personality ought not to operate as a shield for wrong-doing. As Gosnell points out, the question of the personal tort liability of a director raises issues which are similar to those of vicarious liability. Of key importance is that a finding of vicarious liability does not extinguish personal liability; it simply expands the range of liable persons to include the employer. The individual actor, however, remains
138 Above, n 137 esp at 164. Chapter 2- Tort Liability of Directors 53
liable for their actions, which it is assumed are wrongful.139 But in the real world of litigation it is rarely worth suing the individual employee as well as the employer.140 But why should a company director who has engaged in activity which was careless, and foreseeably led to the injury or death of an employee, be able to shift that liability completely to the company? True, the director’s activities will for the purposes of an action against the company be imputed to the company; but that does not mean that in an action against the director liability should be directed away from the director. The more difficult questions arise when the facts move towards the imputed end of the spectrum, but the director is not completely uninvolved. Suppose a director who sits in board meetings regularly but pays no attention to preventative safety measures. An injury to an employee141 results which could have been prevented if the board had taken well-known and affordable (if expensive) prevention measures. Should the individual director be liable in tort as well as the company? Arguably there is foreseeability, and the Wyong Shire Council v Shirt142 calculus would require an individual employer to implement the prevention measures. Why should the board member not be held liable? 143
The following analyses the different factual situations that may arise in the case of an alleged failure by an individual director in relation to workplace safety. (1) One possible situation is where the director concerned has been personally negligent in terms of the cause of the accident. This category itself may be divided into direct and indirect negligence.
139 See, for example, Fleming, The Law of Torts (9th ed; North Ryde: LBC Information Services, 1998) at 411: “The master’s vicarious liability does not displace the servant’s personal liability to the tort victim”. 140 Indeed, in NSW the Employee’s Liability Act 1991 s 3(2) makes it useless to sue the employee where the employer is vicariously liable, as the employee is entitled to a full indemnity from the employer. 141 Or indeed a contractor or labour-hire worker who is owed a duty of care by the company in the circumstances- see for a recent example Rockdale Beef Pty Ltd v Carey [2003] NSWCA 132. 142 (1980) 146 CLR 40. 143 Other difficult questions may arise, of course, in relation to different actions of different directors. Should a director who does go to the trouble of asking questions about safety be treated differently from one who does not? Of course it may be that if the board, on at least one Chapter 2- Tort Liability of Directors 54
A. Direct personal negligence would involve the director personally acting or failing to act in relation to a workplace hazard he or she was actually aware of. An example discussed below is the Berger144 case. The director was the “line manager”, he knew of the presence of ice on the means of exit from the workplace, and he had not acted to remove the hazard. To give him limited liability in these circumstances would be arguably to allow him to use the corporate identity of the company as a shield against his own wrongdoing. B. Indirect personal negligence would be where the director, while not observing a hazard with his own eyes, participated in boardroom discussions where safety equipment was not purchased because it was too expensive. Here the director will be someone who knows about a hazard but fails to do anything about it. A good example here may be the behaviour of Mr Bates in the Yuille145 case, discussed below, who refused to upgrade equipment on the boat in order to save money. (2) The second type of case would be where the director was involved in overall management of a company where an accident occurred due to something the director subjectively knew nothing about. This category itself may be sub-divided into: A. cases where the way the company operated (an unsafe system of work etc) caused the accident [which then may possibly have been avoided if the board had a better safety management system in place]. This will include, for example, a director who does not address the issue of safety at all at board meetings, being content to assume that others are doing something about it, without inquiring; and B. cases where the accident occurred due to an unpredictable action of an employee or other cause where the company itself would not be directly liable, although it would be vicariously liable. Many commentators would agree that in case 1A a director ought to be personally liable (though this in itself is by no means settled). Most commentators
director’s initiative, is at least seriously asking the right questions, that there would be no breach of duty by any member. 144 Below, n 184. 145 Below, n 179. Chapter 2- Tort Liability of Directors 55
would agree that in case 2B a director ought not to be personally liable. The more controversial cases are those hovering between 1B and 2A. The above analysis forms the background to the following substantive discussion.
(a) Liability for Personal Injuries Consider first an action in the tort of negligence in relation to personal injuries.146 In light of the analysis offered by Lindgren J in the Auschina case147, and supported by others, there are three possible bases of liability, which need to be considered separately. One basis is liability under the special rules governing directors and company torts, under the “directed and procured” test. The second possibility is personal liability of the director under a duty of care owed by him directly to the injured worker. A third possibility is that a director might be found liable under the general law principles relating to “joint tortfeasors”. (i) Liability under the “Directed and Procured” test Under this test, as seen above, the director’s liability will arise if it can be said that he or she “directed or procured” the commission of the wrongful act. The discussion above sets out the likely parameters of this test. It is not necessary to show in establishing this form of liability that the director owed a personal duty to the injured worker. It will be sufficient if it can be shown that the company itself owed such a duty, and that the director participated in the company’s breach.
146 It should be noted that this discussion does not consider the possible liability of a director in the other main action for workplace injury, the tort of breach of statutory duty. Insofar as the company itself may be liable to such an action then the director’s liability for “directing and procuring” the injury may be analysed as set out below. Insofar as the action might be based on a personal failing of the director, the situations where a director (as opposed to the company) is exposed to personal statutory duties in this area are fairly limited. The main possible exception would be under provisions such as s 26 of the Occupational Health and Safety Act 2000 (NSW), considered in chapter 4 below, where a director may be “deemed” or “taken” to have contravened the same provision as the company in some cases. While breach of the main duties under the 2000 Act is specifically said not to be the basis of civil liability under s 32(1) of the Act, s 32(2) preserves the possibility of a civil action against the company based on a breach of the regulations. It might then be argued that a director is to be taken to have contravened the same provision and to be civilly liable. But given the indirect nature of liability in these cases it seems unlikely that a court would base a civil liability on this “deemed” contravention alone. 147 See the discussion near n 99 above. Chapter 2- Tort Liability of Directors 56
The extent of the director’s personal involvement in the relevant breach is still a little unclear. But there are comments that strongly suggest that it is not necessary that the director be actually aware of a specific danger to a specific employee, or give a specific express order.148 On general principles it would certainly seem to be sufficient if the director participated in discussions in which the company decided not to implement known safety precautions. It may be less clear, but certainly strongly arguable, that such a liability would arise where a director completely ignored the question of safety in the company operations, allowing the board to go on without raising the issue at all.149 Such liability would as a matter of policy be desirable if changes in corporate “culture” are to be achieved, as noted in Chapter 1. Not all cases which have considered directorial liability for company torts have clearly maintained the distinction between the “directed and procured” test and the question of whether a director owes a personal duty of care. Of course, if it is possible to establish the personal duty of care on general principles then the court is not required to analyse the somewhat unclear limits of the “directed and procured” test. For this reason it is important to consider in some detail the question of this separate personal duty of care.
(ii) Personal duty of care owed by the director Does a director of a company, then. owe a personal duty of care to an employee of the company who receives a personal injury while at work? If so, in what circumstances?
148 See, for example, the remarks of Atkin LJ in Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd, above n 15 : “I conceive that express direction is not necessary. If the directors themselves directed or procured the commission of the act they would be liable in whatever sense they did so, whether expressly or impliedly”. 149 See the previously quoted remarks of Lee J in King v Milpurruru , above n 94:“implied direction or procurement is to be found in the approval of, or acquiescence in, that wrongful act, inferred from the breach of duty by the director the circumstances of which support the conclusion that the director has refused to enquire, or to act, to avoid learning, or dealing with, the obvious”. Chapter 2- Tort Liability of Directors 57
(1) GENERAL PRINCIPLES GOVERNING PERSONAL INJURY IN THE
WORKPLACE Long-standing authority at the highest level in Australia holds that where personal injury to another is reasonably foreseeable, nothing else is normally required to establish a duty of care. To take just one recent example of the statement of this principle, McHugh J in Perre v Apand150 said:
Where a defendant knows or ought reasonably to know that its conduct is likely to cause harm to the person or tangible property of the plaintiff unless it takes reasonable care to avoid that harm, the law will prima facie impose a duty on the defendant to take reasonable care to avoid the harm. Where the person or tangible property of the plaintiff is likely to be harmed by the conduct of the defendant, the common law has usually treated knowledge or reasonable foresight of harm as enough to impose a duty of care on the defendant. [emphasis added]151
The law on the duty of care owed by an employer to employees in relation to safety is equally clear. Perhaps the best recent summary of the law in this area is that given by Kirby J in Schellenberg v Tunnel Holdings Pty Ltd:
[I]t is the duty of an employer at common law to take reasonable care to avoid exposing an employee to unnecessary risk of injury.152 That duty includes the provision of a safe system of work; a safe place of work; and proper plant, equipment and appliances. The duty is not delegable. It is personal to the employer. It extends to taking reasonable steps in accident prevention and not waiting for accidents to happen before safeguarding the health and safety of employees.153
In the circumstances considered here the director is of course not the employer. But the question is whether or not he or she is in an analogous relationship which will also give rise to a duty of care to take steps to avoid causing foreseeable personal injury.
150 Perre v Apand Pty Ltd [2003] HCA 36, at para [70]. 151 For an earlier statement to similar effect, see the remarks of Deane J in Sutherland Shire Council v Heyman (1985) 157 CLR 424, at 495: “Reasonable foreseeability of loss or injury to another is an indication and, in the more settled areas of the law of negligence involving ordinary physical injury or damage caused by the direct impact of positive act, commonly an adequate indication that the requirement of proximity is satisfied.” 152 Hamilton v Nuroof (WA) Pty Ltd (1956) 96 CLR 18 at 25. 153 Bankstown Foundry Pty Ltd v Braistina (1986) 160 CLR 301 at 309; cf Mihaljevic v Longyear (Australia) Pty Ltd (1985) 3 NSWLR 1 at 9, 18; Fleming, The Law of Torts, 9th ed (1998) at 560. Chapter 2- Tort Liability of Directors 58
In a number of situations, those who are in “employer-like” relationships with others have been held to owe the same duty of care as an employer. So, for example, in Delahunt v Westlake & Westlake154 the Supreme Court of South Australia was prepared to assume that a duty of that sort arose where the plaintiff was an apprentice and not exactly under a contract of employment.155 Lander J in the Full Court said:
I agree, in the circumstances of this case, that even though there was no relationship of employer and employee between the appellant and the male respondent it was appropriate to proceed upon the basis that the duty of care owed by the male respondent was akin to that owed by an employer to an employee.156
Similarly, as noted previously, an “entrepreneur” may owe a duty of care to those who are contractors or the employees of contractors.157 In Crimmins v Stevedoring Industry Finance Committee158 the High Court held that a supervisory body which allocated waterfront workers to jobs with particular employers had a duty of care to ensure the work done was reasonably safe.159
154 [1999] SASC 366. 155 Traditionally a contract of apprenticeship was not precisely a contract of employment- it was called an “indenture”. However, for most statutory purposes apprenticeship arrangements are these days treated as if they were contracts of employment. In a decision of the Industrial Relations Commission, Decision 205/1993; [1993] 205 IRCommA, the Commission considered the law on this area and concluded that the better view is probably that the common law should today regard an apprentice, except in rare circumstances, as an employee. The Commission commented: “Even if it could be said, and it has been doubted [Re Marryat Westminster Bank Ltd v Hebcroft (1948) 1 Ch 298 per Jenkins J. at 311], that there was in the mature Common Law a strict distinction between the relationship of an apprentice and that of an employee to their respective employer, the situation has changed in the last 90 years”. 156 Above, n 154, at para [23]. 157 See the cases referred to in chapter 1, at note 17. 158 [1999] HCA 59. 159 While McHugh J at para [113] specifically declined to make a finding on the “analogy” between the relationship of the Authority to the worker and an employment relationship, this was a factor that weighed with Kirby J: see para [229]: “Although not itself the employer of registered waterside workers, it had a direct, regular and multi-layered relationship with those whom it registered and allocated to their work”, and para [235]: “In the unique statutory arrangements between registered waterside workers and the Authority, the closest analogy (although by no means exact) is that of the employment relationship. Having assumed some of the functions which, in other circumstances, would be performed by an employer, it is unsurprising that a conclusion is reached, by incremental development of the common law, that the relationship here was close enough to that of employment to make it fair, just and reasonable that the law should impose a duty of care on the Authority towards a person such as the deceased” (footnote omitted). Chapter 2- Tort Liability of Directors 59
In the area of corporate employers and subsidiaries, the NSW Court of Appeal ruled in CSR Ltd v Wren160 that a holding company may have the same duty of care as an employer to employees of a wholly-owned subsidiary, at least where there is extensive management control. In that case the whole management structure of the subsidiary, Asbestos Products Pty Ltd (APPL), was occupied by employees of the holding company, CSR Ltd. All the APPL board members were CSR staff members, as were all the “line managers”. CSR had a policy whereby it had to approve APPL purchases over a certain value. Beazley & Stein JJA commented:
In our opinion, given the fact that the whole of the management staff, who had responsibility for the operational aspects of Asbestos Products Pty Ltd’s enterprise, and therefore the conditions in which Mr Wren worked, were CSR staff, CSR had a duty directly to Mr Wren and that duty was co-extensive with that owed by an employer to an employee.161
The Court considered policy questions which counted against the finding of a duty, and in particular commented (although briefly) on whether the finding was inconsistent with “the principles of corporations law enshrined in Salomon v Salomon & Co”. But their Honours concluded that in this case CSR had created its own relationship with the employee by placing its staff in management positions.162 The Court of Appeal’s approach in this case illustrates the fact that further questions will often arise as to whether, even if this duty of care would otherwise exist, there are over-riding policy reasons to find that there is no duty in the case of company directors. That such “policy-based” exclusions are part of the law of negligence is clear from the classic formulation of the criteria for determining a duty of care outlined by
160 (1998) 44 NSWLR 436. 161 Above, n 160, at 485D. 162 Above, n 160, at 485F. The recent decision of the Court of Appeal in Van Der Lee v. State of New South Wales [2002] NSWCA 286 provides an interesting variation on this question of the duty of care owed by a head company for negligence committed by subsidiaries. There Van der Lee and other individuals were former officers and employees of Kosciusko Thredbo Pty Ltd which was ultimately owned by Lend Lease Corporation. It was claimed that the actions of Kosciusko Thredbo had led to the Thredbo landslide of 1997. The subsidiary company had been wound up some years before the landslide occurred. An application was made to dismiss the proceedings as an abuse of process, on the basis that the aim of the litigation, should a large sum of damages be awarded against the individuals, was to put “moral” pressure on Lend Lease to meet the award rather than to leave the individuals to be made bankrupt. The Court of Appeal held that even if there was such a motive, this would not amount to an abuse of process. Chapter 2- Tort Liability of Directors 60
Deane J in Jaensch v Coffey.163 The paragraph in his Honour’s discussion on “duty of care”, at point (c) refers to the “absence of any statutory provision or other common law rule… which operates to preclude the implication of such a duty of care to the plaintiff in the circumstances of the case”. Policy-based exclusions may come, to give a few examples, from the type of action concerned (was it a positive act or an omission to do something?164), from the type of defendant (was the body which did harm a public or statutory authority?165), or from the cause of harm (did the harm result from a tortious activity carried out by some third party?166) Sometimes a duty of care may be rejected because to find such a duty would “so cut across other legal principles as to impair their proper application”.167 Nevertheless, it seems clear that the preponderance of authority can be said at least to favour the idea that where a duty to avoid causing personal injury is involved, the onus
163 (1984) 155 CLR 549, at 585-586: “the components of an action in negligence in such a case are a duty of care, determined by reference to the related tests of reasonable foreseeability and proximity, breach of that duty of care and damage. In the context of subsequent development and refinement, those components can be stated, in a form appropriate to the circumstances of the present case, as being: (i) a relevant duty owed by the defendant to the plaintiff to take reasonable care resulting from the combination of: (a) reasonable foreseeability of a real risk that injury of the kind sustained by the plaintiff would be sustained either by the plaintiff, as an identified individual, or by a member of a class which included the plaintiff, (b) existence of the requisite element of proximity in the relationship between the parties with respect to the relevant act or omission and the injury sustained, and (c) absence of any statutory provision or other common law rule (e.g., that relating to hazards inherent in a joint illegal enterprise) which operates to preclude the implication of such a duty of care to the plaintiff in the circumstances of the case; (ii) a breach of that duty of care in that the doing of the relevant act or the doing of it in the manner in which it was done was, in the light of all relevant factors, inconsistent with what a reasonable man would do by way of response to the foreseeable risk…; and (iii) injury (of a kind which the law recognizes as sounding in damages) which was caused by the defendant's carelessness and which was within the limits of reasonable foreseeability.” 164 See, for example, the common example that the law would not penalise the priest or the Levite who passed by the injured man in the Biblical story of the “good Samaritan”- Windeyer J, Hargrave v Goldman (1963) 110 CLR 40 at 66; McHugh J, at [101] in Pyrenees Shire Council v Day (1998) 72 ALJR 152. 165 See the discussion on this issue in, for example, the Crimmins case, below n 216. 166 For a recent example see the High Court’s refusal to find a duty of care in a shopping centre owner to provide lighting to prevent a robbery, in Modbury Triangle Shopping Centre Pty Ltd v Anzil [2003] HCA 61. 167 Sullivan v Moody [2001] HCA 59, at para [53]. In Sullivan the High Court held that a medical practitioner who suspected that a child had been abused did not owe a duty of care to a parent who was suspected of that abuse in deciding whether or not to report the matter to the relevant authorities. The other responsibilities that were owed negated the existence of a duty of care to the suspected abusers. Chapter 2- Tort Liability of Directors 61
will lie on those who assert that such a policy-based exclusion is available, to clearly demonstrate the need for such an exclusion.168 The decision of the High Court in Graham Barclay Oysters Pty Ltd v Ryan,169 that neither the State of NSW nor the Great Lakes Council had a duty of care to consumers of oysters contaminated by domestic sewerage run-off into Wallis Lake, may seem to count against this proposition, as it involved a clear situation of “personal injury”. But the decision was primarily based on a lack of relevant “control” over the activities concerned,170 and the fact that actions against government bodies must carefully weigh up the allocation of public resources, which is an area of political decision-making into which the courts are reluctant to go.171 This case is clearly distinguishable from the situation of a company officer who exercises actual control over company policy and activities, and does so not primarily for the public interest but for the purpose of private profit-making. The suggested overall approach to negligence claims offered by Kirby J in Barclay, however, is worth noting. His Honour acknowledged that his personal preference for a “three-stage” test for duty of care in novel situations had been rejected by the majority of the Court, and suggested that the Court could reformulate the test in the following way:
liability should therefore be imposed where it was judged that a reasonable person in the defendant's position could have avoided damage by exercising reasonable care and was in such a relationship to the plaintiff that he or she ought to have acted to do so.172
It would not seem to be difficult to conclude that a company officer in a position to address safety issues, who could avoid injury to employees by ensuring that
168To some extent, for example, the decision of the High Court in Brodie v Singleton Shire Council [2001] HCA 29 to abolish the common law immunity of “highway authorities” for failure to repair roads, may be seen as part of a trend to remove policy-based exclusions which have no clear contemporary justification. 169 [2002] HCA 54. 170 See the judgements of Gleeson CJ at [20]-[27], McHugh J at [94], and Gummow & Hayne JJ at [150]ff in Barclay, above, n 169. 171 See, eg, above, n 169, per Gummow & Hayne JJ at [175]: “A decision of that nature involves a fundamental governmental choice as to the nature and extent of regulation of a particular industry”. 172 Above, n 169, at [240], footnote omitted. Chapter 2- Tort Liability of Directors 62
appropriate policies and procedures are in place, is in such a relationship to an employee that he or she ought to do so. This general formulation will not, of course, resolve other complexities presented by the circumstances of a decision made by a number of officers, possibly at different times and with different available information. But, as noted above, such issues are precisely the sort of issues which can be addressed by a court in considering the question of breach of duty by separate officers; they do not of themselves preclude the existence of a duty of care.
(2) PERSONAL (ACTIVE) NEGLIGENCE BY DIRECTOR LEADING TO INJURY In categories 1A and 1B identified above, where the director has been personally negligent, is there personal liability? To start with what should be an uncontroversial example: suppose the managing director of a trucking company were to carelessly run down a company employee while the director was performing duties for the company. If the director were also an employee of the company, it would normally be expected that the victim would sue the company, or access the company’s workers compensation insurer, and rely on either the doctrine of vicarious liability (in relation to the negligence of a fellow-employee), or generally on a failure of the company as employer to maintain a safe system of work. Even if the director were not an employee, probably there would be no doubt that the employee could sue the company, which was itself acting through the director (who it may be assumed for the purposes of this example was the “directing mind and will” of the company in the Tesco173 sense).174
173 Tesco Supermarkets Ltd v Nattrass [1977] AC 153; see the discussion in chapter 3 on the question of whose actions count as “the company’s” actions. 174 J Payne, “The Attribution of Tortious Liability between Director and Company” [1998] JBL 153-168, at 161-162, suggests that in many cases, even where there is no traditional employment contract, a director would be regarded under the modern English approach to the issue, as an “employee”, because he or she is “acting in a way which is integral to the company”, citing the “organisation” test approved by the Court of Appeal in Hall (Inspector of Taxes) v Lorrimer [1994] 1 All ER 250. This would probably not be so easily established in Australia. Recent authority in the Industrial Relations Commission of NSW, for example, makes it very clear that a director as such is not necessarily an employee: see, for example, Hungerford J in Rech v FM Hire Pty Ltd (1998) 83 IR 293. Nevertheless, the liability of the company in the circumstances discussed in the text seems clear. Chapter 2- Tort Liability of Directors 63
But in both cases it must on principle be right to say that the director could also himself or herself be personally liable at the suit of the injured person, and could if needed be sued as a joint tortfeasor along with the company.175 That a director might be personally liable in such circumstances is certainly also the implication of a number of passing judicial comments; see, for example, the remarks of Aldous LJ in Standard Chartered Bank,176 by no means a judgement generally favouring personal liability. What about a slightly more distant connection than actually driving a vehicle over an employee? Can a director be found liable where they are personally aware of dangerous conditions in the workplace and fail to act?
A. Cases Holding Directors Personally Liable for Workplace Injuries There are decided cases in such circumstances where a director of a company has been found personally liable for injuries suffered by an employee of the company. As early as 1919 the Supreme Court of Canada upheld a verdict against a company director in Lewis v Boutilier.177 Mr Lewis had personally engaged a 14-year- old boy to work at the sawmill run by his company, Lewis Hardware Co Ltd. He then directed the boy to work in a dangerous job without adequate safety precautions and the boy was killed. While acknowledging the fact of the boy’s employment by the company, the majority of the Supreme Court held that Lewis was personally liable for his actions in causing the boy’s death. Mignault J commented:
I felt some hesitation in view of the fact that the action was taken against Mr. George Lewis personally as having employed the boy, and that the jury had found that he was employed by the Lewis Hardware Co., Limited. But I cannot but think that even granting the
175 The director’s personal liability would be established on general principles of foreseeability and the nature of the harm caused. In an analogous situation, the liability of one employee to another for personal injury, Johnstone Occupational Health and Safety Law and Policy (North Ryde: LBC Information Services, 1997) at 535 states: “An employee also owes a common law duty of care to all fellow employees”. No doubt because almost invariably there will be no financial benefit in suing a fellow employee, cases establishing this precise proposition are rare. But there seems no reason to doubt that it would be applicable to the director discussed in the text. Further support for this can be drawn from the cases mentioned below. 176 “First, if a director or an employee himself commits the tort he will be liable. An example is the lorry driver who is involved in an accident in the course of his employment”- above, n 47, at para [16] of His Lordship’s judgement. 177 (1919) 52 DLR 383. Chapter 2- Tort Liability of Directors 64
employment of the boy by the company, an action would lie against Mr. Lewis if he personally put the boy at a dangerous work without proper safeguards to protect him from mishap… Under these circumstances, liability was incurred, in my opinion, by Mr. Lewis, the president of the company, even although the boy was employed by the company.178
Another example is the Admiralty decision of Willmer LJ in Yuille v B&B Fisheries (Leigh) Ltd (The “Radiant”).179 The plaintiff, Mr Yuille, was skipper of a small boat owned by the defendant company, B&B, of which Mr Bates was the managing director. As a result of the failure of various pieces of equipment on the boat, it was being towed when Mr Yuille’s legs became tangled in some wire and were amputated. There was a contract of employment between the plaintiff and the company, and the judge had no real problem in concluding that the company was in breach of its duty of care as employer. The evidence was that the defects in the equipment had been reported to Mr Bates, who had effectively done nothing to have them fixed. His Honour found:
Mr. Bates was guilty of a sad dereliction of his duty as managing director. I am satisfied that he knew, or had the means of knowing, of the defects which have been alleged in relation to these two vessels, and, in particular, the defects which I have found to have contributed to this casualty.180
In dealing with the personal claim against Mr Bates, his Honour referred to Rainham and to a patent infringement case, British Thomson-Houston Company, Ltd v Sterling Accessories, Ltd.181 He went on to find that on general principles a director who had actively ordered some unsafe activity would be under a duty of care to any employees who were injured:
Suppose a director of a company causes a ship to be overloaded, with the result that she goes to sea in an unseaworthy condition, in consequence of which she sinks and members of her crew are drowned. I apprehend that, in such circumstances, the director concerned would render himself liable to criminal proceedings... If he would be liable as a director to criminal proceedings, I should have thought a fortiori he would expose himself to the possibility of civil proceedings at the suit of dependants of the persons who were drowned, on the basis that he was a person guilty of an act which he could reasonably foresee would be likely to cause injury to other persons who were in law his "neighbours", to use the
178 Above, n 177, at 392-393. 179 [1958] 2 Lloyd’s LR 596. 180 Above, n 179 , at 615. 181 [1924] 2 Ch. 33. Chapter 2- Tort Liability of Directors 65
expression used by Lord Atkin in the course of his speech in Donoghue v. Stevenson, [1932] A.C. 562. In other words, it seems to me that the members of the crew of a ship improperly sent to sea in an unseaworthy condition would be persons in a sufficiently close relationship with the responsible director of the company to create a legal duty on the part of the latter to exercise reasonable care. 182
His Lordship then went on to say that a case such as that of Mr Bates, whose negligence consisted of a failure to repair and maintain equipment, could not be logically distinguished from the example of a director who ordered something directly. He concluded on this issue:
[H]aving regard to the defective condition of these various vessels in the respects which I have referred to, and having regard to Mr. Bates's knowledge and means of knowledge, of those defects, he is in the position that he was party to the sending of vessels to sea when he knew, or ought to have known, that they were not in a seaworthy condition. In those circumstances, if injury or damage to a fellow-servant results, it seems to me that there is nothing to prevent that fellow-servant from having his remedy in tort against Mr. Bates personally.183
Another, more recent, line of cases where an action in relation to personal injury succeeded, comes from Canada. In Berger v Willowdale AMC,184 the Ontario Court of Appeal found in favour of an employee of a company in a personal action against the president of the board. Mrs Berger slipped and fell on a dangerous patch of ice immediately outside the premises where she worked. Mr Falkenberg was the president and sole shareholder of the company who employed her. The action seems to have been brought against the president because the local workers compensation act prevented an action being brought against the employer or against fellow employees. But the legislation specifically excluded executive officers of a corporation from the definition of “employee”. The court had no problem in finding that on general grounds there was negligence. Mr Falkenberg was the day-to-day office manager; he was aware of the hazard of the ice, and had the power to order it to be removed but had not done so. A majority of the court (Brooke and Cory JJA) held that there were no other policy reasons for excluding the president from liability. They did say, however, that liability would depend on a number of factors:
182 Above, n 179, at 618-619. 183 Above, n 179, at 619. Chapter 2- Tort Liability of Directors 66
The factors in determining liability will include the size of the company, particularly the number of employees and the nature of the business; whether or not the danger or risk was or should have been apparent to the executive officer; the length of time the dangerous situation was or should have been apparent to the executive officer; whether that officer had the authority and ability to control the situation and whether he had ready access to the means to rectify the danger.185
Weatherston JA, in dissent, argued mainly on the basis that it was unsatisfactory that the legislature would have taken away the common law right to sue the employer and fellow-workers, but have left it in place in relation to executive officers. His Honour cited the words of Lord Buckmaster in Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd,186 to the effect that directors of a company are not personally liable for the company’s torts by reason of their office alone, except where they direct that a tortious act be done. Weatherston JA concluded that
Loyalty to the principle enunciated in Salomon v A Salomon & Co Ltd [1897] AC 22 (HL), as explained in Rainham, requires it to be held that [Mr Falkenberg] was not in breach of any duty to [Mrs Berger].187
Despite that strong dissent, Berger has been followed subsequently in Canada. The Ontario legislature seems to have taken the view188 that the decision went too far, as in 1985 it amended the Ontario Workmen’s Compensation Act RSO 1970, c 505 to remove the provision allowing executive officers to be sued.189 However, before that amendment could take effect, another accident occurred in Ontario which formed the basis of the claim in Medina v Danbury Sales (1971) Ltd.190 In that case Mr Medina suffered a severe injury while working for Danbury Sales. He sued the company and its president, vice-president, and company secretary. The secretary was his immediate supervisor on the day of the accident, who Kerr J in the Ontario Court (General
184 (1983) 145 DLR (3rd) 247. 185 Above, n 184, at 258. 186 Above, n 7, at 475-476. 187 Above, n 184, at 265. 188 Shared, as noted above, by Weatherston J. 189 See comments by Herold J in the Ontario Court in Kingscourt Automotive Enterprises Inc v The General Accident Assurance Co of Canada (1992) ACWSJ 61009, Feb 14, 1992, at para [31]. From April 1, 1985 protection from civil actions under the Act was extended to cover “executive officers”. 190 (1991) 30 ACWS (3rd) 770. Chapter 2- Tort Liability of Directors 67
Division) found had effectively caused the accident by requiring a heavy load to be moved without proper equipment. The president was the supervisor’s father, who knew that he was poorly trained and unsuited to supervision, as did the vice-president. Following Berger, his Honour held that there was a personal duty of care owed by the executive officers of the company, which co-existed with the company’s duty of care. In the case of the supervisor, he was reinforced in this view by the provisions of Ontario’s Occupational Health and Safety Act (RSO 1980 c.321), section 16 of which imposed a criminal liability on supervisors.191 His Honour also cited the Yuille case as evidence of the personal duty of care of the officers. Kerr J applied the factors set out for consideration in the majority judgement in Berger.192 The company was small enough that the officers all knew what was happening. The two senior officers were aware of the erratic nature of the supervisor and his lack of safety training. In particular the two senior officers:
were aware of their duty to provide a safe work place, although apparently not familiar with the Occupational Health and Safety Act. But no safety program was in place, no safety training provided, no safety officer appointed, no safety meetings held, and no literature on safety was made available. The company policy was to give a new employee a short apprenticeship and thereafter he was on his own.193
The situation (in particular, a known animosity between the supervisor and Medina which meant that the supervisor was unlikely to respond to Medina’s requests for appropriate safety equipment) had been apparent for some time. Each of the officers had the power to correct the situation but did not do so. As a result each of the officers was found to be personally liable. Courts in Canada, as elsewhere, have handed down decisions since Berger more or less favourable to personal liability of directors.194 But a review of those decisions
191 Since the decision of the Supreme Court of Canada in R v Saskatchewan Wheat Pool [1983] 1 SCR 205 effectively abolishing the separate action for “breach of statutory duty”, this section could not be relied on directly as the basis for an action. But it was held to amount to a helpful statutory prescription of a “specific, and useful, standard of reasonable conduct”; see para [48]. 192 See n 185 above. 193 Above, n 190, at para [57]. 194 In Bradsil Limited v 602871 Ontario Limited (unrep; Ontario Gen Div, Gibson J, 31 Jan 1996), for example, a claim against a company director for the company’s negligence in performing a contract failed. Gibson J (with respect, quite correctly) distinguished Berger because in the Chapter 2- Tort Liability of Directors 68
and restatement of the law by the Ontario Court of Appeal in ADGA Systems International Ltd v Valcom Ltd195 affirms that Berger is still good law. Carthy JA commented that:
The consistent line of authority in Canada holds simply that, in all events, officers, directors and employees of corporations are responsible for their tortious conduct even though that conduct was directed in a bona fide manner to the best interests of the company.196
Canadian cases cited to support this proposition included Berger, Sullivan v Desrosiers,197 and London Drugs Ltd v Kuehne & Nagel International Ltd,198 an important decision of the Supreme Court of Canada holding that a claim may be made in tort against an employee personally even if the employee was acting for a company. Other Canadian decisions where personal liability was rejected were explained as mostly turning on pleading issues. His Honour concluded that there was no basis for striking out the action against the officers simply on the basis that they were acting “in pursuance of the interests of the corporation”.199 The Berger case, then, is still cited with approval as part of the jurisprudence of Canada.200 It (and Medina) stand squarely for the proposition that in appropriate circumstances a director may be found personally liable for personal injuries suffered by a company employee.
circumstances of the case no personal duty had been assumed by the director- see para [296]. The case was clearly one which should have been resolved on general limited liability contractual principles, rather than as a case in tort. 195 (1999) 168 DLR (4th) 351. 196 Above, n 195, at para [18]. 197 (1986) 76 NBR (2nd) 271, a case where the director of a company which was found to have caused a nuisance on neighbouring land was found personally liable. 198 [1992] 3 SCR 299, 97 DLR (4th) 261. 199 Flannigan refers to the ADGA case as a significant decision which represents a “major potential rehabilitation” of what he regards as confused Canadian jurisprudence on the question of liability for inducing a breach of contract: see above, n 4, at 292-293. 200 See also Balanyk v University of Toronto et al (1999) 1 CPR (4th) 300, at para [58], where the Ontario Superior Court cited Berger with approval, but in the particular case refused to allow a general pleading of liability against a director without specific allegations. In Nairne v Wagon Wheel Ranch Ltd (1995) ACWSJ 77582, April 27 1995, McIsaac J in the General Division of the Ontario Court would have followed Berger in imposing personal liability on the director of a “one-man” company which ran a horse-riding business, but His Honour found that on the facts negligence had not been proven. Chapter 2- Tort Liability of Directors 69
Similar decisions can be found in both United States and Israeli jurisprudence.201 In Adams v Fidelity and Casualty Co of NY 202 the Court of Appeal of Louisiana held that an action by a deceased worker’s widow against individual officers of his employer company should not be struck out. The worker had died when a large iron reel fell on him, which had been allowed to remain balanced precariously for some months. In a carefully reasoned judgement the Court concluded that there was no rule automatically excusing a corporate officer in relation to “omission” as opposed to “commission”:
We believe that the better rule is stated in American Jurisprudence [vol 13, p 1023, para 1092], in which it is stated therein that ‘the more direct and fundamental rule, accepted in principle at least by all the authorities, is that a director, officer, or agent of the corporation is liable to third persons for injuries proximately resulting from his breach of duty to use care not to injure such persons, whether that breach is one of omission or commission’.203
Adams was subsequently followed in Louisiana,204 until, as noted in Jones v Thomas,205 the principle was abolished by statutory amendment in 1976.206 As a proposition of common law in Louisiana, however, it still seems to be good law.207 In Frances T v Village Green Owners Association,208 the Supreme Court of California upheld an action against individual directors of a “condominium association” who had participated in an order that the plaintiff remove lighting from outside her unit, where the plaintiff was then assaulted and raped due, it was alleged, to the lack of lighting. In the words of the majority opinion delivered by Broussard J:
201 For reference to these cases see the extensive review in Z Cohen, “Directors’ Negligence to Creditors: A Comparative and Critical View” (2001) 26 Jnl of Corporation Law 351-391, especially Part III.B “Act or Omission Causing Personal Injuries” (pp 363-365). 202 107 So 2d 496 (1958) [CA La, 1st Cct]. 203 Above, n 202 , at 508. 204 See Canter v Koehring Co, 283 So 2d 716, 1973 La LEXIS 6324 (La 1973) and other cases referred to by Cohen, above, n 201, 364 at n 73. 205 426 So 2d 609 (1983) [Sup Ct of La], esp at 610-611. 206 See La RS 23:1032. It may be recalled that a similar sequence of events followed in Ontario after the decisions in Berger and Medina discussed previously. The reason for the action in Adams was the same as for that in Berger: that the legislature had imposed severe restrictions on actions against employers under the workers compensation legislation. 207 See, for example, the decision of the US District Court for the Eastern District of Louisiana in Flannigan v Cudzik 2001 US Dist LEXIS 1436 (5 Feb, 2001); Duval J refused to strike out an action against a company director and cited the Adams decision, at p 4. 208 723 P 2d 573 (1986). Chapter 2- Tort Liability of Directors 70
To maintain a tort claim against a director in his or her personal capacity, a plaintiff must first show that the director specifically authorized, directed or participated in the allegedly tortious conduct … or that although they specifically knew or reasonably should have known that some hazardous condition or activity under their control could injure plaintiff, they negligently failed to take or order appropriate action to avoid the harm…. The plaintiff must also allege and prove that an ordinarily prudent person, knowing what the director knew at that time, would not have acted similarly under the circumstances.209
His Honour added:
Directors and officers have frequently been held liable for negligent nonfeasance where they knew that a condition or instrumentality under their control posed an unreasonable risk of injury to the plaintiff, but then failed to take action to prevent it. (See Dwyer v. Lanan & Snow Lumber Co., supra, 141 Cal.App.2d 838….) Dwyer is directly on point. In that case, the manager of a sawmill informed its president and director that a backline was poorly secured and might fall, as it had previously. The official failed to take any precautionary action within a reasonable period of time and was found liable to a person injured when the line subsequently fell. (141 Cal.App.2d at p. 841.) Although a director's obligation to complete a task is ordinarily a duty owed to the corporation alone, in the instant case, as in Dwyer, when the only persons in a position to remedy a hazardous condition are made specifically aware of the danger to third parties, then their unreasonable failure to avoid the harm may result in personal liability.210
Frances T continues to be cited for these propositions in California.211 To take another example from recent US jurisprudence, the Supreme Court of Indiana, in finding a company director personally liable under criminal provisions dealing with environmental law, noted:
A [corporate] officer is personally liable for the torts in which she has participated or which she has authorized or directed.212
In Israel, the District Court in Nezer v Knafonit Light Aircraft Co Ltd213 found that the directors of a flight school company were personally liable when, due to failure to ensure the safety of training aircraft, and failure to arrange adequate insurance, the plaintiff was injured and had no adequate recourse to the company.
209 Above, n 208, at 584, citations omitted. 210 Above, n 208, at 585, some citations omitted. 211 See, for example, Rapid Wash Inc v Watercycle Ltd (Court of Appeal of California, Third Appellate District, November 29, 2001) 2001 Cal App LEXIS 2798, at 34. 212 Commissioner, Indiana Dept of Environmental Management v RLG Inc & Lawrence Roseman 755 NE 2d 556 (2001), at 560, quoting Civil Rights Commission v County Line Park Inc 738 NE 2d 1044 (2000), at 1050. 213 1994(2) PM 441; cited in Cohen, above, n 201, at 363 n 61. Chapter 2- Tort Liability of Directors 71
Of course it will be necessary to establish to the satisfaction of the court that the director’ actions or inactivity had a causal link with the negligent behaviour, and there will be cases where a failure to act may not be sufficient to ground liability. Such a case was Williams v Duvalier Investments Ltd,214 a decision of Judge C J Field in the District Court, Auckland. Williams was injured by the tortious actions of a “bouncer” at a nightclub owned by Duvalier Investments Ltd, of which Mr JE Dale was managing director. His action against the company succeeded, the company being held vicariously liable for the assault committed by the bouncer. His action against the director, Mr Dale, failed. The case is interesting because in effect two actions in tort against the director were taken. The first, that in assault, was rejected because it was clear that Mr Dale had not “directed and procured” the bouncer to assault Mr Williams; Dale had not even been present in the club on the night in question. Judge Field considered the Yuille case but distinguished these circumstances from that case. The second action was a claim in negligence against Mr Dale, for (in effect), hiring incompetent and violent staff, failure to properly train the bouncer, and failure to provide sufficient staff to properly handle unruly patrons. The claim was rejected primarily on the basis that insufficient evidence was led to show that Mr Dale was aware of the bouncer’s violent propensity, or that the other matters had not been attended to. The judge concluded that there was a “lack of that degree of direct involvement by the second defendant in Mr Aholelei's assault” which would have rendered him personally responsible for those actions.215 Judge Field does not conclude that a case in negligence of the sort suggested could never be made out, simply that in the circumstances of this case it had not been proven. The sort of matters considered, it is suggested, might be highly persuasive in another fact situation. There seems to be no good reason for supposing that this line of cases in other jurisdictions would not be followed in Australia.
214 1999 NZDCR LEXIS 15; [1999] DCR 897. 215 Above, n 214 , NZDCR LEXIS at *26. Chapter 2- Tort Liability of Directors 72
An action in negligence against a director could further be supported by the decision of the High Court in Crimmins v Stevedoring Industry Finance Committee,216 holding that a quasi-government body set up to oversee the operations of stevedores, and to allocate work, owed a duty of care to the individual stevedores not to cause them foreseeable injury by placing them in positions where they were exposed to asbestos. Crimmins in many ways provides an excellent analogy to the situation being discussed here. It establishes, as noted previously, that someone who is not an employer may still be held liable for a failure to act to prevent foreseeable injury to a worker. The postulated example of a director seems to be an even stronger case than in Crimmins, in the sense that the issues which arose in Crimmins, those of suing government or quasi- government bodies, do not arise in this case. In his review of the factors that required consideration in Crimmins, McHugh J considered that a key element was the power of the relevant Authority to control where the workers were engaged. He said:
It can seldom be the case that a person, who controls or directs another person, does not owe that person a duty to take reasonable care to avoid risks of harm from that direction or the effect of that control.217
The remark is clearly applicable to the situation of a director of a company, whose very “job description” involves controlling and directing (albeit through the structures set up for corporate governance) other persons in their work. McHugh J’s general approach to the issue of duty of care in a novel situation is one which can be applied, with a slight adjustment, to this question. His Honour set out six criteria which he said needed to be met:
1. Was it reasonably foreseeable that an act or omission of the defendant, including a failure to exercise its statutory powers, would result in injury to the plaintiff or his or her interests? If no, then there is no duty.
2. By reason of the defendant's statutory or assumed obligations or control, did the defendant have the power to protect a specific class including the plaintiff (rather than the public at large) from a risk of harm? If no, then there is no duty.
216 [1999] HCA 59. 217 Above, n 216 , at para [104]. Chapter 2- Tort Liability of Directors 73
3. Was the plaintiff or were the plaintiff's interests vulnerable in the sense that the plaintiff could not reasonably be expected to adequately safeguard himself or herself or those interests from harm? If no, then there is no duty.
4. Did the defendant know, or ought the defendant to have known, of the risk of harm to the specific class including the plaintiff if it did not exercise its powers? If no, then there is no duty.
5. Would such a duty impose liability with respect to the defendant's exercise of "core policy- making" or "quasi-legislative" functions? If yes, then there is no duty.
6. Are there any other supervening reasons in policy to deny the existence of a duty of care (e.g., the imposition of a duty is inconsistent with the statutory scheme, or the case is concerned with pure economic loss and the application of principles in that field deny the existence of a duty)? If yes, then there is no duty. 218
While his Honour’s comments were directed to the issues that arose in imposing a duty on a statutory authority, a similar approach can be made to the issues where the question arises concerning someone who is a director of a company. Foreseeability, power to protect, and vulnerability of the worker will all need to be established but will not usually be difficult. Knowledge of the risk will usually be present. Questions 5 and 6 essentially translate into the questions: is there some reason stemming from the legal position held by a director of a company, some “supervening policy”, which requires that a director not be held liable for a decision which they knew might lead to the injury of a worker? Two such reasons ought to be considered: that employees have chosen to contract with a company, not the individual directors; and that the imposition of personal liability in these circumstances will deter anyone from offering to become a company director.
B. Are Employees “Voluntary Creditors”? One possible objection to the imposition of a duty of care in this area may come from the special position of employees. It might be argued that there is one important feature distinguishing the case of an action for personal injuries suffered by an employee, from an action by a stranger run over by a company car. In the earlier
218 Above, n 216, at para [93]. Chapter 2- Tort Liability of Directors 74
analysis it was suggested that the strongest policy justification for imposition of tort liability on a director personally arose where the injured person was an “involuntary creditor”, or, to put it in terms used by Lindgren J in Microsoft Corporation v Auschina Polaris,219 where there were no prior “dealings” between the company and the injured person. Yet in the case of an injured employee this is patently not so. An employee will always have had “dealings” with the employer company. An employee might, then, be described as a “voluntary” creditor. To put it another way, an employee, it could be argued, may always choose whether or not to be engaged by a particular company, and so must be taken to have chosen to deal with the company on the basis of the limited liability of the directors. This last formulation reveals the fallacy of the objection. While in abstract theory an employee is free to choose whichever employer he or she wishes, and to “shop around” to find one with a good safety record, or a sound financial backing, in the real world decisions as to employment are not made in that way. An employee will often have to take whatever work is offered to allow them to live and to support their family. Indeed, someone who is receiving Social Security benefits may be required to take up employment under a “mutual obligation” policy virtually against their will. So Professor Gower is clearly correct when he comments:
Nor is it practical for the unemployed workman, who is offered a job with a limited company, to decline it until he has first searched the company’s file.220
The same point is made by Rogers AJA in Briggs v James Hardie & Co Pty Ltd:
I recognise that it is possible to argue that the proposed general tort considerations should not be applicable in cases where the injured person is an employee. It would be argued that such a person has equal opportunity with a contracting party in determining whether or not to enter into the employer/employee relationship out of which the injury arises. However, whilst the employee may be able to choose whether or not to be employed by the particular
219 Above, n 99. 220 From P Davies, Gower’s Principles of Modern Company Law (6th ed; London: Sweet & Maxwell, 1997), 79-80; cited in Goddard, above, n 131, at 21, n 21. Goddard criticises Professor Gower’s comments earlier in the paragraph quoted on that page on the basis that businessmen are normally risk-takers, and hence are justified in taking a risk on a company’s ability to pay. But he fails to address Professor Gower’s point in the sentence quoted here about the unemployed workman. Risk-taking is precisely not what an employee wants to do in looking for in an employer. Chapter 2- Tort Liability of Directors 75
employer, generally speaking, he has no real input in determining how the business will be conducted and whether reasonable care will be taken for his safety. 221
Indeed, in the current labour market context it is by no means apparent that an employee has much real choice at all in deciding “whether or not to be employed by the particular employee”; many have to take whatever jobs are offered. A similar point was made by Iacobucci J in the Supreme Court of Canada:
[T]he terms of the employment contract rarely result from an exercise of free bargaining power in the way that the paradigm commercial exchange between two traders does. Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer, particularly with regard to tenure.222
In short, the relationship of an employee to an employer must at the very least lie on the “boundary” of the categories of “voluntary” and “involuntary” creditors. In reality an employee will often have little option about the type of work undertaken, and even less control over the safety procedures adopted and enforced. Hansmann and Kraakman make the same point in suggesting that the courts ought to carefully distinguish “voluntary” from “involuntary” creditors, and that in general employees would fall within the “involuntary” category:
The critical question is whether the victim was able, prior to the injury, to assess the risks she took in dealing with the firm and to decline to deal if those risks seemed excessive in comparison with the net advantages she otherwise derived from the transaction. In other words, the question is whether the victim can reasonably be understood to have contracted with the firm in substantial awareness of the risks of injury involved. If so, then the liability should be considered contractual, and limited liability should be considered a background term of the contract, to be respected unless specifically waived. If not, the victim should be considered an involuntary creditor…223
Where a company director is personally aware, then, of a danger to the safety of employees which eventuates in an injury, is there any other good reason in policy why
221 (1989) 7 ACLC 841, at 864. 222 Machtinger v HOJ Industries Ltd [1992] 1 SCR 986, at 1003; cited by La Forest J in London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299, at 354. Iacobucci J is quoting from K Swinton, "Contract Law and the Employment Relationship: The Proper Forum for Reform", in B J Reiter and J Swan, eds, Studies in Contract Law (1980) 357, at 363. 223 H Hansmann & R Kraakman “Toward Unlimited Shareholder Liability for Corporate Torts” (1991) 100 Yale LJ 1879-1934, at 1921. Chapter 2- Tort Liability of Directors 76
they should be shielded from the normal consequences of this failure to take reasonable care?
C. Policy Arguments for Denying Personal Liability Two broad areas of policy are usually offered as reasons for protecting company directors from personal liability for company wrongs: one relating to the need for quality directors, and hence the general need not to discourage people from becoming company directors; and the second related to the interests of business, and the general policy to encourage “enterprise and adventure” by granting limited liability. In terms of the need for directors, Bostock comments after reviewing not only the possible civil liability of directors but increased criminal liability which will be considered in chapter 4:
[This] will… inevitably make people of ability, achievement, integrity and wisdom all the less willing to assume the risks now inherent in the office of director, some of which are not insurable.224
Similarly, Cohen refers to the need
Not to impose overly severe standards of conduct, which may be more damaging than efficient. The imposition of overly severe liability on directors in the context of the duty of care may deter qualified persons from undertaking the office of corporate director, and may deter sitting directors from taking business risks for fear of becoming exposed to liability. [internal references omitted]225
Bostock also argues that to impose a duty on directors which is owed to persons other than the company, is to place them in a position of possible conflict of interest between the two duties. But these arguments, while they deserve consideration, are not decisive. A director’s personal liability for negligence is usually insurable- a topic discussed further in chapter 5 below. Flannigan comments:
The availability of insurance cover actually demonstrates that claims of special treatment for directors are barren. Like other actors, directors (or their corporations) may insure
224 T Bostock, “To Whom Are the Duties of a Company Director Owed?”, paper presented to the Australian Institute of Company Directors Seminar on 8 November 2000, at 18. 225 See Cohen, above, n 201, at 353. Chapter 2- Tort Liability of Directors 77
against tort losses… This ability to avoid the loss by prior contractual arrangement simply dissolves the claim for special treatment.226
In any event tort liability will be conditioned on some form of carelessness which falls short of the objectively reasonable conduct that a company officer ought to accept if willing to take on the position. As noted below, it seems unlikely that a court would impose personal liability on a director in the absence of some personal carelessness which that director could have taken action to avoid. In many cases the action will not be onerous; it will simply be action which shows an awareness of possible safety hazards in the workplace and a serious attempt to address that hazard to the extent possible at the board level. The policy against allowing people to be severely injured in the workplace is unarguable. The community (and the company) will not benefit from directors being in positions of authority in companies who are prepared to pay no heed to safety.227 As Flannigan points out, the standard applied will be that of reasonable care, a standard which is applied to every other professional occupation, such as doctors or lawyers, and indeed every other occupation of any sort.
The public view is generally that basic functions require reasonable regulation for the protection of others. The view of directors seems to be that the importance of their function is such that they have a singular claim to relief from the ordinary standard of care. Of course, the net effect of maintaining a lower standard is to ensure that their important work will continue to be performed by less competent actors.228
Flannigan also makes the interesting point that this argument, while apparently of general application to all companies, actually benefits a sub-set of companies. In smaller, “one-person” or family companies, directors will hold office simply because they have to run the business. It is only in the larger companies that a wide range of choice becomes available for potential directors.
226 “Personal Tort Liability of Directors” (2002), above, n 4, at 312. 227 At least in the long-term. Unfortunately a company may indeed enjoy a short-term benefit from ignoring expenditure on safety, so long as fortuitously no injuries eventuate. This of course is part of the reason for legislation like that discussed in chapter 4, which conditions company (and officer) criminal responsibility not on the actual injury but on the presence of a risk. 228 Above, n 4, at 314-315. Chapter 2- Tort Liability of Directors 78
Accordingly, if this is the justification, the law has shaped itself to benefit a tiny elite of professional directors who are otherwise well able to protect themselves through negotiated arrangements with their corporate employers… Maintaining this benefit for an elite subclass hardly represents a significant social concern today.229
As for the possible conflict of interest, such a conflict seems more theoretical than real. In the postulated circumstances the conflict will be between the company’s interest in profitability, and the interests of the employees in bodily integrity and life. It surely cannot be argued, at the beginning of the 21st century, that a company is entitled to give absolute priority to the former at the expense of the latter. To do so would in any case expose the company to serious criminal liability under the Occupational Health and Safety Act 2000 (NSW), for example. The interests of the company will involve the safety of its employees.230 Finally, the argument that imposition of directors’ personal liability will stifle business is sometimes made. So Hawke comments:
The policy considerations in relation to personal liability centre on the question whether imposition of such liability routinely would hopelessly compromise the limited liability company.231
In effect, however, arguments of this nature tend to repeat the considerations raised under the previous argument to do with the availability of possible directors. As Cohen points out, “limited liability” companies are so called because the shareholders have limited liability to creditors, not because the directors enjoy that protection as such.232 In a similar vein Shapira notes:
Shareholders’ limited liability has nothing to do with directors’ tort liability. Shareholders’ liability is proprietary, not operational. Limited liability protects the proprietors’ personal assets against business failure of the company by setting a limit on the capital at risk.
229 Above, n 4, at 313-314. 230 In this context it is interesting to note that the UK Companies Act 1985, c 6, s 309 spells out clearly that it is one of the duties of a director of a company to “have regard in the performance of their functions [to] the interests of the company’s employees in general, as well as the interests of its members”. While s 309(2) makes it clear that this is a duty which can only be enforced by the company (and not at the suit of individual employees), nevertheless the section would at least operate as a defence should a director be challenged by shareholders to spend less on safety. There would seem to be a case for such a provision in Australian legislation as well. 231 N Hawke, Corporate Liability (London: Sweet & Maxwell, 2000) at p 89, para 4-19. 232 See Cohen, above, n 201, at 368. Chapter 2- Tort Liability of Directors 79
Protection from contractual liability of a company’s agents, whether shareholders or not, flows from [the doctrine that the company and its owners are] separate entities, and agency. By the same token, rules imposing personal tort liability on agents apply to corporate agents as well. Personal financial accountability for negligence may be avoided by maintaining proper standards, and, failing that, by insurance.233
(3) LIABILITY FOR DIRECTORS WHO ARE “PASSIVE” Should it make a difference to the above analysis that a director is not personally aware of safety problems, but just does not make any inquiries? This will encompass category 2A cases mentioned above. Commission of a tort might be thought to require more than a passive involvement, a “non-action”, to create personal liability. But the modern trend has definitely been in the direction of requiring a “pro- active” concern for issues that may affect the company, and in relation to workplace safety even more so. The High Court commented as far back as 1984 that
The employer’s obligation is not merely to provide a safe system of work; it is an obligation to establish, maintain and enforce such a system. Accident prevention is unquestionably one of the modern responsibilities of an employer.234
Developments in the area of a director’s duty to the company since Daniels v AWA235 point to the need for directors to be involved in regular monitoring of the activities of the company. It is no longer good enough for a director simply to claim that they did not know what the company was doing. Along with this trend reference may be made to the fact that in 1995 the NSW Parliament specifically removed “ignorance” as a possible defence to a criminal prosecution of a director under s 50 of Occupational Health and Safety Act 1983 (NSW).236 This action seems to confirm a general public policy in favour of a director taking an active interest in the safety policy of the company.
233 Above, n 90, at 136. 234 McLean v Tedman (1984) 155 CLR 306, at 313 (per Mason, Wilson, Brennan and Dawson JJ). 235 (1995) 13 ACLC 614. 236 See the WorkCover Legislation Amendment Act 1995 (NSW), Sch 2 [35]. The current version of section 50, s 26 of the Occupational Health and Safety Act 2000 (NSW), is discussed in much more detail in chapter 4 below. Chapter 2- Tort Liability of Directors 80
In short, it must be regarded as part of company’s obligations to monitor the safety of its employees, and so it seems clear that must be part of a director’s ongoing obligations. It will be recalled that Lee J in King v Milpurrurru said:
Where Atkin LJ stated in Performing Right Society at p.15 that a director may be liable for impliedly directing or procuring the commission of a wrongful act by a corporation, such implied direction or procurement is to be found in the approval of, or acquiescence in, that wrongful act, inferred from the breach of duty by the director the circumstances of which support the conclusion that the director has refused to enquire, or to act, to avoid learning, or dealing with, the obvious. 237 [emphasis added]
His Honour is clearly suggesting that a director might be personally liable where they have deliberately refused to enquire into the area of safety procedures, for example. It would seem difficult to imagine that a court in the modern context would accept the excuse that “I just never thought of it” as anything but an admission of dereliction of the duty of a director. In a related context, where the manager and director of a sawmill failed to install a guard, claiming that he did not know it was needed, the Full Bench of the Industrial Relations Commission commented:
The [OHS] Act and commonsense require that manage[rs] who employ persons daily in an admittedly dangerous industry do know elementary facts about guarding dangerous machines and safe working. Ignorance of this kind is not only not an excuse, it amounts to an aggravation of the offence.238
Of course there will always be issues raised at the margins in a case where a director’s involvement has been limited to attending board meetings. As noted previously, Slade LJ in C Evans & Sons Ltd v Spritebrand flagged that “difficult questions of degree” are raised as to whether a director may be said to have “directed and procured” a tort where his or her involvement was simply that of voting in favour of a resolution at a board meeting.239 In the unreported decision of Collison v Gill240 Badgery-Parker J in the Supreme Court of NSW, while supporting the “directed and procured” test for personal liability, expressed some doubts whether liability could be
237 Above, n 94, at para [24]. 238 WorkCover Authority v Waugh (1995) 59 IR 89, at para [100]. 239 See n 23 above, at 425 e. 240 Supreme Court of NSW, Badgery-Parker J, 15 December 1995. I am grateful to my colleague Philip Bates for drawing this case to my attention. Chapter 2- Tort Liability of Directors 81
established “by proof merely of neglect or failure to supervise the servants of the company”.241 And while Finkelstein J in Root Quality Pty Ltd v Root Control Technologies Pty Ltd noted that a director who was “recklessly indifferent as regards whether his company’s act was unlawful and would cause harm” would probably be liable, he also referred to the difficulty of determining the “boundary” between tortious and non- tortious conduct by a director.242 As noted previously, the judgement of Chadwick LJ in the recent appeal in MCA Records v Charly Records Ltd raises similar issues. There His Lordship suggested as the first of four propositions of law the following:
a director will not be treated as liable with the company as a joint tortfeasor if he does no more than carry out his constitutional role in the governance of the company that is to say, by voting at board meetings. That, I think, is what policy requires if a proper recognition is to be given to the identity of the company as a separate legal person… Lord Justice Aldous suggested, in Standard Chartered Bank v Pakistan National Shipping Corporation and others (No 2) [2000] 1 Lloyds Rep 218, 235 in a passage to which I have referred that there are good reasons to conclude that the carrying out of the duties of a director would never be sufficient to make a director liable. For my part, I would hesitate to use the word never in this field; but I would accept that, if all that a director is doing is carrying out the duties entrusted to him as such by the company under its constitution, the circumstances in which it would be right to hold him liable as a joint tortfeasor with the company would be rare indeed. That is not to say, of course, that he might not be liable for his own separate tort, as Lord Justice Aldous recognised at paragraphs 16 and 17 of his judgment in the Pakistan National Shipping case. 243
The difficulty with this view, of course,244 is in determining what sort of behaviour can be characterised as doing “no more than carry out his constitutional role in the governance of the company”. If, as His Lordship seems to imply, this means simply voting at board meetings, then it seems (with great respect) absurd to say that such behaviour could never amount to a personal tort. Perhaps the best way of reading His Lordship’s words here is to take the view that a “constitutionally” acting board member will be requiring that the board consider
241 At p 20 of the transcript. His Honour referred to the decision of Martin Engineering Co v Nicaro Holdings (1991) 100 ALR 358. 242 Above, n 112, at para [146]. 243 See above, n 66, at para [49]. Chapter 2- Tort Liability of Directors 82
issues such as safety and that mechanisms are in place to address those issues. In individual cases this will require specific evidence about appropriate mechanisms for the particular business and particular industry. But despite these qualifications, it seems entirely possible and appropriate that a director might be found to have impliedly agreed to a dangerous system of work (say) which led to the injury of an employee, where the director had consistently failed to address questions of the company safety policy and record. A detailed paper by Professor Baxt245 examines a number of developments in the area of directors’ personal liability. The paper concludes as follows:
In my view it will not be too far away that courts use arguments related to vulnerability and unconscionability in certain cases to hold there is an obligation owed by directors to employees. This may arise not out of a traditional duty, but rather the special circumstances of the situation which may give rise to an equivalent situation. So, for example, where a director takes positive action which substantially increases the vulnerability of a contracted party, or the employees in the company… and the director had actual knowledge of this taking place, it may be easy to extrapolate that a duty of some sort arises.246
One of the developments that Professor Baxt refers to in his paper ought to be noted. The Corporations Law Amendment (Employee Entitlements) Act 2000 (Cth) added new Part 5.8A to the Corporations Law, entitled “Employee entitlements”. This was a part of the Government’s response to a number of highly publicised corporate failures where employees were left unable to recover salary, accrued leave, and other expected payments. The significant aspect of the amendments for present purposes is that they impose personal obligations on company directors, in a way that is obviously modelled on the existing “insolvent trading” provisions. Under new s 596AB there is a prohibition on a person entering into a transaction which will defeat or reduce employee entitlements. Under s 596AA(2)(c), “entitlements” is defined to include “amounts due in respect of injury compensation”. Under s 596AC a person who enters such a
244 Apart from what turns out now to have been the misguided reliance on the judgement of Aldous LJ in the Standard Chartered Bank case, since overruled by the House of Lords- see above, n 81. 245 “Do directors owe a duty to employees?”, Paper presented to the Law Council of Australia, Corporations Law Workshop, Fremantle 22 July 2000, subtitled “Implications of amendments to the Corporations Law and other developments”. Copy kindly supplied by the author in January 2001. Chapter 2- Tort Liability of Directors 83
transaction which results in employees suffering loss, may be sued for that amount as a debt by the employee. Section 596AE is of particular interest:
596AE Effect of section 596AC
Section 596AC: (a) has effect in addition to, and not in derogation of, any rule of law about the duty or liability of a person because of the person’s office or employment in relation to a company; and (b) does not prevent proceedings from being instituted in respect of a breach of such a duty or in respect of such a liability.
This section (even if out of abundant caution) recognises the existence of a possible common law duty owed by a director “because of the person’s office or employment in relation to a company”, and specifically preserves such an action. It forms part of the legal background against which a court in Australia in the 21st century must address the issue of the extent of the common law duties personally owed by directors.247
(4) VICARIOUS PERSONAL LIABILITY FOR DIRECTORS? On the other hand, on all basic principles, a company director in category 2B above, who is not personally guilty of some failure such as has been discussed, ought not to be held vicariously liable for an unpredictable tort committed by an employee of the company. Vicarious liability as a doctrine has many critics, but seems clearly justified as a mechanism for distributing the loss suffered as a result of the operation of commercial enterprises, to those who directly benefit from those enterprises.248 But extending such liability to individual directors would seem to go beyond the needs of deterrence, and may indeed lead to a total flight from company directorships altogether. So long as a director who is sued in tort may point to careful actions that that
246 Above, n 245, at 32. 247 For further discussion of the amendments, see M Reynolds, “The Corporations Law Amendment (Employee Entitlements) Act 2000 (Cth): To What Extent Will It Save Employee Entitlements?” [2001] QUTLJJ 9, also available at
they have personally taken to avoid the commission of the tort, to due diligence, then tort liability will be a useful technique for changing directorial behaviour. Imposition of vicarious liability would remove that incentive, and indeed quite possibly undercut it completely. After all, if a director may be held personally liable for the unsafe actions of an employee even when he or she has pressed the board to formulate, implement and seriously monitor a safety policy, then they may feel thay they might as well give up the effort. Cohen aptly quotes Broussard J in the Frances T case:
It is well settled that corporate directors cannot be held vicariously liable for the corporation’s torts in which they do not participate. Their liability, if any, stems from their own tortious conduct, not from their status as directors or officers of the enterprise.249
In short, the “corporate shield” ought to be fully effective where there has been no personal dereliction of duty by a director. (iii) Liability of a director as “joint tortfeasor” The third potential source of personal liability referred to by Lindgren J in the Auschina case is liability of the director under “the general law rules governing joint tortfeasance”.250 A person is a “joint tortfeasor” with another in circumstances where they “are responsible for the same wrongful act leading to single damage”.251 As Gummow J noted in WEA International Inc v Hanimex Corp Ltd, however:
The circumstance that two or more persons assisted in or concurred in or contributed to an act causing damage is not of itself sufficient to found joint liability; some common design in necessary: Morton-Norwich Products Inc v Intercen Ltd [1978] RPC 501 at 515-516.252
The need for a “common design” means that in most cases any possible liability of a director as joint tortfeasor with the company will usually be subsumed in either
248 See the recent careful discussion of vicarious liability and its policy rationale in the High Court decisions of Hollis v Vabu [2001] HCA 44 and NSW v Lepore [2003] HCA 4. 249 Frances T v Village Green Owners Association 723 P 2d 573, 580 (1996), cited in Cohen, above, n 201, at 360 n 50. 250 See above, n 99, at 36 IPR 233. 251 See the most recent discussion of issues relating to joint tortfeasors by the High Court in Baxter v Obacelo Pty Ltd [2001] HCA 66; the quoted words come from the judgement of Gleeson CJ and Callinan J at para [24]. 252 (1987) 7 FCR 274, at 283. Chapter 2- Tort Liability of Directors 85
liability for “directing and procuring” the actions of the company, or in an action based on a personal duty of care.253 Accordingly, it is not necessary to discuss this third potential basis of liability in any more detail here.
To conclude the discussion on personal liability: it seems reasonably clear that a director may be held personally liable in appropriate circumstances for an injury caused to a company employee. This may result either from the director’s involvement in “directing and procuring” the failure of safety procedures, or from the director breaching a personal duty that he or she may have. In many cases both forms of liability will be present.
(b) Liability for Economic Loss Related to Personal Injuries If authority seems to support at least the possibility of an action against the director of a company whose employee suffers a workplace injury, why have such actions not been more common? The answer to this question involves some explanation of the relationship between workplace injury and compulsory insurance schemes. (i) Workplace Injury and Insurance An important feature of the workplace which has an immense practical impact on the utility of the action for workplace injury is the almost universal presence of compulsory insurance in relation to workplace injuries. To put it shortly, almost every workplace injury can be compensated to some extent for under present arrangements without the need to sue individual company directors. Indeed, the fact that this is so raises interesting issues for the deterrent effect (or lack of it) of tort actions against companies in relation to the workplace.254
253 See comments on the nature of the relevant “common design” in other intellectual property cases in the Federal Court: Murex Diagnostics Australia Pty Limited v Chiron Corporation (1994) 55 FCR 194 (Burchett J); Caterpillar Inc v John Deere Ltd [1999] FCA 1503 (Full Court). 254 That is, as argued in chapter 1, personal tort liability on directors separate to that imposed on the company may “focus the mind” on safety issues. As GHL Fridman notes, in “Personal Tort Liability of Company Directors” (1992) 5 Cantab LR 41-58, at 57, after noting that the company might sue the director for breach of his duty to the company: “It should not be necessary to indulge in such a roundabout method of imposing personal responsibility on the director when a more sensible, and realistic way is by making the director directly liable to the injured party”. Chapter 2- Tort Liability of Directors 86
In NSW the Workers Compensation Act 1987 s 155 requires that employers maintain insurance for the employer’s liability, not only for the statutory compensation scheme established by the Act, but also for common law liability. The result is that for the vast majority of workers it will not be necessary to seek to sue individual directors, because the company which employs them will be compulsorily insured. This, incidentally, is a good example of a phenomenon that Goddard discusses under the heading of “Legal Techniques for Internalising Costs of Harm to Third Parties”.255 He notes that one response to the dangers to third parties of the doctrine of limited liability is “compulsory third party insurance as a condition of engaging in the relevant activity”.
(ii) Possible Tort Liability where Insurance is Ineffective What if the company fails, however, to comply with the law as to compulsory insurance? Or the compulsory insurer itself becomes insolvent?256 In the UK in a case where insurance had not been obtained, Richardson v Pitt-Stanley,257 an injured worker attempted to sue an individual company director to recover the amount which he should have been able to recover for personal injuries suffered at work. The company had been wound up, and was uninsured. The worker’s action was based on the tort of “breach of statutory duty”, as the relevant legislation imposed a personal obligation on the directors to ensure insurance. The action failed, a majority of the Court of Appeal finding that the legislation was not enacted for the benefit of employees but rather for the benefit of the company.258
255 Above, n 131, at 33. 256 An eventuality which might not have been thought to require serious consideration until the recent HIH collapse. 257 [1995] ICR 303, [1995] 1 All ER 460, [1995] QB 123. 258 Sir John Megaw, in a powerful dissent, held: “The obligation to insure against bodily injury or disease sustained by employees was impose by Parliament for one purpose-…to give protection to a particular class of individuals, the employees”- [1995] ICR at 315. For brief comments on the case, favourable to the dissent, see the “Case Comment” by Mark Stallworthy (1994) 5(12) International Company and Commercial Law Review, 250-251, and C Parsons “Employers’ Liability Insurance- How Secure is the System?” (1999) 28 Industrial Law Jnl 109-132, at 127- 129. Chapter 2- Tort Liability of Directors 87
It should be noted, however, that in Quinn v McGinty259 a Scottish Sheriff Court, in identical circumstances, declined to follow the majority judgement in Richardson, the Sheriff Principal holding in agreement with Sir John Megaw’s dissent that
The purpose of the Act was to protect employees from the risk of being deprived of lawful compensation… it was no part of the intention to Parliament to confer a benefit on employers.260
The contrary Irish decision of Sweeney v Duggan261 is clearly distinguishable because there was no Irish legislation requiring compulsory employer’s liability insurance,262 and hence no “statutory duty” to insure imposed on either the director or the company. The action was by an injured employee against the director of an effective “one-man” company for economic loss in failing to provide adequate insurance coverage. In the course of rejecting the claim, however Barron J commented that:
To allow it as against the defendant would in effect be depriving the defendant of his protection under company law and to nullify all the essential principles of that law.263
With respect, his Honour’s comments on this point are not fully argued. Certainly on the general principles noted already it does not seem that any “protection” the defendant received from company law was meant to be protection against personal negligence. Given that the claim failed because the company itself had no duty to insure, however, his Honour’s views on the separate liability of the defendant as director were clearly obiter. In NSW, such an action has not been necessary in relation to the statutory compensation scheme. The Uninsured Liability and Indemnity Scheme set up under the
259 1999 SLT (Sh Ct) 27; 1998 RepLR 107. For brief discussion see Hawke, above n 231, at p 83, para 4-09. 260 Above, n 259, at 29. 261 [1991] 2 IR 274; CLYB 1992, para 3262; also discussed in Hawke, above n 231, at p 83, para 4-10. 262 See the remarks of Barron J, n 261 above, at p 283: “The statutory provisions in England are different, eg, there is compulsory statutory employers’ liability insurance for employees in respect of loss arising out of and in the course of their employment”; and p 285: “If a duty to provide employers’ liability insurance is to be imposed, then it seems to me that is a matter solely for the Oireachtas”. 263 See above, n 261, at [1991] 2 IR 284, cited in Hawke, above n 231, at p 84, n 18. Chapter 2- Tort Liability of Directors 88
Workers Compensation Act 1987 (NSW) allows the worker to sue a “nominal defendant” to recover compensation. 264 Interestingly, for some time there have been provisions in the workers compensation legislation allowing the WorkCover Authority to recover amounts paid out where a company was uninsured, from individual directors of the company.265 A person who was a director of a company at a time when the company was uninsured and a payment under the Act became payable is regarded under the provisions as a “culpable director”, subject to certain defences which include lack of knowledge, not being in a position to influence the company, or exercise of due diligence.266 Recent amendments have included into the Act provisions for recovery by WorkCover against individual directors of “double premiums” where a company has been uninsured,267 and recovery of the balance of a premium where there has been “premium evasion” by providing false information about the company.268 These amendments, it should be noted, are strong evidence of an increasing policy that individual directors should be made personally liable for company failures in the area of workplace safety. It is notable, however, that the NSW Uninsured Liability Scheme did not, until recently, apply to payments of common law damages.269 But by amendment made by the Workers Compensation Legislation Further Amendment Act 2001 (NSW), Sched
264 Part 4, Division 6 of the Act. This was to have been replaced by Part 9, Ch 5 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW), which introduced a “private insurance” regime. But those provisions were repealed before their commencement by the Workers Compensation Legislation Further Amendment Act 2001 (NSW), Sched 6, as from 1 January 2002. 265 Section 145A of the Workers Compensation Act 1987(NSW). 266 To close another loophole created by corporate personality, s 4A of the 1987 Act now provides that where a director of an uninsured company is also a worker employed by that company, then any injury received by that director cannot be compensated under the Act. See Sinanian v EKS Carpentry Pty Ltd (1998) 1 Aust Workers Comp Rev 125 for the case which led to this provision being inserted into the Act. The director of a “one-man” company failed to obtain insurance, was severely injured, and recovered a large amount from the Uninsured Fund. 267 See s 156B of the 1987 Act, added by Schedule 10 to the Workers Compensation Legislation Amendment Act 2000 (NSW), as from 1 January 2001. 268 See s 175A of the 1987 Act added by the legislation referred to in the previous note. 269 See s 140 of the 1987 Act, as it previously stood, which allowed a claim under the Uninsured Liability Scheme only to be made by “any person who considers he or she has a claim for compensation under this Act” (emphasis added). The phrase “compensation under this Act” is consistently used in the legislation to refer to the statutory scheme, and seems always to exclude common law damages. Chapter 2- Tort Liability of Directors 89
9[1], from 1 January 2002, s 140(1) now specifically includes the category of “work injury damages” as well as statutory compensation. There may then still have been the possibility that a worker might seek to sue a director of an uninsured company for such damages. Such an action could not, however, have been based, as in Richardson v Pitt-Stanley,270 on the director’s breach of statutory duty, as there seems to be no provision in NSW imposing a personal criminal liability on directors to see that the company is insured, as there was in the UK.271 An action might, however, have been based on the sort of general tort liability discussed here. In an action in negligence it might be argued that a director who allowed a company’s workers compensation insurance policy to lapse could readily foresee that this would subject an injured worker to possibly severe economic loss.272 While the possibility of such an action (already fairly remote) might be thought now to be even further reduced by the amendments allowing common law claimants access to the Uninsured Liability Scheme, it is still an interesting theoretical question as to whether personal liability might nevertheless exist. Indeed, given the increasingly strict limits on common law claims against employers, the issue may not be purely theoretical. Under the Workers Compensation Legislation Further Amendment Act 2001 (NSW),273 common law damages claims for non-economic loss were removed,274 and the requirement was introduced that no common law claim for economic loss can be
270 Above, n 257; itself an action for common law damages for “breach of statutory duty”, rather than a claim for statutory compensation. 271 There is no equivalent in the Workers Compensation Act 1987 (NSW) to, say, s 26 of the Occupational Health and Safety Act 2000 (NSW), which makes directors and managers liable for corporate breaches unless they are able to establish specific defences. 272 Leebron, above, n 92, at 1632ff discusses a tort action for “failure to adequately insure” and concludes that it is legally and economically justified: “Suppose, for example, reasonably priced insurance were available, but the corporation decided not to obtain it because it ‘self-insured’ by relying on the rule of limited liability. In effect the corporate managers… have negligently inflicted economic loss through their failure to insure…Although this would be a somewhat novel tort theory, there seems little reason not to recognise it.” 273 The amendments commenced in relation to limits on common law claims retrospectively from 27 November 2001. 274 See the new version of s 151G of the Workers Compensation Act 1987 (NSW), introduced by Schedule 1 of the amending Act. Chapter 2- Tort Liability of Directors 90
made unless the worker has suffered a “degree of permanent impairment” greater than 15%.275 If an individual officer had sufficient resources (or appropriate personal insurance)276 then an action against the director may now prove to be more fruitful than an action against the employer company. That is, even if there will now be insurance of some sort covering the obligations of the company as an employer, a personal action against a director (who, not being an “employer”, will not be protected by the limits of the 1987 Act) may be more productive.277 Two English Court of Appeal decisions might be thought to count against such a claim succeeding. One, Richardson v Pitt-Stanley,278 has been mentioned previously. The other is the decision in Burns v Shuttlehurst Ltd.279 The claim in Richardson, as previously noted, was made when an employee’s claim against the employer company could not be satisfied because the company was insolvent and had been uninsured. The claim failed as the Court by majority (Russell & Stuart-Smith LJJ) held that the action for statutory duty could not be maintained, the statute not imposing liability on the directors to maintain insurance for the benefit of the employees. In the course of his decision Stuart-Smith LJ commented:
At common law a director of a corporate employer to whom the duty of organising employer's liability insurance has been delegated, could not, in my view, be liable in negligence to an employee of the company who suffered economic loss through failure to effect insurance. It seems to me that it would be surprising if Parliament intended to impose an unlimited civil liability on such a director, who may have done no more than overlook the need to renew a policy. Such a person may well have had no personal responsibility for causing the injury, and indeed the employer's liability itself may arise from the negligence of a fellow employee for which the employer is vicariously liable, but
275 Section 151H. These amendments replaced proposals that were even harsher (a possible 25% permanent impairment threshold was proposed at one stage). 276 See the discussion in C Parsons, “Directors’ and Officers’ Liability Insurance: a Target or a Shield?” (2000) 21/3 Company Lawyer 77-86, esp at 84: “directors who have insurance become attractive targets”. Parsons does not argue that directors ought not to be personally insured, but points out some of the drawbacks to be aware of. 277 While Part 2 of the Civil Liability Act 2002 (NSW) will now impose some restrictions on a personal action against a director, these limits may still be more generous than those set up under the 1987 Act in actions against employers. The Civil Liability Act, for example, still allows the recovery of non-economic loss, although subject to certain limits- see s 16. 278 Above, n 257. 279 [1998] 2 All ER 27, [1999] 1 WLR 1449. Chapter 2- Tort Liability of Directors 91
for which none of the directors is personally culpable. As Mr Haycroft points out, this would be a case of piercing the corporate veil with a vengeance.280
In Burns, the employee truck driver had been injured when the brakes failed on his truck due to faulty maintenance. He sued his employer company, which went into liquidation, and the company’s insurer refused to pay as the employer had been in breach of a condition of the insurance policy. Interestingly it seems that at an early stage of the proceedings the plaintiff alleged that the director was personally liable for the injuries that he had suffered, as he had “authorised, directed and procured” the acts and omissions of the company which led to the injuries.281 But at some stage the plaintiff’s advisers must have decided that a direct action of this sort was not sustainable, and so by the time the matter reached trial the allegation against the director was framed, not in terms of personal injuries, but in terms of the economic loss suffered by the plaintiff when he could not enforce his order against the company. This proved, however, to be a particularly unfortunate strategic decision. The plaintiff found that his order for discovery of documents was refused, as the particular rule of court that he had relied on to issue it specified that it could only be used in an action involving a “claim in respect of personal injuries”. The Court held that a claim to be indemnified for economic loss was not such a claim, despite the fact that the claim would be calculated by reference to such injuries.282
280 Above, n 257, [1995] 1 All ER at 468-469. His Lordship’s comments about lack of personal culpability here are, with respect, a bit disingenuous. True, the company’s liability to meet a damages award may have arisen from the doctrine of vicarious liability, for which no member of the board could be held personally guilty. But the failure to provide adequate insurance cover is a separate wrong, and the action could only succeed if a court found that this wrong was indeed a matter of personal failure by a board member. 281 Above, n 279, at para [6] (per Stuart-Smith LJ). 282 Above, n 279, at para [29]. For an interesting contrast see the Court of Appeal finding in Norman v Ali; Norman v Aziz [2000] Lloyd's Rep IR 395, 144 SJ LB 18 (Butler-Sloss (P), Otton, & Schiemann LJJ) that an action for breach of statutory duty to insure a driver, based on Monk v Warbey [1935] 1 KB 75, was an action “in respect of personal injury”. The effect of the finding in Norman was to preclude the plaintiff from proceeding against the owner of the vehicle, as there was a shorter limitation period for personal injury actions than that for economic loss actions. In NSW the decision of the Court of Appeal in Rolls Royce Industrial Power (Pacific) Limited (Formerly John Thompson (Australia) Pty Limited) v James Hardie & Coy Pty Limited [2001] NSWCA 461 supports the stance taken by the court in Burns that a claim for economic loss quantified by reference to an amount paid out for personal injury, is not itself a claim “for Chapter 2- Tort Liability of Directors 92
A more fundamental question was whether the director could be said to owe a duty to the plaintiff to maintain appropriate insurance. Citing his comments in Richardson extracted above, Stuart-Smith LJ in Burns held that before there can be a duty of care to avoid economic loss there must be a “voluntary assumption of risk or responsibility”.283 In this case there was no such assumption of responsibility by the director, and hence no duty. His Lordship’s comments (whether or not they represent the law in England) cannot be correct, however, as far as the law of Australia is concerned. “Voluntary assumption of responsibility” or something like it may still be a prerequisite for establishing a duty of care to avoid causing economic loss by negligent misrepresentation; but recent years have shown very clearly that Australian law recognises a number of different categories of case where a duty to avoid causing economic loss will arise.284 The question whether such a duty arises in Australia must be resolved in terms of the principles laid down in those cases by the High Court.285 It would then be necessary to argue that this sort of economic loss was recoverable under the recent High Court jurisprudence on economic loss. This would not be unlikely. It would seem to be well within the parameters of the judgement of McHugh J in Perre v Apand,286 for example.287 Damage of this sort is reasonably foreseeable; it is not “indeterminate”; it does not flow from the defendant “legitimately
damages for personal injury”. In the Rolls Royce case this meant that under the relevant provisions of the Limitation Act 1969 (NSW) time could not be extended for a claim for breach of contract which related to economic loss caused by a payment for personal injury damages- see para [57], per Stein JA. 283 Above, n 279, at para [51], citing Williams. 284 See, for example, Bryan v Maloney (1995) 128 ALR 163, holding that the builder of a domestic house has a duty of care which is owed to subsequent purchasers to avoid causing them economic loss by building negligently; Hill v Van Erp (1997) 188 CLR 159, holding that a solicitor in preparing a will for a client owed a duty of care to avoid causing economic loss to a beneficiary who would be entitled to inherit under the will, and Perre v Apand [1999] HCA 36, holding that Apand owed a duty of care to adjacent property owners who would suffer foreseeable economic loss from supply of diseased potato seed to Apand customers. 285 The most recent decision of the Court on economic loss, Tepko Pty Ltd v Water Board [2001] HCA 19 (5 April 2001), does not affect this comment, as it was a case dealing with “negligent misrepresentation”, an area the boundaries of which are fairly well established by now. See, for example, the description by Gaudron J in that case of negligent misstatement as a “discrete category” of economic loss cases, at para [73]. 286 [1999] HCA 36. 287 See his Honour’s discussion at paras [103]-[105]. Chapter 2- Tort Liability of Directors 93
protecting or pursuing his or her social or business interests”288 - on the contrary, in failing to ensure that the company obeyed the law such a director would be failing to carry out their duty to the company and the community. The worker is clearly “vulnerable” to the decision of the director. The only remaining question would be the actual state of knowledge of any individual director about the failure to insure. But if this could be established then a case for liability for economic loss here seems even stronger than that which succeeded in Perre itself. There is also a line of authority on lack of insurance which would, not directly but by analogy, support such an action. The line is not direct because these cases are actions based, not on common law negligence simpliciter, but on the tort of “breach of statutory duty”. But they evidence a policy of the law in favour of allowing recovery in these circumstances. The primary case is Monk v Warbey.289 Legislation made it an offence for the owner of a motor vehicle to allow someone to drive the vehicle who was not insured against third party risk. Warbey allowed his vehicle to be driven by an uninsured driver who injured Monk. Monk was allowed by the Court of Appeal to recover damages from the owner Warbey on the basis that Warbey had breached his statutory duty to insure. Certainly there are some comments in Monk v Warbey which give a somewhat wider scope to the action for breach of statutory duty than that which is acknowledged today.290 The judges of the Court of Appeal who decided the case seem to operate on a presumption that where a statute is breached a civil action will normally be available to the injured person unless there is some specific reason not. By contrast, modern Australian authority tends to ask whether there is some specific reason to allow a civil action, rather than the other way around.291
288 At para [103]. 289 [1935] 1 KB 75. 290 See above, n 289; eg, the comments of Greer LJ at 81: “Prima facie a person who has been injured by the breach of a statute has a right to recover damages from the person committing it unless it can be established by considering the whole of the Act that no such right was intended to be given”; also Maugham LJ at 84. 291 See, for a recent review of the cases on breach of statutory duty, Gardiner v State of Victoria [1999] 2 VR 461, [1999] VSCA 100, esp paras [20]-[26]. Chapter 2- Tort Liability of Directors 94
But the decision in Monk has never been overturned, was treated as correct by the House of Lords in McLeod v Buchanan,292 and indeed has been assumed in a number of recent UK decisions to be good law.293 It was also assumed to be good law by the High Court in Broad v Parish,294 where a similar Tasmanian provision led to a finding of liability against a finance company who still “owned” a car being driven by someone buying it on hire-purchase terms. In a similar decision, the Full Court of the Western Australian Supreme Court upheld the finding by the trial judge Hale J in Owen v Shire of Kojonup295 that a volunteer firefighter who was injured while on duty could sue the local council who had failed (contrary to a specific statutory provision) to take out insurance covering the volunteers. 296 In short, on established principles, particularly recent High Court authority on the circumstances in which recovery for economic loss is possible, it seems at least arguable that an injured worker whose claim against a company was worthless because of a culpable failure by the directors to obtain appropriate insurance, may be able to recover the amount of damages from the directors individually.297
4. Conclusion To sum up this chapter: the separate legal identity of a company means that a director will not be personally liable for contractual breaches by the company. But in some circumstances a director may be personally liable for torts committed by the company. The description of those circumstances by the courts as a situation where the
292 (1940) 2 All ER 179. 293 See Hatton v Hall [1999] Lloyd’s Rep IR 313; Norman v Ali; Norman v Aziz [2000] Lloyd's Rep IR 395, 144 SJ LB 18. 294 (1941) 64 CLR 588 (Rich ACJ, Starke & Williams JJ). 295 [1965] WAR 3. 296 A decision going the other way in terms of the liability of a director is that of Watt J in the Ontario High Court, in Kavanagh v Don Sloan Equipment Rentals Ltd (1988) 8 ACWS (3d) 286. The case, however, seems distinguishable, and in any event does not seem to adequately address the issues raised in Berger v Willowdale, above, n 184. 297 The recent decision of the NSW Court of Appeal in Agius v NSW [2001] NSWCA 371 does not count against this conclusion. The Court there held that the State of NSW could not be sued for failure to ensure that a voluntary association to which it provided some funding had taken out appropriate insurance. The connection between the State and the injured person in Agius was extremely remote, and it is not surprising that no duty was found. Chapter 2- Tort Liability of Directors 95
individual officer has “directed and procured” the commission of the tort has a long history. During the last few decades the circumstances in which personal liability arise have been muddied by some decisions in the UK, first suggesting that a director must “make the tort their own” in some sense, and then more recently by comments in the Williams case298 dealing with negligent misstatement, which have been inappropriately applied to other tort actions. The strong trend in Australian decisions, however, has been to support the more traditional “direct and procure” test. The decision of the House of Lords in the Standard Chartered Bank case299 is a strong indication of a growing disquiet in UK decisions over a too-broad application of the Williams decision to cases not involving negligent misrepresentation. If the “direct and procure” test is adopted it will cover, not only cases where a director has actually ordered the commission of a wrong, but also cases where by inaction the director has allowed the company to commit a wrong and done nothing to stop it when it was within his or her power to do so. Liability may then attach to board members who are not at the coalface, but whose decisions as to company policy and expenditure put the lives and health of workers at risk. Liability may also be found in a breach of a personal duty of care. This law, then, is applicable to the case of personal injury suffered in the workplace by company employees. UK, Canadian, and US authority finds, and comments in other Commonwealth and Australian cases strongly suggest, that a director may be held personally liable for injuries suffered by a company employee where that director has been personally aware of a safety hazard which he or she has done nothing to remove. It seems likely that this liability would be extended to a situation where a director continued to participate in management of a company but allowed the company to ignore questions of safety. The extent of personal involvement of a director, and questions as to the possible differential treatment of executive or non- executive directors, will be relevant in a finding as to breach, but do not seem to affect the existence of a duty of care. It is also possible (though less clear) that a former director of an insolvent, uninsured company might be found personally liable to meet an
298 Above, n 35. Chapter 2- Tort Liability of Directors 96
award of damages for personal injury to a worker where that award could not otherwise be satisfied because of a culpable failure by the director to obtain insurance. The extent of recourse to such personal liability, of course, should not be exaggerated. In most cases the existing insurance arrangements and workers compensation provisions will provide reasonable recovery for injured workers. And so long as a director is exercising due diligence by ensuring that the board is seriously addressing safety issues to the extent that they are able, having in place a safety policy and monitoring the working of the policy, then the duty of care will often not have been breached. But the existence of the duty may serve two important functions. First, it may in some cases provide a “back-up” avenue of action for an injured worker where there has been serious disregard of safety issues at the board level, and where for one reason or another a common law action against the company will be inadequate. In this context it is worth recalling that the two Canadian cases where the liability was clearly spelled out, Berger300 and Medina,301 were decided at a time in Ontario when common law action against the relevant employer companies was restricted by worker’s compensation legislation, but the personal liability of the directors was still allowed.302 If the law in NSW, as noted above, were to be regarded as severely restricting common law actions against employers, then recourse to personal actions against directors might become a popular option.303
299 Above, n 81. 300 Above, n 184. 301 Above, n 190. 302 As noted above, the decision of the Supreme Court of Louisiana in Adams, above, n 202, came in a similar context. 303 The restrictions of the 1987 Act on common law actions are confined to actions against the “employer”- see s 151E. As a result other actions may avoid these restrictions. Two cases decided in the High Court recently illustrate that where the Parliament cuts off access to actions against employers, other defendants will be sought: see Modbury Triangle Shopping Centre Pty Ltd v Anzil [2000] HCA 61, where an employee injured after leaving work sued the occupier of the shopping centre car park (see the comment of Callinan J at para [120]: “It is not surprising that when governments abolish long standing causes of action such as those formerly available in South Australia to employees against negligent employers, injured employees and those who represent them will use all of their ingenuity, sometimes with success, to persuade courts that some other person of means should pay damages to the injured worker.”); and Slivak v Lurgi (Australia) Pty Ltd [2001] HCA 6, where a worker sued the manufacturer of equipment he was installing when injured (see Callinan J at para [64]). Chapter 2- Tort Liability of Directors 97
Secondly, and perhaps more significantly, the existence of a personal tort liability may well serve to encourage some directors who have not yet realised their existing responsibilities to address the issues of safety in the workplace, to take them more seriously. Coupled with these developments in tort law, of course, are possible liabilities under criminal law which are the subject of the next Chapter.
Chapter 3: Liability of Company Officers under General Criminal Law 99
CHAPTER 3 COMPANY OFFICERS’ LIABILITY FOR COMPANY WORKPLACE SAFETY BREACH UNDER GENERAL CRIMINAL LAW
“A corporation aggregate of many is invisible, immortal, and rests only in intendment and consideration of the law… They cannot commit treason, nor be outlawed nor excommunicate, for they have no souls…” Sir Edward Coke, CJ1 “Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like.” Edward, 1st Baron Thurlow (1731 - 1806); Lord Chancellor, (1778 - 1792)2
1. General Principles...... 100 (a) Commission of Criminal Offences by Companies ...... 103 (i) Direct Liability ...... 104 (1) Identification Liability- Tesco and Meridian...... 105 (2) Identification Liability- Unnecessary where there is a failure of duty? ...... 108 (3) Identification Liability in Australia...... 113 (4) Aggregation of Fault of Individuals...... 114 (ii) Indirect (vicarious) criminal liability...... 115 (iii) Criminal Liability under the Commonwealth Criminal Code ...... 118 (b) Accessorial Liability of an Officer when the Company has committed an offence...... 123 2. Manslaughter ...... 126 (a) Manslaughter generally...... 126 (i) Manslaughter by criminal negligence ...... 127 (ii) Unlawful and dangerous act manslaughter...... 128 (b) Manslaughter by negligence while acting as a company officer ...... 131 (i) Duty of care for manslaughter purposes ...... 131 (ii) Application of manslaughter to company officers...... 132 (1) Australia ...... 133 (2) United Kingdom ...... 134
1 Sutton’s Hospital Case (1612) 10 Co Rep 1a, 23a; [1558-1774] All ER Rep 11, at 22H. I am indebted to an address by The Hon J Macken, “No Body to be Kicked and No Soul to be Damned” (1992) 7 Annals for the reference; the address can also be found at
(3) Manslaughter by Overall Management Decision ...... 137 (c) Corporate manslaughter...... 138 (i) Corporate manslaughter under the current law ...... 138 (ii) Proposals for new offences related to manslaughter ...... 146 (1) United Kingdom...... 147 (2) Victorian Proposals ...... 149 (3) Other Australian Proposals ...... 153 (d) Accessorial liability for corporate manslaughter...... 154 (i) Accessorial liability for manslaughter...... 154 (ii) Accessory to corporate manslaughter ...... 157 3. Other offences...... 161 4. Conclusion...... 162
The aim of this chapter is to briefly review the general principles of criminal liability of companies, and then to consider how under what might be called the “general” criminal law a company officer might be found to be personally liable for offences committed by the company. This essentially involves a consideration of “accessorial” liability for company offences. In particular, while the next chapter deals with a provision creating something like accessorial liability for specific occupational health and safety offences, this chapter considers the issue of accessorial liability for what might be called “corporate manslaughter”. In addition situations in which a company officer might be found directly guilty of manslaughter flowing from the way they perform their duties for the company will be considered. The chapter demonstrates that even under the current law (apart from proposed “industrial manslaughter” reforms) company officers may arguably be fixed with criminal liability for allowing or directing companies to behave in a way which leads to serious injury or death for those affected by the company’s activities. It argues that the courts ought to be more ready to apply the present rules in such a way that, in an appropriate case, a company may be convicted of manslaughter as a result of a grossly careless management system, as well as from the individual carelessness of a manager. In appropriate cases individual criminal liability should be identified where managers are complicit with the company as a whole in allowing such a system to continue.
1. General Principles Chapter 3: Liability of Company Officers under General Criminal Law 101
The main topic of this study is the personal liability of company officers when the company itself is liable. As a result it is important to be clear on the circumstances which will lead to company liability. As much has been written on this area in recent years it will be possible to summarise the issues fairly briefly.3 That is not to say, however, as the discussion will reveal, that the area is free of doubt. As with a company’s liability for torts and contractual breaches discussed in chapter 2, it is well established that a company may commit a crime. A provision such as s 21 of the Interpretation Act 1987 (NSW) confirms this for statutory offences by expanding the definition of “person”-
21 Meaning of commonly used words and expressions (1) In any Act or instrument:… person includes an individual, a corporation and a body corporate or politic.
But the issue is not simply relevant for statutory offences. It is clear that a company may be convicted, in general, of most common law criminal offences as well. The only exceptions are offences that by their nature must be committed by “natural persons”; the most common cited example is bigamy. As an illustration of the issues involved, particularly in the context of workplace safety, consider the ruling of the Chief Justice of the Supreme Court of the Northern Territory, Martin CJ, in DPP Reference No 1 of 2000.4 A company (referred to only as “T”) was charged in relation to a workplace accident, not under the general Territory workplace safety legislation,5 but under the Territory’s Criminal Code,6 s 154(1), for causing “serious actual danger” to a worker. The section reads:
3 For extensive treatments of the topic see in particular C Wells, Corporations and Criminal Responsibility (2nd ed; Oxford: OUP, 2001); J Clough & C Mulhern The Prosecution of Corporations (Oxford: OUP, 2002). For a briefer recent treatment see J Farrar, Corporate Governance in Australia and New Zealand (Oxford: OUP, 2001) ch 5. There is a recent judicial summary of the law relating to company criminal liability in the judgement of Finkelstein J in Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559, esp at paras [6]-[12]. 4 [2001] NTSC 91. This matter was a case stated by the Magistrate below on a question of law for the Supreme Court’s advice. 5 The Work Health Act 1986 (NT). 6 Contained in Schedule 1 to the Criminal Code Act 1983 (NT). Chapter 3: Liability of Company Officers under General Criminal Law 102
154. Dangerous acts or omissions (1) Any person who does or makes any act or omission that causes serious danger, actual or potential, to the lives, health or safety of the public or to any person (whether or not a member of the public) in circumstances where an ordinary person similarly circumstanced would have clearly foreseen such danger and not have done or made that act or omission is guilty of a crime and is liable to imprisonment for 5 years. (2) If he thereby causes grievous harm to any person he is liable to imprisonment for 7 years. (3) If he thereby causes death to any person he is liable to imprisonment for 10 years. (4) If at the time of doing or making such act or omission he is under the influence of an intoxicating substance he is liable to further imprisonment for 4 years. (5) Voluntary intoxication may not be regarded for the purposes of determining whether a person is not guilty of the crime defined by this section.
The defence argued that s 154 could not be applicable to corporations, as references throughout the section to “persons” could not always be applied to companies. This is obviously true in the use of the word “person” as the subject of danger, harm or death,7 and also in relation to the references to intoxication in subsections (4) and (5). Notwithstanding the fact that some of the occurrences of the word “person” excluded corporations, Martin CJ nevertheless held that the offence was one that could be committed by a company. His Honour referred to the general Territory interpretation provisions, and to specific provisions in other criminal legislation assuming that companies could commit crimes. He approved an extract from Halsbury’s Laws of Australia,8 and cited the remarks of Brennan J in Environment Protection Agency v Caltex Refining Co Pty Ltd:
A corporation has no hands save those of its officers and agents; it has no mind save the mind of those who guide its activities. It cannot be subjected to the corporal penalties to which a natural person who offends against the criminal law can be subjected. Yet it can be held criminally liable. The weight of authority shows that, with some exceptions [A corporation is incapable of committing some offences, e.g., perjury or bigamy, at least as a principal offender: R v ICR Haulage Ltd [1944] KB at p 554], a corporation may be criminally liable where the proscribed act done or the proscribed omission made by a corporation’s officer or agent can be treated as having been done or made by the corporation with the mental state possessed by the person or persons who did or authorized the doing of the act or permitted the making of the omission. 9 [emphasis added, some notes omitted]
7 That is, the second occurrence of the word “person” in subsection (1), and the occurrences of that word in subsections (2) and (3). 8 At para 130-135; see n 4, at para [5]. 9 (1993) 178 CLR 477 at 514. Chapter 3: Liability of Company Officers under General Criminal Law 103
Section 154 of the NT Criminal Code was not an offence which required “intention or foresight”,10 and so questions which arose as to the subjective state of mind of any individual were avoided.11 Hence the only question in the case was whether the section somehow showed a legislative intention that the normal rule of corporate liability should be excluded. Martin CJ agreed with counsel for the company that some of the references to “person” in the provision could not be applied to companies, but held that this in itself did not mean that the other references to “person” could not apply. In particular any presumption that words must always have a consistent meaning in the one statute was one which readily gave way should the context demand it.12 Taking into account the strong presumption that companies should generally be liable, His Honour held that s 154 was applicable to the company. As the decision was on this preliminary point it was not necessary to continue further and identify the particular “acts or omission” which the company would be charged with: those would presumably be dealt with by the Court of Summary Jurisdiction to which the matter would return.
(a) Commission of Criminal Offences by Companies A company, then, may be prosecuted for a crime. What, then, are the circumstances in which a company may be held criminally liable? Two types of corporate criminal liability at common law may be distinguished: direct liability, where in some sense it can be said that the “company itself” committed the crime; and indirect liability, where the company is held responsible for a crime committed by someone else.13 In addition recent amendments to Commonwealth criminal law which define corporate criminal liability for Commonwealth purposes will be noted.14
10 Due to s 31(3) of the NT Criminal Code. Section 31 sets out the general principle of mens rea for offences under the Code, but in s 31(3) specifically exempts ss 154 & 155 from these provisions. 11 As will become apparent below, questions of mens rea can play an important part in determining whether or not criminal liability will be imposed on a company. 12 Citing Gibbs J and Mason J in Clyne v DPP (NSW) (1981) 150 CLR 1, at 10, 15. 13 Other terminology may of course be used. Clough & Mulhern, for example, prefer to speak of what is here called “indirect” liability as “vicarious”- above, n 3 at 79. 14 This paper deals with issues of corporate liability in Australia and by analogy other common law jurisdictions, but not under the law of the United States. There the general principle is of vicarious liability, although many of the cases illustrate that the courts still tend to focus on Chapter 3: Liability of Company Officers under General Criminal Law 104
(i) Direct Liability As soon as it is suggested that a company may be “itself” responsible for a crime, of course, the problem arises of determining what is meant by referring to action “by” an essentially imaginary entity. In the often quoted words of Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission:
Any statement about what a company has or has not done, or can or cannot do, is necessarily a reference to the rules of attribution (primary and general) as they apply to that company. Judges sometimes say that a company ‘as such’ cannot do anything; it must act by servants and agents. This may seem an unexceptionable, even banal remark. And of course the meaning is usually perfectly clear. But a reference to a company ‘as such’ might suggest that there is something out there called the company of which one can meaningfully say that it can or cannot do something. There is in fact no such thing as the company as such, no ding an sich,15 only the applicable rules. To say that a company cannot do something means only that there is no one whose doing of that act would, under the applicable rules of attribution, count as an act of the company. 16
That is, the notion of “direct” liability will always be metaphorical, to some extent. Nevertheless, in this area of discussion direct liability is normally said to arise by (i) resolution of a general meeting or the board of directors; or (ii) action on the company’s behalf undertaken by someone who in law is identified with the company (identification liability). Action in the first sense is usually reasonably easy to prove. It is action authorised by what Lord Hoffmann in Meridian calls the company’s “primary rules of attribution”.17 The second sense of direct action, however, presents more difficulties, and will now be explored.18
questions of the place of the employee concerned in the management hierarchy. For a recent overview see A Geraghty “Corporate Criminal Liability” (2002) 39 American Criminal Law Review 327-353. 15 His Lordship seems to be alluding to the distinction developed by the philosopher Immanuel Kant between the “noumenal” (reality as it really is, the “thing in itself”) and the “phenomenal” (reality as we observe it to be). 16 [1995] 3 All ER 918, at 923e-f. 17 Above, n 16 at 922j-923b. It is of course not common for criminal actitivities to be specifically authorised by a board of directors. But for an example of an area where it has recently been suggested that criminal liability should attach to the “core activity” of a corporation, see J Chapter 3: Liability of Company Officers under General Criminal Law 105
(1) IDENTIFICATION LIABILITY- TESCO AND MERIDIAN The test for deciding whether or not the actions of some person ought to be treated as the actions of the company has been taken for many years to be that set out by the House of Lords in Tesco Supermarkets Ltd v Nattrass,19 and approved in Australia by the High Court in Hamilton v Whitehead.20 Put shortly, the criterion adopted in those cases was whether the person concerned was sufficiently senior in the company organisation to be described as the “directing mind” of the company. In more recent years this test, while perhaps not being abandoned, has been at least nuanced by the Privy Council in Meridian.21 In that case Lord Hoffmann for the Board put forward the view that, rather than simply adopting the Tesco v Nattrass “directing mind” rule in every case, the courts needed to pay close attention to the particular circumstances in which the question of corporate liability arises. Where the statutory context demands it, “the court must fashion a special rule of attribution for the particular substantive rule”. His Lordship went on:
This is always a question of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.22
In coming to its decision, the Board approved what it saw as the general approach taken in the earlier decision of the House of Lords in Re Supply of Ready Mixed Concrete (No 2), Director General of Fair Trading v Pioneer Concrete (UK) Ltd.23 There a company was held liable for contempt of court when its employee,
Liberman & J Clough, “Corporations that Kill: The Criminal Liability of Tobacco Manufacturers” (2002) 26 Crim LJ 223-236. 18 For a general overview of the issues raised by “identification” of an individual as the company for various purposes, see R Grantham, “Attributing Responsibility to Corporate Entities: A Doctrinal Approach” (2001) 19 Company and Securities Law Jnl 168-180. 19 [1972] AC 153. 20 (1988) 166 CLR 121, 65 ALJR 80. 21 Above, n 16. 22 Above, n 16, at 924a-b. 23 [1995] 1 All ER 135. Chapter 3: Liability of Company Officers under General Criminal Law 106
contrary to written instructions, entered into a restrictive trade arrangement with representatives of other companies. Lord Hoffmann in Meridian characterised the decision in that case as hinging on the language and context of the statute involved, the purpose of the statute being liable to be defeated if a company could by official instructions claim that its “directing mind” had not ordered the activity.24 Whether or not the Meridian decision has radically changed the relevant rules or not is a subject of some debate. Wickins and Ong make a fairly convincing case that the Tesco test was not really in accord with a number of decisions over the years in which companies had been held criminally liable for the actions of lower-level officers and employees,25 and approve Meridian and Supply of Ready Mixed Concrete as “the general collapse of the directing mind and will theory”.26 Clough and Mulhern, on the other hand, see Meridian as changing the law but are critical of the decision for this reason. They argue that it misunderstands past authority, and leaves companies with great uncertainty as to what their liability might be under a range of legislation.27 In the UK the Meridian decision has been applied by the Court of Appeal to the question of perjury by a company in Odyssey Re (London) Limited v OIC Run-Off Limited (Formerly Orion Insurance Company Plc)28 and in National Union of Rail, Maritime and Transport Workers v London Underground Ltd29 in ruling that information is “in the possession” of a union if it is possessed by any official of the
24 Above, n 16, at 927g-h: “In the case of a corporate security holder, what rule should be implied as to the person whose knowledge for this purpose is to count as the knowledge of the company? Surely the person who, with the authority of the company, acquired the relevant interest. Otherwise the policy of the Act would be defeated. Companies would be able to allow employees to acquire interests on their behalf… but would not have to report them until the board or someone else in senior management got to know about it. This would put a premium on the board paying as little attention as possible to what its investment managers were doing.” 25 Even in the case of offences which included a mens rea element, the usual distinguishing characteristic used to explain the earlier cases. For support for this historical analysis see also Wells, above, n 3, ch 5. 26 RJ Wickins & CA Ong “Confusion Worse Confounded: The End of the Directing Mind Theory” [1997] Jnl of Business Law 524-556, at 550. 27 Clough & Mulhern, above, n 3, at 99-101. 28 2000 WL 191217 (CA); 13 March 2000. Note, however, the strong dissent by Buxton LJ, who argued that the Tesco v Nattrass “directing mind” test was the one which binding authority required to be applied to the question of perjury. Odyssey is on any view a difficult case, as the perjury which the company was fixed with was given by a person who had been a director of the company, but at the time of the testimony in question was no longer. 29 [2001] EWCA Civ 211, [2001] ICR 647, [2001] IRLR 228 (Aldous, Robert Walker, Dyson LJJ). Chapter 3: Liability of Company Officers under General Criminal Law 107
union who, in accordance with the union's rules and normal operating procedures, is concerned with maintaining records kept for the union's purposes. On the other hand the Court of Appeal in Attorney-General’s Reference No 2 of 199930 seemed to indicate that the Meridian approach would not be taken as a matter of course. As this case deals with manslaughter, which is the other main concern of the chapter, it is dealt with below.31 In the context of occupational health and safety, the general question of company liability for the actions of its officers or employees who are not part of the board was addressed by the Court of Appeal (prior to the Meridian decision) in R v British Steel.32 There the relevant provision of the Health and Safety at Work etc Act 1974 (UK), s 3, provided that
It shall be the duty of every employer to conduct his undertaking in such a way as to ensure, so far as is reasonably practicable, that persons not in his employment who may be affected thereby are not thereby exposed to risks to their health or safety.
It was argued on behalf of British Steel that where the cause of an accident that led to the death of a sub-contractor was careless supervision by a low-level employee, the company could not be liable- because in accordance with Tesco v Nattrass,33 the prosecution needed to prove some failure by the “directing mind” of the company. Steyn LJ for the Court rejected the submission completely. The section was cast in absolute terms (subject to the defence of “reasonable practicability”), and historically health and safety legislation required more “stringent” protection that the consumer protection law dealt with in Tesco. In particular, adopting the “directing mind” test here would severely impair the operation of the legislation:
If it be accepted that Parliament considered it necessary for the protection of public health and safety to impose, subject to the defence of reasonable practicability, absolute criminal liability, it would drive a juggernaut through the legislative scheme if corporate employers could avoid criminal liability where the potentially harmful event is committed by someone who is not the directing mind of the company. After all, as Stuart-Smith LJ observed in Reg v Associated Octel Co Ltd [1995] ICR 281 at p 292, section 3(1) is framed to achieve a
30 [2000] 3 All ER 182. 31 See section 2 (C)(i) below. 32 [1995] 1 WLR 1356. 33 Above, n 19. Chapter 3: Liability of Company Officers under General Criminal Law 108
result, namely, that persons not employed are not exposed to risks to their health and safety by the conduct of the undertaking. If we accept British Steel Plc's submission, it would be particularly easy for large industrial companies, engaged in multifarious hazardous operations, to escape liability on the basis that the company through its "directing mind" or senior management was not involved. That would emasculate the legislation.34
Wells identifies the decision in British Steel as a significant indication that the courts no longer find Tesco helpful in approaching the issue of corporate liability, and as part of a trend which is moving away from the “directing mind” theory.35 It might also be regarded, on the analysis in Meridian, as simply an example of the court adopting an appropriate attribution rule in the context of the particular statute.
(2) IDENTIFICATION LIABILITY- UNNECESSARY WHERE THERE IS A
FAILURE OF DUTY? It could also be argued more directly, however, that where legislation aims at achieving a particular result, then a failure to achieve that result is the essence of the offence, and it matters not how the company failed or whose omissions led to the failure. On this analysis the “identification” theory is not necessary where there has been a clear failure in an area where the company was obliged to exercise care. For example, the NSW version of the provision at issue in British Steel is s 8(2) of the Occupational Health and Safety Act 2000, which provides:
8 Duties of employers (2) Others at workplace An employer must ensure that people (other than the employees of the employer) are not exposed to risks to their health or safety arising from the conduct of the employer’s undertaking while they are at the employer’s place of work.
If the result is not achieved- if the health and safety of a relevant person is not ensured- then arguably the company is guilty of an offence, whether that happened through the decision of the board or a momentary lapse by a junior trainee. There is a defence which the company may seek to rely on in s 28 of the Act, but prima facie an offence has been committed. This was the approach adopted in interpretation of the former Occupational Health and Safety Act 1983, s 16(1), and seems certain to be the
34 Above, n 32 at 1362h. 35 Wells, above, n 3, at 102. Chapter 3: Liability of Company Officers under General Criminal Law 109
approach which will be adopted under the new Act.36 It is also the approach that was endorsed by the UK Court of Appeal in relation to s 2 of the UK Health and Safety at Work etc Act 1974 in R v Gateway Foodmarkets Ltd.37 This approach accords with the analysis offered by Estey J for the Supreme Court of Canada in Canadian Dredge & Dock Co Ltd v The Queen.38 While the decision of the Court generally adopted the Tesco “directing mind” theory for offences requiring a specific mens rea, Estey J distinguished these offences from those which he characterised as “strict liability” offences:
Where the terminology employed by the Legislature is such as to reveal an intent that guilt shall … be predicated… upon the establishment of the actus reus, subject to the defence of due diligence, an offence of strict liability arises…[I]t matters not whether the accused is corporate or incorporate, because the liability is primary… It is not dependent upon the attribution to the accused of the misconduct of others. This is so when the statute, properly construed, shows a clear contemplation by the Legislature that a breach of the statute leads to guilt, subject to the limited defence above noted. In this category, the corporation and the natural defendant are in the same position.39
36 For comments on the “absolute” nature of the duty under, for example, s 15 of the 1983 Act see Carrington Slipways Pty Ltd v Inspector Callaghan (1985) 11 IR 467, at 470; Kirkby v A & M I Hanson Pty Ltd (1994) 55 IR 40; Drake Personnel Ltd T/as Drake Industrial v WorkCover [1999] NSWIRComm 341, where the Full Bench of the Industrial Relations Commission referred to the duty under s 15 as “strict or absolute”. Kirkby made it clear that the same approach would be followed in relation to s 16. Technically there is a difference between “strict” and “absolute” liability, and as Thompson (a former WorkCover prosecutor) notes, it would be best to call the offence created by s 8 an “absolute” offence- see Thompson, Understanding NSW Occupational Health and Safety Legislation (3rd ed; Sydney: CCH, 2001) at 27: “the [Act] is a statute that displaces the presumption of the necessity for mens rea. It follows therefore that the obligations under the Act are absolute in nature”. The defining characteristic of a “strict” liability offence is that a defendant may be be excused if he or she can prove an honest and reasonable mistake as to the existence of facts which (if true) would have made his or her act innocent. But, as pointed out in D Brown et al Brown Farrier Neal & Weisbrot’s Criminal Law (3rd ed; Sydney: Federation Press, 2001), at 454-455, it is a “fundamental analytical flaw” to apply the category of strict liability in this sense to an offence the essence of which is a result. Strict liability only applies to offences which may be committed in certain circumstances, and then applies to a belief as to those circumstances.. 37 [1997] 2 Cr App R 40. Section 2 of the UK legislation deals with an employer’s duty to provide for the safety of employees, and corresponds fairly closely to former s 15 of the 1983 NSW Act, and s 8(1) of the 2000 NSW Act. 38 (1985) 19 CCC (3d) 1. 39 (1985) 19 CCC (3d) at 8-9, per Estey J. His Honour seems not to be using the expression “strict liability” in the same way as it is used in Australia, but this does not affect the point being made. Chapter 3: Liability of Company Officers under General Criminal Law 110
The New Zealand Court of Appeal took a similar approach in Linework Ltd v Dept of Labour.40 The company there was held to be liable under the Health and Safety in Employment Act 1992 (NZ) for the actions of a line supervisor in not taking all practicable precautions for safety. The main judgement (Richardson P, Thomas, Blanchard and McGrath JJ) analyses the company’s liability generally in accordance with the Meridian decision, and holds that for the purposes of a statute concerned with safety in the workplace, “the acts and omissions of the person in effective charge of a work site, in this case the foreman who had a supervisory capacity, should be attributed to” the company.41 But the judgement also recognises that an alternative analysis is possible, simply focussing on the failure of the company “to do what the law required it to do”, for whatever reason.42 And Tipping J, who delivered a separate judgement agreeing with the result, argued that this approach was “more direct” than the Meridian approach, and hence “will therefore usually be the more helpful”.
If a prosecution of an employer for a breach of s6 is to succeed, the crucial thing to be established is that there was a practicable step which could have been taken and which, if taken, was likely to have prevented the harm suffered by the employee. In the present case several such steps were identified. If at least one such step is demonstrated it must follow that the employer has failed to take a step which, ex-hypothesi, was a practicable step which ought to have been taken. It does not matter on this analysis who omitted to take the step, provided some practicable step could have been taken by someone other than the injured employee… The simple fact is that all practicable steps to ensure Mr Thomson's safety were not taken. Both on the language of the Act and in accordance with its policy, Linework as his employer was thereby in breach of its statutory duty to him. As will be apparent, this analysis does not depend on Mr Mazur's status within the employer company, nor upon concepts of agency or vicarious liability. It relies simply upon the proposition that once there has been a failure to take a practicable step to ensure the employee's safety, the employer is responsible for that failure.43
Clough and Mulhern also comment on the fact that “direct” company liability may be found in a “failure to act” where legislation requires a company to have acted in a certain way.
40 [2001] NZCA 104. 41 Above, n 40, at para [24]. 42 Above, n 40, at para [25], citing in particular the comment by Smith on the British Steel case at [1995] Crim LR 655. 43 Above, n 40, at paras [44], [45]. Chapter 3: Liability of Company Officers under General Criminal Law 111
With the development of the identification doctrine, this simple point has become obscured: where a corporation is under a legal duty to act it may be criminally liable for a failure to act with no resort to the identification doctrine. In many cases where corporate criminal liability is sought to be imposed, it is simpler to subject the corporation to a legal duty and consider whether it has failed to discharge that duty.44
Interestingly the Israeli law on the subject takes a similar approach. Section 23 of the Israeli Penal Law of 1977 (as amended in 1994) sets out an “attribution” rule for specific purposes which seems to adopt the Meridian model, but then has a more direct rule for cases of omission:
23(b) If the offence consists of an omission, the obligation to perform being directly of the body corporate, then it shall be immaterial whether the offence can or cannot be related also to a certain officer of the body corporate.45
Some doubt has been cast on this apparently straightforward analysis by the decision of the UK Court of Appeal in R v Nelson Group Services (Maintenance) Ltd.46 There an employee of a gas company had installed a pipeline carelessly and caused injury to a customer. The issue that presented itself was whether the company was able to avail itself of the statutory defence of “reasonable practicability” in relation to an offence under s 3 of the HSW Act. The offence created by s 3 of the HSW Act contains a duty on an “employer” to “conduct his undertaking in such a way as to ensure, so far as is reasonably practicable” no risk to non-employees. The trial judge in Nelson had directed the jury, so the Court of Appeal found, that any failure to exercise reasonable care for members of the public by the employee would amount to a failure of duty by the company. This, they held, was not correct. The problem may be restated in terms of the theories of company liability previously discussed. Whose omissions count as omissions of the company? It is clear that for some legal purposes the omission of a mere employee may count as that of the company. But in a statute of this sort the question is being asked where the company
44 Clough & Mulhern, above, n 3, at 121. 45 See D A Frenkel & Y Lurie, “Culpability of Corporations- Legal and Ethical Perspectives” (2002) 45 Criminal Law Quarterly 465, at 476-477. 46 [1998] 4 All ER 331. Chapter 3: Liability of Company Officers under General Criminal Law 112
has been given a defence of “reasonable practicability”. Whose “practicability” needs to be considered? The Court of Appeal answered the question in this way:
It is not necessary for the adequate protection of the public that the employer should be held criminally liable even for an isolated act of negligence by the employee performing the work. Such persons are themselves liable to criminal sanctions under the Act and under the regulations. Moreover it is a sufficient obligation to place on the employer in order to protect the public to require the employer to show that everything reasonably practicable has been done to see that a person doing the work has the appropriate skill and instruction, has had laid down for him safe systems of doing the work, has been subject to adequate supervision, and has been provided with safe plant and equipment for the proper performance of the work.47
In other words, there will be a defence available to the company if they can show that management procedures were in place which were designed to prevent the occurrence. The Court suggested that this result was supported by the previous decision in R v Gateway Food Markets Ltd,48 where the Court there had concluded that the Act required all reasonable precautions to be taken “by the company or on its behalf”. In that case the Court had found that there had been a breach of s 2 of the HSW Act through a management failure by the local store manager, even though the central management of the whole organisation were not involved. The question of whether so-called “casual” negligence by a junior employee would amount to an offence by the company, however, was not clearly resolved in Gateway. On the one hand the court there commented:
the qualification places upon the company the onus of proving that all reasonable precautions were taken both by it and by its servants and agents on its behalf. The concept of the "directing mind" of the company has no application here. The further question is whether this includes all those persons for whose negligence the employer is vicariously liable to third parties for the purposes of the law of tort. If it does, then the employer is not able to rely on the statutory defence when any of his employees has been negligent, i.e. failed to take reasonable precautions, "in the course of his employment". That phrase has been widely defined, and if the same test applies here then the statutory defence is limited to the rare case where the individual employee was on a frolic of his own, and where there was no failure to take reasonable precautions at any other level.49
47 Above, n 74, at 351g-h. 48 See above, n 37. Chapter 3: Liability of Company Officers under General Criminal Law 113
On the other hand the Gateway court did leave open the question “whether the employer is liable in circumstances where the only negligence or failure to take reasonable precautions has taken place at a more junior level”.50 In a comment on the two cases, and on the British Steel case, Holgate suggests with some justification that the decisions are hard to reconcile, and require some action in the UK by either the House of Lords or legislation.51 In NSW, however, as noted previously, the decisions of the Industrial Relations Commission on the former Occupational Health and Safety Act 1983 established that any failure to “ensure” safety under that Act created a prima facie offence, regardless of the level where the failure occurred.52 This will no doubt be the approach taken under the legislation now in force.
(3) IDENTIFICATION LIABILITY IN AUSTRALIA What is the status, then, of the Meridian approach to corporate liability in Australia? The question whether the correct approach to attribution of criminal liability in Australia allows or requires the application of the Meridian test has not yet been authoritatively determined. The Victorian Court of Appeal has expressed a preference for the test but not in an authoritative decision.53 Some State courts have implicitly adopted the Meridian approach to corporate liability or “knowledge”. In Commercial Union v Beard the NSW Court of Appeal did so in passing. 54 In AAPT v Cable & Wireless Optus,55 Austin J applied Meridian to hold that the intention of a corporate officer who had responsibility for a particular area of company operations should be regarded as the intention of the company for the purposes of the particular legislation. Meridian was also assumed to represent the law on corporate liability by the Full Court of the Supreme Court of South Australia in Duke Group Limited (In
49 Above, n 37 at 46. 50 Above, n 37 at 47. See the discussion of this issue in Nelson Group, above, n 74, at 351c. 51 G Holgate, “Employer’s criminal liability for employee’s negligence” (18 August 2000) Solicitor’s Jnl 780-781, at 781. 52 See the cases referred to above at note 36. 53 See DPP (Vic) Reference No 1 of 1996, discussed in more detail below at the text following note 142. 54 [1999] NSWCA 422 at para [62]. 55 [1999] NSWSC 509 at para [91] ff. Chapter 3: Liability of Company Officers under General Criminal Law 114
Liquidation) v Pilmer.56 And in two restrictive trade practices cases, the Federal Court has applied the Meridian approach to determine a company’s liability. In Australian Competition & Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No. 3)57 Heerey J applied Lord Hoffmann’s judgement to determine that the actions of three State officers were the action of the company in that State.58 In ACCC v Simsmetal Ltd59 the same judge commented that a local State manager of a company “was” the company for the purposes of the legislation. So far the High Court has not addressed the issue of whether Meridian ought to be followed directly. Interestingly, however, in a case decided about the same time as Meridian, Krakowski v Eurolynx Properties Limited, the majority (Brennan, Deane, Gaudron & McHugh JJ) made brief comments which seem to support the approach suggested by Lord Hoffmann. In commenting on the liability of a company for fraud, their Honours said:
Their knowledge was the knowledge of Eurolynx, for they were the persons who were responsible for the initial negotiations and who had set the scene in which the representation had been made by the s.32 statement and the proffered contract of sale. As Bright J said in Brambles Holdings Ltd. v. Carey [(1976) 15 SASR 270 at 279; and see per Bray CJ at 275-276, Mitchell J at 281-282]: "Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company. This process is often necessary in cases in which companies are charged with offences such as conspiracy to defraud." A division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them [ See Dunlop v. Woollahra Municipal Council (1975) 2 NSWLR 446 at 485; Tesco Ltd. v. Nattrass (1972) AC 153 at 170]. 60
(4) AGGREGATION OF FAULT OF INDIVIDUALS The concluding comments here raise the vexed question of “aggregation” of knowledge. Can the knowledge possessed by different officers of a corporation simply
56 [1999] SASC 97, at paras [613]ff. 57 [1998] 200 FCA. See also His Honour’s comments in an earlier stage of the same proceedings, at [1997] 469 FCA. 58 His Honour’s comments on this point were specifically approved by the Full Court on appeal: see J McPhee & Son (Aust) Pty Ltd v ACCC [2000] FCA 365, at [128]. 59 [2000] FCA 818, at [20]. Chapter 3: Liability of Company Officers under General Criminal Law 115
be “added together” to produce a result which can be attributed to the corporation? In general courts have held that simple aggregation of knowledge is not possible- see, for example, an early decision in the litigation flowing from the Herald of Free Enterprise disaster, the judgement of Bingham LJ in R v Her Majesty’s Coroner for East Kent, ex parte Spooner,61 and brief remarks in the real property decision of Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd.62 However, a recent New Zealand decision, Equiticorp Industries Group Ltd (In Statutory Management) v The Crown (No 47)63 suggests that in some circumstances some form of aggregation might be appropriate.64 A perceptive article by Lederman points out the important difference between aggregating elements of knowledge and using aggregation to prove intent, and criticises some US decisions allowing aggregation for not making this distinction clearly.65 Given that the primary form of company offence to be considered here relates to failure to conform to a particular standard, the question of aggregation of “intent” does not need to be pursued further in this paper.
(ii) Indirect (vicarious) criminal liability The other avenue by which a company may be found criminally liable may be called “indirect” liability, because it involves the company being liable on the basis of someone who is clearly not to be identified with the company (whatever test is adopted for “identification”). Indirect action by the company may be taken by its employees or by agents acting on its behalf. In the area of civil law, of course, the company will be responsible for contracts entered into on its behalf by its agents with ostensible authority, and for
60 (1995) 130 ALR 1, (1995) 69 ALJR 629, at para 38. 61 [1989] 88 Cr App R 10, at 15-17. 62 [1998] 3 VR 133 (Sup Ct of Vic, Court of Appeal), per Tadgell JA at 144-145. 63 [1998] 2 NZLR 481. See the comment on this case by Cheong Ann Png, “A Case for Aggregation in Principles of Attribution” (2000) 21/9 Company Lawyer 284-287. 64 In the Australian context, as noted below, the new “corporate culture” provisions of the Commonwealth Criminal Code allow aggregation for some purposes. See s 12.2(2), discussed below at n 84. 65 E Lederman, “Models for Imposing Corporate Criminal Liability: From Adaptation and Imitation toward Aggregation and the Search for Self-Identity” (2000) 4 Buffalo Criminal Law Rev 641- 708, at 661-677. Chapter 3: Liability of Company Officers under General Criminal Law 116
torts committed by its employees acting in the course of their employment. The company as employer or principal is not, however, usually vicariously liable for contraventions of the criminal law committed by an employee or agent. As Grantham puts it:
As a rule, courts of English extraction are reluctant to construe criminal offences as being intended to apply vicariously.66
Of course, a statute may have that effect if the court discerns such an intention from its wording or the subject matter of the statute: see, for example, the Ready Mixed Concrete case,67 where as noted previously companies were held criminally responsible for anti-competitive agreements entered into on their behalf by employees who had been specifically instructed not to make such agreements. An Australian example can be seen in the provision considered in Mallan v Lee,68 s 230 of the Income Tax Assessment Act 1936 as it then stood, which read:
Any person who, or any company on whose behalf the public officer, or a director, servant or agent of the company, in any return knowingly and wilfully understates the amount of any income or makes any misstatement affecting the liability of any person to tax or the amount of tax shall be guilty of an offence.
The provision, as the High Court pointed out, made it an offence for a “person” to make a tax misstatement, but it also conditioned a company’s liability on the behaviour of its public officer, director, etc. (“any company on whose behalf… shall be guilty”). As a later High Court pointed out in analysing the earlier decision:
The offence of the company consisted only in its vicarious responsibility for the act of Mallan undertaken on its behalf.69
Gleeson CJ provided a summary of the issue in Tiger Nominees Pty Ltd v State Pollution Control Commission:
66 Grantham, above, n 18, at 171. Clough & Mulhern, above, n 3, at 81, n 106, note that anomalously in three areas the common law recognised vicarious criminal liability: common law libel, public nuisance, and contempt of court. But the general presumption is against such liability. 67 Above, n 23. 68 (1949) 80 CLR 198. 69 See the comments on Mallan in Hamilton v Whitehead, above, n 20, at p 126. Chapter 3: Liability of Company Officers under General Criminal Law 117
As a rule the common law refused to impose criminal responsibility on a person, as a principal, for the misdeeds of others: R v Huggins (1730) 2 Ld Raym 1574 at 1580; 92 ER 518 at 522-523; Halsbury's Laws of England, 4th ed, vol 11par 51 at 40. The development and extension of principles imposing vicarious liability in the nineteenth and twentieth centuries reflect, to some extent, difficulties encountered in law enforcement. Principles were abstracted from developments in the law of tort, and this was done most readily when the offences could be characterised as regulatory in substance although criminal in form. Such offences were sometimes characterised as 'public welfare offences'. Laws relating to fair trading, consumer protection, and safeguarding the environment provide examples. Questions of statutory construction commonly require consideration in this context. The ultimate issue in the present case is whether or not the legislature has, expressly or by necessary implication, created a criminal offence for which one can be found vicariously responsible. 70
One example of an area where vicarious criminal liability is still imposed is the area of liquor licensing.71 Liability under certain provisions of the Trade Practices Act 1974 may also be regarded as vicarious- see, for example, sections 84(2) and 85(1A), where conduct engaged in by an employee is deemed to be conduct engaged in by the corporation.72 Clough and Mulhern discuss a number of situations where vicarious criminal liability has been found to exist, and some of the factors the courts weight up.73 On the other hand, this approach is usually not adopted in legislation which itself distinguishes between the duties of employers and employees, such as occupational health and safety legislation. That proposition is well illustrated by the decision of the UK Court of Appeal in R v Nelson Group Services (Maintenance) Ltd74 mentioned previously. The company concerned, which was involved with installing gas appliances, was charged with offences under the Health and Safety at Work etc Act 1974 (the HSW Act) s 3, and related regulations, when appliances installed by some of its employees proved to be
70 (1992) 75 LGRA 71, at 74; see the citation of this passage and discussion of the issue by Bignold J in Owen v Willtara Construction Pty Limited [1998] NSWLEC 216, and the discussion of the circumstances in which vicarious liability may arise for pollution offences by Lloyd J in Environment Protection Authority v Multiplex Constructions Pty Ltd (ACN 008 687 063) [2000] NSWLEC 6, at paras [274]-[292]. 71 See, for example, Luff v Oakley (Sup Ct of the ACT, Kelly J; 19 Feb 1986), and Coatz v Director Of Liquor Licensing [2000] WASCA 126, at para [30]. 72 See Ballard v Sperry Rand Australia Pty Ltd (1975) 6 ALR 696, discussed by R Edwards, “Corporate Killers” (2001) 13 Aust Jnl of Corp Law 231-251, at 235-238. 73 Clough & Mulhern, above, n 3, at 81-85. 74 [1998] 4 All ER 331. Chapter 3: Liability of Company Officers under General Criminal Law 118
defective. One of the questions which arose in the case was whether the company bore vicarious liability for the failure of its employees to comply with the relevant regulations, the Gas Safety (Installation and Use) Regulations 1994. On this question the Court held that the company was not vicariously liable for offences under the regulations. They came to this conclusion because the regulations on their face clearly distinguished between “any person carrying out any work” on the one hand, and on the other hand the “employer of any person”. The duties imposed on employers effectively amounted to ensuring that the employees complied with their duties, but there was a defence of “taking all reasonable steps” which applied to the employer’s offences.75 Nelson seems to be correct in refusing to apply a “vicarious criminal liability” analysis to legislation which itself distinguishes between the liability of employers and employees. The same analysis used by the Nelson court can be easily applied to the Occupational Health and Safety Act 2000 (NSW), where separate duties are clearly imposed on employers in s 8, and employees in s 20. A company will not be vicariously liable for the failure of one of its employees under s 20. But any failure to “ensure” the safety of employees will lead to a likely conviction of the company under s 8, subject to the specific defences in s 28 of the Act.
(iii) Criminal Liability under the Commonwealth Criminal Code Before leaving the general question of corporate criminal liability, recent amendments to Commonwealth criminal law which may have an impact on this area should be noted. The Commonwealth Criminal Code is contained in the Schedule to the Criminal Code Act 1995 (Cth), and is designed to be a codification of the principles of criminal responsibility for Commonwealth law. As Edwards notes, it had its origins in the 1990 report of the Gibbs Committee,76 which was intended to provide a “Model Criminal Code” for eventual adoption by the Commonwealth and the States.77
75 See the discussion, above, n 74, at 335e-336e. 76 See R Edwards, “Corporate Killers” (2001) 13 Aust Jnl Corp Law 231-251 at 244. 77 For earlier comment on the corporate responsility aspects of the Criminal Code, see also R Baxt, “New code for corporate behaviour” (1995) 11/1 Company Director 18, and T Woolf “The Criminal Chapter 3: Liability of Company Officers under General Criminal Law 119
While it now seems fairly doubtful that the States will adopt the Code in the near future, a massive effort has gone into review and amendment of Commonwealth law generally to make it “Code compliant”. Chapter 2 of the Code, which deals with the general principles of “criminal responsibility” under the laws of the Commonwealth, commenced operation on 15 December 2001.78 In particular, Part 2.5, containing Division 12 of the Code, deals with the issue of “corporate criminal responsibility”. The Division codifies the circumstances in which a corporation can be criminally responsible. As the Code defines liability for the purposes of Commonwealth law, it will generally have limited application to workplace deaths or injuries. Liability in relation to these will usually arise under State law, either the common law of manslaughter, or under State statute. Strangely, however, at the moment the Code principles are not even applicable in the case of a prosecution under the Commonwealth Occupational Health and Safety (Commonwealth Employment) Act 1991.79 This Act provides for prosecution of “Government Business Enterprises” in certain circumstances, and so the question of corporate criminal liability in relation to a workplace accident may well arise.80
Code Act 1995 (Cth)- Towards a Realist Vision of Corporate Criminal Liability” (1997) 21 Crim L J 257-272, where the author makes some telling criticisms of the drafting of some of the provisions of Part 2.5 which do not yet seem to have been taken up. See also more briefly G Hill, “Is your corporate culture criminal?” (2000) 10/4 Australasian Risk Management 5-6. 78 See s 2.2(2). 79 Section 15A of the Act provides that the Code is applicable to offences against the Act, except Part 2.5. The note to s 15A draws attention to s 78 of the Act, which contains a separate “code” for corporate liability focussing on the specific intention of “directors, servants or agents”. As Clough & Mulhern comment, above, n 3, at 138, exempting legislation from the new Part 2.5 simply because there is a pre-existing model of corporate liability “is hardly a ringing endorsement of the new model”! It may be the intention of the Government to apply Part 2.5 in the future to offences under the Act- the Occupational Health and Safety (Commonwealth Employment) Amendment Bill 2000 provided in Item 23 of Schedule 1 that a new s 15A should be inserted, which simply read: “The Criminal Code applies to all offences against this Act”. However, this Bill was subject to critical comment in the Senate which led to the delay of passage of the Bill as a whole and its eventual lapsing, and the replacement legislation, the Occupational Health and Safety (Commonwealth Employment) Amendment (Employee Involvement and Compliance) Bill 2002, omits the amendment to s 15A for reasons not spelled out in the explanatory documentation. 80 And indeed there will be some ambiguity for the Commonwealth Act created if the amendments in the 2002 Bill mentioned in the previous note go ahead. Schedule 2 to be inserted by the Bill contains 2 specific criminal offence provisions, clauses 18 and 19, dealing with causing death or serious bodily harm (or a “substantial risk” of those things), and each clause contains the note that “Chapter 2 of the Criminal Code sets out the general principles of criminal responsibility”. No Chapter 3: Liability of Company Officers under General Criminal Law 120
However, even if the provisions of Part 2.5 presently have little direct relevance to workplace safety, it is worth noting the general principles involved, as the model set up by Part 2.5 may prove influential in further legislative change in the States (or the Commonwealth) in the future. Section 12.1(2) sets out the basic principle that a corporation may be found guilty of any offence. Under s 12.2 the “physical elements” of an offence (corresponding roughly to the traditional actus reus) will be attributed to the corporation if “committed by an employee, agent or officer of a body corporate acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority”. That is, speaking broadly, the corporation will be regarded as having “done” something when it has been done by an employee in circumstances where the corporation would have had civil vicarious liability for the employee’s actions. For criminal purposes the liability of the corporation will further depend on the presence of the “mental element” relevant to the particular offence. Two sections deal with this topic- s 12.3 where the offence requires “intention, knowledge or recklessness”, and s 12.4 where the relevant mental element is “negligence”. Section 12.3 provides that fault will be attributed for an “intention, knowledge or recklessness” offence where the corporation “expressly, tacitly or impliedly authorised or permitted the commission of the offence”. It goes on in s 12.3(2) to specify that this can be shown in four ways:
(a) proving that the body corporate's board of directors intentionally, knowingly or recklessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or (b) proving that a high managerial agent of the body corporate intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or (c) proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision; or (d) proving that the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision.
specific exemption of Part 2.5 is mentioned, so it will be up to a court hearing the matter to determine whether s 15A or the note to the clause should be applied, and if so how. Chapter 3: Liability of Company Officers under General Criminal Law 121
Liability for this sort of offence, then, can be attributed on proof of intention etc by the board (Lord Hoffmann’s “primary” rule of attribution), by a high managerial agent (which may correspond to the Tesco v Nattrass rule about the “governing mind”),81 or by proof of elements of the corporate culture. This last limb is a new development on the common law approach, and also differs from the Meridian approach discussed previously. Section 12.3(6) provides a definition of the term:
corporate culture means an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place.
And s 12.3(4) provides some guidance on when the corporate culture will operate:
(4) Factors relevant to the application of paragraph (2)(c) or (d) include: (a) whether authority to commit an offence of the same or a similar character had been given by a high managerial agent of the body corporate; and (b) whether the employee, agent or officer of the body corporate who committed the offence believed on reasonable grounds, or entertained a reasonable expectation, that a high managerial agent of the body corporate would have authorised or permitted the commission of the offence.
As a hypothetical example, it might be common in a company for safety rules of one sort (type “X”) to be ignored. This may have come about through direct or indirect orders from the board or a manager. If an injury occurs through a breach of some other category of safety rule (type “Y”) upper management may claim, correctly, that they had said nothing specific about type Y. But it may have been quite clear through the unspoken “culture” of the company that a middle manager confronted with rules of type Y was expected to ignore them in the same way that rules of type X were ignored. Offences of a “similar character” under s 12.3(4)(a) were authorised, or there may have
81 This is confirmed to some extent by the definition of “high managerial agent” in s 12.3(6) as “an employee, agent or officer of the body corporate with duties of such responsibility that his or her conduct may fairly be assumed to represent the body corporate’s policy”. But note that under s 12.3(3) the corporation has a defence against attribution with a “high managerial agent’s” intention if it can show that it exercised “due diligence” to prevent the occurrence of the event. Woolf suggests that the words here may cover a slightly wider class of managers than would be caught by the Tesco v Nattrass test: see Woolf, above, n 77, at 261 n 32. Chapter 3: Liability of Company Officers under General Criminal Law 122
been a “reasonable expectation” that offences of that sort would be authorised under s 12.3(4)(b). Ledermen characterises the Criminal Code provisions about “corporate culture” as a part of a general movement in the law in the direction of the recognition of “corporate self-identity” as a separate ground of liability, and comments that the Code “represents a prominent contribution to the expansion of corporate criminal liability”.82 While the provisions about “corporate culture” do make a significant breakthrough for corporate liability, for present purposes the next section, s 12.4, is equally important. Section 12.4 applies when the “mental element” of an offence is negligence. This is further defined in a previous Division of the Code, in s 5.5:
5.5 Negligence
A person is negligent with respect to a physical element of an offence if his or her conduct involves: (a) such a great falling short of the standard of care that a reasonable person would exercise in the circumstances; and (b) such a high risk that the physical element exists or will exist;
that the conduct merits criminal punishment for the offence.
The wording of this provision is clearly reminiscent (as will become apparent below) of the common law decisions on “manslaughter by negligence”. If the Code were applicable to manslaughter, then, under s 12.4 the following principles would apply:
12.2 (2) If: (a) negligence is a fault element in relation to a physical element of an offence; and (b) no individual employee, agent or officer of the body corporate has that fault element; that fault element may exist on the part of the body corporate if the body corporate’s conduct is negligent when viewed as a whole (that is, by aggregating the conduct of any number of its employees, agents or officers).
(3) Negligence may be evidenced by the fact that the prohibited conduct was substantially attributable to: (a) inadequate corporate management, control or supervision of the conduct of one or more of its employees, agents or officers; or
82 Lederman, above, n 65, at 699; see pp 677ff for his overview of the development of “corporate self- identity” models in the literature. Chapter 3: Liability of Company Officers under General Criminal Law 123
(b) failure to provide adequate systems for conveying relevant information to relevant persons in the body corporate.
There would no longer be a need to find a particular “governing mind” who is careless.83 The corporation’s “conduct as a whole” may be reviewed, and aggregation is specifically said to be possible.84 Subsection (3) allows a focus on management failure in terms of control or supervision, or inadequate information systems. To take the facts of the UK Herald of Free Enterprise disaster, for example: a passenger ferry sunk when the bow doors were left open. The bosun whose immediate responsibility it was to close the doors was asleep, but it was claimed this was mainly due to fact that he had been required to work incredibly long shifts with no assistance. In addition, there was no mechanism whereby the captain of the vessel could confirm from the bridge that the doors were shut before the ferry departed. Failures in supervision and failures in information systems seem very clear.85
(b) Accessorial Liability of an Officer when the Company has committed an offence If, then, whether directly, indirectly, or under the Criminal Code rules, a company has committed a criminal offence, how may a company officer be found guilty in relation to the company’s offence? Traditionally there are four types of “complicity” which might be relevant to any crime. They may be summarised as • “joint criminal enterprise”, where there is a prior agreement to commit a crime;
83 For this issue see the P&O case, discussed below, from n 133. 84 Interestingly it is the “fault” component which is said to be shown by aggregating the “conduct” of a number of corporate officers or employees. But this is possible because it is assumed that the relevant offence relates to a failure to exercise due care, rather than an intention to do a positive act. The failure will be effectively shown by showing that over the corporation as a whole, or in the parts of the corporation where the care needed to taken, there was a relevant failure to take care. Hence this provision does not have the vice of some of the US attempts to use aggregation to create an “intent” where none existed in any individual (see the Lederman article noted above, n 65 , and discussion in the text there.) 85 Clough & Mulhern, above, n 3, at 143-148 make a number of technical criticisms of the drafting of Part 2.5 which are beyond the scope of this paper, but will no doubt have to be considered in the future. Chapter 3: Liability of Company Officers under General Criminal Law 124
• “accessorial” liability, usually described by the verbs “aid, abet, counsel or procure”; • “common purpose”, where in the course of the commission of a joint criminal enterprise another crime is committed by one of the participants; and • “accessory after the fact”, where someone assists an offender to avoid detection, arrest or conviction.86
The first and third options will rarely be relevant to a workplace injury or death. But the second and fourth may well. To take the example of the Occupational Health and Safety Act 2000 (NSW): s 8(1) imposes criminal liability on an “employer” for failure to ensure the health, safety and welfare at work of an employee. If the company is the employer, then officers themselves could not be convicted of an offence against s 8. In theory, however, they could be convicted as an accessory to the company’s offence. In fact s 27 of the OHS Act 2000 creates a specific “aiding and abetting” offence:
27 Aiding and abetting etc (1) A person: (a) who aids, abets, counsels or procures, or (b) who, by act or omission, is in any way directly or indirectly knowingly concerned in or a party to, the commission of an offence against this Act or the regulations is taken to have committed that offence and is punishable accordingly.
The corresponding provision in the OHS Act 1983, s 51, was very rarely used. If liability was to be imposed on a company officer it was more likely that an offence under the former s 50 (now s 26 of the OHS Act 2000) would have been charged. Chapter 4 discusses the operation of those provisions. Nevertheless, the possibility remains that a company officer might be charged under this more general provision as an accessory to, or as “knowingly concerned” in, an offence committed by the company.
86 See Brown et al, Criminal Laws above, n 36, at p 1324 for the above summary. Chapter 3: Liability of Company Officers under General Criminal Law 125
The law of accessorial liability, and the wording of the provision concerned, would mean that an officer found to satisfy the provision would be convicted, not of the offence of “aiding and abetting” etc, but of the “head” offence (due to the wording “is taken to have committed that offence”). Other issues flowing from this type of accessorial liability are dealt with in chapter 4. There is also a possibility (although there seem to be no decided cases raising the issue) that a company officer might be found liable as an “accessory after the fact” under common law principles, where he or she had attempted somehow to conceal the fact that an offence had been committed, or attempted to obstruct an investigation. This might be a useful addition to the specific statutory offence of “obstructing, hindering or impeding” an authorised official in the exercise of their duties under the 2000 Act, found in s 136. However, while generally treated as a question of “accessorial” liability, the treatment of an accessory “after the fact” is significantly different to that of an accessory before the fact. An accessory after the fact is guilty of a separate crime, whereas an accessory before the fact is guilty of the “principal” crime. Recently, in R v Clark, the NSW Court of Criminal Appeal summed up the elements of the crime of being an accessory after the fact in the following passage:
An accessory after the fact at common law must assist "the principal offender by a physical act and not merely by omitting to do something": Majara v R [1954] AC 235 at 238 per Lord Goddard CJ, Lord Reid and Mr L M D de Silva. The accessory must "receive, relieve, comfort or assist" the principal offender and "merely suffering the principal to escape" will not suffice, nor will "the negative assistance of not giving information to the police": R v Ready [1942] VLR 85 at 92-3 per Mann CJ, Gavan Duffy and Martin JJ. Glanville Williams, Criminal Law: The General Part (2nd ed, 1961) pp 409-411 states: "An accessory after the fact is one who assists a felon after his crime, with a view to shielding him from justice. An accessory after the fact is defined as one who “receives, harbours or maintains” a known felon so as to enable him to elude justice (ie, arrest, trial or punishment). Examples are hiding the felon from justice, acting with the purpose of enabling him to escape before or after arrest, or even the mere act of removing the evidence against him. To constitute a man an accessory after the fact he must commit a positive act of assistance. Mere failure to inform the authorities, or failure to prevent an escape, is not sufficient.". 87
87 [2001] NSWCCA 494, at para [53]. Chapter 3: Liability of Company Officers under General Criminal Law 126
As that summary reveals, to be convicted as an accessory after the fact to a crime committed by a company, a company officer would need to do more than stay silent when aware of a crime. He or she would need to be actively involved in concealing evidence or something similar. Indeed R v Stone establishes that the officer must not only know that a crime of some sort has been committed, but have knowledge of the specific facts which at law amount to the particular crime charged.88 Perhaps for that reason there seem to be very few prosecutions of that sort in the area of workplace accidents. Nevertheless, in an appropriate case there would seem to be little doubt that some such charge could be brought. Before turning to issues raised by possible accessorial liability of a company officer to the more serious crime of manslaughter, the case of possible direct liability ought to be considered.
2. Manslaughter In the case of a death in the workplace, can a company officer be found to have committed the offence of manslaughter while acting on behalf of the company?89
(a) Manslaughter generally Manslaughter is essentially defined by its relationship to the crime of murder. So the Crimes Act 1900 (NSW) s 18(1) provides:
18 Murder and manslaughter defined
(1) (a) Murder shall be taken to have been committed where the act of the accused, or thing by him or her omitted to be done, causing the death charged, was done or omitted with reckless indifference to human life, or with intent to kill or inflict grievous bodily harm upon some person, or done in an attempt to commit, or during or immediately after the commission, by the accused, or some accomplice with him or her, of a crime punishable by imprisonment for life or for 25 years.
88 [1981] VR 737, Crockett J. However, if the relevant facts simply amount to the creation of a risk to safety in the workplace, for example, this may not be difficult. 89 This paper is not concerned, of course, with a “casual” act of manslaughter committed by an accused who happens to be a company officer- eg an act of reckless running down carried out over the weekend. The question is whether an officer when in some sense “at work” can commit manslaughter by management decisions. Chapter 3: Liability of Company Officers under General Criminal Law 127
(b) Every other punishable homicide shall be taken to be manslaughter.
So-called “voluntary” manslaughter is in fact a finding that may be made by a jury that an accused who appears to have committed murder should not be visited with the full consequences of that finding, due to an exculpatory factor such as provocation. “Involuntary” manslaughter, however, is behaviour that causes death but which does not have quite the same seriousness as murder. After a period of doubt it seems settled now that under Australian law there are two varieties of “involuntary manslaughter”: “negligent” manslaughter, and “unlawful and dangerous act” manslaughter.90 Both crimes, of course, involve the accused in causing the death of another.
(i) Manslaughter by criminal negligence The accused will be guilty of negligent manslaughter where he or she has done so with the following intent (mens rea):
An intent to do the act which, in fact, caused the death of the victim, but to do that act in circumstances where the doing of it involves a great falling short of the standard of care required of a reasonable man in the circumstances and a high degree of risk or likelihood of the occurrence of death or serious bodily harm if that standard of care was not observed, that is to say, such a falling short and such a risk as to warrant punishment under the criminal law.91
One point to notice is that this statement of intent does not require the accused person in fact to have given thought to the probability of death or serious bodily harm. An actual awareness of the risk, if proved to the requisite degree of satisfaction, would probably lead to the accused being found guilty of the more serious crime of murder by recklessness.92 But manslaughter is established on an “objective” test related to what a
90 See the authoritative analysis of “unlawful act” manslaughter by the High Court in Wilson v The Queen (1992) 174 CLR 313, which incidentally settled the two-fold division of the offence. The Court there affirmed in general the analysis of “negligent” manslaughter by the Supreme Court of Victoria in Nydam v The Queen [1977] VR 430. For a detailed discussion of the offence of manslaughter in Australia see S Yeo, Fault in Homicide (Sydney: Federation Press, 1997), chapter 7. 91 Nydam v R [1977] VR 430 at 444. Note that this approach was reaffirmed by the NSW Court of Criminal Appeal in R v Do, Manh Viet [2001] NSWCCA 19 at para [17]. 92 See Crimes Act 1900 (NSW) s 18(1), above. While it would have been possible to include murder by recklessness in the discussion in this chapter, on balance it seems that the circumstances where subjective recklessness by a director would lead to a workplace fatality would be so rare that it Chapter 3: Liability of Company Officers under General Criminal Law 128
“reasonable person” would have foreseen and how that person would have responded to the foreseeable risk. (ii) Unlawful and dangerous act manslaughter On the other hand, the accused will be guilty of unlawful and dangerous act manslaughter where death is caused to another by the accused’s actions, where the action of the accused was “an unlawful and dangerous act carrying with it an appreciable risk of serious injury”.93 It is established that to be “unlawful” for the purposes of this test the act must be a breach of the criminal law, not merely a civil wrong.94 There is some suggestion that in the 19th century in England some convictions for manslaughter might have been based on breach of contract.95 The last recorded such case seems to have been R v Pittwood.96 But it seems highly unlikely that such a claim would succeed today. As with negligent manslaughter, the “risk” must be one that a reasonable person would appreciate; it need not in fact have been appreciated by the accused. The words of Smith J in R v Holzer were adopted by the High Court in Wilson:
The circumstances must be such that a reasonable man in the accused’s position, performing the very act which the accused performed, would have realized that he was exposing another or others to an appreciable risk…97
would be unlikely in practice that such a charge would be brought. It is possible, however: see the initial conviction of three company directors of the company Film Recovery Systems Inc for murder under an Illinois law defining murder as occurring where the accused “knows that [the acts which cause the death] create a strong probability of death or great bodily harm to [an] individual”. On appeal, however, in People v O’Neil 550 NE 2d 1090 (1990) the Appellate Court of Illinois overturned the conviction on the basis that, at the same trial, the jury had entered a verdict of involuntary manslaughter against the company, and the two offences had mutually exclusive mental states (“recklessness” under the Illinois statutory definition of manslaughter being different to the “knowledge” required for murder). The case was remanded for retrial but there is no indication in the literature of the result of the retrial. 93 Wilson v R (1992) 174 CLR 313, per Mason CJ, Toohey, Gaudron & McHugh JJ at 333. 94 See, for example, the comments of Brennan, Deane & Dawson JJ (dissenting but not on this point) in Wilson, above, n 93, at para 2: “There is now no difficulty about what constitutes an unlawful act for the purpose of this offence. An unlawful act is one which is contrary to the criminal law.” 95 See K Harrison, “Manslaughter by Breach of Employment Contract” (1992) 21 Industrial Law Jnl 31- 43, referring on p 37 at nn 35-37 to a trio of “colliery” cases where employees were convicted of manslaughter arising out of incidents in coal mines, Haines (1847) C&K 368, Lowe (1850) 3 C&K 123, and Hughes (1857) Dears & B 248. 96 (1902) 19 TLR 37, discussed in Harrison, above, n 95, at 35-37. 97 [1968] VR 481, at 482. For the High Court’s adoption of the Holzer test see Wilson, above n 93 , at 327. Chapter 3: Liability of Company Officers under General Criminal Law 129
However, a distinction between the two sorts of manslaughter seems to be that, in the case of unlawful act manslaughter, the relevant risk must have been simply “appreciable” rather than, as for negligent manslaughter, a “high degree of risk”. An important question for the application of this crime to workplace injuries is the issue of what constitutes an “unlawful” act. Given that the act must also be “dangerous” and carry “an appreciable risk of serious injury”, is it sufficient that it be any breach of any criminal law? Or does it need to be a breach of some special category of criminal law? So, for example, would a breach of a provision of, or a regulation made under, the Occupational Health and Safety Act 2000 amount to a sufficiently “unlawful” act to found a conviction of manslaughter? The relevance of this question, of course, is that in the past courts and commentators have sometimes discussed breaches of occupational health and safety legislation as though they were “merely regulatory” or in some way less serious or “more excusable” than “genuine” crime.98 This issue is discussed at some length by Yeo, who after reviewing the fairly inconclusive authority on the issue suggests that the unlawfulness of the act should probably be accompanied by an intention to cause serious injury.99 As he points out, there is no clear guidance from the High Court in Wilson on the issue. Hunt CJ in the NSW Court of Criminal Appeal suggested in a pre-Wilson decision, R v Pullman,100 that there were some breaches of “regulatory” laws which would not in themselves amount to an “unlawful” act for the purposes of this branch of manslaughter. As Yeo points out, however, the guidance offered by His Honour on the dividing line between
98 A process sometimes described as the “conventionalisation” of industrial safety crime- see, for example, the discussion in N Gunningham, Safeguarding the Worker (Sydney: Law Book Co, 1984) at 59-60. A particularly unfortunate example of this attitude in recent years is found in the decision of the UK Court of Appeal in Davies v Health and Safety Executive [2002] EWCA Crim 2949. While the decision in the case was correct, Tuckey LJ commented in the course of the judgement at [31] that safety legislation was “regulatory legislation” where “the moral obloquy is not the same as that involved in truly criminal offences”! 99 See Yeo, above, n 90, at 217-225; the conclusion that unlawfulness ought to include an intention to inflict injury (which the author concedes is primarily based on policy considerations) is expressed at p 224. 100 (1991) 25 NSWLR 89. Chapter 3: Liability of Company Officers under General Criminal Law 130
crimes which would, and those which would not, form the basis for the offence, seems fairly unclear. His Honour said:
(1) An act which constitutes a breach of some statutory or regulatory prohibition does not, for that reason alone, constitute an unlawful act sufficient to found a charge of manslaughter within the category of an unlawful and dangerous act. (2) Such an act may, however, constitute an unlawful act if it is unlawful in itself- that is, unlawful otherwise than by reason of the fact that it amounts to such a breach.101
The concept of an act “unlawful in itself” may be intended to convey that of an act which is a common law crime, rather than one created by statute; but no reasons are offered as to why such a dividing line should be drawn. It is possible, of course, that His Honour’s views on the matter might need to be nuanced after the clarification of the law provided by Wilson. After all, in a passage already referred to, some at least of the judges in Wilson were prepared to accept the definition of “unlawful” as an unqualified “contrary to the criminal law”.102 And since Wilson has clarified that the relevant act must be, not only unlawful, but also dangerous and carry an “appreciable risk of serious injury”, there may be less reason for concern that apparently minor statutory prohibitions might be relied upon to satisfy the criterion of “unlawfulness”.103 The uncertainy in this area may not, in the end, have much significance for present purposes. The application of “unlawful and dangerous act” manslaughter directly to company officers may not in the event be very likely. This flows from the fact that, for present purposes, the unlawful act would have to be a breach of an obligation which was personally imposed on the company officer in some way, rather than an obligation cast on the company. Most obligations under the occupational health
101 Above, n 100, at 97B. 102 See above, n 94. 103 As Brown et al comment (above, n 36) at 547: “Now that the High Court has decided in Wilson that it is manslaughter only where an unlawful act gives rise to a belief on the part of a reasonable person that someone is being exposed to an appreciable risk of serious injury, many statutory and regulatory prohibitions will be disqualified, because they could never give rise to such a belief”. On the other hand, of course, statutory occupational health and safety provisions are in place precisely because they deal with situations where there is “an appreciable risk of serious injury”. Chapter 3: Liability of Company Officers under General Criminal Law 131
and safety legislation are imposed on “employers” or “self-employed persons”, and in general a company officer will not fall into either category.104 However, the charge of manslaughter by criminal negligence does seem to be one that might well be applicable to a company officer.
(b) Manslaughter by negligence while acting as a company officer There seems to be no real doubt that an individual in their capacity as the officer of a company may be found personally guilty of manslaughter by criminal negligence in appropriate circumstances. As noted above, what will be required is proof of the doing of an act which is a breach of a duty of care owed to the deceased; but in the doing of that act a great “falling short” of the relevant standard of care, in circumstances where there was a “high degree of risk” of death or bodily harm, and in circumstances warranting punishment by the criminal law. (i) Duty of care for manslaughter purposes One preliminary issue is the question whether a company officer in fact owes a duty of care to company employees. This is an issue raised by the UK Centre for Corporate Accountability in its response to the Home Office proposals on corporate manslaughter:
The fact that a company owes a duty of care does not mean that a company director owes a duty of care.105
In chapter 2 it was noted, however, that there is a growing body of civil law holding that an individual director or other company officer may in some circumstances
104 It should be noted, however, that under specific legislation dealing with coal mining a company officer may be given particular responsibility as a mine officer- see, for example, the recently enacted Coal Mine Health and Safety Act 2002 (NSW) (not yet commenced) which in ss 63 & 69 impose separate duties on a “manager of mining operations” or a “supervisor”. It is also possible that in general a company officer’s “deemed” breach of the Occupational Health and Safety Act 2000 (NSW) under s 26 of that Act (discussed in more detail in chapter 4) might amount to sufficient “illegality” for the purposes of a charge of unlawful act manslaughter. But given the reluctance of courts such as that in Pullman to accept “merely regulatory” breaches as sufficient illegality, it might be thought unlikely that a court would regard a “deemed” illegality as sufficient. The possibility of a charge of “unlawful and dangerous act” manslaughter being brought against the company itself is considered briefly below, in the text near note 164. 105 Response to Home Office Consultation Document “Reforming the Law on Involuntary Manslaughter: the Government’s Proposals” (September 2000) [available from Chapter 3: Liability of Company Officers under General Criminal Law 132
have a duty of care to company employees, despite the lack of a formal employment relationship. For the purposes of this part of the discussion it is assumed that a court would be able to find that such a duty of care existed. (ii) Application of manslaughter to company officers It is not hard to find in the literature and reported cases examples where the behaviour of company officers has led to the death of workers. For an excellent discussion of the possible application of the law of manslaughter to a company officer, for example, see the article by Craig,106 who addresses a possible charge of manslaughter by analysing the facts of a civil claim, Trott v W E Smith (Erectors) Ltd,107 which was based on the death of a worker. While some of the points he makes relate to the English law of manslaughter, they are readily adaptable to the Australian law. In Trott a worker was expected to travel on a construction site three metres along a steel girder which was 75mm wide about 6 metres above the ground. No scaffolding or safety harness was provided. The worker fell to his death. The employer was in breach of a number of specific safety regulations requiring safe means of access to the workplace and safety nets and belts. In these circumstances, after outlining the elements of “gross negligence manslaughter” following R v Adomako,108 Craig suggests that the employer company could have been charged with manslaughter. Postulating an individual, Mr Smith, who is the sole effective director and manager of the company, and who has decided to cut costs by not purchasing safety equipment, a similar analysis could be made in accordance with the Australian law on negligent manslaughter. Other factual elements that might be added, for example, would include “near-misses” from other workers not quite falling.
As well as the theoretical possibilities opened up above, there are a growing number of cases where individual company officers have in fact been charged with manslaughter. Where these charges have succeeded, presumably the courts concerned were satisfied as a matter of law that the officers concerned had a duty to the deceased workers.
(1) AUSTRALIA In Australia there is the initial decision of the Victorian DPP in 1994 to charge Mr Tim Nadenbousch with manslaughter.109 Mr Nadenbousch was a director of a company, Denbo Pty Ltd, which was engaged in construction work on a road. On the site where the work was being undertaken there was a steep sloping section across which ran a rough track which was only suitable for light vehicles. Mr Nadenbousch and his brother had arranged the purchase of a number of dump trucks for use in the work, including one which he had been informed had defective rear brakes. He confirmed this by driving it himself, but then made it available a day or two later to an employee of the company, with no further warnings. The employee attempted to drive the heavy truck down the rough track (on which there were no warning signs), when the brakes failed, the truck overturned, and he was killed. As noted, Mr Nadenbousch was initially charged with manslaughter. In the course of discussions at the hearing, however, he was allowed to plead guilty to charges under the Victorian Occupational Health and Safety Act 1985, in return for which the charge of manslaughter was dropped.110 The charge of manslaughter against the company was proceeded with, and the company pleaded guilty and was fined $120,000. However, by the time the penalty was imposed the company had become worthless, and the fine was never paid.
109 The Nadenbousch case is discussed in some detail in V Whalen, “The Liability of Individual Officers and Liability for Manslaughter and Related Offences: Three Victorian Cases” in R Johnstone (ed) New Directions in Occupational Health and Safety Prosecutions: The Individual Liability of Corporate Officers, and Prosecutions for Industrial Manslaughter and Related Offences (Centre for Employment and Labour Relations law; Working Paper No 9: April 1996), at 13-15, from which the analysis in the text is derived. 110 See the discussion of these forensic decisions in S Chesterman, “The Corporate Veil, Crime and Punishment: R v Denbo Pty Ltd and Timothy Ian Nadenbousch” (1994) 19 Melb Uni L Rev 1064-1073, at 1067. The sentencing of Mr Nadenbousch and the company is available through Chapter 3: Liability of Company Officers under General Criminal Law 134
(2) UNITED KINGDOM In the UK, in R v Kite,111 a director of a leisure company, OLL Ltd, was convicted of “gross negligence” manslaughter112 in relation to the death of some school children in a canoe provided by the company. Mr Kite was convicted, not because because he played any specific role on the day, but as managing director, because of his failure to attend to proper systems for safety.113 As the Court of Appeal commented:
He was convicted by reason of his failure to lay down a proper system for… safety.114
He received a three year jail sentence which was reduced on appeal to two years. Other UK health and safety breaches which have led to individual sentences for manslaughter115 include: • The conviction and 12 month’s sentence of the director of Jackson Transport (Ossett) Ltd for manslaughter following the death of an employee who was sprayed in the face with a toxic chemical while cleaning residues from a road tanker.116
the Butterworths “Unreported Judgements” database, R v Denbo Pty Ltd (BC9405103; SC Vic, Teague J, 14 June 1994). 111 [1996] 2 Cr App R (S) 295. 112 Effectively the equivalent of “negligent” manslaughter under Australian law. 113 OLL Ltd was also convicted of manslaughter: see report in The Times 13 December, 1994, noted in A Edgar “Opinion: Corporate Manslaughter is Just Around the Corner” [2001] International Company & Commercial Law Review 117-119, at 117. 114 Above, n 111 , at 298. 115 Not included here are two cases where jail sentences were handed down in relation to offences under the UK HSW Act 1974 [an option only available for a repeat offender under the NSW OHS Act 2000; see for example s 12(c)]. The two cases are the 1996 conviction and 12-month suspended sentence imposed on a Mr Hill, director of a demolition company, for failure to take precautions against asbestos in a demolition project ; and the convictions of two directors of a carpet manufacturing company sentenced to four month’s imprisonment after a worker lost his arm while cleaning machinery. Both these examples taken from A Edgar, “Directors’ Liability (4)” (1997) 141 Sol Jnl 328-330. See also Slapper (1997), below, n 116, at 226 nn20-21. 116 See The Health and Safety Practitioner (December, 1996) p 3, cited in G Slapper “Litigation and Corporate Crime” [1997] Jnl of Personal Injury Litigation 220-233, at 223 n 13. Chapter 3: Liability of Company Officers under General Criminal Law 135
• The director of a plastics company pleaded guilty to a charge of manslaughter following the death of an employee who had come into contact with the blade of an unguarded machine used for breaking up plastic.117 • The directors of Roy Bowles Transport Ltd were sentenced to 15 and 12 months respectively when a driver employed by the company was allowed to work excessive hours and killed others in a road accident caused by tiredness.118 • The director of Dennis Clothier and Sons was convicted of manslaughter and sentenced to 240 hours community service after the death of a member of the public caused by a large trailer becoming detached from a tractor owned by the company.119 R v Holloway120 was dealt with as part of a group of four prosecutions for manslaughter taken as “test cases” to the UK Court of Appeal, one of which went on the House of Lords as R v Adomako121 and involved a restatement of the law. The facts of Holloway relate to a “workplace” decision. Holloway was an electrician who carelessly connected the wiring of a domestic central heating system, who was called back to the premises on a number of occasions after minor shocks were experienced and still failed to correct the problem, and whose carelessness led to the eventual death by electrocution of one of the members of the household. The Court of Appeal, anticipating the final judgement in Adomako in the House of Lords, held that what was required to be established was not subjective recklessness
117 See the notes about this unreported case in B Barrett & R Howells Occupational Health and Safety Law: Text and Materials (2nd ed; London: Cavendish, 2000) at 232. Also noted in (1990) Health and Safety Information Bulletin, 20-21, as cited by Slapper (1997), above n, 116, at 226 n 22. 118 The Times, 11 December 1999. 119 Details on the Centre for Corporate Accountability web-page,
but what they called “gross negligence”.122 In the result the defendant’s conviction was overturned because it was held that the trial judge had given a direction on “recklessness”, in accordance with previously binding authority, which may have misled the jury. The Court of Appeal in its statement of the facts seems to have been in no real doubt, however, that there was a very strong case of “gross negligence” which could have been made out had the jury been properly directed.123 The case provides another example of workplace decision-making leading to death which might result in a successful manslaughter charge. There is no doubt, then. that in the UK at least prosecutions for manslaughter flowing from work-related deaths are considered a real option. Since 1998, in fact, the UK Health and Safety Executive (HSE) has had in place a written policy dealing with the procedures to be followed where a manslaughter charge might be brought, and the respective roles of the police and the prosecution authorities.124 An HSE press release, for example, reports that the director of a company was charged with manslaughter when a company truck reversed over and killed a 12-year- old boy who was on the footpath outside the company premises.125 In a strategy that reflects the Nadenbousch case in Australia, another press release reports that a UK firm pleaded guilty to manslaughter in relation to the death of an employee, and at the same hearing the Crown Prosecution Service announced that it would no longer press a previously announced manslaughter prosecution of a director of the company.126
122 See the restatement of principles by Lord Taylor CJ at [1993] 4 All ER, 943h. 123 See the comments at [1993] 4 All ER, 958h. 124 Work-Related Deaths: A Protocol for Liaison (April 1998)- document agreed between HSE, the Director of Public Prosecutions, and Crime Committee of the Association of Police Chief Officers; available at
(3) MANSLAUGHTER BY OVERALL MANAGEMENT DECISION The above cases lie at the more obvious end of a spectrum of workplace manslaughter by negligence, involving as they do mostly small companies where the officer charged has been active in making direct decisions leading to death. But what of larger companies? It is instructive, for example, to consider the possibility of a charge of manslaughter that might arise from a recent well-known Australian industrial accident, such as the Esso Longford Gas explosion, which led to the death of two employees and serious injury of eight others.127 The immediate cause of the explosion was the fracture of a heat exchanger when hot oil was re-introduced into the exchanger after it had been allowed to get dangerously cold. But the findings of the Royal Commission into the incident clearly reveal that lower level employees and managers were struggling with adequate response to danger signals because of decisions which had been made at the Board level. Hopkins in his study of the factors leading to the explosion128 notes that some of those decisions included: • The company’s failure to conduct a scheduled hazard review of the aging plant; • The decision for financial reasons to transfer engineers who had previously worked “on-site” to head office in Melbourne, with the result that when the unexpected happened, no-one with the technical expertise to understand the problem was immediately available; • Inadequate training of employees to deal with a highly dangerous set of circumstances; • Low priority given to regular maintenance of equipment;
127 In the prosecution under the Occupational Health and Safety Act 1985 (Vic) flowing from the incident, Esso were convicted of 11 breaches of the Act and fined a total of $2 million: see DPP v Esso Australia Pty Ltd (2001) 107 IR 285, [2001] VSC 263 (Cummins J). 128 A Hopkins, Lessons from Longford: The Esso Gas Plant Explosion (Sydney: CCH, 2000); see also a report prepared for the Australian Institution of Engineers, J Nicol Have Australia’s Major Hazard Facilities Learnt from the Longford Disaster? (October 2001; available at
• Inadequate procedures for reporting of incidents which did not in themselves lead to “lost time” meant that failures which had previously occurred were not properly dealt with.129
A prosecution of any individual company director for manslaughter by negligence in relation to this incident would need to show, not only that a duty of care was owed by the director separately to workers (as opposed to a duty to the company), but also that any failure to carry out that duty (eg by a conscious decision to reduce the availability of engineering advice at a particular plant) involved “a great falling short of the standard of care required of a reasonable man in the circumstances and a high degree of risk or likelihood of the occurrence of death or serious bodily harm if that standard of care was not observed”.130 Given the diffuse nature of corporate decision- making it may be unlikely that this high standard of negligence could be shown in relation to any individual director who was not actively involved in plant operations.
(c) Corporate manslaughter Even if no individual director was guilty of such criminal negligence, it might be argued that company as a whole was guilty, and should be charged with manslaughter. Keeping in mind that the focus of this discussion is the individual liability of directors, the question of overall corporate liability should nevertheless be posed. This is because, even if, viewed separately, no individual director was so clearly negligent as to be guilty of manslaughter, the question needs to be posed as to whether an individual director be nevertheless found liable as an accessory to manslaughter committed by the company.
(i) Corporate manslaughter under the current law
129 For a summary of organisational failures, see Hopkins at 141, referring to the diagram of different causal factors at 122. 130 Nydam, above n 91, at 444. Chapter 3: Liability of Company Officers under General Criminal Law 139
The first question must be, can a company be prosecuted for manslaughter? Despite suggestions to the contrary in the past,131 it seems likely that under the present law it can.132 Whether or not such a prosecution will succeed, however, is another matter. The older authorities on the question of whether or not a company could be convicted of manslaughter were reviewed by Turner J in R v P&O European Ferries (Dover) Ltd,133 whose decision has since generally been regarded as settling the issue of the possibility of a conviction. After an extensive review of the authorities His Honour held that
Where a corporation, through the controlling mind of one of its agents, does an act which fulfils the prerequisites of the crime of manslaughter, it is properly indictable for the crime of manslaughter.134
His Honour’s comments on the question of whose actions or intentions would count for the purposes of the crime were made assuming (without significant discussion) that the correct test was the Tesco v Nattrass “controlling mind” test. But there was a clear holding that a corporation could be indicted for manslaughter. As noted in passing above, since the P&O case there have been convictions of companies for manslaughter, both in the UK135 and in Australia.136 But most have been
131 And, unfortunately, occasionally still today: see the erroneous comment in an article by J Bell & S Vass “Liability of Employers, Directors and Managers for Workplace Safety” (2000) 70 Australian Construction Law Newsletter 29-31, at 30: “It is obvious that a charge of murder or manslaughter against a company is not sustainable…”! The authors seem to have been led to this insupportable conclusion by a fairly superficial reading of the comments of Hampel J in dismissing the charge against AC Hatrick Chemicals Pty Ltd, considered below. 132 See, however, the mild doubts expressed by Callaway JA in Director of Public Prosecutions (Victoria) Reference No 1 of 1996, below, at n 142. 133 (1991) 93 Cr App R 72. 134 Above, n 133, at 84. 135 The UK Home Office, in its May 2000 Response to the Law Commission Report on Involuntary Manslaughter, at para 3.1.6, identifies three successful prosecutions: those of OLL Ltd, Jackson Transport (Ossett) Ltd, and Roy Bowles Transport Ltd, all small companies. The conviction of the directors of Roy Bowles Transport is noted in The Times, 11 December 1999. The directors allowed a driver who worked for them to work excessive hours and were held responsible when through tiredness he crashed and caused the death of 2 people. While the report refers only to the directors, it seems (given the Home Office’s comments) that the company must also have been convicted. More recently, the Centre for Corporate Accountability released a summary of manslaughter convictions of companies and directors on 27 January 2003 which notes two other companies convicted of manslaughter: English Bros Ltd (in August 2001) and Dennis Clothier & Chapter 3: Liability of Company Officers under General Criminal Law 140
pleas of guilty, and some at least seem to have been used as “plea bargaining” tools to allow individual directors to avoid manslaughter charges. This was also apparently the case in the first reported Hong Kong conviction of a company for manslaughter.137 Pritchard notes that Ajax Engineering Services Ltd pleaded guilty to the charge, which flowed from an incident where 12 workers died when an overloaded and improperly maintained passenger hoist on a construction site fell 17 floors. While some of the lower level managers were charged with manslaughter,138 the higher level directors were not, despite the trial judge’s criticism of their behaviour. In an unusual move the judge made a finding of an appropriate sentence that he would have passed on the directors had they been charged.139 Nevertheless, the legal possibility of corporate convictions for manslaughter in common law jurisdictions seems well-established. The UK Court of Appeal in Attorney-General’s Reference No 2 of 1999140 assumed the correctness of Turner J’s analysis in P&O on this point.141 Unfortunately, however, there has been no definitive analysis of the issue at a higher level in Australia. The Victorian Court of Appeal came close but were in the end
Sons (in October 2002): see the website at
unable to give binding guidance in Director of Public Prosecutions (Victoria) Reference No 1 of 1996.142 The DPP referred to the Court of Appeal the question whether a company could be guilty of manslaughter or negligently causing serious injury,143 after A C Hatrick Chemicals Pty Ltd were acquitted of those charges arising out of the death and serious injury of workers.144 Unfortunately the Court ruled that the questions presented by the DPP were so poorly drafted that they “did not identify either a point of law that could properly be said to have arisen in the case or the point of law on which the Director actually desired the opinion of this Court”.145 However, Callaway JA did offer some general comments on the issues. For present purposes some significant points that His Honour made (though only obiter dicta in the context) were :146 • that there were “arguments both ways” as to whether a company could be convicted of manslaughter or negligently causing injury, “some of which have not been fully examined in the Australian or English cases”- implying (surprisingly) that it is by no means a foregone conclusion that an Australian court would follow R v P & O European Ferries (Dover) Ltd;147 • liability for criminal purposes is “direct” and is not necessarily to be found in those for whose actions the company would be responsible at civil law;
141 There have also been convictions of corporations for homicide in the USA- see, for example, T L Spiegelhoff, “Limits on Individual Accountability for Corporate Crimes” (1984) 67 Marquette L Rev 604-640, referring at 636 to convictions in New York, Indiana and Pennsylvania. 142 [1998] 3 VR 352, Phillips, CJ, Tadgell and Callaway, JJA. 143 Contrary to s 24 of the Crimes Act 1958 (Vic). The offence seems analogous to that in s 54 of the Crimes Act 1900 (NSW). 144 See R v AC Hatrick Chemicals Pty Ltd (unrep; Sup Ct of Vic, Hampel J; 29 Nov 1995) BC9507254. Hampel J considered arguments that the law had changed following Meridian but effectively ruled that, following the decision in P&O Ferries, for the company to be guilty of manslaughter the relevant mens rea had to be established in someone who was the “directing mind”, and this had not been done. 145 Above, n 142, at 353. 146 See the series of propositions discussed at above, n 142, 354-355. 147 Above, n 133. Chapter 3: Liability of Company Officers under General Criminal Law 142
• following Lord Hoffmann’s analysis in Meridian,148 however, liability might be fixed on a company for the actions of someone who was not the “directing mind”, depending on the purposes for which the question was asked; • rules of attribution may vary for different offences; His Honour said:
It may be assumed, in the light of R. v. Shields [1981] V.R. 717, that the degree of negligence required for an offence against s.24 is the same as that required for manslaughter by criminal negligence, but it does not follow that the rules of attribution are the same. It is possible that, on a given set of facts, the acts of a more junior officer or employee would suffice for s.24 than for manslaughter. I express no opinion on the point but it should be left open to avoid misunderstanding.149
• In at least some cases a company may face the dilemma that either there were some officers whose negligent actions counted as those of the company (in which case the company could be convicted on the basis of their negligence), or there were no such officers, in which case there was a severe management failure which could be said to have led to the accident (and again the company would be convicted).
The decision of the UK Court of Appeal (Criminal Division) in Attorney- General’s Reference No 2 of 1999,150 noted above, made two key rulings. One, as mentioned previously, was that for a finding of manslaughter by gross negligence, the standard is an objective one, and the defendant’s actual state of mind is not a key element of the offence.151 Secondly, the Court held that for a corporation to be convicted of manslaughter there must be some individual who can be identified with the corporation, who has themselves been guilty of manslaughter. This is because the actus reus of the offence still requires the identification of some person who has
148 Above, n 16. 149 Above, n 142, at 355, point 5. 150 Above, n Error! Bookmark not defined.. 151 Following the House of Lords decision in Adamoko, above, n 108. Chapter 3: Liability of Company Officers under General Criminal Law 143
behaved in such an objectively grossly negligent way that their behaviour ought to be regarded as criminal.152 With respect, the Court’s decision seems to ignore that fact that manslaughter can be committed by a failure to act as well as by positive action, and in that case surely a corporation can fail to act without any one individual’s failure being focussed on. Smith’s Comment on this case in the Criminal Law Review makes the point very well.153 Since Adomako at least it has been clear that for the purposes of UK law it is the “ordinary principles of the law of negligence” which constitute the starting point for the offence of manslaughter by gross negligence. Under that law it is not necessary, in making a case of breach of duty of care by a company, to show that some individual in the company failed. It is sufficient if objectively the standard of care required has not been met. The question that a jury would then need to address (in the UK) would be whether that breach of duty “should be characterised as gross negligence and therefore a crime”, in the words of Lord Mackay in Adomako. But the fact of the breach does not require proof of a specific action or failure to act by a specific individual. The same analysis should surely be applicable to an Australian prosecution for “manslaughter by criminal negligence” under the principles in Nydam,154 where it will be necessary to show that the act causing death occurred “in circumstances which involved such a great falling short of the standard of care which a reasonable man would have exercised and which involved such a high risk that death or grievous bodily harm would follow that the doing of the act merited criminal punishment.”155 The standard of the “reasonable company” is an objective one, not requiring proof of anyone’s particular state of mind. In this context it is instructive to note the comments by Teague J in the Victorian Supreme Court in accepting a plea of guilty from Denbo Pty Ltd. His Honour recorded that:
152 See the brief summary in the Victorian Law Reform Commission Report Criminal Liability for Workplace Death and Serious Injury in the Public Sector (Melbourne: VLRC, March 2002), at para 1.3, which suggests that this is also the law in Australia at the moment. 153 J C Smith, “Manslaughter: Corporate Liability for Manslaughter- Gross Negligence” [2000] Criminal Law Rev 475-479. 154 Above, n 91. Chapter 3: Liability of Company Officers under General Criminal Law 144
There was criminal negligence on the part of the company in failing to establish an adequate system of maintenance for its plant and vehicles, in failing to properly train its employees, in permitting Truck 2 to be put into use without proper maintenance and in creating a situation where Truck 2, with its grossly defective brakes, was capable of being allowed onto the steeper track where it was not capable of being kept under control.156
His Honour in this passage does not draw attention to any specific actions by Mr Nadenbousch, the director, but to the carelessness of the company as a whole.157 This approach is also supported by Brown et al, who comment:
If manslaughter by criminal negligence rests on an objective standard, why is the search for the directing mind and will of the company relevant at all? Why should we not conclude in particular circumstances, for example, that in failing to set up effective channels of communication to ensure that senior management does become aware of knowledge spread throughout the company, a particular company has fallen considerably short of the standard which a reasonable company would have exercised, in circumstances where the reasonable company would have appreciated the probability that serious bodily harm would result?158
As another illustration, consider a case involving an individual, but with facts that might have arisen in the workplace. In R v Simpson159 the accused had set up an elaborate electrified fence around a marijuana crop and was convicted of manslaughter by negligence when an intruder was killed by the fence.160 It is possible to imagine similar decisions taken by a company (eg about appropriate security measures around a portion of the workplace) which might lead to the death of a worker. If Mr Simpson’s actions led to his conviction for manslaughter, it seems logical that “Simpson Pty Ltd” should also be held liable, regardless of whether it could be shown that anyone on the board specifically addressed the issue of the harm that could result to someone who touched an electric fence.
155 Above, n 91, at 445. 156 See the report of His Honour’s comments noted above, n 110 at p 38. 157 Of course this was a case of a virtual one-man company, and as the rest of the judgement shows the crucial failures were those of Mr Nadenbousch. But as a matter of legal analysis His Honour’s comments focus on the failure in safety procedures, not the mens rea of the director. 158 See n 36 above, at 566. 159 [1999] NSWSC 842. 160An appeal was dismissed by the NSW Court of Criminal Appeal (R v Simpson [2000] NSWCCA 284), and special leave to appeal that decision was refused by the High Court on 5 June 2001. Chapter 3: Liability of Company Officers under General Criminal Law 145
These were precisely the issues raised in one of the earliest attempts to charge a corporation with manslaughter, R v Cory Bros & Co Ltd.161 Wells summarises the facts of the case, which do not appear from the official report.162 During a miner’s strike the directors of the company which owned a mine decided to erect an electric fence around a power house belonging to the company, to stop it being robbed by starving miners. One of the unemployed miners was killed when he stumbled against it. While the company (along with three directors) was committed for trial, Finlay J at the Glamorgan Assizes accepted the argument that at law the company could not be convicted of an offence against the person. Subsequent decisions, including those noted above, have clearly shown that this decision is no longer good law.163 The facts, however, provide a good illustration of a situation where manslaughter might indeed be an appropriate charge. It should noted, finally, that a company charged with manslaughter (unlike a company officer) might be charged with manslaughter by “unlawful act” as well as manslaughter by negligence, since in almost every case of workplace death there will be a breach of occupational health and safety legislation. Here the discussion above about the “degree” of unlawfulness required would be relevant.164 A court might decide that a “mere” breach of the Occupational Health and Safety Act 2000 (NSW), for example, was a “regulatory” matter. On the other hand, given the strong policy of the law in favour of safety in the workplace, there might be a good argument that a breach of safety legislation which led to death is a very appropriate category of “unlawful act” for the purposes of the law of manslaughter. There is some suggestion that at least for the purposes of UK law the crime of “unlawful act” manslaughter cannot be committed where the unlawful act is an omission to take care, as opposed to a positive action.165 This seems to be the effect of
161 [1927] 1 KB 810. 162 As found in the Western Mail for 11 and 12 February 1927- see Wells, Criminal Responsibility, above, n 3, at 91-92. 163 As Wells notes, above, n 3 at 92, even as early as 1944 Stable J suggested in R v ICR Haulage (1944) 30 Cr App Rep 31 at 36 that Cory Bros should have been decided differently. 164 See the text near the discussion of the case of Pullman, above, n 100. 165 So Clough & Mulhern, above, n 3 at 174: “this head of manslaughter applies to unlawful acts and does not apply to omissions”- although no authority is offered for the proposition. Chapter 3: Liability of Company Officers under General Criminal Law 146
the Court of Appeal decision in R v Lowe,166 where wilful neglect of a child was held not to be a sufficient “unlawful act” for the purposes of manslaughter. Lowe, however, may have been decided as it was because at the time it was thought that the relevant offence, under s 1 of the Children and Young Persons Act 1933 (UK), was an offence of “strict liability”. The House of Lords later overruled this line of authority in R v Sheppard,167 holding that the offence in law was one which required mens rea. Given this new understanding of the statute, it may be that a court would now be prepared to find that an omission under this Act would support manslaughter.168 The requirement that the unlawful act be a “commission” rather than an “omission” does not seem to have been judicially imposed in Australia. In the end, then, the policy question that is raised is whether it is appropriate to allow a charge of “unlawful act” manslaughter to be based on a breach of the Occupational Health and Safety Act 2000 (NSW), when the offences under the Act amount to “absolute liability” offences subject to the statutory defences provided by s 28.169 If such a prosecution were possible, it may provide another option for a manslaughter charge where manslaughter by negligence cannot be satisfied. The High Court in Wilson described the mens rea for unlawful act manslaughter in terms of the act carrying an “appreciable risk of serious injury”; there may be some cases where this would be satisfied where the test for manslaughter by negligence would not. These questions await future judicial resolution. It can at least be said, however, that in most cases of breach of the OHS Act resulting in death where a charge of manslaughter was appropriate, the criteria for manslaughter by negligence would also be satisfied, so that the conceptual difficulties here are not likely to be a problem in many cases.
(ii) Proposals for new offences related to manslaughter
166 [1973] QB 702; see the discussion of this point in R Murugason & L McNamara Outline of Criminal Law (Sydney: Butterworths, 1997) at para [6.12], pp 106-107. 167 [1981] AC 394. 168 It is worth noting that Bell J in the NSW Supreme Court was prepared to enter a conviction (on a plea of guilty) for what was loosely called “manslaughter by omission” in R v Hall [1999] NSWSC 738, although there was in that case said to be a duty of care arising from an assumption of responsibility for the welfare of the deceased. This was not, however, a case of “unlawful act” manslaughter. Chapter 3: Liability of Company Officers under General Criminal Law 147
Note should be made of some current proposals for legislative change. The whole issue of corporate manslaughter has been a matter of intense debate in the UK for the last decade, with what seems like a never-ending stream of industrial and major transport disasters leading to serious loss of life, for which corporate mismanagement has generally been blamed.170 Along with this has been a growing feeling generally that big business ought to be made accountable where members of the public and workers die.
(1) UNITED KINGDOM The UK Law Commission Report on Involuntary Manslaughter171 was responding to these sorts of pressures when it recommended that the Parliament create a new offence of “corporate killing”.172 This offence would be intended to parallel a new recommended offence of “killing by gross carelessness” which would, for individuals, replace the offence of “manslaughter by gross negligence”. But the offence of “corporate killing” would be committed where a “management failure” was the cause of death, and that failure constituted “conduct falling far below what can reasonably be expected of the corporation in the circumstances”. Management failure would be further defined as occurring if “the way in which [the company’s] activities are managed or organised fails to ensure the health and safety of persons employed in or affected by those activities”.
169 See the cases noted above at n 36. 170 Many articles from the UK refer to the series of major disasters in the 1980’s-1990’s that might be said to have started with the explosion of the Piper Alpha oil rig, but have gone on through the death of 187 people in the sinking of the cross-channel ferry the Herald of Free Enterprise [and what could be a more ironic link between the forces of capitalism and its alleged disregard for human life in the pursuit of profit than a boat whose name signals the joys of “free enterprise”?], rail crashes at Kings Cross (1987- 31 deaths), Clapham (1988- 35 deaths) and Southall (1997- 7 deaths), and the sinking of the riverboat Marchioness (1989- 51 deaths). For discussion of factors leading to increased public demand for corporate manslaughter prosecutions, see C Wells, “Cry in the Dark: Corporate Manslaughter and Cultural Meaning”, in I Loveland (ed) Frontiers of Criminality (London: Sweet & Maxwell, 1995), at 109-125. 171 Legislating the Criminal Code: Involuntary Manslaughter (Law Com No 237; London: HMSO, 1996). 172 The need for the new offence, of course, stems from the view that a company could only be made liable for manslaughter where a “governing mind” could be held to have mens rea. In an interesting “twist” to the relationship between the Law Commission and the judiciary, while the matter might have been regarded as slightly doubtful before, the Court of Appeal in Re Attorney- General’s Reference No 2 of 1999 (above, n Error! Bookmark not defined. ) relied in part on the Law Commission Report in coming to the view that this indeed was the present law. Chapter 3: Liability of Company Officers under General Criminal Law 148
The UK Government expressed its intention to adopt this recommendation in an official discussion paper issued by the Home Secretary on 24 May 2000.173 The Government has suggested the possibility of going even further than the Law Commission recommended, and applying the new offence to unincorporated “undertakings”,174 a proposal which has met with some criticism.175 Bergman has criticised the proposals from another perspective, however- their failure to impact on individual directors:
[T]he Government’s new approach… fails to consider the issue of the criminal culpability of individual directors or senior company officers. The proposed new offence of “corporate killing” only deals with the company itself, and companies convicted for an offence under the 1974 Act cannot be imprisoned… It is no good if the government perpetuates a system of justice where guilty directors can hide behind their companies.176
The UK Government’s current proposals include some directed at company officers, but the extent of the penalty available would be disqualification from further company management for a period of time (or permanently, if the offence was serious enough).177 However, there is a hint that further individual liability might be considered:
3.4.12… [I]t has been argued that the public interest in encouraging officers of undertakings to take health and safety seriously is so strong that officers should face criminal sanctions in circumstances where, although the undertaking has committed the corporate offence, it is not (for whatever reason) possible to secure a conviction against them for either of the individual offences.
3.4.13…. The Government would welcome comments on whether, in addition to the
173 Available at
proposals made elsewhere, it is right in principle that officers of undertakings, if they contribute to the management failure resulting in death, should be liable to a penalty of imprisonment in separate criminal proceedings.178
The proposals have met with a mixed response in the UK. They have, not unexpectedly, been poorly received by company directors.179 Some commentators have greeted the proposals as long overdue, while occasionally criticising aspects of their implementation.180 Hainsworth, for example, welcomes the proposals as a “watershed” in establishing a separate form of corporate liability with an appropriately adapted form of mens rea.181 Some, however, argue that the current provisions of s 37 of the HSW Act 1974 (UK) are sufficient to enable directors to be prosecuted, and that there is no need for further offences to be created, simply for the enforcement authorities to devote more energy to using that provision.182 Others are cautiously supportive but query the effect of an extension of personal liability on the willingness of directors to take on the position (an argument, of course, noted in chapter 2 in relation to civil liability).183
(2) VICTORIAN PROPOSALS As well as the UK proposals, there have been recent moves in some Australian jurisdictions towards similar changes. The most advanced was the Victorian Crimes
178 Above, n 173. 179 As noted by J Eaglesham in “Making an offence out of a disaster- Corporate Killing” Financial Times 18 July 2001, reporting the results of a poll of business leaders opposed to the proposals, “Expecting companies to support a corporate killing offence may seem like expecting turkeys to welcome Christmas”. 180 In this generally positive category might be included the article by J Gobert, “Corporate Killing at Home and Abroad- Reflections on the Government’s Proposals” (2002) 118 LQR 72-97, who nevertheless criticises the Government’s proposed implementation as far as it relates to offences committed by companies outside the UK. For comments on an alternative model being introduced in Italy see J Gobert & E Mugnai, “Coping with Corporate Criminality- Some Lessons from Italy” [2002] Criminal Law Review 619-629. 181 A Hainsworth, “The Case for Establishing Independent Schemes of Corporate and Individual Fault in the Criminal Law” (2001) 65 Journal of Criminal Law 420-434 at 433. 182 See, eg, M Elliker, “Health and Safety update…corporate killing” (2000) 144/32 Solicitors Jnl 777- 778, esp at 778, where the author suggests that the desired deterrent effect could be obtained by a minor amendment allowing the imposition of a prison sentence for a breach of s 37; J Daniels & I Smith, “Manslaughter and corporate immunity” (2000) 150/6933 New Law Jnl 656, where the authors comment: “The same result can be achieved via [the HSW Act] without the uncertainty inherent in the offence of corporate killing”; and H Walker “Criminalising companies- will corporate killing make a difference?” (2001) 151/7003 New Law Jnl 1494-1495. 183 See A Edgar, “Corporate Manslaughter is Just Around the Corner” [2001] 12/4 International Company and Commercial Law Rev 117-119, at 119; R Freeman “Corporate killing laws loom over UK companies” (2000) 11/8 Australian Product Liability Reporter 98-101. Chapter 3: Liability of Company Officers under General Criminal Law 150
(Workplace Deaths and Serious Injuries) Bill 2001, introduced into Victorian Legislative Assembly on 22 November 2001.184 The Bill was defeated in the Victorian Legislative Council on 29 May 2002 after a concerted campaign of opposition from employer groups.185 However, it is worth noticing what its effect might have been. The Bill followed a Discussion Paper released by the Victorian Government in October 2000.186 As the Bill took a slightly different approach to the proposals outlined in the Discussion Paper, reference will be made to the provisions of the Bill as introduced. Essentially the Bill would have amended the Crimes Act 1958 (Vic) to create a number of new offences which could be committed by companies. But it also not incidentally created new offences in connection with the corporate offences, which could have been committed by “senior officers” of companies. The new corporate offences were contained in a new Subdivision (3) of Division 1 of Part I of the Act, entitled “Corporate liability for death or serious injury”. The main proposed offences were “corporate manslaughter” under s 13, and “negligently causing serious injury” under s 14.187 Essentially the “injury” provisions paralleled the manslaughter provisions. Corporate manslaughter under s 13(a) would have been committed where a body corporate “by negligence kills an employee in the course of
184 See Hansard for the Victorian Legislative Assembly, 22 November 2001, pp 1921-1928 for the Attorney-General’s second reading speech. The background to, and provisions of, the proposed draft Bill are discussed in R Edwards “Corporate Killers” (2001) 13 Aust Jnl of Corp Law 231- 251. Note that the Bill as actually introduced into Parliament differed slightly from the initial draft, so that some of Edwards’ comments are not appropriate for the Parliamentary Bill. See also the comments on the draft Bill in D Niklasson, “Proposals for a new crime of industrial manslaughter” (2001) 4/4 inhouse counsel 37, 39; J Betteridge & L Richardson “Proof of innocence” (July 2001) National Safety 26-28. 185 For one example of the criticisms of the Bill, see K Phillips “ ‘Finding the fall guy’ or ‘Turning the principle of criminal intent on its head’: A Commentary on the Victorian Crimes (Workplace Deaths and Serious Injuries) Bill 2002”, at
his or her employment by the body corporate”.188 The killing could be attributed to the body corporate under s 14A(2) if carried out by an “employee, agent or senior officer” of the body “acting within the actual scope of their employment, or within their actual authority”. Section 14B defined “negligence” for the purpose of corporate manslaughter in a way that was clearly reminiscent of the common law offence of manslaughter by negligence. But it was made clear that corporate negligence could have been established through a number of factors that did not always involve an individual on the board having the mens rea necessary for common law manslaughter. In addition to the corporate offences created by ss 13 & 14, s 14C created offences which could be committed by “senior officers” of a corporation.
14C. Senior officer offences (1) If it is proved that a body corporate has committed an offence against section 13 and-- (a) a senior officer of the body corporate-- (i) was organisationally responsible for the conduct, or part of the conduct, of the body corporate in relation to the commission of the offence by the body corporate; and (ii) in performing or failing to perform his or her organisational responsibilities, contributed materially to the commission of the offence by the body corporate; and (iii) knew that, as a consequence of his or her conduct, there was a substantial risk that the body corporate would engage in conduct that involved a high risk of death or really serious injury to a person; and (b) having regard to the circumstances known to the senior officer, it was unjustifiable to allow the substantial risk referred to in paragraph (a)(iii) to exist-- the senior officer is guilty of an indictable offence and liable to level 6 imprisonment (5 years maximum) or a level 4 fine (1800 penalty units maximum) or both…. (3) For the purposes of sub-sections (1)(a)(i) and (2)(a)(i), without limiting the matters that may be considered in determining whether a senior officer of a body corporate is organisationally responsible for the conduct, or part of the conduct, of the body corporate in relation to the commission of the offence by the body corporate, consideration may be given to-- (a) the extent to which the senior officer was in a position to make, or influence the making of, a decision concerning the manner in which the conduct, or that part of the conduct, was performed; and (b) the participation of the senior officer in a decision of the board of directors of the body corporate concerning the manner in which the conduct, or that part of the conduct, was performed; and (c) the degree of participation of the senior officer in the management of the body corporate. (4) In this section "senior officer" does not include a senior officer who acts as such without any fee, gain or reward or the expectation of any fee, gain or reward.
188 The provisions are also extended to independent contractors “in the course of providing services to, or relating to, the body corporate”- s 13(b). For the sake of simplicity the following summary will be restricted to employees. Chapter 3: Liability of Company Officers under General Criminal Law 152
(5) A senior officer of a body corporate may be prosecuted for an offence against sub- section (1) or (2), whether or not the body corporate has been prosecuted for or convicted or found guilty of an offence against section 13 or 14, as the case may be.
Note that the phrase “senior officer” was defined in s 11(1) to include anyone referred to as an “officer” under s 9 of the Corporations Act 2001 (Cth). The Government’s Explanatory Memorandum made it clear that this definition was deliberately chosen to focus on “managers at higher levels in the body corporate’s management structure”. It took the view that the concept of “officer” in the Occupational Health and Safety Act 1985 (Vic) would reach too far down the corporate structure to make it appropriate to impose the offences concerned.189 The definition of “director” in s 9 includes someone not validly appointed as a director but where “the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes”. The essence of the “senior officer” offence involved a number of possible defences that the officer could use: that he or she was not “organisationally responsible” for the behaviour, that their actions did not “materially contribute” to the death, and that they did not know the risks involved. But it did seem to be a justifiable offence. It is incidentally interesting to note that s 14E made it clear that the new corporate offences were not designed to exclude the possible operation of the law of manslaughter, presumably to allow for the fact (as noted already) that the common law seems to allow a corporation to be convicted of that offence in appropriate circumstances. The Victorian Law Reform Commission handed down a very useful report on aspects of the legislation as it would have applied to the Crown, including a discussion of the personal liability of senior public servants.190 As noted previously, the Bill did not proceed. It will be interesting to see whether the new Bracks Government in Victoria, returned in late 2002 with a majority in the Legislative Council, will reintroduce similar legislation.
189 While not amounting to a judicial decision, of course, this view does tend to confirm the view contended for in chapter 4, below, that the phrase “concerned in the management” in the NSW Occupational Health and Safety Act 2000 does reach lower level supervisors in some cases. 190 Victorian Law Reform Commision, Report on Criminal Liability for Workplace Death and Serious Injury in the Public Sector (Melbourne: VLRC, March 2002). Chapter 3: Liability of Company Officers under General Criminal Law 153
(3) OTHER AUSTRALIAN PROPOSALS As well as the Victorian initiative, which received a great deal of impetus from the Longford Gas explosion and union criticism of the relatively light penalties imposed on Esso, it should be noted that the Queensland Government has also issued a Discussion Paper entitled Dangerous Industrial Conduct.191 The paper suggested as a possibility the introduction of new offence of “dangerous industrial conduct” resulting in death or grievous bodily harm. The proposals, which were briefly summarised at the conclusion of the Discussion Paper, were not very well-developed, and it is understood that Queensland Attorney-General is currently considering the public responses to the Discussion Paper before deciding to proceed with the introduction of legislation.192 In NSW the Government has given no formal indication that it is considering analogous proposals. However, as part of its response to the recent NSW Workplace Safety Summit, WorkCover has established a Workplace Fatality Investigation Unit, with staff who have expertise in criminal prosecution.193 Theoretically, given the material discussed above, such a Unit could allow prosecution of a company or individual directors for manslaughter, although whether this is a possible outcome has not ben officially announced. Some pressure to respond in this way may be placed on the Government by the introduction into the NSW Legislative Council by the Australian Democrats of a Private Member’s Bill called the Crimes Amendment (Corporate Manslaughter) Bill 2002.194 It should be noted that even more recently legislation dealing with these issues has been introduced in the ACT. The Crimes (Industrial Manslaughter) Amendment Act 2003 was introduced into the Territory’s Legislative Assembly on 12 December 2002, and was enacted on 28 November 2003 (No 55 of 2003). When the Act commences on 1 March 2004 it will amend the Crimes Act 1900 by inserting a new Part 2A which will
191 Queensland Department of Justice and Attorney-General (September 2000). The paper is available on
create two offences of “industrial manslaughter”, one under new s 49C which can be committed by an employer, and one under new s 49D which can be committed by a “senior officer” of a corporation. Clough and Mulhern, while supporting the possibility of a charge under the current law of general manslaughter, suggest that if reform is needed all that is required is that an offence of corporate manslaughter be created, the elements of which would be failure to ensure health and safety (under the current OHS legislation), that the failure led to the death of an employee, and that the failure should (by analogy with the current law on manslaughter by negligence in Nydam) be “criminally negligent”.195 This seems a sensible reform which would be incremental on the existing law, but would also satisfy the need for a public statement to be made on the issue.
(d) Accessorial liability for corporate manslaughter To return to the current law: it seems likely, then, that a company could be charged with manslaughter in relation to a workplace death. Could a director be charged as an accessory in this crime?
(i) Accessorial liability for manslaughter The first question to address is whether it is possible for anyone to be an accessory to manslaughter. There seems no doubt that this is possible. Lord Parker CJ in R v Creamer196 convincingly reviewed the early authorities which suggested otherwise, but concluded that in relation to involuntary manslaughter
A man is guilty of involuntary manslaughter when he intends an unlawful act and one likely to do harm to the person and death results which was neither foreseen nor intended… it is quite consistent that a man who has counselled and procured such an illegal and dangerous act from which death, unintended, results should be guilty of being accessory before the fact to manslaughter.197
194 Notice of motion for this Bill was tabled in the Legislative Council on 9 April 2002. 195 Clough & Mulhern, above, n 3, at 182. 196 [1966] 1 QB 72. 197 Above, n 196 , at 82D-F. Chapter 3: Liability of Company Officers under General Criminal Law 155
His Lordship’s comments relate specifically to “unlawful act” manslaughter, the case itself being concerned with death caused by an unlawful abortion, but the logic of the judgement seems to clearly extend to manslaughter by negligence. So, while it was not a case of manslaughter, R v Robert Millar (Contractors) Ltd and Robert Millar198 provides a good example where it can hardly be doubted that if manslaughter had been charged, there would have been accessorial liability. Millar, managing director of the company, had sent out a truck driver to take a load from Scotland to England and bring a similar load back, knowing that the truck had a defective front tyre. In the course of the journey the tyre burst and the truck ploughed into a family car travelling in the opposite direction, killing all 6 occupants. The driver was convicted of causing death by dangerous driving, and both the director Millar, and the company itself, were convicted as accessories before the fact to the offence. The Court of Appeal upheld the conviction, Fenton Atkinson LJ noting:
If a driver is sent out by his employer to drive a heavy vehicle on a trip extending over some hundreds of miles carrying heavy loads with a dangerously defective front offside tyre, by an employer who knows that the tyre is dangerous, and there is a serious risk of harm resulting to other road-users, then if that tyre does burst and thereby causes an accident killing somebody, the employer is guilty of counselling and procuring death by dangerous driving.199
The facts would seem to clearly support a charge of manslaughter by negligence, and the liability of the director as an accessory to manslaughter also seems clear. Millar was considered and approved by the High Court in the factually similar case of Giorgianni v The Queen.200 There the accused owned a truck which was driven by an employee of his when the brakes failed and a family of five were killed in the ensuing accident. Giorgianni was charged as an accessory to the offence of “culpable driving” created by s 52A of the Crimes Act 1900 (NSW). The High Court held that this was a legally valid charge. As Gibbs CJ put it, citing Millar:
198 [1970] 1 All ER 577. 199 Above, n 198, at 579h. 200 (1985) 156 CLR 473. Chapter 3: Liability of Company Officers under General Criminal Law 156
There is no reason why a person who counsels or procures another to drive a vehicle, knowing that the person persuaded to drive the vehicle is drunk, or that the vehicle is so defective as to be dangerous, should not be liable, in accordance with the ordinary principles embodied in s.351 of the Crimes Act [imposing accessorial liability], if the vehicle is involved in a collision causing death.201
Other members of the High Court referred to the fact that the offence under s 52A had been introduced because in most circumstances to which it is applicable, a charge of manslaughter might be brought, but juries were at one stage reluctant to convict drivers of manslaughter.202 As such, accessorial liability for a s 52A offence seems to support the possibility of accessorial liability for manslaughter in the same circumstances. Indeed, in Giorgianni the joint judgement of Wilson, Deane and Dawson JJ discusses the decision in R v Creamer203 that someone can be an accessory before the fact to manslaughter, and comments that the decision “seems to us to be an accurate statement of the law”.204 This view was restated more recently in R v Chai.205 In that case the High Court accepted the following proposition put by the prosecution as an accurate summary of the law:
[I]f a person procures another to commit an unlawful act, which is objectively dangerous, and (unintended) death results, then the first person will be guilty of manslaughter.206
The decision in Giorgianni also stands for the proposition that, for a person to be guilty as an accessory to a crime, they must know (and not merely have reasonable grounds for knowing) the facts which constitute the principal offence. The conviction in that case was in fact overturned by the High Court because the trial judge had directed the jury that it was sufficient to establish the accused’s accessorial liability if he was “reckless” as to the state of the brakes in the truck. Gibbs CJ, with whom the other members of the Court agreed, summed the position up in this way:
201 Above, n 200, at 478. 202 See above, n 200, per Mason J at 490, per Wilson, Deane & Dawson JJ at 502, referring to comments to this effect in Attorney-General (NSW) v Bindoff (1953) 53 SR(NSW) 489, at 490. 203 Above, n 196. 204 Giorgianni, above, n 200, at 503. 205 [2002] HCA 12, at para [13]. 206 Chai, [2002] HCA 12 at [17]. Chapter 3: Liability of Company Officers under General Criminal Law 157
No one may be convicted of aiding, abetting, counselling or procuring the commission of an offence unless, knowing all the essential facts which made what was done a crime, he intentionally aided, abetted, counselled or procured the acts of the principal offender. Wilful blindness, in the sense that I have described, [ie “connivance” which “virtually amounts to knowledge”] is treated as equivalent to knowledge but neither negligence nor recklessness is sufficient.207
The High Court reaffirmed this requirement for an accessory to have knowledge of the facts which constitute the offence, even in relation to a principal offence which may itself not require mens rea, in Yorke v Lucas.208 A person, then, who aids and abets a principal offender in some activity, knowing that what the principal offender is doing “involves a great falling short of the standard of care required of a reasonable man in the circumstances and a high degree of risk or likelihood of the occurrence of death or serious bodily harm if that standard of care was not observed”,209 would arguably be guilty as an accessory to manslaughter.210
(ii) Accessory to corporate manslaughter Can a person, then, be an accessory to manslaughter committed by a company? There seems no doubt that this is possible. The High Court decision in Hamilton v Whitehead,211 for example, clearly establishes the proposition that, since the company may be liable directly for actions carried out by someone who is its “directing mind”,212 and since there is also criminal liability for someone who is an “accessory” to commission of a crime, there may be prosecution both of the company and of a manager for precisely the same events. In that case the company was convicted for advertising certain unlawful financial services,
207 Above, n 200, at 488-489. 208 (1985) 158 CLR 661. For comment on issues arising out of the ACCC’s current interpretation of the “accessorial liability” provisions of the Trade Practices Act 1974 (Cth), see Huett, (2001) 75/2 Law Institute Journal 50-51. 209 Nydam, above n 91 at 444. 210 It might also be argued, although this is not certain, that the accused would have to have knowledge that the principal owed a duty of care to the deceased. But this requirement might be incorporated by implication into the requirement that the accused was aware of the “standard of care required of a reasonable man in the circumstances”. 211 Above, n 20. 212 At least; under the Meridian principles it may be liable for the actions of others, too, as noted above. Hamilton, of course, was decided before Meridian. Chapter 3: Liability of Company Officers under General Criminal Law 158
on the basis that the advertisement was placed by its managing director. The managing director was then also personally convicted under s 38 of the Companies and Securities (Interpretation and Miscellaneous Provisions) (Western Australia) Code as being “knowingly concerned” in the offence.213 The Court agreed with the following statement of Bray CJ in R v Goodall:214
the logical consequence of Salomon's Case ... is that the company, being a legal entity apart from its members, is also a legal person apart from the legal personality of the individual controller of the company, and that he in his personal capacity can aid and abet what the company speaking through his mouth or acting through his hand may have done.215
So even a “one-man” company may be prosecuted for an offence which it committed as an employer, and its director prosecuted for aiding and abetting the company’s offence.216 Even more so may a director of a larger company be charged as an accessory to the company’s offence. Another case dealing with the law on accessorial liability by a director is Attorney-General’s Reference No 1 of 1995.217 There the question arose whether a company director who permitted the company to take money on deposit when the company (contrary to the law) did not have a license to do so, could be excused from conviction for “consent or connivance” with the company simply because he did not know the law. Lord Taylor CJ for the Court of Appeal held that the director did not need to know the law to be guilty of “consenting” to the company’s offence. He approved the comments of Lord Goddard CJ in Johnson v Youden:
If a person knows all the facts and is assisting another person to do certain things, and it turns out that the doing of those things constitutes an offence, the person who is assisting is guilty of aiding and abetting that offence, because to allow him to say, “I knew of all those
213 This section was almost indistinguishable from s 27 of the OHS Act 2000 referred to above, and, as the High Court commented in Hamilton, above, n 20, at 125, from the general accessory provision contained in s 5 of the Crimes Act 1914 (Cth). 214 (1975) 11 SASR 94, at 101. 215 See Hamilton, above, n 20, at 128 for the High Court’s comment: “We agree with this view”. 216 For sentencing issues which arise in this sort of case see the discussion of the identical issues which arise under s 26 in chapter 4, below. 217 [1996] 4 All ER 21. Chapter 3: Liability of Company Officers under General Criminal Law 159
facts but I did not know that an offence was committed”, would be allowing him to set up ignorance of the law as a defence. 218
Another principle in the law of accessorial liability is that it is possible in some circumstances to be an accessory to a crime by simply being present when it is committed, having the power to stop it, and not acting. This is the effect of the decision of a three-member panel in the Queen’s Bench Division in Tuck v Robson.219 A publican was charged with aiding and abetting the commission of the offence of drinking after hours by customers who were drinking in his hotel. The drinks had been supplied before closing, and so the publican had committed no direct offence; but as they were being consumed after hours the customers were committing an offence, and the publican was charged with aiding and abetting the customers’ offence. The court held that his conviction should be upheld. Lord Parker CJ said:
Two things must be proved before an accused can be held to be guilty of aiding and abetting the commission of the offence: first, he must have full knowledge of the facts which constitute the offence… Secondly, there must be some form of voluntary assistance in the commission of the offence. Sometimes the word used is ‘encouragement’, and the real question here is how far inaction, passive tolerance, can amount to assistance so as to make the accused guilty of aiding and abetting.220
His Lordship went on to approve comments of Slade LJ in National Coal Board v Gamble221 that passive acquiescence was sufficient to constitute aiding and abetting where “the alleged aider and abettor has the power to control the offender and is actually present when the offence is committed”. On the facts the publican had the power to evict the customers after hours, and had not attempted to do so. As a result he was validly convicted of aiding and abetting their offence. How might this all be applied in the case of a company officer? Suppose a company which decides, to save money, that it will not invest in essential safety equipment. The equipment, and any procedures which would make the particular process safer, will impair the speed of production and hence the level of profits. A
218 [1950] 1 All ER 300 at 302. 219 [1970] 1 All ER 1171. 220 Above, n 219 , at 1173e-f. 221 [1958] 3 All ER 203 at 210. Chapter 3: Liability of Company Officers under General Criminal Law 160
number of workers are seriously injured over the next year due to the lack of this equipment. The company safety officer presents a memorandum to the board detailing the hazards which the workers face, the need for the equipment, and the current rate of injuries, but the Board decides to continue not to fund the equipment. A memorandum prepared by the finance department notes that the amount spent in increased workers compensation premiums (due to statutory payments to the families of deceased workers) will be more than compensated for by the vastly increased profits which will result from not using the equipment. A worker dies in the next month. Suppose further that a court would accept that this amounts to such a falling short in the performance of its duty of care by the company that it should be convicted of manslaughter. What would be the position of the directors? Consider three separate directors. To start with, Director 1 was present at all the Board meetings, read all the documents presented, and voted in favour of continuing the policy of not purchasing the equipment. It seems strongly arguable that if the company is guilty of manslaughter, this director is an accessory before the fact. He has full knowledge of the risks to safety. He has “counselled and procured” the decision in the sense required by the authorities. He may not be able to be prosecuted personally for manslaughter as a court may find it difficult to hold that he had a personal duty to the deceased worker.222 But as a participant in the company’s grossly negligent behaviour he will arguably be guilty as an accessory. Take the situation of Director 2. He is a less active member of the Board. He mostly does not read written reports, but he attends Board meetings. On the occasion of the motion to purchase the safety equipment he hears the arguments, but says nothing, and abstains from voting. Despite his relative “passivity”, it is also arguable that Director 2 could be found guilty as an accessory. The principle in Tuck v Robson223 should surely apply: with full knowledge of the facts, he had the power as a member of the Board to have an impact on the company’s behaviour and did not do so. It is interesting to speculate whether a successful charge should depend on whether or not his vote would in fact have changed the outcome. It may be that questions of causation
222 This is a key reason for using accessorial liability here as opposed to direct liability for manslaughter. Chapter 3: Liability of Company Officers under General Criminal Law 161
would arise. On the other hand, in cases of multiple defendants charged as accessories to a crime (say, a group standing around cheering while one of their number committed an assault which led to death), it surely should not be necessary, in order to convict a particular accessory, to prove that his individual cheer was what encouraged the particular blow that led to death.224 Finally, consider Director 3. She rarely comes to Board meetings. When there she never asks any questions about safety issues. She did not see the memo about the purchase of the equipment, was not present at the vote not to purchase, and put the copy of the Board minutes away without reading them. It seems on the above authority that she may be immune from a charge of “aiding, abetting, counselling or procuring” the company’s offence of manslaughter. Her knowledge did not extend to the facts of the offence. On the other hand, her behaviour seems reprehensible, and may well expose her to liability under s 26 of the NSW Occupational Health and Safety Act 2000, dealt with in the next chapter.
3. Other offences The focus of this chapter has been upon the question of liability for manslaughter when a workplace death occurs. There are other offences under the general criminal law which might also be invoked, and these have been mentioned in passing. It is worth just mentioning one of them in conclusion. This is the offence created by s 54 of the Crimes Act 1900 (NSW):
54 Causing grievous bodily harm
Whosoever by any unlawful or negligent act, or omission, causes grievous bodily harm to any person, shall be liable to imprisonment for two years.
To some extent this provision is a version of manslaughter which can be charged when death has not resulted (the two limbs, “unlawfulness” and “negligence” roughly
223 Above, n 219. Chapter 3: Liability of Company Officers under General Criminal Law 162
correspond to the two versions of involuntary manslaughter discussed above). This interpretation is confirmed by a line of cases in various Australian jurisdictions (including NSW) that the “degree” of negligence which needs to be proved to convict under s 54 is that type of negligence which, if the act had resulted in death, would have resulted in a conviction for manslaughter.225 In general, then, the comments above about the applicability of manslaughter to workplace deaths, will also be relevant where “grievous bodily harm” has resulted in the workplace, and the issues about corporate liability, company officer personal liability, and company officer accessorial liability will be the same.226
4. Conclusion This chapter has shown that it is likely that a company officer may be guilty of a number of possible criminal offences in relation to a workplace accident, and in particular where the death of a worker has resulted. The officer may have behaved so negligently that they can be personally charged with manslaughter. On the other hand, even if this is not immediately apparent, the company itself may be guilty of manslaughter, and the officer might be charged as an accessory before the fact, if they have “aided, abetted, counselled or procured” the company’s actions or inactions. If they play an active part in concealing the company’s crime they may be charged as accessory after the fact. But to reach these conclusions a long trail through some uncertain law needs to be taken. In Australia there is still some uncertainty as to whether a company can be convicted of manslaughter. The appropriate test for attributing criminal responsibility to a company needs to be clarified by the High Court. In considering the personal liability of a company officer for a workplace death difficult issues about the existence of a personal duty of care to employees are raised.
224 See on this point R v Annakin (1988) 37 A Crim R 131, dealing with the accessorial liability of both participants and those simply urging others on in the so-called “Milperra Massacre”. 225 See R v Leskinen (1978) 36 FLR 414 [ACT], and R v Shields [1981] VR 717 [Victoria], followed in R v D [1984] 3 NSWLR 29. 226 Note, for example, that the case discussion which opened this chapter, DPP Reference No 1 of 2000, n 4 above, involved a “serious actual danger” charge under a provision similar to s 54; and that the Chapter 3: Liability of Company Officers under General Criminal Law 163
This is not to say that company officers should never be charged with manslaughter. The stigma attached to such an offence makes it an appropriate community response to the sort of carelessness that puts the desire for profit above human life. But the uncertainties of this path make it important that company officer criminal liability can be imposed in much more straightforward way, and in situations where there has been injury as well as death. The occupational health and safety legislation contains a provision imposing such liability, considered in chapter 4.
UK case of R v Robert Millar Pty Ltd, n 198 above, involved a statutory offence dealing with “dangerous driving” in which both the company and its director were convicted as accessories. CHAPTER 4 COMPANY OFFICERS’ PERSONAL LIABILITY FOR CORPORATE WORKPLACE-SAFETY-SPECIFIC BREACHES
1. Introduction...... 166 2. Section 26 NSW OHS Act 2000 and related provisions- overview...... 167 (a) The NSW legislation ...... 167 (b) Other Australian legislation ...... 169 (c) The UK legislation...... 179 3. Issues arising under the statutory provisions ...... 179 (a) The law in operation- prosecution of company directors in practice ...... 180 (i) Majority “Directors” as opposed to “Managers” ...... 181 (ii) Directors prosecuted mostly directly involved in incident...... 181 (iii) Most companies small...... 182 (b) Legal issues in applying s 26 to Directors...... 183 (i) Allocation of Penalty between Company and Director ...... 184 (ii) Effect of the “deeming” provisions...... 188 (iii) The Meaning of “due diligence”...... 192 (iv) Considerations in sentencing under s 26...... 197 (v) Section 26 and the privilege against self-incrimination...... 201 (1) Proving the Contravention by the Company ...... 204 (2) Could Evidence Inadmissible against the Officer be Admitted against the Company?...... 206 (vi) Where there is a requirement to prove “Connivance” etc...... 209 (vii) Application of the term “director” to government and quasi-government instrumentalities ...... 211 (c) Other officers: the meaning of “concerned in the management of”...... 213 (i) Approach to Statutory Interpretation ...... 214 (ii)Analysis...... 214 (1) Existing cases ...... 214 (2) General rules of construction & Extrinsic Material ...... 216 (3) Provisions of other statutes...... 221 A. Other Australian OHS Legislation ...... 221 B. UK Legislation ...... 222 C. Decisions on “concerned in management” in company law ...... 226 D. Environmental legislation...... 234 (4) Conclusions: the Scope of “Concerned in the Management”...... 236 (d) Defences: the relationship between s 26 and s 28 ...... 239 4. Conclusion...... 243 Category A- Company Directors ...... 245 Category B- Other managers (non-Directors)...... 248 Notes ...... 249
Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 166
1. Introduction As noted at the end of the previous chapter, there are a number of difficulties with using the “general” criminal law to impose personal liability on company officers. But another option is available to prosecutors seeking to impose a penalty for a workplace safety breach: criminal liability of a company officer under the specific legislation dealing with occupational health and safety, where the company has committed an offence. Much modern legislation creating criminal offences for occupational health and safety, following the model suggested by the Robens Committee,1 contains provisions which can be used to impose a personal criminal liability on company officers for breaches committed by their company. Indeed, provisions of this sort, as discussed below, were a feature even of the older, pre-Robens legislation. In many ways these provisions, as noted in chapter 3, function as a specific type of “accessorial liability” provisions, imposing a liability for the “head” offence committed by the company, where the conditions set out are satisfied. The policy reasons for such a provision have already been canvassed above, particularly in chapter 1. As Clough and Mulhern put it:
The rationale behind such provisions is apparent. If the fate of the individual is linked to the fate of the corporation, then the individual has a vested interest in ensuring corporate compliance.2
This chapter will examine some of the practical legal issues involved in making such a provision work. It will focus particularly on the NSW provision, section 26 of
1 The major survey of UK occupational health and safety law chaired by Lord Robens which led to subsequent reforms in both the UK and Australia, Safety and Health at Work: Report of the Committee 1970-1972 (London: HMSO Cmd 5034, 1972). For an overview of the background to, and the terms of, the Robens Report see A Brooks, Occupational Health and Safety Law in Australia (4th ed; North Ryde: CCH, 1993) chs 5 & 6, and more briefly an article by the same author, “Risk Management and Consultation Systems: Developments and Disappointments in the New Occupational Health and Safety Legislation in New South Wales” (2002) 24 Sydney Law Review 89, at 89-92. 2 J Clough & C Mulhern, The Prosecution of Corporations (Oxford: OUP, 2002), at 130. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 167 the Occupational Health and Safety Act 2000,3 although analogous provisions from other jurisdictions are also discussed. Topics addressed include the operation of the provision, its proper interpretation, the ambit of the provision (in terms of which classes of individuals are covered), and whether it needs to be amended in some way to allow successful prosecutions to be undertaken where justified.
2. Section 26 NSW OHS Act 2000 and related provisions- overview
(a) The NSW legislation The general statute imposing criminal liability for workplace safety breaches in NSW is the Occupational Health and Safety Act 2000 (NSW) (“the OHS Act”).4 The Act is (as was its predecessor, the OHS Act 1983) part of a “wave” of new legislation dealing with workplace safety in Australia which was introduced in the 1980’s, mostly following the recommendations of the UK 1972 Robens Report. In the UK itself that Report was implemented by the Health and Safety at Work etc Act 1974 (UK), many provisions of which are mirrored in the Australian legislation.5 The core obligations imposed by the NSW OHS Act are to be found in Division 1 of Part 2, headed “General Duties”. The introductory words of section 8 illustrate the approach taken:
3 Formerly s 50 of the OHS Act 1983. As the current legislation only came into operation on 1 September 2001, most of the cases discussed in this chapter were decided under the former provision. Apart from one or two minor points specifically mentioned below, the provisions are equivalent and cases under former s 50 will no doubt be used in prosecutions under the new s 26. 4 As noted previously, this Act replaced the Occupational Health and Safety Act 1983, and other associated legislation, from 1 September 2001. 5 For a general overview of the Australian legislation see R Johnstone, Occupational Health and Safety Law and Policy: Text and Materials (North Ryde: LBC Information Services, 1997); for a recent review in briefer compass see Johnstone’s article “Paradigm Crossed? The Statutory Occupational Health and Safety Obligations of the Business Undertaking” (1999) 12 Aust Jnl of Labour Law 73-112. Since the commencement of the 2000 Act there have been two annotated versions of the Act published: W Thompson Understanding NSW Occupational Health and Safety Legislation (3rd ed of a book previously edited by Justice Marks of the NSW IRC; Sydney: CCH Australia, 2001); and M Tooma Annotated Occupational Health and Safety Act 2000 (Pyrmont: Lawbook Co, 2001). A recent article by Brooks, “Risk Management and Consultation Systems: Developments and Disappointments in the New Occupational Health and Safety Legislation in New South Wales” (2002) 24 Sydney Law Review 89-122 also provides a Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 168
8 Duties of employers (1) Employees An employer must ensure the health, safety and welfare at work of all the employees of the employer.6
Succeeding provisions impose similar obligations on employers in relation to non-employees at a place of work (s 8(2))7, and imposing obligations on self-employed persons (s 9)8, controllers of premises (s 10)9 and manufacturers (s 11).10 A slightly lower standard of “reasonable care” is required of employees in relation to fellow workplace participants (s 20).11 But the words “shall ensure” have been repeatedly held to impose a near-absolute liability, so that a risk to safety created in the workplace will normally mean a prima facie breach of the Act.12 This effective “reversal of onus” is accompanied by a defence provision in s 28,13 allowing for defences of “reasonable practicability” or “impossibility”. The general provisions of the Act are complemented by the duties imposed by the Occupational Health and Safety Regulation 2001. In particular the Regulation contains detailed provisions concerning “Risk Management” and consulation with employees. As would be expected, by virtue of the extended definition of “person” in the Interpretation Act 1987 (NSW), s 21, the obligations under the Act generally extend to corporations as well as to individuals.14
good background discussion of the 2000 Act in historical context, esp at 89-92. 6 The equivalent provision in the 1983 Act was s 15(1). 7 Former s 16(1). 8 Former s 16(2). 9 Former s 17. 10 Former s 18. 11 Former s 19. 12 See, eg, State Rail Authority of NSW v Dawson (1990) 37 IR 110; Kirkby v A&MI Hanson Pty Ltd (1994) 55 IR 40. 13 Former s 53. 14 Interestingly this was for some reason spelled out in the 1983 Act, presumably to avoid doubt, in the definition of “employer” in former s 4(1) [indeed, the order of the words may have suggested that the corporate employer was the more “usual” type]: “employer means a corporation which, or an individual who, employs persons under contracts of employment or apprenticeship”. In the 2000 Act the definition of “employer” in s 4 omits the specific reference to “corporation”, simply referring to “a person who employs persons”; obviously the intention is to rely on the normal statutory presumption. It is difficult to believe that a court would accept an argument that omission of the specific reference to corporations in s 4 meant that the NSW Parliament intended to exempt corporations from liability under the Act. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 169
The key provision for present purposes is that which imposes personal liability on company officers, section 26 (formerly s 50 of the 1983 Act), contained in Division 4 of Part 2.
26 Offences by corporations—liability of directors and managers (1) If a corporation contravenes, whether by act or omission, any provision of this Act or the regulations, each director of the corporation, and each person concerned in the management of the corporation, is taken to have contravened the same provision unless the director or person satisfies the court that: (a) he or she was not in a position to influence the conduct of the corporation in relation to its contravention of the provision, or (b) he or she, being in such a position, used all due diligence to prevent the contravention by the corporation. (2) A person may be proceeded against and convicted under a provision pursuant to subsection (1) whether or not the corporation has been proceeded against or been convicted under that provision. (3) Nothing in subsection (1) prejudices or affects any liability imposed by a provision of this Act or the regulations on any corporation by which an offence against the provision is actually committed. (4) In the case of a corporation that is a local council, a member of the council (in his or her capacity as such a member) is not to be regarded as a director or person concerned in the management of the council for the purposes of this section.
The heading to the current provision makes it clear that the provision deals with the liability of officers as a consequence of an offence committed by a corporation.15 It will be noted that the provision deems the officer to be liable when the corporation has committed an offence, unless the “defences” under s 26(1)(a) or (b) are made out. The onus of proof of these matters will clearly rest on the accused.16
(b) Other Australian legislation A similar approach to the liability of directors for safety offences is taken by other Australian legislation.17
15 Unlike the heading to the former s 50, which read simply “Offences by corporations”, but in fact did not deal with corporate liability at all. 16 See Tooma, above, n 5, at 100: “Once the offence against the corporation is proven, directors and persons concerned in the management of a corporation are guilty of the same offence unless they can make out one of the defences, on the balance of probabilities”. 17 For a review of analogous provisions generally see Clough & Mulhern, above, n 2, at 130-135, and in the area of environmental protection legislation see T Howard, “Liability of Directors for Environmental Crime: the Anything-but-Level Playing Field in Australia” (2000) 17 Env & Planning Law Jnl 250-271. Howard’s remarks about the difficulties caused by the variation in Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 170
Section 53 of the Workplace Health and Safety Act 1995 (Tasmania), and s 167 of the Workplace Health and Safety Act 1995 (Queensland) adopt essentially the same approach as s26 of the NSW Act by conditioning officer liability directly on corporate liability, but allowing some defences.
TASMANIA- Workplace Health and Safety Act 1995
Offences by bodies corporate 53. (1) If a body corporate contravenes or fails to comply with any provision of this Act, each director of the body corporate is taken to have contravened or failed to comply with the same provision unless the director satisfies the court that – (a) the body corporate contravened or failed to comply with that provision without the director's knowledge and that the director was not reasonably able to have acquired that knowledge; or (b) the director used all due diligence to prevent the contravention or failure to comply by the body corporate. (2) A director may be proceeded against and convicted under a provision in accordance with subsection (1) whether or not the body corporate has been proceeded against or has been convicted under that provision. (3) Nothing in this section affects any liability imposed on a body corporate for an offence committed by the body corporate against this Act.
QUEENSLAND- Workplace Health and Safety Act 1995
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 that the corporation complies with the provision. Maximum penalty for subsection (2)—the penalty for the contravention of the provision by an individual. (3) Evidence that the corporation has been convicted of an offence against a provision of this Act is evidence that each of the executive officers committed the offence of 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 complied with the provision; or (b) the officer was not in a position to influence the conduct of the corporation in relation to the offence.
corporate liability provisions for environmental offences are shown by the discussion below to be entirely applicable to the State-by-State variation in the area of workplace health and safety offences. Without comparing the provisions in detail, it may be noted that not only do the various States differ from each other, the corporate liability provisions within each State differ between the environmental and workplace safety statutes: see, for example, in NSW the retention in environmental legislation of the defence of “ignorance” which has been removed from the OHS Act since 1995. Other examples from other States could be offered, as a perusal of Howard’s article will show. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 171
In the Queensland Act it will be noted that one technical difference is that a separate offence is created, called “fail to ensure the corporation complies”, rather than deeming the officer to have committed the same offence as the corporation. However, the grounds for liability are effectively the same as in the NSW provision.18 The Tasmanian provision, however, does not include a separate defence of “not in a position to influence”. The reason for this becomes clear when the identity of the accused is noted. In Tasmania the offence only applies to a “director”, a term which is not specifically defined, and so presumably covers only those who would be regarded as company directors either at common law or under the corporations legislation. Given that such a person would always be in a legal “position to influence” the company, there is no need for the additional defence which is required where someone might be “involved” in management but without effective power. In Queensland, however, the liability attaches to every “executive officer”, a term which is defined in Schedule 3 (the “Dictionary”) to the Queensland Act as follows:
“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.
The scope of this definition seems very similar to the terminology used in s 26 of the NSW Act. What it is to be “concerned with” (or, in NSW, “concerned in”) the management of a corporation will be discussed below.19 A further unusual feature of the Tasmanian legislation should be noted, however. Paragraph 53(1)(a) effectively creates a limited defence of “ignorance”- that the director did not know of the company’s failure to comply with the Act, and could not reasonable have acquired that knowledge. The former NSW legislation, the OHS
18 While there are no formal reported judgements dealing with the Queensland provision, prosecution reports issued annually by the Queensland Department of Industrial Relations, at www.dir.qld.gov.au/publications/prosecutions/index.htm , indicate that between January 2000 and December 2002 there were 5 convictions involving a charge under s 167. In some a “combined” penalty seems to have been awarded against the company and its officers; in two cases separate fines for the officers of $4000 (Wildlodge Pty Ltd, in the June 2001 report) and $1500 (Raincroft Pty Ltd, in the June 2001 report) were recorded. 19 Section 3(c), below. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 172
Act 1983, contained a defence of “ignorance” in para 50(1)(a) when first enacted, which simply provided for a defence where “the corporation contravened the provision without his knowledge”. This defence, however, was removed in 1995,20 and has not been reinstated in the 2000 Act.21 The defence obviously had the disadvantage that it actually encouraged managers to not enquire about gaps in safety programmes, so that they could plead actual ignorance if prosecuted. The Tasmanian version at least has the saving feature that any lack of knowledge which is claimed to excuse the director must be of facts which he could not reasonably have discovered. Presumably a steadfast refusal to enquire about safety issues at board meetings will not allow the defence to be invoked. Other jurisdictions in Australia take slightly different approaches to the issue. For example, South Australia’s Occupational Health Safety and Welfare Act 1986, s 61 imposes liability only on an officer designated as a “responsible officer”.
SOUTH AUSTRALIA- Occupational Health Safety and Welfare Act 1986
Offences by bodies corporate 61. (1) Each body corporate carrying on business in the State must appoint one or more responsible officers for the purposes of this section. (2) A person appointed as a responsible officer under this section must be- (a) a member of the governing body of the body corporate who resides in the State; or (b) the chief executive officer of the body corporate, if he or she resides in the State; or (c) if no one is eligible for appointment under a preceding paragraph-a senior executive officer of the body corporate who resides in the State; or (d) if no one is eligible for appointment under a preceding paragraph-an officer of the body corporate. (3) A responsible officer must take reasonable steps to ensure compliance by the body corporate of its obligations under this Act. Penalty- (a) in a case where paragraph (b) does not apply-division 6 fine;
20 See the WorkCover Legislation Amendment Act 1995, Sched 2[35]. 21 The removal of the defence must be seen as an important step in allowing prosecution of directors to proceed. Note that Howard, in his review of the analogous NSW environmental provisions, which retain the defence of “no knowledge”, comments that: “The no knowledge defence has arguably stemmed the flow of charges laid against directors and, where charges have been laid, stymied the development of case law on due diligence”: above, n 17, at 260. Similarly Andrew Hopkins, writing before the amendment, commented: “The way the law is currently written makes it very difficult for a prosecution to succeed against a director or senior manager of a large corporation… Australian OHS legislation needs to be rewritten so that directors cannot plead ignorance; due diligence should be their only defence”: Making Safety Work (St Leonards: Allen & Unwin, 1995) at 107. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 173
(b) where the court is satisfied that the offence has contributed to the commission of an offence by the body corporate-a fine not exceeding the fine that is prescribed for the offence committed by the body corporate. (4) If a body corporate fails to appoint one or more responsible officers under this section, each officer of the body corporate will be taken to be a responsible officer for the purposes of subsection (3). (5) This section does not derogate from any other rule of law relating to the duties of officers of bodies corporate.
This unusual provision raises the spectre of what Clarkson has called the “vice- president for going to jail”- the appointment of an officer whose main job is to take responsibility for the company’s failures in safety management.22 The problem with such a scheme, of course, is that it may involve “delegating” criminal responsibility to one member of the Board, who might then receive “going to jail risk allowance”, leaving the other members unconcerned about safety. While it may be doubted that many company officers would be prepared to take this on, it would clearly be undesirable to allow the possibility. However, there is no evidence yet that the South Australian provision has had this effect. In Stevenson v Southern Bluefin Farmers Pty Ltd,23 for example, the defendant was a director of the company concerned and also the skipper of the boat on which the fatality occurred, and so clearly within the usual definition of “responsible”. Loizidis v SA Sawmilling Pty Ltd,24 however, illustrates an interesting feature of the provision. In that case the company concerned was convicted of an offence under s61(1) for failure to appoint a responsible officer, and fined $1000. However, the officers of a company cannot avoid liability simply by failing to appoint one of their number as “responsible”; s 61(4) must mean that if no appointment is made any or all of the officers may be charged individually under s 61(3). In s 4(1) of the SA Act there is the following definition of “officer”:
" officer " in relation to a body corporate means- (a) a member of the governing body of the body corporate; or
22 C M V Clarkson, “Kicking Corporate Bodies and Damning Their Souls” (1996) 59 Modern L Rev 557- 572, at 562, n 45, citing earlier work by Braithwaite. Of course the description is not precisely apt here, as the penalty for breach is a fine, not a jail sentence. For scepticism about the reality of the concept, see the previously noted comments by Smith, in chapter 1. 23 [1997] SAIRC 41. 24 [2001] SAIRC 31. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 174
(b) an executive officer of the body corporate; or (c) a receiver or manager of any property of the body corporate; or (d) a liquidator
Given that the definition is (as in Tasmania) restricted to those with effective or legal control over the company’s activities, it was obviously not thought necessary to include a specific defence of “not in a position to influence”. Even if this were relevant, presumably it could be accounted for under the question whether “reasonable steps to ensure compliance” had been taken. Another distinctive feature of the South Australian provision is the “two-tiered” approach to penalty; a relatively minor penalty under para 61(3)(a) where all that can be shown is that the company has committed an offence, but a more major penalty under para 61(3)(b) where there is a causal link between the management failure and the commission of the offence. It seems clear from the structure of the provision that the onus of proof in relation to causation will lie on the prosecution, if the higher penalty is to be sought.
In Victoria, the approach that is presently taken under s 52 of the Occupational Health and Safety Act 1985 (Vic) is to make it an offence for an officer to consent to an offence against the Act, or to allow an offence to occur by “wilful neglect”.
VICTORIA- Occupational Health and Safety Act 1985
52. Offences by bodies corporate (1) Where an offence against this Act committed by a body corporate is proved to have been committed with the consent or connivance of, or to have been attributable to any wilful neglect on the part of, an officer of the body corporate or person purporting to act as such an officer, that officer or person is also guilty of that offence and liable to the penalty for that offence… (3) In sub-section (1) "officer" in relation to a body corporate means- (a) a director secretary or executive officer of the body corporate; (b) any person in accordance with whose directions or instructions the directors of the body corporate are accustomed to act; or (c) a person concerned in the management of the body corporate.
This provision is fairly similar to the equivalent UK provision, discussed below.25 The offence which the officer commits will be deemed to be the “head”
25 And see for some issues raised by this form of provision section 3(b)F below. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 175 offence committed by the corporation, but the officer’s liability will depend on their consent, connivance or wilful neglect. Interestingly it is not a defence that the officer concerned (who may under para 52(3)(c) be a “lower-level” manager)26 did not have any influence over the company’s decision. Still, it seems likely that a court would interpret the operative words as implying that consent, for example, could have been withheld and would have made some difference to the occurrence of the offence. There seem to be no reported decisions of superior courts based on this Victorian provision.27 As noted in Chapter 3, during 2000 the Victorian Government released for public comment a draft Crimes (Industrial Manslaughter) Bill 2000, which if enacted would have significantly changed the current approach. The Bill was primarily concerned with corporate liability, and between its initial release for comment and its introduction into the Victorian Parliament became the Crimes (Workplace Deaths and Serious Injuries) Bill 2001.28 However, in its initial form it also contained an amendment29 would have inserted a new s 52A into the Occupational Health and Safety Act 1985 (Vic), which would have effectively brought the law of Victoria into line with that of NSW. New s 52A was proposed to read:
52A. Directors and senior managers (1) If it is proved that a body corporate has committed an offence against this Act, an officer of the body corporate is guilty of that offence and liable to the penalty for that offence unless the officer proves that— (a) the officer was not in a position to influence the conduct of the body corporate in relation to the commission of the offence by the body corporate; or (b) the officer, being in a position to influence the conduct of the body corporate in relation to the commission of the offence by the body corporate, used due diligence to prevent the commission of the offence by the body corporate.
26 The question of the “reach” of provisions like this down to “lower-level” managers is discussed in more detail later in this chapter, in section 3(c). 27 See, however, a press release issued by the Victorian Workcover Authority on 27 September 2002 noting the conviction and fine of a company director, Mr S Duzenman in relation to failure to guard machinery where there had been a previous warning by a Workcover inspector. A fine of $17,500 was imposed on the director personally. A number of other press releases on the Victorian website refer to convictions of directors before the Magistrates’ Court or the County Court. The 2002 Prosecutions Report issued by the Authority records 8 cases where s 52 was invoked (not including Mr Duzenman), and where fines were imposed they ranged from $4000 (aggregated with a company fine- Cachia, 24 Sept 2002, Moe Magistrates’ Court) to $12,000 (Hodgson, 29 Oct 2002, Dandenong Magistrates’ Court). 28 See the discussion in chapter 3, section 2(c)(ii). As noted there, the Bill ultimately was rejected by the Victorian Legislative Council on 29 May 2002. 29 Clause 15 of the Bill. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 176
(2) An officer of a body corporate may be prosecuted for an offence against this Act, whether or not the body corporate has been prosecuted for or convicted or found guilty of that offence. (3) In this section, "officer" in relation to a body corporate means— (a) a director, secretary or executive officer of the body corporate; or (b) a person in accordance with whose directions or instructions the directors of the body corporate are accustomed to act; or (c) a person concerned in the management of the body corporate. (4) This section applies to offences committed after the commencement of the Crimes (Industrial Manslaughter) Act 2000.
It seems, however, that in the public comment process this provision was removed, perhaps being regarded as being too controversial.
The current Victorian approach (relying on “consent or connivance”) is also followed by s 55 of the Occupational Safety and Health Act 1984 (Western Australia) and s 180 of the Work Health Act 1986 (Northern Territory).
WESTERN AUSTRALIA- Occupational Safety and Health Act 1984
55. Offences by bodies corporate (1) Where a body corporate is guilty of an offence under this Act and it is proved that the offence occurred with the consent or connivance of, or was attributable to any neglect on the part of, any director, manager, secretary or other officer of the body, or any person who was purporting to act in any such capacity he, as well as the body corporate, is guilty of that offence. (2) Where the affairs of a body corporate are managed by its members, subsection (1) shall apply in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.
NORTHERN TERRITORY- Work Health Act 1986
180. Offences by bodies corporate (1) Where an offence against this Act committed by a body corporate is proved to have been committed with the consent or connivance of, or to have been attributable to a wilful neglect on the part of, an officer of the body corporate or person purporting to act as such an officer, that officer or person is also guilty of that offence and liable to the penalty for that offence… (3) In subsection (1) "officer", in relation to a body corporate means - (a) a director, secretary or executive officer of the body corporate; (b) any person in accordance with whose directions or instructions the directors of the body corporate are accustomed to act; or (c) a person concerned in the management of the body corporate.
There seem be no superior court decisions considering either of these Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 177 provisions.30 The WA provision contains an interesting extension of liability to management decisions made by “members” of a body corporate, perhaps where no officers have been officially appointed. Interestingly, neither the Commonwealth general duties legislation (Occupational Health and Safety (Commonwealth Employees) Act 1991) nor the ACT legislation (Occupational Safety and Health Act 1989) make officers personally liable.31 The different State and Territory provisions may be summed up in the following table.
30 Section 55 of the WA Act was mentioned in passing in Maccarron v Future Engineering And Communication Pty Ltd [1998] WASCA 157 (23 June 1998), a prosecution which failed as the company concerned was acquitted, and Moltoni v Shepherd [1999] WASCA 73 (23 June 1999), but was not the subject of any significant judicial comment. Howard, above, n 17, at 251, 252 discusses two unreported magistrate’s decisions on s 118 of the Environmental Protection Act 1986 (WA), a very similar provision. One prosecution, Dept of Environmental Protection v Memories (WA) Pty Ltd and Donnes (1998), failed because the magistrate took the view that the director could not have “consented to or connived at” the offence as he had no actual knowledge of the act concerned, but as summarised by Howard the magistrate seems not to have considered the alternative basis of “neglect”. The other, Dept of Environmental Protection v McMurtry (1995), was successful as the magistrate held that the director had given instructions for the offending activity. The director was the first corporate officer in Australia to be sentenced to imprisonment for a breach under a “deeming” provision of the sort discussed in this chapter. 31 Somewhat oddly for the ACT, given that s 147 of the Environment Protection Act 1997 (ACT) imposes a separate corporate officer liability in that area: see the discussion in Howard, above, n 17, at 257-259. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 178
Table 3: Summary of State and Territory Provisions imposing personal liability Jurisdiction Provision Directors Separate Defence of Defence of Onus of proof alone, or Offence, or “due “unable to for defence Other Accessorial diligence” or influence” Managers? Liability for something or another Company’s similar? defence? Offence? NSW Occupational Directors Accessorial Due Not in a Onus on accused Health and and Liability Diligence position to to establish Safety Act Managers influence defences 2000 s 26 Tasmania Workplace Directors Accessorial Due Lack of Onus on accused Health and only Liability Diligence knowledge to establish Safety Act not defences 1995 s 53 reasonably able to be acquired Queensland Workplace Executive Separate Reasonable Not in a Onus on accused Health and officers- offence diligence position to to establish Safety Act includes influence defences 1995 s 167 lower-level South Occupational Designated Separate “Reasonable” Lesser Onus on accused Australia Health Safety “responsible offence- take steps penalty if to establish and Welfare officer”- in reasonable failure not “reasonable” Act 1986 s 61 default every steps to causally steps; onus on “officer” ensure related to prosecution to compliance company’s argue for causal offence link (?) Victoria Occupational Directors Accessorial No Company Onus Health and and liability offence must presumably on Safety Act managers have been prosecution to 1985 s 52 committed prove consent, with connivance or “consent”, neglect “connivance” or due to “wilful neglect” Western Occupational Directors Accessorial No As for Vic- As for Vic- onus Australia Safety and and “other liability “consent”, presumably on Health Act officers”, “connivance” prosecution to 1984 s 55 and even or due to prove consent, members “in “wilful connivance or connection neglect” neglect with” functions of management Northern Work Health Directors Accessorial No As for Vic- As for Vic- onus Territory Act 1986 s 180 and liability “consent”, presumably on managers “connivance” prosecution to or due to prove consent, “wilful connivance or neglect” neglect
Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 179
(c) The UK legislation The UK approach is discussed in an article by David Bergman.32 The relevant provision is s 37 of the Health and Safety at Work etc Act 1974 (UK), which provides:
Where an offence under any of the relevant statutory provisions committed by a body corporate is proved to have been committed with the consent or connivance of, or to have been attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate or person who was purporting to act in any such capacity, he as well as the body corporate shall be guilty of that offence. [emphasis added]
Bergman notes that proving the relevant elements of the offence ought not to be too difficult in most cases; “consent or connivance” should be established where the director was aware of company practices which create a risk and does nothing to stop them. “Neglect” might be more difficult as it would be necessary to show that the director had a specific duty, as opposed to the company. But it will still be possible in many cases. In terms of the Australian legislation, it can be seen that the UK provision is most similar to the Victorian, WA and NT provisions. There are few reported decisions of superior courts mentioning s 37; but those that are available are discussed below.33
3. Issues arising under the statutory provisions A number of questions are raised by these provisions. How often are they used? In what circumstances are prosecutions brought? To what levels of management does responsibility extend? The remainder of this chapter will attempt to answer some of these questions. The focus will primarily be the NSW provision, s 26 of the OHS Act 2000, and its immediate predecessor, s 50 of the OHS Act 1983.34 A justification for focussing on
32 “Corporate Conniving and Directors’ Duties” (1999) 149 (6906) New Law Jnl 1436 33 A case in which the charge was brought against a director of a small cleaning firm under s 37 was R v Mara [1987] 1 All ER 478; however, the legal issues in that case revolved around whether or not the company had committed the offence, and the interpretation of s 37 was not discussed. Three Scottish cases discuss s 37: Armour v J Skeen (Procurator Fiscal, Glasgow) [1977] IRLR 310, Wotherspoon v HM Advocate 1978 JC 74, and Briggs Amasco Limited v Smith 1981 SCCR 274. Two decisions of the UK Court of Appeal consider sentencing issues under s 37: R v Ceri Davies [1999] 2 Cr App R (S) 356, and R v Rollco Screw & Rivet Co Ltd [1999] 2 Cr App R (S) 436. 34As noted previously, since the new Act only commenced on 1 September 2001, there is no specific judicial guidance on it yet. But the high degree of similarity between the old and new provisions Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 180 the NSW provision is that it seems fairly clear that it has been used quite extensively in this State, and the electronic database of reported decisions of the NSW Industrial Relations Commission provides a useful source of reported decisions. But where possible insights into the operation of the related provisions in other States and the UK will be brought to bear.
(a) The law in operation- prosecution of company directors in practice How is this provision, and others like it, used to prosecute company directors? Here the focus is on those who are officially part of the Board, rather than those occupying other management positions. Bergman35 points out that despite the apparently broad wording of s 37 of the UK Act, directors in the UK are only rarely prosecuted (between 1992-1998, only 1% of prosecutions were of directors).36 An audit of prosecution activity by the Health and Safety Executive in the UK confirmed that between 1996 and 1998 there had been only 34 prosecutions of directors under this provision.37 A review was conducted for the purposes of this study of prosecutions under former s 50 of the 1983 Act which were reported on the AUSTLII Industrial Relations Commission database.38 The findings are summarised in the Appendix to this chapter. A total database of 26 cases were found to be relevant. In another 5 cases, as noted at the end of the Appendix, there seems to have been an initial s 50 charge which for various reasons was not proceeded with at the time of the trial.39
mean that it can fairly confidently be predicted that decisions on former s 50 will be directly applied to the new s 26. 35 “Corporate Conniving”, above, n 32. 36 See also the table at para 16 of a submission to the UK Government made by the Centre for Corporate Accountability (of which Bergman is the Director), available at
Some fairly clear trends seem to emerge in the 26 cases considered. These include the following: i. Most prosecutions are brought against those who are clearly formal “directors” of the company, rather than against others involved in management; ii. Those officers who were prosecuted were often directly involved in making specific decisions which led to the accident; iii. Most of the companies whose officers were prosecuted were fairly small.
(i) Majority “Directors” as opposed to “Managers” The majority of the cases (19 out of 26, 73%) involved actual company directors, as opposed to others “concerned in the management”. The cases in the Appendix are grouped into “Category A” (directors) and “Category B” (non-directors). The Category B cases (non-directors), while often not providing specific definitions of what it is for someone to be “concerned in the management” of a company, do provide practical examples. These are discussed below.
(ii) Directors prosecuted mostly directly involved in incident In Category A, almost every case involved a director who was heavily involved in decisions or actions “on the ground” which led directly to the incident concerned. It is of course understandable (and right) that these prosecutions should be undertaken. But the Category A cases do not reveal any instances where a member of a Board of Directors who was themselves removed from the “coalface” was held liable under s 50 for failure of safety systems or equipment, or any other matter which may have led to a serious accident. To some extent the distinction between different types of directors here overlaps with the distinction drawn in the corporate governance context between “executive” and “non-executive” directors. Even after Daniels v Anderson (the AWA case),40 non-
possibly the Commission chooses cases for inclusion in the AUSTLII database on the basis that some substantive comment is made about the legal or factual issues concerned, and there may be others where no comment was called for which are not included. 40 (1995) 13 ACLC 614. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 182 executive directors may have a lesser duty of care than executive directors.41 But the OHS Act draws no such distinction, even if prosecutorial policy may seem to be doing so de facto.
(iii) Most companies small Linked to the above point, almost all the companies concerned (as far as can be judged from the reports) were either effectively “one-man” companies or at least small family companies with limited assets. The directors concerned were almost all likely to have high personal knowledge of workplace procedures, and, as noted above, mostly were heavily involved in the particular incident concerned. There are no examples in these cases of a large company where a member of the board was held liable for failure to exercise “due diligence” in addressing the issue of safety. The only exception to company size may be in the McCabe case,42 where the company had some 20 employees. But the two defendants were father and son, the father having started the business and working on the site on the day of the accident.
To summarise the results of the analysis of the 26 cases: there seems to be no doubt that s 50 has been used in NSW to bring company directors and managers to account. But the overwhelming use of the section has been to penalise directors and managers who are effectively “on the ground”, and usually those who have made immediate decisions which have led to an accident. So far there seem to be no cases where a board member who has not been closely involved with workplace decisions has been prosecuted. It may be that the appropriate case for this has not yet emerged. Such a prosecution, however, would be likely to have a salutary effect on the decisions of company boards about allocation of resources to safety, in light of the material canvassed in chapter 1. It is interesting to note that a very similar analysis has been provided of
41 See, eg, the CCH Australian Corporations and Securities Law Reporter, ¶42-340, at 63,502: “in general, a non-executive director is not expected to be involved in the day-to-day running of the business”. 42 [1999] NSWIRComm 515, B5. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 183 analogous provisions in the legislation around Australia imposing criminal penalties for breach of environmental laws. Streets provides an excellent overview of prosecutions of directors and managers under environmental legislation, both in Victoria and in other States.43 She summarises her research in this way:
As yet, no prosecutions have occurred involving directors of large corporations. Nor has there been a prosecution attempting to attribute responsibility higher up the corporate chain of a large organisation than the on-site manager. It seems that it is very much those in control of smaller organisations, or on-site and in control of activities on a daily basis, who are more likely to face prosecution at this point in time.44
(b) Legal issues in applying s 26 to Directors The above figures reveal something about the practice of managerial prosecutions. There are also a number of legal issues which arise in these prosecutions which need to be addressed. There are relatively few cases in the Industrial Relations Commission or Chief Industrial Magistrate databases where there is substantive discussion of the provisions of former s 50 from a legal perspective. Nor have many reached the Full Bench of the Industrial Relations Commission in Court Session for more considered appellate comment. The following discussion summarises the major points where legal comment has been offered, and then considers other aspects of s 26 which seem to warrant further comment. Where available judicial comment from other jurisdictions on the analogous provisions is taken into account. This section focussess primarily on issues arising in prosecution of actual directors; in the next section the general question of what it means to be “concerned in the management” of a company for the purposes of s 26 will be
43 S Streets, “Prosecuting Directors and Managers in Australia: A Brave New Response to an Old Problem?” (1998) 22 Melb Univ L Rev 693-718. 44 Above, n 16, at 703-704. See also R J Baird “Liability of Directors and Managers for Corporate Environmental Offences- Recent Prosecutions” (1999) 16 EPLJ 192-195 which seems to tell a similar story. Howard, above, n 17, at 263 provides further support for this view, and suggests that part of the reason in the environmental context is the availability of the defence of “no knowledge” which makes it very hard to prosecute someone who is not personally involved. In a sense this makes it all the more surprising, given that ignorance has not been a defence under the OHS Act since 1995, that so few OHS prosecutions of “higher-up” managers have been brought. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 184 discussed.
(i) Allocation of Penalty between Company and Director One issue that arises in the cases is the appropriate allocation of penalty between the company and the director. This issue does not usually arise with a non-directorial manager, but it does arise squarely in the case of a director. For the director it will often be the case that he or she has a large financial stake in the operation of the company (as a shareholder at least), whereas a manager may simply be an employee. The issue that the courts are required to consider is raised in this way. For a s 26 prosecution to succeed the company itself must be liable under another provision of the Act (usually s 8 or s 9). The company will usually be prosecuted at the same time as the director. But if it is a “one-man company” where the assets of the company are “in reality” the assets of the director, the question arises whether it is exposing the director to a double penalty to impose separate fines. One option would be to adopt an “overall” approach with the appropriate amount being allocated between the two. Another would be for the company simply to be fined and the director not. A case where the court opted to treat the penalty as a “totality” was Brkic.45 Maidment J treated the company concerned as “more akin to a partnership” and “not a substantial entity”, and so effectively fixed the maximum penalty for the company at the time of the incident as $50,000.46 The company was fined $35,000 for what was a severe breach of safety procedures which had led to the death of the worker concerned. In relation to the director, Mr Brkic, Maidment J commented that while his behaviour was “disgraceful”, imposing a separate penalty on him personally would amount to a “double penalty”. His Honour deferred penalty for four months and indicated that if the corporate penalty were paid he would impose no separate penalty on the director. A similar comment was made in Martin47 where the company was fined $17,000; again
45 [1998] NSWIRComm 246, A2. 46 In line with a series of decisions in the Industrial Commission treating “one man” companies as if they were individuals for the purposes of determining penalty: see Mauger v Krcmar Engineering Pty Ltd (1993) 47 IR 359, WorkCover Authority v Idofan Pty Ltd t/a Kingsland Transport (1995) 59 IR 295, Haynes v CI & D Manufacturing Pty Ltd (No 2) (1995) 60 IR 455. 47 [1998] NSWIRComm 619, A14. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 185
Maidment J was the judge. Describing the company as the alter ego of the director his Honour declined to impose a separate penalty. This approach was also taken by Heerey J in the Federal Court in a prosecution for an offence under the Trade Practices Act 1974. In Australian Competition & Consumer Commission v Commercial and General Publications Pty Ltd (No 2), his Honour commented:
CGP is the alter ego of Mr Hassett. The conduct which constituted a contravention of the Act was committed by Mr Hassett and nobody else. Such gain as would have resulted from a contravention would, as far as the evidence showed, have accrued to Mr Hassett and nobody else, he being the only shareholder in CGP. If CGP had any assets, to impose separate penalties on Mr Hassett would be punishing him twice… In reality the identity of the two defendants is the same and the conduct which contravened the TPA is the same. For that reason I would not impose a penalty on CGP. 48
In this case the director was fined but the company was not. Another way of looking at the matter, however, is to note that Parliament has seen fit to make the director of a company personally liable as a separate offence to the company’s liability. Directors would presumably be keen to argue that they and the company ought to be treated as separate legal entities when the question of taxation or liability under contract arose; why should they then in this case be allowed to rely on the unity of interest between themselves and the company to escape a penalty that Parliament has prescribed? In R v Ovenell, for example, Blain J commented:
If a guilty man makes himself into two entities and commits a crime in both capacities the court has to deal with both. 49
From a purely company law perspective Ramsay and Noakes refer to this use of the “piercing the veil” doctrine as “controversial”, and submit that
48 [2002] FCA 1349, at para [27], [29]. 49 [1968] 1 All ER 933, at 939F. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 186
Recourse to piercing principles in order to reduce the penalty for [what amounts to] a manslaughter conviction is, in the absence of evidence that the company is unable to pay the fine and other relevant factors, an inappropriate use of the doctrine.50
In McCabe,51 the company and the individuals charged had adequate resources. Counsel nevertheless made a submission that the company should bear the burden of the penalty, and the two directors involved be given a reduction. Kavanagh J commented in response to this submission that Parliament had set the level of penalty in a differential way between companies and individuals, and that each of the individuals involved had been in some way culpable. While these comments do not address the issue of sentencing in general (relying partly on the fact that the accident concerned was caused by the particular actions of the two personal defendants), they suggest that not all judges would follow Maidment J in reducing or removing a director’s penalty when a company was convicted- particularly where both director and company have sufficient assets to pay. An appropriate balance in this area seems to have been struck in the decision of the UK Court of Appeal in R v Rollco Screw & Rivet Co Ltd.52 The judgement of the court was delivered by the Lord Chief Justice, Lord Bingham. The case involved a serious breach of sections 2 and 3 of the Health and Safety at Work Act 1974 (UK), in which the company had disposed of asbestos found in the roof of the premises by putting it in garbage bags and dumping it at various sites around suburban Birmingham. A director and the secretary of the company (who played a large role in management) were prosecuted under s 37 of the HSW Act at the same time as the company was prosecuted. The fines imposed (including costs) amounted to £70,000 for the company, £8,000 for one officer and £6,000 for the other. On appeal the officers claimed that their
50 I M Ramsay & D B Noakes, “Piercing the Corporate Veil in Australia” (2001) 19 Company and Securities Law Journal 250-271, at 255. They add at n 51: “The ‘reality’ of the circumstances may be that the shareholder will pay the fine, but that should not mean that the appropriate level for the fine should be reduced to the amount of a fine for an individual”. They refer to WorkCover v Baker-Duff Pty Ltd (Fisher CJ, 2 April 1993) [reported as Workcover Authority v Baker [1993] NSWIRC 19] where the policy of treating a company as if it were the director for the purposes of setting a penalty under the OHS Act 1983 was adopted. 51 [1999] NSWIRComm 515, B5. 52[1999] EWCA 1354, also reported at [1999] 2 Cr App R (S) 436, [1999] IRLR 439. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 187 fines ought to be reduced, as the company was effectively a “family company” and that as a result they were facing a double penalty. Lord Bingham acknowledged that to some extent the court had to take this into account. He went on:
In a small company the directors are likely to be the shareholders and therefore the main losers if a severe sanction is imposed on the company. We accept that the court must be alert to make sure that it is not in effect imposing double punishment. On the other hand, it seems to us important in many cases that fines should be imposed which make quite clear that there is a personal responsibility on directors and that they cannot simply shuffle off their responsibilities to the corporation of which they are directors. The proper approach to a case of this kind in principle seems to us to be to pose two questions. First: what financial penalty does the offence merit? Second: what financial penalty can a defendant (whether corporate or personal) reasonably be ordered to meet?53
In the circumstances His Lordship reviewed the total penalty which had been imposed on company and directors and upheld the amounts of £40,000 as to the company and £10,000 as to the two officers. The company was by no means small or unprofitable. In Australia a similar approach was taken, outside the area of workplace safety, in ACCC v ABB Transmission & Distribution Ltd (No 2),54 where Finkelstein J noted that it was appropriate to have regard to the fact that a fine to be imposed on a company would fall heavily on the director, who was its main shareholder. However, this did not lead to either the company or the director being excused from penalty; it was simply a matter which was taken into account in the overall allocation of penalty. Another situation where a financial penalty on a director must be assessed separately to the company’s penalty is where the company itself effectively has no assets. In such a case then it clearly will be appropriate to impose a penalty which will effectively punish the director personally, rather than simply imposing a fine on a company which will never be paid.
53 [1999] 2 Cr App R (S) 441. 54 [2002] FCA 559, at [45]. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 188
(ii) Effect of the “deeming” provisions The courts occasionally had difficulties in interpreting the “deeming” aspects of s 50.55 In McLachlan, Bauer J commented:
A difficulty immediately apparent from a consideration of s 50 of the OHS Act is that the section bears no resemblance to any common law criminal offence or, indeed, statute law and demonstrates the rule that draftsmen should put into practice, that of eschewing the use of the word “deem”. The application of the rules and procedures under which superior courts reviewed criminal cases are not easily applied to such legislation. 56
His Honour’s comments about the lack of precedent for a provision like s 50 may, with respect, be over-stated. There are a number of such provisions in the NSW statute book, although many are perhaps rarely used. These range from s 50 of the Agricultural Industry Services Act 1998 to s 27 of the Workplace Video Surveillance Act 1998, and at least another 150 provisions in between. As noted below, the section also has a direct historical precedent in s 147 of the Factories Shops and Industries Act 1962 (NSW), and previous UK legislation. The High Court in Hookham v The Queen57 gave some attention to a very similar provision, and as will be seen below made some comments on the effect of such deeming provisions. This is not to deny that problems may arise which are unforeseen, however. One problem with the word “deem” may be appreciated from the summons in the McLachlan case, which alleged that the accused, being a director of a company which had breached the Act, was
“deemed to have contravened the same provision in that you DID FAIL to ensure the health, safety and welfare at work of all your employees”.
Even if Mr McLachlan was a director of the company (he was not, and hence the summons was dismissed), this allegation seems wrong in that he did not have any
55 Now, of course, replaced in s 26 by the words “is taken to have contravened”, although seemingly without any intention to change the legal effect of the provision. 56 [1995] NSWIRC 220, B6. 57 (1994) 181 CLR 450. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 189
“employees”; they were the company’s employees. Presumably the intention of the “deeming” provision is not that the Court is required to “pretend” that the director is the company, but that the Court is required to impose the appropriate penalty which would be imposed if the director had been found guilty of breaching the relevant provision. Since the director is required to be a natural person, however,58 the appropriate level of penalty will be that applicable to an individual rather than to a corporation.59 In Hookham60 the High Court was dealing with s 8Y of the Taxation Administration Act 1953 (Cth), which provided:
(1) Where a corporation does or omits to do an act or thing the doing or omission of which constitutes a taxation offence, a person (by whatever name called and whether or not the person is an officer of the corporation) who is concerned in, or takes part in, the management of the corporation shall be deemed to have committed the taxation offence and is punishable accordingly.
Sub-section 8Y(2) then provided a defence if the accused could demonstrate that he or she was not personally involved as an “accessory” to the offence of the company.61 Mr Hookham conceded that he had been involved in an offence committed by the company of which he was a director, of failing to pay to the Commissioner of Taxation wages deducted from employees. But the issue on which he appealed was that the Commissioner had obtained an order under s 21B of the Crimes Act 1914 requiring that, as well a pecuniary penalty, he pay “reparations” to the Commonwealth- in other words, that he be required to account for the money withheld. Section 21B allowed such an order to be made “where a person is convicted of an offence against the law of the Commonwealth”. Mr Hookham argued that the “deeming” provision in s 8Y allowed
58 See Corporations Act 2001 (Cth) s 201B(1), referring to an “individual”. 59 Under the OHS Act 2000, s 12, for example, the maximum penalty for a breach of the major duty provisions in Division 1 of Part 2 of the Act is 5000 penalty units for the first offence by a corporation (currently equivalent to $550,000), and 500 penalty units for the first offence by an individual (currently $55,000). 60 Above, n 57. 61 The equivalent provisions in s 26, of course, are paras 26(1)(a) and (b), which allow the officer to defend the prosecution on the basis of not being “in a position to influence” the company, or having exercised “due diligence”. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 190 him to be required to pay a fine, but did not allow a s 21B order to be made. The High Court disagreed. Mr Hookham by virtue of s 8Y was “deemed” to have committed the offence, not just for the purposes of the 1953 Act, but for all other purposes of Commonwealth law. As Toohey J commented:
The effect of a deeming provision such as s 8Y(1) is that the person concerned is deemed to have committed the offence which the corporation itself committed [Parker v Churchill (1986) 9 FCR 334, at 346-347]… It follows that the appellant is a person convicted of an offence against a law of the Commonwealth within the language of s 21B of the Crimes Act.62
Neither the current s 26 nor the former s 50 is identical to the provision considered in Hookham, but there seems no legally relevant difference. The difference in wording between “is taken to have” (in s 26, OHS Act 2000) and “shall be deemed to have” (in s 50, OHS Act 1983 and in s 8Y considered in Hookham) seems merely verbal.63 While s 26 does not add the words “and is punishable accordingly”, once it requires a court to treat an officer as “having contravened” a provision of the Act, the other provisions of the Act would seem to require the imposition of an appropriate penalty. See, for example, s 12, which in relation to the major general safety duties in Division 1 of Part 2 provides that: “A person who contravenes… a provision of this Division is guilty of an offence against that provision and is liable to the following maximum penalty…” {emphasis added}. Similarly, it would seem to be an unavoidable implication of being “taken to have” contravened, say, s 13 (or any other provision in later Divisions of the Act), that the penalties set out in that section would be applicable. In light of the argument presented in Hookham, however, interesting questions may arise about the applicability of Division 2 of Part 7 of the 2000 Act to someone who is taken to have contravened the Act under s 26. That Division provides for a number of “ancillary” orders that may be made in addition to pecuniary penalties, such
62 Above, n 57, at pp 462-463. 63 This is one of the few areas where s 26 differs from s 50 of the 1983 Act. It seems likely that the change was simply one designed to make the legislation more readable, and even possibly motivated by the comments of Bauer J noted above. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 191 as, for example, an order for “restoration” under s 113, or an order that certain OHS projects be undertaken under s 116. Liability to such orders, however, is conditioned under s 111 in this way:
111 Operation of Division (1) Application to proved offences This Division applies where a court finds an offence against this Act or the regulations proved. (2) Meaning of proved offences Without limiting the generality of subsection (1), a court finds an offence proved if: (a) the court convicts the offender of the offence…
There is a question whether the operation of s 26 in relation to a company officer should be held to be the same as the court “finding” an offence “proved”, or “convicting” the offender. Probably so, in light of s 26(2). This sub-section refers to a person being “proceeded against and [being] convicted” under “a provision”. The “provision” referred to there must the “primary” provision under which the company is guilty. If that is so then it seems that a finding that s 26 operates, amounts to a “conviction” of an officer of the primary offence. The officer would have been, for example, “convicted of an offence against s 8 pursuant to subsection 26(1)”.64 This would then enliven the power of the court through s 111(2)(a), to make the Division 2, Part 7 orders against the officer if appropriate.65 Note also that under s 26 it is not the conviction of the company, but the company’s contravention that must be established. This means that an officer can be convicted pursuant to s 26 even if the company cannot (as indeed s 26(2) puts beyond doubt). In R v Dickson & Wright66 the UK Court of Appeal upheld a conviction of
64 See also the comments of the High Court in Hookham, above n 57, at 459 (per Deane, Dawson & Gaudron JJ): “The ‘deeming provisions’… do not create a situation in which one person is to be regarded as having committed another person’s offence. Rather, they require persons with the specified complicity in an offence to be regarded as parties to that offence.” 65 For a decision which would seem to favour this result, see also Re: John Blake Paviour Lewis and: The Minister Of State For Health (Federal Court, McGregor J, 26 April 1985), where a medical practitioner was held to be liable to the further penalty of disqualification after being found guilty as an accessory to offences under the Health Insurance Act 1973 (Cth), by virtue of s 5 of the Crimes Act 1914 (Cth). Tooma, above, n 5, at 100 also takes the view that a s 26 conviction would enliven the power under Part 7, Division 2. 66 (1992) 94 Cr App R 7. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 192 directors under an analogous provision in the Trade Descriptions Act 1968 (UK) even though at the time of the trial the company itself had been wound up.
(iii) The Meaning of “due diligence” What sort of behaviour will amount to “due diligence” for the purposes of the defence in s 26(1)(b)? In Holland67 counsel for the officer addressed the issue of what “due diligence” required under former s 50 (1)(c), arguing that as Mr Holland had appointed site supervisors and a reputable firm of subcontractors, he was not required to present “on site” at all times. In response, prosecution counsel urged that while this was true, Mr Holland had failed in various areas in approving a system of work (in relation to loading bricks onto a scaffold) which was dangerous, and had not made inquiries about the sub-contractor’s knowledge of safety procedures. In particular there was no provision made for what had happened on the day, when one of the normal supervisors had been taken sick. Counsel cited the environmental prosecution in State Pollution Control Commission v Kelly:
Whether a defendant took the precautions that ought to have been taken must always be a question of fact and, in my opinion, must be decided objectively according to the standard of a reasonable man in the circumstances. It would be no answer for such person to say that he did his best given his particular abilities, resources and circumstances. This particularly applies to activities requiring experience and acquired skill for proper execution.’ 68
In the circumstances Schmidt J found that the prosecution against the company failed, in that she was not satisfied beyond reasonable doubt that there was a causal connection between the accident and any failures of the company. As a result the arguments as to due diligence did not need to be assessed. Cases in other areas of the law offer further guidance on the meaning of “due diligence”.69 The question of what constitutes “due diligence” in advertising, for
67 [1998] NSWIRComm 419; A9. 68 (1991)ACSR 607 at 608-609. 69 See also the discussion of due diligence in Clough & Mulhern, above, n 2, at 151-158. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 193 example, was dealt with by the Full Court of the Federal Court in Universal Telecasters (Qld) Ltd v Guthrie.70 A television station was charged with an offence under the Trade Practices Act 1974 (Cth) in relation to a misleading advertisement. Paragraph 85(1)(b) of the Act provided for a defence where the contravention had been due to (inter alia) a “mistake”, and the defendant could establish that it “took reasonable precautions and exercised due diligence to avoid the contravention”. On this aspect of the defence Bowen CJ commented:
While these are plain English words, which have to be applied as they stand, it appears to me that two responsibilities which Universal Telecasters would have to show it had discharged, in order to establish this defence, would be that it had laid down a proper system to provide against contravention of the Act and that it had provided adequate supervision to ensure the system was properly carried out. Universal Telecasters did institute a system and did provide for supervision. The mere fact that its system and supervision has proved inadequate to prevent error, does not necessarily establish that its system is defective. Even the best systems may break down due to human error. It is necessary to make a judgment about the system and the provision for supervision.71 (emphasis added)
These two elements- the establishment of a system and measures to ensure the system was working- were also referred to by Nimmo J.72 His Honour emphasised, however, that the “due diligence” required was that of the company itself, and that the requirement for due diligence was not breached simply by a lapse by a junior officer whose action was not that of the company. He quoted the following passage from Tesco v Nattrass:
It may be a reasonable step for an employer to instruct a superior servant to supervise the activities of inferior servants whose physical acts may in the absence of supervision result in that being done which it is sought to prevent. This is not to delegate the employer's duty to exercise all due diligence; it is to perform it. To treat the duty of an employer to exercise
70 (1978) 32 FLR 360. 71 Above, n 70, at 363. 72 Above, n 70, at 383. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 194
due diligence as unperformed unless due diligence was also exercised by all his servants to whom he had reasonably given all proper instructions and upon whom he could reasonably rely to carry them out, would be to render the defence of due diligence nugatory and so thwart the clear intention of Parliament in providing it.73
In the circumstances of this case, UTC were found to have instituted and supervised an appropriate system for vetting advertisements, but all members of the Full Court held that there was no proper system for responding to complaints made by members of the public “after hours”.74 Another case where issues of “due diligence” by company officers was canvassed is R v Bata Industries Ltd (No 2),75 a Canadian decision concerning directors’ liability for breach of pollution legislation. The decision of Ormston PDJ in the Ontario Court (Provincial Division) addresses the defence of due diligence as it related to managers of the company at three levels: the CEO of an international company (the Bata shoe company) (Mr Bata); the President of the board of the local company, who visited the plant once a month (Mr Marchant); and the local plant manager, Mr Weston. Ormston PDJ identified a number of factors which were relevant to “due diligence” by officers in the following passage:
I ask myself the following questions in assessing the defence of due diligence: (a) Did the board of directors establish a pollution prevention "system" as indicated in R. v. Sault Ste. Marie (City), supra?; i.e., was there supervision or inspection?; was there improvement in business methods?; did he exhort those he controlled or influenced? (b) Did each director ensure that the corporate officers have been instructed to set up a system sufficient within the terms and practices of its industry of ensuring compliance with environmental laws, to ensure that the officers report back periodically to the board on the operation of the system, and to ensure that the officers are instructed to report any
73 Tesco Supermarkets Ltd v Nattrass [1972] AC 153, per Lord Diplock at p 203; cited by Nimmo J in Universal Telecasters, above, n 70 , at 382-383. 74 See Universal Telecasters, above, n 70, per Bowen CJ at 364; Nimmo J at 375; Franki J at 385. However, because two members of the Court found that another defence had been made out, the company was acquitted. 75 (1992) 70 CCC (3d) 394. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 195
substantial non-compliance to the board in a timely manner? I reminded myself that: (c) The directors are responsible for reviewing the environmental compliance reports provided by the officers of the corporation but are justified in placing reasonable reliance on reports provided to them by corporate officers, consultants, counsel or other informed parties. (d) The directors should substantiate that the officers are promptly addressing environmental concerns brought to their attention by government agencies or other concerned parties including shareholders. (e) The directors should be aware of the standards of their industry and other industries which deal with similar environmental pollutants or risks. (f) The directors should immediately and personally react when they have notice the system has failed.76 [emphasis added]
In the circumstances Mr Bata, the international CEO, was found to have exercised due diligence: he had circulated policy documents encouraging compliance, he visited the plant once or twice a year but was not shown to have been personally aware of a problem, but when made aware of other problems had responded promptly. He was entitled to rely on the appointment of an experienced manager. However, Mr Marchant and Mr Weston were found not have exercised due diligence. Mr Marchant had been notified about the problem of leaking storage barrels, but had taken no further steps to chase up the problem. Similarly, Mr Weston on the site knew of the issue, had authorised some quotes for the clean-up, but was slow to take action when the quotes seemed expensive. The issue of “due diligence” under the OHS Act 1983 itself was considered by Maidment J in Coster.77 Mr Coster was a director of a company engaged to install a skylight in a shopping centre. He was charged in relation to an incident during the construction process when a piece of steel fell from the skylight to the atrium 3 floors below. The steel struck no-one, but a prosecution was brought in relation to the creation
76 Bata, above, n 75 at 429. 77 WorkCover Authority of NSW (Insp Dowling) v Barry John Coster [1997] NSWIRComm 154 [Case A6]. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 196 of a risk to safety under s 17 of the 1983 Act.78 After a careful examination of the conflicting testimony of witnesses as to the occurrence of the event, Maidment J ruled that no s 17 offence by the company had been proven. However, his Honour went on to rule that in any case Mr Coster would have been able to establish a defence of “due diligence”. Factors that demonstrated due diligence were: (a) Mr Coster was in charge of some 1000 employees and so could not personally attend to safety in every area. “He was at the peak of a hierarchical system which was responsible to ensure the safety of the project and, as such, had to rely upon the activities of others.” (b) Nevertheless, he behaved with due diligence in that he (i) quickly responded to concerns raised about safety by those under him; (ii) “was an active and receptive participant in the affairs of the site safety committee”; (iii) “had [appointed] full time safety personnel of whom he required vigilance”; (iv) “took it upon himself to inspect the fencing from time to time to ensure its adequacy”.
At one stage a WorkCover Inspector had made some recommendations which Mr Coster promptly complied with. His Honour concluded the discussion by noting:
I should add that there is no statutory requirement for the director of a corporation which is involved in the construction industry to possess any qualifications or expertise in the construction industry let alone in safe working procedures. Such a director is entitled to rely upon the expertise of others including WCA inspectors.79
In short, the fact that Mr Coster had set up procedures for safety to be monitored
78 The equivalent to s 10 of the 2000 Act. 79 Above, n 77. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 197 and ensured compliance with those procedures, had devoted company resources to the issue, responded quickly to complaints which were brought to his attention, and demonstrated a personal commitment to safety by involvement in a safety committee and occasionally doing a personal inspection, all added up to “due diligence”.
(iv) Considerations in sentencing under s 26 What factors should the court take into account in sentencing a company officer convicted under s 26? The comments of Wright J, President of the Commission, in Page v Walco Hoist Rentals Pty Ltd (No 2)80 provide guidance concerning the appropriate penalty where a manager is charged with a s 26 offence. The case involved the prosecution of the manager of a smallish firm involved in supply of equipment to a construction site. An employee of the firm had been injured while assisting with the installation of equipment. Mr Barber, the manager, had previously instructed that the installation not proceed until he arrived at the site. The worker was killed while Mr Barber was in transit.81 Wright J took the view in sentencing Mr Barber under s 50 of the 1983 Act that, despite the fact that the accused’s liability was based on the company’s liability, the accused’s degree of culpability was not necessarily to be equated with that of the company.82 His Honour went on to say that an assessment of the culpability of a manager would involve consideration of 1) the role of the defendant in the management of the corporation; 2) the gravity of the offence committed by the company, and
80 [2000] NSWIRComm 39; B1. 81 While Mr Barber was not in fact a director of the company, the comments of the court in relation to sentence seem to be equally applicable to both directors and other officers. 82 His Honour commented at para [29]: “I consider that, notwithstanding the deeming nature of s 50(1) of the Act in relation to a person such as the second defendant, it does not follow from the fact that an individual is, in circumstances such as those here present, deemed to be guilty of the offences resulting from the guilt of the corporate defendant, that his degree of culpability is to be assessed necessarily at the same level as the culpability of the corporation.” Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 198
3) the role played in that offence by the manager.83 In this case, while the manager played a key role in the company, it was a company that was primarily under the control of another highly experienced manager who was the main director. Matters of general policy were not primarily the responsibility of Mr Barber, and in particular the system of work that primarily led to the fatality was not his responsibility. This approach requires the court to consider, where there is a finding of guilty, the degree of control able to be exercised by the specific officer. Other recent decisions where similar considerations have been applied include R & D Enterprises84 and Berrima Coal.85 In both those decisions the court ruled that, while the company officer concerned was guilty, it was appropriate to enter no conviction in accordance with s 10 of the Crimes (Sentencing Procedure) Act 1999. In Berrima Coal this decision was made taking into account the personal situation of the accused as well as the higher degree of culpability of the company.86 In R & D Enterprises the decision was made because the court accepted evidence that a $30,000 fine which was being imposed on the company would largely have to be met out of the director’s personal resources.87 Prosecutions under the UK legislation seem to deal with similar matters, although of course they reveal an increase in the quantum of fines over the years. One of the earliest available UK cases on penalty under s 37 of the UK Health and Safety at Work Act 1974 was Briggs Amasco Ltd & Charles Bruce Lenaghan v Smith (Procurator Fiscal, Edinburgh)88 in the Scottish High Court of Justiciary. Mr Lenaghan was described as a “departmental manager” of the roofing contractors Briggs Amasco, and the company was found guilty of a breach of the HSW Act for a failure to provide proper safety fencing around a roof where work was being done. Lenaghan had
83 Above, n 80 at para [39]. 84 WorkCover Authority of New South Wales (Inspector Dall) v R & D Enterprises (Newcastle) Pty Ltd [2001] NSWIRComm 329; A7. 85 Department of Mineral Resources (Chief Inspector McKensey) v Berrima Coal Pty Ltd [2001] NSWIRComm 130; B2. 86 See the discussion at paras [181]-[203] of the judgement, at n 85 above. 87 Discussion at para [20] of the judgement, at n 84 above. 88 1981 SCCR 274 (22 October 1981). Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 199 happened to visit the site and was told of the problem by some of the employees; however, he was not the on-site supervisor. Despite this he attempted over the weekend to find some fencing but was unable to. He did not order work to stop until the safety fencing was found. The company was initially fined the (fairly derisory) maximum amount of £1000, on the basis of 10 previous convictions, and the director an amount of £500. On appeal the High Court of Justiciary (Emslie LJG, Avonside & Jauncey LJJ) reduced the company’s penalty to £500, and the director’s to £100, holding that while he was culpable in not ordering work to stop, the men concerned also knew that the work was unsafe, and safety on the site was not his primary responsibility. The case obviously turns on its particular facts, including the fact that there was no actual injury suffered by anyone. However, it illustrates the concern mentioned above to place the director’s culpability in the context of other decision-makers in the company. R v Ceri Davies89 was also a prosecution under s 37. Mr Davies was the managing director of a company, GTS Fabrications, which operated cooling towers in which bacteria were present. An employee died as a result of contracting Legionnaires’ Disease. The company had engaged a contractor to check the quality of water in the towers; the contractor had issued regular reports which turned out to be inaccurate and the contractor was itself heavily fined. However, there seems to have been a suggestion that GTS had deliberately adopted a fairly inefficient method of cleaning out the towers which saved money but left bacteria present. Mr Davies, in pleading guilty to the s 37 charge of “neglect”, conceded that he should have provided more training to his safety officer who had allowed the ineffective cleaning regime to continue. The Court of Appeal reduced the fine which had been initially imposed on Mr Davies from £25,000 to £15,000. R v Rollco Screw and Rivet Co Ltd90 has already been mentioned on the issue of allocation of penalty between the company and the manager. Asbestos from a factory roof was disposed of by contractors by being put into garbage bags and dumped around Birmingham. The two officers concerned were Mr Bernard Rose, who had been
89 [1999] 2 Cr App R (S) 356. 90 [1999] 2 Cr App R (S) 436. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 200 company director previously and was at the time of the offence the company secretary (although still exercising a high degree of influence over management decisions), and his son Mr Philip Rose, who had taken over as director from his father. Both officers were fined £10,000 under s 37, on the basis of “neglect”, in that both should have known that the quotes received for disposal of asbestos were far too low, that the contractors engaged were unlicensed, and hence that it was likely that proper procedures would not be followed. Finally, while there is something of a trend in the above cases towards sympathy for a director convicted under the relevant provisions on the basis of the company’s liability, it is suggested that the courts need to be careful not to “water down” the effect of the provisions. The recent decision of Finkelstein J in the Federal Court in a trade practices matter provides a useful correction here. In ACCC v ABB Transmission & Distribution Ltd (No 2)91 his Honour was sentencing directors who were at the highest level in companies which had engaged in deliberate anti-competitive behaviour and had been found guilty. The directors had been convicted as being “knowingly concerned” in the corporate contraventions. With appropriate replacement of reference to “antitrust violations” to “OHS violations”, his Honour’s comments seem directly applicable to the sentencing of a company officer whose lack of due diligence has led to a workplace injury or death:
Generally the corporate agent is a top executive, who has an unblemished reputation, and in all other respects is a pillar of the community. These people often do not see antitrust violations as law breaking, and certainly not conduct that involves moral turpitude, an attitude that is prevalent in relation to many so-called white collar crimes. There are, however, important matters of which the sentencing judge should not lose sight. The first is the gravity of an antitrust contravention... Secondly, there is a great danger of allowing too great an emphasis to be placed on the "respectability" of the offender and insufficient attention being given to the character of the offence. It is easy to forget that these individuals have a clear option whether or not to engage in unlawful activity, and have made their choice to do so. Thirdly, there are limits on how far one can take the "good citizen" plea in mitigation. If one accepts, as I do, that general deterrence is the most
91 [2002] FCA 559. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 201
important element of sentencing antitrust offenders, "the character of the offence, rather than that of the offender [is] the central determinant in the sentencing decision": D Baker and B Reeves, "The Paper Label Sentences: Critiques" 86 Yale L J 619, 622 (1977). While I do not accept, as Baker and Reeves assert, that the individual offender's characteristics are irrelevant, they should be relegated in importance in light of the goal to be achieved; that goal being to deter future contraventions: Blair at 67. The last point, and perhaps the most important, is the need to avoid the erosion of public confidence in the administration of justice that would occur if it is perceived that the law will be applied discriminatorily as regards white collar and blue collar offenders. The court must be vigilant to ensure that there is absolutely no justification for the view, which often finds expression in the popular press, that there is one law for the rich and another for the poor. 92
(v) Section 26 and the privilege against self-incrimination An issue that has generated some concern in this area has been the application of the common law privilege against self-incrimination.93 The issue arises because evidence that tends to show that a company has been guilty of an offence against the 2000 Act, will logically then lead to a possible conviction of a company officer under s 26. Given this fact, can the company officer be required to give such evidence in a prosecution of the company? The general common law privilege against self-incrimination is now effectively found in s 128 of the Evidence Act 1995 of the Commonwealth and NSW.94
Privilege in respect of self-incrimination in other proceedings 128 (1) This section applies if a witness objects to giving particular evidence on the ground that the evidence may tend to prove that the witness: (a) has committed an offence against or arising under an Australian law or a law of a foreign country, or (b) is liable to a civil penalty. (2) Subject to subsection (5), if the court finds that there are reasonable grounds for the objection, the court is not to require the witness to give that particular evidence, and is to inform the witness: (a) that he or she need not give the evidence, and
92 Above, n 91, at para [28]. 93 It is interesting that, as noted below, one of the few reported cases involving the predecessor of s 50, s 147(3) of the Factories Shops and Industries Act 1962 (NSW), also involved the same issue of the privilege against self-incrimination: see Dunne v J Connolly Ltd [1963] AR(NSW) 873. 94 There are minor differences between the provisions in the two jurisdictions which are not relevant for present purposes. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 202
(b) that, if he or she gives the evidence, the court will give a certificate under this section, and (c) of the effect of such a certificate… .
It might perhaps have been argued that the testimony of a company officer which could lead to the conviction of the company, and hence a “deemed contravention” by the officer, would not within the terms of s 128(1)(a) amount to evidence that the witness had “committed an offence against… an Australian law”. But on balance it seems likely that such testimony would relate to “an offence… arising under” such a law, and hence be covered by that provision. Certainly this was the view taken in WorkCover Authority of New South Wales (Inspector Lane) v Australian Winch & Haulage Co Pty Ltd,95 where the Full Bench of the Industrial Relations Commission in Court Session commented that
In the context of the Act, a director or manager of a company would be entitled to claim the privilege against self-incrimination when asked questions about an offence which may have been committed by the company on the ground that it may tend to prove the director or manager had personally committed an offence under s50.96
However, while s 128 would prevent the asking of questions of a witness in court proceedings, it does not govern the question of the admissibility of statements made in pre-trial investigations. Extensive powers to require the answering of questions are given to WorkCover inspectors under the 2000 Act, Part 5, Division 2, including under s 59(e), power to “require any person in or about… premises to answer questions or otherwise furnish information”. Can a company officer refuse to answer such questions on the basis that the result might be his or her conviction under s 26? Section 65 of the Act contains a detailed code on the general admissibility of evidence collected by inspectors, which starts with the proposition that a person may not refuse to answer on the ground of self- incrimination. But s 65(2) qualifies that proposition by requiring that such answers will
95 [2000] NSWIRComm 214 (15 December 2000); earlier proceedings at [2000] NSWIRComm 2 (10 February 2000). 96 Above, n 95, at para [29]. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 203 not be admissible if either a claim of privilege has been made before the answer is provided, or the person has not been warned that such a claim may be made. In Australian Winch & Haulage Co Pty Ltd97 Wright J, President of the Commission, referred a question of law to the Full Bench of the Commission in Court Session on this issue. Australian Winch were being prosecuted under s 15 of the 1983 Act, and at the same time Adam Hemsworth had been charged under former s 50 in relation to the same incident, as a director of the company. One of the issues in the trial concerned whether Mr Hemsworth was interviewed without being properly cautioned as required by former s 31M(2). The result of that, in accordance with the provision, and as confirmed by the decision of the Full Bench in WorkCover Authority of New South Wales v Seccombe,98 would be that any statement he made would be inadmissible in criminal proceedings against him. The prosecution, however, made an application that proceedings against Mr Hemsworth be heard separately, following the conclusion of proceedings against the company. The effect of this would be that in the proceedings against the company Mr Hemsworth’s statement would be admissible against the company. The High Court in Environment Protection Authority v Caltex Refining Co Pty Limited99 held that a corporation could not claim the privilege against self-incrimination, a situation confirmed by s 187 of the Evidence Acts 1995 of the Commonwealth and NSW. The situation was complicated by the fact that some comments had been made in the earlier case of Seccombe100 that where there was a joint trial of company and officer, statements which were inadmissible against the officer could not be admitted against the company. However, subsequent to the Seccombe proceedings, s 31M(3) had been introduced into the Act, which read
(3) Subsection (2) does not prevent the admission in evidence in proceedings against a body corporate of any statement, information, document or evidence obtained pursuant to a requirement under this Division from a person as a competent officer of the body
97 Note 95 above. 98 (1998) 43 NSWLR 390. 99 (1993) 178 CLR 477. 100 Above, n 98. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 204
corporate.
The defendants argued that to allow the evidence of the officer to be admissible against the company would amount to circumventing the important statutory protection against self-incrimination. In particular, if the company were to be convicted, the prosecution argued that they should then simply be able to produce evidence of the fact of that conviction for Mr Hemsworth’s liability under s 50 to be established. As a result the defence claimed that the protection given to Mr Hemsworth under s 31M would be rendered useless.
(1) PROVING THE CONTRAVENTION BY THE COMPANY This last point may be dealt with first. The question here is to do with the way that s 50 functioned where there had been a previous actual conviction recorded against the company.101 Was it sufficient (as in fact was held by the Chief Industrial Magistrate in Inspector Mackintosh v Phillips102) simply to produce formal evidence of the company’s conviction? Or, since s 50 required that the company “contravene” the Act or regulations, was it necessary in a s 50 prosecution to once again litigate the issues of the company’s guilt? It is suggested that the decision of Maidment J in Workcover Authority of NSW v Grigor (No 2)103 has some bearing on the question. In that decision Maidment J refused to hear a s 50 prosecution of a director where the company had been acquitted of the “head” offence. The decision was made on the basis that to allow the s 50 action to proceed would be an abuse of process, as it would involve relitigating issues that had already been decided by the previous hearing. In doing so Maidment J adopted the following words of the High Court in Walton v Gardiner :
proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has
101 Comments in this paragraph relating to former s 50 are equally applicable to current s 26. 102 Unreported, Case No 91/491, 5 May 1992. 103 [1997] NSWIRComm 65. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 205
already been disposed of by earlier proceedings. 104
It might be argued, then, that the converse principle ought to apply in a prosecution where the preliminary issue is whether or not the corporation “contravened” the Act. If there is a decision of a court of competent jurisdiction that the corporation did indeed contravene the Act, it would seem to be an abuse of process to require that issue to be relitigated.105 Whatever force this argument may have, it was not presented to the Full Bench in Australian Winch & Haulage, which concluded on this point that it was not sufficient to simply produce a record of conviction of the company. In doing so the Court pointed out that the requirement for an offence under former s 50 (as under current s 26) was not a “conviction” of the company, but the fact that the company had “contravened” the legislation. Section 178 of the Evidence Act 1995 allows the fact of conviction to be proved by a certificate from a court; but it needs to be read with s 91(1) of that Act, which provides that
Evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding.
Their Honours concluded:
[I]n our view the essential element of an offence under s50 is the contravention of the Act by the corporation not the conviction of the corporation: s50(1). An offence under s50 does not require that a corporation has been proceeded against or convicted: s50(2). As such, the conviction of the corporate defendant is not a fact in issue in proceedings under s50 and therefore the certificate of conviction could not be tendered under s178 of the Evidence Act; s91(1) operates to preclude it.106
104 (1992-1993) 177 CLR 378, per Mason CJ, Deane and Dawson JJ at 392. 105 This argument is presented in full recognition of the fact that the courts are traditionally much more protective of the rights of the accused than the rights of the prosecutor. Nevertheless, it seems equally likely to cast public doubt on the integrity of the judicial process to countenance the court in a prosecution of a director finding that the company had not committed an offence for which it had been convicted, as it would to allow the company’s guilt to be relitigated where it had been acquitted. 106 Australian Winch & Haulage, above, n 95, at para [59]. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 206
With respect to the Full Bench, there may be more to be said on this issue, which unfortunately does not seem to have been commented on by past authority. While s 91 seems to clearly preclude the evidence of a previous conviction “to prove the existence of a fact that was in issue”, the question remains as to what effect should be given to s 178(3) of the Act, which provides that:
(3) A certificate given under this section showing a conviction, acquittal, sentence or order is also evidence of the particular offence or matter in respect of which the conviction, acquittal, sentence or order was had, passed or made, if stated in the certificate.
It seems arguable that a certificate of conviction of a company of an offence under the OHS Act must at the very least amount to “evidence of the particular offence… in respect of which the conviction… was … made”. Such a certificate must be evidence that the company has “contravened” the Act. On this view, while s 91 would preclude a previous conviction being used as evidence of particular “elements” of an offence (intent, say), it cannot be intended to preclude the conviction being used as evidence of the very thing for which the conviction stands, that the accused was guilty of the offence and has contravened the law. The relationship between s 178(3) and s 91(1) seems unclear, but this view would at least allow them both to play a part in a coherent piece of legislation.107
(2) COULD EVIDENCE INADMISSIBLE AGAINST THE OFFICER BE
ADMITTED AGAINST THE COMPANY? As to the more fundamental issue, whether evidence which is inadmissible against an officer should be admissible against the company in a joint trial, the Full Bench concluded that it should be admissible, and that there could be a joint trial of both company and officer. In such a trial, of course, the finder of fact (who would mostly be a judge, and not a jury) would need to carefully distinguish between the two
107 It should be noted, however, that the Full Courts’ view is supported by A Palmer, Principles of Evidence (Cavendish: Sydney, 1998) at p 195. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 207 defendants and the evidence which was admissible against the separate defendants. In coming to this view the Full Bench took into account comments to the contrary made in Seccombe, but decided that the introduction into the legislation of s 31M(3) made it clear that the legislature intended to allow the evidence of an officer to be admissible against the company even if not admissible against the officer.
The provisions of s31M(3) make clear on their face that, as a matter of general application, a statement otherwise inadmissible against an individual person will not be inadmissible against a corporate defendant in a joint trial. To find otherwise would be to render s31M(3) nugatory. The question then arises as to whether some other rule or principle may be identified which would have the effect of otherwise excluding the admission of a statement made by an individual officer of a corporation (which is inadmissible against that person) against the corporation in a joint trial. We find no such principle or rule stated in WorkCover Authority v Seccombe or in the common law. None has been pointed to by the prosecutor or the defendant. In our view, the question of admissibility should be determined in accordance with the ordinary rules of evidence.108 [emphasis added]
In light of this finding, however, it seems odd that a provision corresponding to s 31M(3) of the 1983 Act has not found its way into the 2000 Act. Section 65 of that Act now deals with the issue of “Protection from Incrimination” and parallels fairly closely former s 31M, with the notable exception of sub-section (3). An explanation may perhaps be found in the timing of relevant court decisions and the introduction of the 2000 Act. The proceedings in Seccombe dealt with an interview which had taken place in 1995, and the decision of a trial judge (made on 2 September 1996) not to admit certain evidence. A new version of s 31M, including the crucial s 31M(3), commenced on 12 January 1997.109 As noted by the Full Court in Australian Winch & Haulage, Marks J considered s 31M(3) in WorkCover Authority of NSW (Insp Mackenzie) v Filrose Pty Ltd110 in 1999, and in that decision his Honour concluded that s 31M(3) was probably not necessary, in that it simply reflected the
108 Above, n 95 at para [42]. 109 Having been inserted by the WorkCover Legislation Amendment Act 1996 (NSW), Sched 2.5[5]. 110 [1999] NSWIRComm 390. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 208 common law.111 It may well be, then, that those drafting the 2000 Act took the view that the provision could be safely omitted. Unfortunately the Full Bench decision in Australian Winch & Haulage, handed down on 15 December 2000, took a different view, expressly disagreeing with Marks J in Filrose and holding that s 31M(3) made a real difference in their decision.112 Note that s 65 does not precisely replicate the former s 31M. In particular under s 65(2) the exemption from the primary rule of admissibility is given now to “a natural person”, and refers to admissibility in evidence “against the person”. This makes it clear that a company may not claim the benefit of the provision.113 But it still does not seem to resolve the issue of whether a director or manager could be required to give evidence against the company where that evidence would be inadmissible against the officer. On the basis of the reasoning in the Full Bench decision in Australian Winch & Haulage, in the absence of a provision like s 31M(3) there must be some doubt as to whether in a joint trial evidence obtained pursuant to pre-trial investigations which is inadmissible against a company officer can be admitted against the company. Given the wide reach of s 26 (covering not only directors but others “concerned in management”, as discussed below), this has the potential to hamper prosecutions against companies. This will be especially so where it is alleged that a failure to ensure health and safety in the workplace stems not from “shop-floor” accidents but from some sort of systemic management failure. Evidence of an unguarded machine, for example, can clearly be taken from employees. But evidence that management failed to consider safety issues over a period of time, for example, may sometimes require testimony and
111 See the discussion in Australian Winch & Haulage, above, n 95, at paras [34]-[38], esp para [35]. 112 See above, n 95, esp para [36]: “In his Honour’s [ie Marks J in Filrose] view, the insertion of subsection (3) into s 31M may have had little or no impact upon the relevant principles. We do not agree; it represents statutory intervention in a particular context…” 113 Indeed, it may incidentally put into doubt the previous view that a company could not avail itself of the privilege under former s 31M(2). Despite the fact that at common law a company could not avail itelf of the privilege against self-incrimination, it might have been arguable under the former provision that where a “person” was entitled to argue that certain evidence was not admissible, that included on the ordinary canons of interpretation a company. Subsection 31M(2) was not expressed to operate only where the person concerned could have made a claim of privilege at common law. However, the decision in Australian Winch & Haulage seems to have assumed that the privilege was not available to a company, perhaps taking the view that given the common law context the word “person” where appearing in s 31M should be restricted to Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 209 documents from those who would be potential accused persons. The problem should not be overstated; the scheme of the Act means that where there is an obvious risk to health and safety then prima facie an offence has been committed- it is then up to company officers to produce management documents by way of defence, and once they do this then such evidence obviously becomes admissible. Still, there may be occasions where the fact of a “risk” is itself only within the knowledge of management. One example might be “Legionnaire’s disease” in a water tower. In that case it will be highly desirable that a management representative can be required to provide documents to an investigator and the company then not be able to claim the privilege. As this study has attempted to demonstrate, cases of systemic management failure are precisely the sort of cases where more prosecution activity is required. It would seem to be highly desirable that the 2000 Act be amended at an early stage to restore to s 65 a provision equivalent to the former s 31M(3), which seems to have been omitted by error. This will at least enable evidence obtained in investigations from officers to be used in “management failure” prosecutions of companies.
(vi) Where there is a requirement to prove “Connivance” etc As noted previously, the Victorian, Western Australian and Northern Territory equivalents to s 26 require, as part of the offence, proof that the officer concerned “consented” to or “connived” at the company’s offence, or brought it about by “neglect”. Some insight as to what these provisions require may be gained by considering a decision under the similarly worded UK provision, the Scottish decision of the High Court of Justiciary in Wotherspoon v HM Advocate.114 Wotherspoon was the director of Singer Co (UK) Ltd, and was charged in relation to a failure to fence some machinery in the factory. He was convicted by the jury of “neglect” under s 37 of the Health and Safety at Work Act 1974. Emslie LJG made the following points in his judgement on behalf of the Court about the use of the
individuals. The current provision makes the matter quite clear. 114 1978 JC 74; 19 May 1978 (Emslie LJG, Cameron & Johnston LJJ). Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 210 word “neglect” in s 37: 1) the word presupposes some duty which the person concerned has failed to carry out; 2) “the section as a whole is concerned primarily to provide a penal sanction against those persons charged with functions of management who can be shown to have been responsible for the commission of a relevant offence by… a body corporate”; 3) accordingly, a finding of “neglect” cannot be made without identification of a failure to take steps which the accused’s position within the company required him or her to take. 4) Issue of the knowledge of the accused of the need for action, or whether the accused should have been aware of the need, will be relevant. 5) Where the Act refers to the need for the company offence to be “attributable to” the officer’s neglect, this does not mean that the neglect must be the sole cause of the offence: “in our opinion any degree of attributability will suffice”. In the circumstances the Court found that these issues were properly put to the jury by the Sheriff Principal, who had directed their attention to matters such as the extent of knowledge of the director (who was the overall managing director) about the state of the machines. However, the Court did note that in future cases a more extensive charge to the jury about these matters would be appropriate, and in particular commented that
The more junior the officer charged and the more limited his role in the company’s affairs the greater will be the need to emphasise to the jury the importance of the scope of the proper functions of the accused in any consideration of alleged neglect on his part for the purposes of s 37.115
The case seems to illustrate the benefits of the “NSW-style” provision (making issues of personal culpability a matter of defence, rather than in the statement of the
115 Above, n 114. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 211 offence itself) as opposed to those provisions which require proof of “neglect” as a threshold issue, requiring complex evidence to be produced as to the role of the specific officer at the particular time. An earlier case illustrating this problem is Huckerby v Elliott.116 This was a decision of the UK Queen’s Bench Division on appeal from a magistrate’s conviction of a company director for allowing premises to be used for gambling without a licence. The evidence showed that the particular director took no real interest in the running of the company and left the obtaining of licences to other directors. She was convicted under a provision analagous to the ones being considered here, on the basis that the failure to obtain the licence was attributable to her “neglect”. On appeal the conviction was overturned, Lord Parker CJ for the court ruling that not every director had a duty to closely supervise the operation of the company. His Lordship specifically followed the decision of Romer J in Re City Equitable Fire Insurance Co Ltd.117 This case is familiar in the area of company law as stating the former standard of care required of directors, but if not actually yet overruled it should probably now be regarded as having been “overtaken” by a much higher standard of care.118 Accordingly, it may be that Huckerby would be decided differently today. (vii) Application of the term “director” to government and quasi- government instrumentalities Finally on the question of the liability of directors, an important unresolved issue is the application of s 26 to managers and others involved in government and “quasi-governmental” instrumentalities.119 It is clear that the OHS Act 2000 applies to the Crown and its emanations- s 118 says so directly, as did s 6 of the 1983 Act, and a number of important prosecutions under that Act were prosecutions of Government departments. One example was
116 [1970] 1 All ER 189. 117 [1925] Ch 407. 118 For a recent overview of a director’s duty of care, see the summary offered by Santow J in ASIC v Adler [2002] NSWSC 171, at para [372], referring to Daniels t/as Deloitte Haskins & Sells v AWA Ltd (1995) 37 NSWLR 438 and other recent decisions establishing that “directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company” (Daniels at 664). 119 This is a valuable point raised by one of the markers of this thesis. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 212
WorkCover v The Crown in the Right of the State of NSW (Police Services of NSW)120, where Hungerford J also held that as a “corporation sole” the Crown in right of NSW was a “body corporate” for the purposes of s 187 of the Evidence Act 1995 (NSW) and hence could not claim the privilege against self-incrimination. Thus it seems clear that when in s 26 the word “corporation” is used, this includes the Crown and probably the various Government departments. If there were any further doubt this seems to be removed by sub-section 26(4), which specifically deals with “a corporation which is a local council”, and exempts elected members of the Council from liability under the section in relation to breaches of the Act by the Council. Other “public” bodies are also covered by the 2000 Act. Universities, for example, are often constituted as a “body corporate”.121 Universities have been prosecuted under the 1983 Act.122 In Quickenden v O'Connor, Lee J in the Federal Court had to decided whether the University of Western Australia was a “trading or financial corporation” for the purposes of s.51(xx) of the Commonwealth Constitution and thus able to be regulated by certain provisions of the Workplace Relations Act 1996 which relied on the corporations power. On the threshold issue of whether the University was a “corporation” or not his Honour simply noted that:
The University is a body corporate established under s 6 of the University of Western Australia Act 1911 (WA).123
If a University is a corporation, then, does it have “directors”? Under s.8 of the University of Newcastle Act 1989 (NSW), for example, the University has a “Council”. None of the members of the Council are specifically called directors. It may be that if necessary a court would find that members of the University Council were “directors”
120 [2000] NSWIRC 234. 121 See, for example, the University of Newcastle Act 1989, s 5. 122 See WorkCover Authority of NSW (Insp. Kelsey) v The University of Sydney [1997] NSWIRComm 44; Workcover Authority of New South Wales (Insp Robins) v. University of Western Sydney [1997] NSWIRComm 124. 123 [1999] FCA 1257, at [12]. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 213 as being in a position closely analogous to that of company directors. But resolution of this point may not be necessary. This is because s 26, as noted below, extends also to anyone “concerned in the management of the corporation”. This would seem clearly include members of the Council (which, under s 8(2) of the University of Newcast;e Act is the “governing authority” of the University) and the Vice-Chancellor (who, under s 12(3) of that Act, is the “principal executive officer” of the the University). The interesting legal and policy questions which are raised by the personal liability of managers in Government Departments (particularly in light of their responsibility to implement Government policy of the day), Universities, and other quasi-governmental bodies, are matter which warrant further detailed exploration.
(c) Other officers: the meaning of “concerned in the management of” A significant issue in prosecutions under former s 50 of the OHS Act 1983 and s 26 of the 2000 Act, which also arises in other jurisdictions where non-directorial officers are included in the legislation,124 is the extent to which those who are not formally directors are caught by the phrase “concerned in the management of” the corporation. The McCallum Report commented:
The most common criticism received by the Panel in relation to the operation of s 50 was that there was no guidance on what is meant by the term ‘a person concerned in the management of the organisation’. The lack of clarity as to which persons are ‘concerned in the management of a corporation’ was seen as a source of uncertainty and anxiety. Are persons ‘concerned in the management’ a narrow category who have to be sufficiently identified with the ‘corporate mind’ of the company, or is the term broad enough to capture plant managers, production/maintenance managers and supervisors? It appears that the provision has the capacity to apply to a number of persons.125
124 That is, as noted above, Qld, Vic and the NT; arguably the matter may also come up under the SA and WA legislation. 125 Final Report of the Panel of Review of the Occupational Health and Safety Act 1983 (February 1997), at 86. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 214
Section 26 provides, as noted previously, that in certain circumstances, where a corporation contravenes a provision of the Act, “each director of the corporation, and each person concerned in the management of the corporation”, is taken to be guilty of an offence against the same provision. Assuming for the moment that the word “director” is fairly clear in its meaning, the issue that needs clarification concerns the identity of those other than the formal directors who will be regarded as “concerned in the management of” a corporation so that they may be liable under this section.
(i) Approach to Statutory Interpretation Kirby P (as he then was) in Monier Ltd t/a Reliance Roof Tiles v Szabo126 summarised the approach that should be used by a court in ascertaining the meaning of an otherwise undefined legal phrase. His Honour suggested that the court consider: •any existing cases on the provision; •general rules for construction of statutes, including both common law rules and specific provisions such as the Interpretation Act 1987 (NSW); •provisions of other statutes which use the same phrase and decisions on those provisions; •evidence from the context of the Act and the stated purposes of the Act; •evidence from Parliamentary debates or other extra-legislative sources such as law reform bodies, where these do not contradict the ordinary grammatical meaning of the phrase. An attempt is made in the following discussion to apply these principles to the resolution of the question.
(ii)Analysis
(1) EXISTING CASES As noted previously, very few s 50 prosecutions find their way into the printed reports. Indeed, it is possible that up until the amendment of the section in 1995 to
126 (1992) 28 NSWLR 53, esp at 56C-D. The case also involved an issue raised by workplace injury, dealing with the interpretation of a phrase found in workers compensation legislation. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 215 remove para 50(a) [which provided a defence of “ignorance”] few s 50 prosecutions were brought. However, an article by Evan Smith127 discusses some unreported cases. The review of s 50 cases appearing in the AUSTLII database conducted for the purposes of this study has also revealed other relevant cases. One case referred to by Smith is Inspector Tucknott v Dykes,128 where a “site manager” was convicted under s 50. The Chief Industrial Magistrate is reported as referring to Mr Dykes as a person “at the appropriate level with personal responsibility for the conduct of [the] corporation.” Smith also refers to the case of Inspector Dawson v Waugh,129 where the defendant Mr Waugh was the manager of a sawmill. Examination of the reported judgement of the Full Court in that case130 reveals that the Court assumed rather than addressed the application of s 50 to Mr Waugh. No doubt the facts that Mr Waugh was in a position of authority at the highest level in that particular sawmill, and in the particular case had been personally responsible for designing and building the unsafe conveyor belt involved in the accident, weighed heavily with the Court. Relevant cases identified on AUSTLII and included in category B of the Appendix are: • Grigor (No 1):131 the defendant was a “plant manager”, “responsible for ensuring that all appropriate training, instruction and supervision” was provided to employees. • Menere:132 the defendant was described as “site supervisor”, and had been engaged in signing contract documents.
127 “Prosecutions of Directors and Others under Section 50 of the New South Wales Occupational Health and Safety Act 1983”, in Johnstone, R (ed) New Directions in Occupational Health and Safety Prosecutions: The Individual Liability of Corporate Officers, and Prosecutions for Industrial Manslaughter and related offences (Melbourne: Centre for Employment and Industrial Relations Law, 1996) 10-12. 128 (CIM, unrep, 16 March 1994). 129 (NSW Ind Ct, FC, 17 Feb 1995). 130 (1995) 59 IR 89. 131 [1995] NSWIRC 226; B3. 132 [1997] NSWIRComm 132; B7. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 216
• McCabe:133 Mr McCabe senior had retired as director of the company but was working as the company secretary. This does not, of course, necessarily mean that all company secretaries will be caught, as Mr McCabe was also actively supervising workers on the site. • Barber (Page v Walco Hoist Rentals Pty Ltd (No 2)):134 the defendant was “general manager” of the company; • Bell (Department of Mineral Resources (Chief Inspector McKensey) v Berrima Coal Pty Ltd):135 the defendant was the statutory “manager” of the mine in which the accident occurred, appointed under the Coal Mines Regulation Act 1982 (NSW). While these cases provide practical examples of the application of the phrase “concerned in the management”, none of them offer a reasoned analysis of the concept. Guidance must be sought from the other sources noted above.
(2) GENERAL RULES OF CONSTRUCTION & EXTRINSIC MATERIAL The general approach to construction of statutes in Australia today, of course, is that known as the “purposive” approach. So, in Commissioner of Taxation v Ryan,136 Kirby J sums up the approach in this way:
In the last decade, there have been numerous cases in which members of this Court, referring to the statutory and common law developments, have insisted that the proper approach to the construction of federal legislation is that which advances and does not frustrate or defeat the ascertained purpose of the legislature, to the full extent permitted by the language which the Parliament has chosen.137
In addition, courts are willing today to take into account so called “extrinsic”
133 [1999] NSWIRComm 515; B5. 134 [2000] NSWIRComm 39; B1. 135 [2001] NSWIRComm 130; B2. 136 [2000] HCA 4, at para [82]. 137 See eg Mills v Meeking (1990) 169 CLR 214 at 233, 242-243; Saraswati v The Queen (1991) 172 CLR 1 at 21-23; Corporate Affairs Commission (NSW) v Yuill (1991) 172 CLR 319 at 345-348; Parramore v Duggan (1995) 183 CLR 633 at 651; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; Pyramid Building Society (In liq) v Terry (1997) 189 CLR 176 at 195; Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 111-113. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 217 material which may form a background to legislation, whether Second Reading Speeches, Explanatory Memoranda, or law reform reports.138 The objects of the OHS Act 2000 are clearly spelt out in s 3 of the Act. Section 3 speaks in general terms of “securing” health and safety, and “protecting” persons against risks. There is no doubt that the Act requires a very high standard of care from all workplace participants, but especially from those involved in management. This is signalled by the very presence of s 26, and the legislative history, in the course of which the defence of “ignorance” initially available under former s 50(1)(a) was removed.139 But given all that, it does not seem to be immediately obvious whether imposing a high s 26 duty on any particular level of persons “concerned in management” outside the board of directors would, or would not, further those aims. Should a “line supervisor” should be held liable for a penalty of up to $55,000, rather than the potential liability under s 20 to a $3,300 fine for a breach of that provision? Consideration of the general purposes of the Act does not of itself seem to provide the answer to this question, though it may point in the general direction of imposing liability at a lower, rather than higher level, to “cast the net” as widely as possible. On the other hand, Gunningham and Johnstone warn:
In so far as penalties are sought against individuals, then it is superior rather than subordinate officers of corporations who should be the principal targets. It is unlikely that the OHS management systems and culture of an organization can be reformed without a change in attitude by top management…It is important… to ensure… that individuals (and particularly lower level employees) are not prosecuted for their actions when the real issue is policy or procedures of the company, or that the behaviour of the lower level employee has been induced by an incentive (emanating from the top of the management structure) to behave in an unsafe manner.140
Laufer141 and others have also warned about the dangers of “scapegoating”,
138 See the comments of Kirby J in Commissioner of Taxation v Ryan [2000] HCA 4 at para [80]. 139 See the WorkCover Legislation Amendment Act 1995 (NSW), Sched 2 [35]. 140 N Gunningham & R Johnstone, Regulating Workplace Safety: System and Sanctions (Oxford: OUP, 1999), at 220-221; footnotes omitted. 141 W S Laufer, “Corporate Prosecution, Cooperation and the Trading of Favours” (2002) 87 Iowa L Rev Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 218 where an middle-level manager is “offered up” to regulatory authorities for prosecution to avoid a higher fine being levied on the company. There seem to have been no Parliamentary comments made on the policy behind former s 50 or the current s 26 during the passage of either the 1983 Act or the 2000 Act, nor in the Williams Report which preceded the 1983 Act. In the Robens Report itself142 the issue of the liability of company officers is mentioned very briefly. The Robens Report refers to the need for a more effective safety awareness which “can only be developed by an accumulation of influences and pressures operating at many levels- that of the boardroom, the senior manager, the supervisor, the trade unions, the worker on the shop-floor”,143 without spelling out specific measures. Later the Report comments:
Promotion of safety and health at work is an essential function of good management… The boardroom has the influence, power and resources to take initiatives and to set the pattern… We know of a number of firms where the positive attitudes of the directors and senior managers are reflected in a remarkable degree of safety awareness at all levels throughout the firm. Conversely, if directors and senior managers are unable to find time to take a positive interest in safety and health, it is unrealistic to suppose that this will not adversely affect the attitudes and performance of junior managers, supervisors and employees on the shop floor. If, as we believe, the greatest obstacles to better standards of safety and health at work are indifference and apathy, employers must first look to their own attitudes.144
The comment seems a good summary of the considerations that the authors of the Report had in mind in encouraging attention to safety matters at management level. At paragraph 53 the Report goes on to refer to the need for “clear allocation of responsibilities within the management structure”, recommending that at the board level of each company “direct responsibility for the general oversight of safety and health matters within the firm should be included in the duties of one of the directors”.
643. 142 See n 1, above. 143 Above, n 1, above, para 13 at 2. 144 Robens Report, above, n 142; para 46 at 14-15, emphasis added. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 219
However, it does not push beyond that to argue for criminal responsibility for one board member as opposed to others. The only other comment that was made on the issue comes later in the Report when criminal proceedings are being discussed. The Report makes the following recommendation:
The fact that not only corporate bodies but also individuals such as directors, managers and operatives are liable to prosecution should be spelt out very clearly.145
This is a curiously ambiguous comment. It seems to be supporting a separate liability for directors and managers, but it does so on the basis that they “are” already liable to prosecution and this just needs to be spelled out. The background to the comment seems to lie in the legislation that was in force at the time the Robens Committee reported. In the UK the main statutes were the Factories Act 1961 (itself a consolidation of a number of earlier Acts), and the Offices, Shops and Railway Premises Act 1963.146 A provision imposing liability on directors and officers was to be found in s 155(5) of the 1961 Act,147 which itself seems to have been derived from s 130(5) of the former Factories Act 1937. The note in the Current Year Book statutory volume for 1937 suggests that the provision was an innovation in that Act.148 In NSW s 147(3) of the Factories, Shops and Industries Act 1962 certainly
145 Above, n 142, at para 264. 146 Robens Report, n 142, at para 24. 147 Although now no longer, having been repealed upon commencement of the Health and Safety at Work Act 1974 (UK) by the UK Factories Act 1961 etc (Repeals and Modifications) Regulations 1974 (SI 1974/1941) reg 2(a) Sched 1. 148 “Sub-sections (2) and (5) of this section are new”- at 289 of the 1937 volume. As a matter of interest the effect of the provision seems to have been a matter of confusion as early as its first introduction. The editor of the 1937 volume comments: “As to sub-s (5) the law was formerly in some doubt”; but the cases which he cites as to the issue in doubt are all cases which raise the issue, not of personal liability, but corporate liability. That is, they are cases which raise the question whether the company could be convicted of an offence under the Act; none of them address the issue as to whether a company officer can be held personally liable for the actions of the company. See below for further discussion of confusion in this area between these two issues. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 220 contained (and still contains)149 a closely analogous provision:
(3) Where a person convicted of an offence against this Act or the regulations is a body corporate, every person who at the time of the commission of the offence was a director or officer of the body corporate shall be deemed to have committed the like offence and be liable to the pecuniary penalty or imprisonment provided by this Act or the regulations for such offence accordingly, unless he proves that the offence was committed without his knowledge or that he used all due diligence to prevent the commission of the offence.
As to the history of that provision, Cook J in the Industrial Commission in Court Session, in Dunne v J Connolly Ltd (apparently the only reported case dealing with the provision) commented:
The old Act [ie the Factories and Shops Act 1912] did not contain any provision imposing liability upon a director or officer in respect of an offence committed by the body corporate.150
There seems little doubt that the drafters of the 1962 Act inserted the provision in emulation of the 1937 UK provision. Explicit policy justification for the provision seems difficult to find. Dunne dealt with the provision only indirectly; in a prosecution of the company the officers had refused to answer questions at the trial on the grounds that they might be leaving themselves open to a s 147(3) charge if the company was convicted. The only matter of relevance to the present question is that the Chief Industrial Magistrate at first instance had ruled that “director or officer” included “only such officers of a body corporate as are engaged in its general management and control”.151 The Industrial Commission, however, made no comment on that issue, resolving the case on other grounds. To return to the issue of interpretation in light of the Robens Report: the
149 Although note that since 1 September 2001 the Act is now called the Shops and Industries Act 1962 (NSW), the provisions dealing with safety in factories having been repealed with the commencement of the OHS Act 2000 and the new OHS Regulation 2001. 150 [1963] AR(NSW) 873, at 876. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 221 comments of the Committee in para 46 would suggest that the type of person upon whom obligations ought to be laid is an officer with “the influence, power and resources to take initiatives and to set the pattern” for the company. The Committee’s ongoing reference to Board members and “senior managers” would suggest that someone who did not have such influence, power and resources would not be appropriately caught. Finally, the reports which lay behind the introduction of the 2000 Act commented only briefly on this issue. The McCallum Report, noted above, indicated the uncertainty of s 50 of the 1983 Act and recommended that it be resolved by inserting a new provision to cover “middle managers”.152 The Interim Report of the Standing Committee on Law and Justice, however, disagreed, recommending that no change be made to the current provisions.153
(3) PROVISIONS OF OTHER STATUTES As previously noted provisions analogous to s 50 are to be found in other State legislation in Australia, and in the UK. It is also useful to compare similar phraseology used in companies legislation.
A. Other Australian OHS Legislation There have been very few decisions in other States on the analogous provisions. In Stevenson v Southern Bluefin Farmers Pty Ltd,154 decided under s 61 of the South Australian legislation, the defendant was a director of the company. In Maccarron v Future Engineering And Communication Pty Ltd 155 the person charged under s 55 of the Western Australian legislation was the “managing director” of the company. In Craig Alexander Morrison v Kiwi Electrix Pty Ltd156 the accused was one of two directors of the company which owned a fishing vessel which was capsized by a cyclone. The defendant charged under s 55 in Moltoni v Shepherd157 was also “managing director”.
151 See 888, grounds of appeal. 152 Above, n 125, at 87. 153 Recommendation 5 of the Interim Report (1997), at p 32; adopted without further discussion in the Final Report (1998). 154 [1997] SAIRC 41 (2 September 1997). 155 [1998] WASCA 157 (23 June 1998). 156 [1998] WASCA 203 (6 August 1998). 157 [1999] WASCA 73 (23 June 1999). Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 222
None of these decisions offer guidance on the extent to which “middle management” is covered by the legislation. In the Victorian decision of R v The Mayor, Councillors and Citizens of the City of Dandenong and Noel Bailey 158 the County Court were prepared to find that the City Engineer was sufficiently responsible to be regarded as someone “concerned in the management” of the City for the purposes of s 52 of the Victorian OHS Act 1985.159 In doing so, the judge apparently (the decision is unreported)160 followed the decision in Landeryou v Taylor.161 In that case the meaning of the word “officer” in an industrial context arose, and the court held that the position must carry with it some administrative or executive duties or some substantial degree of responsibility.
B. UK Legislation A couple of decisions in the United Kingdom may offer some assistance. As noted previously, s 37 of the Health and Safety at Work Act 1974 is the provision which corresponds to s 26 of the NSW OHS Act 2000. Armour v J Skeen (Procurator Fiscal, Glasgow),162 a decision of the Scottish High Court of Justiciary, seems to be the only reported UK case on the reach of s 37 itself. Mr Armour was the “Director of Roads” for Strathclyde Council, a public servant and despite his title clearly not a “director” of the corporation in the sense required by s 37. In the course of repainting a bridge one of the Council employees fell to his death because of inadequate scaffolding. Mr Armour was charged as being a “manager, secretary or other similar officer of the body corporate”, who had caused the accident
158 Unrep; County Court of Vic, Stott J, 8.11.91. 159 See Creighton & Rozen, Occupational Health and Safety Law in Victoria (Sydney: Federation Press, 1997), [708]; also mentioned in Whalen, V “The Liability of Individual Officers and Liability for Manslaughter and Related Offences: Three Victorian Cases”, in Johnstone (1996) 13-15, at 14. 160 An aspect of the Dandenong case was considered by the Victorian Court of Criminal Appeal in Director of Public Prosecutions Reference No 1 of 1992 [1992] 2 VR 405, and the facts were summarized there by Marks J. Unfortunately a question to do with corporate liability under the Victorian OHS Act, while raised for the Appeal Court’s decision by the DPP (see question C at 410) was held by their Honours to have not been in issue in the trial and thus not able to be answered by them under the Reference procedure (see Marks J at 415.) 161 (1969) 15 FLR 149. 162 [1977] IRLR 310 (Lord Justice-Clerk Wheatley, Lords Kissen and Robertson); also see (1977) Scots Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 223 by his “neglect”. The neglect alleged was the failure to establish a system whereby the relevant safety inspectors were notified of work involving the need for scaffolding in time for the workplace to be inspected. Wheatley LJ-C, for the court, held that the conviction recorded against Mr Armour was good. He commented:
Each case will depend on its particular facts, and on this issue will turn on the actual part played in the organisation. Having regard to the position of the appellant in the organisation of the council and the duty which was imposed on him in connection with the provision of a general safety policy in respect of the work of his department I have no difficulty in holding that he came within the ambit of persons referred to in s 37(1).163
The “duty” referred to was a directive that the council had issued to the heads of the various departments to formulate a written safety policy. Other UK decisions, based not directly on s 37 but on analogous provisions, provide some guidance. In Registrar of Restrictive Trading Agreements v W H Smith & Son Ltd164 a UK statute dealing with restrictive trade practices gave power for a summons for examination to be issued to any “director, manager, secretary or other officer” of a corporation which was being investigated. The Court of Appeal (Lord Denning MR, Fenton Atkinson & Megaw LJJ) held that the phrase referred only to those who had responsibility for “managing the affairs of the company as a whole”, and hence could not be used to summon local branch managers. In coming to this decision Lord Denning commented on the similarity between the provision in question and one in the Companies Act 1948, and decided that the two ought to be given a similar interpretation.165 His Lordship also referred to the fact that a power of compulsory examination was “contrary to the spirit” of the common law, and hence should be
Law Times 71. 163 At (1977) SLT 74. 164 [1969] 3 All ER 1065. 165 Above, n Error! Bookmark not defined., at 1068-1069; his Lordship adopted the interpretation of the UK Companies Act provision previously given in Gibson v Barton (1875) LR 10 QB 329, noted below. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 224 interpreted narrowly.166 In agreeing, Megaw LJ relied on the specific wording of the provision, which implied that a “manager” must also be an “officer” of the whole corporation.167 In R v Boal168 an assistant manager in a bookshop was held not to come within the category of management covered by the statute involved, which was not the primary UK statute, the Health and Safety at Work etc Act 1974, but the Fire Precautions Act 1971. The phrase used in that Act was “director, manager, secretary or other similar officer”. The Court of Appeal followed an earlier decision on a similar phrase in companies legislation, Gibson v Barton,169 to find that the Act was
intended... to fix with criminal liability only those who are in a position of real authority, the decision-makers within the company who have both the power and responsibility to decide corporate policy and strategy.170
As a result the assistant manager was relieved of responsibility. The case establishs a theme that runs through a number of other decisions: that the meaning of a phrase such as that under consideration may vary according to its particular statutory purpose. The Court distinguished, for example, the previous Court of Appeal decision in In Re a Company 171 where Lord Denning MR had interpreted the word “officer” to mean “anyone in a superior position in a company”. The ground of the distinction was that the provision involved in that case did not impose a criminal penalty, but simply allowed an order to be made for investigation of the company’s affairs.
166 Above, n Error! Bookmark not defined., at 1069D. 167 Above, n Error! Bookmark not defined., at 1071H. This reasoning of course is not applicable to the differently worded s 26 OHS Act 2000 (NSW), which simply refers to “each person concerned in the management of the corporation”. But his Lordship’s comments might be applied to the extent that the management concerned may be thought to be management “of the corporation” as a whole, as opposed to management of a small part of the corporation. 168 [1992] 2 WLR 890. 169 (1875) LR 10 QB 29. 170 The Court, per Simon Brown J at 895F. The UK Law Commission Report, Legislating the Criminal Code: Involuntary Manslaughter (Law Com No 237; London: HMSO, 1996), accepted the principle in this case as applying to s 37(1) of the Health and Safety at Work etc Act 1974 (UK), the equivalent of s 50 of the NSW Act- see para 8.56, n 76. 171 [1980] Ch 138. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 225
Woodhouse v Walsall Metropolitan Borough Council172 was a case decided under the UK Control of Pollution Act 1974. Section 87 of that Act was expressed in terms that were almost identical to s 37 of the HSW Act 1974, imposing a duty on a “manager, secretary or other similar officer” where there was consent, connivance or neglect. Mr Woodhouse was described as a “site manager” for a waste disposal company. The company operated a number of sites. The Queen’s Bench Division (McCowan LJ, Leonard J), citing the Boal case, found that Mr Woodhouse was not a “manager” as he was not “a decision-maker within the company having both the power and responsibility to decide corporate policy and strategy”. With respect, there seems to be some confusion in the decision as to appropriate test to be applied. McCowan LJ refers to a number of passages in Tesco Supermarkets Ltd v Nattrass173 where the House of Lords concluded that Mr Clements, the store manager in that case, was not the “directing mind or will of the company”. But in the Tesco case, of course, that question was being addressed to determine whether or not Mr Clements’ actions were to be regarded as the actions of the company. The question of Mr Clements’ personal liability for the company’s actions was not involved. While it is nowhere directly stated in Woodhouse, the citations in that case from Tesco, and the emphasis on the need for “power and responsibility to decide corporate policy and strategy”, suggest that the focus of the decision in Woodhouse was in the end the “corporate liability” test from Tesco. What should have been addressed, of course, was the different issue as to whether the relevant legislation, s 87 of the Control of Pollution Act 1974 (UK), intended to pick up someone in Mr Woodhouse’s position to impose personal liability in relation to an environmental offence. Mr Woodhouse was described as “General Manager” of the Minworth site of the company involved; he had overall responsibility at that site for “commercial operation… within budgeted parameters for revenue expenditure and profit” and “co-ordinating activities of a management team”. The local justices found that Mr Woodhouse “was in a position to formulate and issue instructions
172 [1994] 1 BCLC 435. 173 [1972] AC 153. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 226 to the site manager and supervisors”, and had “authority to spend money on behalf of the company”. In the circumstances there would seem to be a number of good reasons for including Mr Woodhouse as someone who was a “manager” in terms of legislation designed to prevent pollution. In considering these UK decisions it may be important to take into account the difference in wording in the relevant provisions between Australia and the UK. Describing somebody as a “manager” might go a bit further than simply requiring that they be “concerned in the management”, as the NSW legislation does. This may explain why, so far as can be judged, Australian courts seem to have been willing to push liability a bit further “down the line” than in the UK.
C. Decisions on “concerned in management” in company law It is not really surprising that decisions on the interpretation of “concerned in management” in the occupational health and safety area, both in Australia and the UK, often draw on decisions from the area of company law. In this section these decisions are explored in more detail for the light they may cast on the meaning of the phrase in the OHS area. One significant decision is Commissioner for Corporate Affairs v Bracht174 interpreting a similar phrase in company law, and refusing to hold that it was restricted to “central management”. The provision concerned was s 227(1) of the old Companies (Victoria) Code, prohibiting an insolvent from (amongst other things) being “concerned in... the management of a corporation.”175 The decision of Ormiston J in the Bracht case is instructive for the approach a court might take to s 26 of the NSW OHS Act, especially his Honour’s emphasis on the need to consider the purpose which the provision is designed to serve:
The scope of the specific prohibitions contained in the section must, however, be
174 [1989] VR 821, cited by Creighton & Rozen. 175 The equivalent provision under the Corporations Law initially was s 229, which defined the phrase “manage a corporation” as being “concerned in... the management of” a corporation: see s 229(3A) and s 91A(2). For the currently relevant provision see the discussion of s 206A of the Corporations Act 2001 (Cth), below. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 227
ascertained by a consideration of the language used and the purpose it is designed to serve.176
In that case, which dealt with financial irregularities, his Honour commented:
It may be difficult to draw the line in particular cases, but in my opinion the concept of ‘management’ for present purposes comprehends activities which involve policy and decision making, related to the business affairs of a corporation, affecting the corporation as a whole or a substantial part of the corporation, to the extent that the consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs… 177
It may be that the substitution of a reference to “health and safety issues” in that quotation for the references to “business affairs” and “financial standing” would provide a good guide to the meaning of the reference to “management” in s 26 of the NSW Occupational Health and Safety Act 2000. This would seem to justify further exploration of discussion of the phrase in company law contexts. Before doing so, however, it should be noted that the current equivalent to the provision being considered in Bracht is now s 206A of the Corporations Act 2001, which no longer uses the phrase “concerned in the management”, but spells out in some detail what it is that a disqualified director is prohibited from doing.
206A Disqualified person not to manage corporations
(1) A person who is disqualified from managing corporations under this Part commits an offence if: (a) they make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (b) they exercise the capacity to affect significantly the corporation’s financial standing; or…
The terms of the current provision seem to closely reflect the judgement of Ormiston J in Bracht, suggesting that his Honour’s descriptions of what it is to be
176 Above, n Error! Bookmark not defined. at 827. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 228
“concerned in management” reflect at least the Commonwealth Parliament’s views. Decisions on the concept of being “concerned in the management of” a company for the purposes of company law tend to fall into two main areas. One is the prohibition under former s 229 (or its equivalent) on someone who is an insolvent being “concerned in the management” of a company in future. In that case the issue is what sort of role for the future the person should be allowed to play. The other area contains cases on s 592 of the Corporations Act (or its equivalent, former s 556 of the Companies Code). That provision imposes a criminal and civil liability on someone who “took part in the management of” a company, and who allowed the company to trade while insolvent.
(i) Future Prohibition on an insolvent etc being “concerned in management” of a company There are a number of cases dealing with former s 229 or its equivalent.178 A helpful recent decision is Griggs v ASC, 179 where Bleby J in the South Australian Supreme Court referred to the UK case of R v Campbell180 and to Bracht. His Honour commented that “taking part in the management” is a narrower concept than taking part in the business generally;181 that management takes place at many levels, and the context shows that it is not restricted to the board of directors, nor necessarily to overall policy matters. However, it must involve some decision- making.182 Different people may undertake different aspects of management,183 and what constitutes management in one company may not in another.184 He also
177 Above, n Error! Bookmark not defined., at 830. 178 See, for example, Re Zion (Unrep; Federal Court of Australia, Smithers J; 26 September 1986, at paras [69], [70]); Cullen v Corporate Affairs Commission (1988) 7 ACLC 117, at 126; Conway v Inspector General in Bankruptcy (Unrep; AAT, General Administrative Divn: BM Forrest, DP & DL Elsum; 21 November 1996, at para [33]). 179 [1999] SASC 405. 180 (1984) 78 Cr App R 95; see discussion below. 181 Above, n 179, at para [39]. 182 Above, n 179, at para [41]. 183 Above, n 179, at para [42]. 184 Above, n 179, at para [46]. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 229 commented:
As Ormiston J recognised in Bracht, one of the variable factors will relate to the size of the company. The engagement of and negotiation with subcontractors according to pre-determined guidelines or subject to ratification by another in a large construction company, with many administrative employees, may well not constitute an act of management of such a company. However, for a company which is operated by one or two people, performing only the construction of residential dwellings, such engagement and negotiation completed on behalf of the company will have a much greater influence on the success or failure of the company, and may well constitute management of the company.185
His Honour went on to say that the activities of the company would also be relevant. Tasks performed as one part of a series of wide-ranging activities might not amount to management in one company, whereas if the tasks carried out were the sole activity of the company then they may amount to “management”.186 Other indicators would be where the person fits into the company “hierarchy”, and in some cases the level of remuneration.187 In the circumstances he concluded:
Taking all these factors into account, I consider that it was open to the Magistrate to conclude that the appellant was, during the disputed period, concerned in and took part in the management of the corporation. The level of responsibility which the appellant exercised through his various activities involved aspects of policy and decision making which, by virtue of the size and nature of the activities of the corporation, related to its business affairs and affected the welfare of the corporation as a whole. They had a not insignificant bearing on its financial standing and on the conduct of its affairs. His level of remuneration indicated a shared responsibility with the other two men involved, and that was reflected also in Mr Lomman’s evidence.188
In short, the judgement provides an excellent list of matters to be considered in
185 Above, n 179, at para [46]. 186 Above, n 179, at para [47]. 187 Above, n 179, at paras [48]-[49]. 188 Above, n 179, at para [50]. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 230 determining whether someone is “concerned in management” in any particular case.189
Similar provisions to Australian s 229 and equivalents are to be found in UK company law.190 In R v Campbell191 the Court of Appeal (Criminal Division) upheld the decision of a trial judge to convict the accused (who had been disqualified from “taking part in the management of a company”). The accused’s activities included acting as a “management consultant” for a company, and evidence was led that his advice had always been followed, he had conducted negotiations with banks, and generally been “in charge” of what was happening. The Court of Appeal held that he had clearly been “concerned in management”. Re Clasper Group Services Ltd192 was a decision of Warner J in the Chancery Division on s 212 of the Insolvency Act 1986 (UK), which required someone who had been “concerned in the management” of a company and had misapplied funds, to repay them to creditors on insolvency. Michael Clasper was the 17-year-old son of the director who had been taken on as a “management trainee”. However, at the time of the payment in question the judge held that he was little more than an “office boy and messenger”. As a result his position with the company was “too lowly” for him to be caught by the section. Re Market Wizard Systems (UK) Ltd193 was a decision of Carnwath J in the Chancery Division on s 11 of the Company Directors Disqualification Act 1986 (UK), which prohibits a bankrupt from being “concerned in the … management of” a company. His Honour relied heavily on the decision in Bracht.194 The role of the bankrupt was described by the company as that of “general manager”, and the directors relied heavily on him in making management decisions. He took “direct responsibility
189 See also the comments on this issue by the WA Full Court in Nilant v Shenton [2001] WASCA 421 at paras [17]-[21], citing Bracht and finding that someone who “took the leading role” in obtaining finance and new business for a struggling company had been appropriately found by the trial judge to be “concerned in the management” of the company for the purposes of former s 229. 190 For an overview of these provisions see S Griffin, Personal Liability and Disqualification of Company Directors (Oxford: Hart, 1999). 191 (1984) 78 Cr App R 95, [1984] BCLC 83. 192 [1989] BCLC 143. 193 [1998] 2 BCLC 282. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 231 in relation to an aspect of the business which was critical to the ‘probity of the corporation’s administration’”.195 Not surprisingly he was found to be concerned in the management of the company.
(ii) Liability for insolvent trading imposed on someone “concerned in management” As noted above, the other area in company law where the concept of someone being “concerned in management” has had to be considered is in s 592 of the Corporations Law, and equivalents, which impose personal liability for allowing insolvent trading. A preliminary question is whether decisions on the scope of “concerned in the management” under s 229 are directly relevant to the meaning of the phrase “took part in the management” in s 592. The answer to this question will have implications for the issue as to whether judicial comments on the phrases are applicable to other legislation, such as the Occupational Health and Safety Act. The question is not simply about the verbal differences between the phrases, which generally have been treated as equivalent. The issue is whether the two provisions have such different purposes that cases on one section can be used to interpret the other. Burchett J made the point in this way in Holpitt Pty Ltd v Swaab:
I do not think that a case such as Commissioner for Corporate Affairs (Vic.) v Bracht (1988) 14 ACLR 728 can determine the meaning of s 556. That case was concerned with a provision excluding a bankrupt from being "concerned in ... the management" of a company. It is obvious that such a provision must be given a fairly wide scope if those affected by the way in which companies are managed are to be given the protection the provision is designed to give them. But a similarly wide understanding of s 556 would simply have the effect of rendering persons, who had no control of decisions which were taken, liable personally to meet the debts of an insolvent company - to the benefit of its creditors, no doubt, but without there being any particular reason why the person concerned
194 See paras [62] ff of the judgement. 195 At para [71], quoting the words of Ormiston J in Bracht. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 232
should have to meet those debts. 196
His Honour seems to be suggesting that the range of management activities which are forbidden to an insolvent (say) under s 229 might be wider than the range of activities which ought to be regarded as fixing personal liability on a company officer for company debts under s 592. In other words, that it ought to be harder to establish that someone “took part in management” under s 592, than that the activities which someone proposes to engage in, in the future, amount to being “concerned in management”.197 With respect, however, the argument for differential treatment is not very convincing. True, s 229 “looked to the future”. But the question whether someone was “concerned in management” while insolvent contrary to the provisions of that section would normally have been raised in criminal proceedings relating to past conduct. In those proceedings, a potential penalty of 50 penalty units or imprisonment for one year was at stake.198 No less than under s 592, then, were important matters involved. In any case, it was clear that the company secretary/ solicitor who was charged in Holpitt would not have fallen even within the tests set out in Bracht. He did no more than a company secretary and legal adviser would normally do, and it seems he was not involved in management decisions at any significant level. Burchett J made a number of other points, however, about the general concept of “management” for the purposes of s 592. He stressed the need to pay attention to the context of the provision:
Section 556 is a section which imposes criminal liability, including imprisonment. It would be quite inappropriate to give to the statement of an ingredient of such an offence, "any person who was a director of the company, or took part in the management of the company", some loose meaning ignoring that context. Particularly is this so when the rationale must be that the person whom the section singles out is an offender because of the
196 (1992) 6 ACSR 488, 33 FCR 474, at para [11]; a decision on s 556 of the former Companies Code, the equivalent of s 592. 197 The distinction between the different provisions was also commented on by Bryson J in Omnicon Video Pty Ltd v Kookaburra Productions Pty Ltd (1995) 13 ACLC 1795, BC9501617. 198 See s 1311 and Sched 3 as they previously were. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 233
significance of his role in the company which incurred the debt. If his role is a junior one, giving him no real influence on the decision, or if his role is that of an outside professional, who might advise, but would certainly not be taking the decision, there is no reason to think that the language of the section should be stretched to include him. The only direct guidance, apart from these considerations arising out of the subject matter of the section, is the use of the word "director". An application of the maxim noscitur a sociis would suggest that the other persons embraced by the section are persons whose management role may be likened to that of a director.199
His Honour also referred to the decision of Blackburn J in Gibson v Barton200 dealing with the word “manager”. In Taylor t/a Modulec and G T Darke Beaumont J followed the decision in Holpitt without necessarily holding that the requirement was as strong as Burchett J had suggested. He said:
I am prepared, for the purposes of the present argument, to accept that as a correct statement of principle. Even if it be assumed that it were necessary, in order for the applicants to succeed here, to show that the role of Mr Darke in management may be likened to that of a director, I would so conclude. As I have already indicated Mr Darke was entirely in charge of the construction activities of the company. He had great experience in this area whereas the directors had not, relatively speaking, much experience at all. It is clear to me that the company was run, conducted and managed on the footing that there would be a division of labour and activities along the lines I have indicated. An integral part of the management of Centio's activities fell to be carried out by Mr Darke and by Mr Darke alone. In that sense it may be said, in my view, that his role in management may be likened to that of a director. I bear in mind in this respect the important consideration that this is a small company. 201
In Omnicon Video Pty Ltd v Kookaburra Productions Pty Ltd202 Bryson J held that the director concerned was not liable under s 556:
199 Holpitt, above, n 196, at para [9]. 200 (1875) 10 QB 329, noted previously. 201 (1992) 10 ACLC 1516, at paras [45]-[47]. 202 Above, n 197. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 234
The overall purpose of the subsection and of the involvement of the person who took part in the management of the company point towards management at the highest level, influence over whether debts are incurred and over ability to pay and to a corresponding restriction on the very wide range of conduct to which, within the literal meaning of words, taking part in management can refer. I also see some significance in the words "of the company" as the subject matter of management; it is not the company's business, or any aspect of the business which is referred to but the company itself. While I am conscious of the difficulties pointed out by Ormiston J and also conscious that I am not offering a comprehensive restatement of the words of the statute, I am of the view that what is indicated is taking part in the central management of the affairs of the company, which I distinguish from management of particular activities of a company's trading affairs or of its administrative affairs.203
In the end the company law cases on the meaning of “concerned in the management” point back strongly to the fact that the context of the phrase will be very important. Factors such as the size of the company and the amount of responsibility given to the officer concerned will be significant. Insofar as there is a difference in approach between the cases on s 229 and those on s 592 then it would be likely that a court would prefer the s 592 approach in interpreting s 26 of the OHS Act 2000, given that the consequence of a finding that someone was “concerned in the management” under s 26 would be a criminal penalty. As suggested previously, however, there is probably no effective difference between the two approaches.
D. Environmental legislation Finally, in the search for helpful analogies, it may be noted that environmental protection statutes around Australia and elsewhere make similar provision for personal liability of officers of companies involved in environmental offences, as s 26 does for workplace safety offences.204 Unfortunately these provisions, like those in the occupational health and safety area already discussed, provide little guidance on the meaning of “concerned in the management”.
203 Above, n 197, BC9501617 at 26. 204 See, for NSW, s 10 of the former Environmental Offences and Penalties Act 1989 (NSW); now s 169 Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 235
Baird comments that
The aim of each State or Territory Act is to target those persons involved in management or the decision-making process. Persons carrying out directions as an employee would not fall within the scope of the legislation, however site managers with responsibility for providing advice to management would. 205
Baird offers no authority for her comments, but the focus on decision-making does seem to catch the intent of the legislation. In her discussion of the environmental legislation, neither is Streets able to point to any judicial guidance on the meaning of the phrase “concerned in the management” in those decisions.206 She refers to Holpitt Pty Ltd v Swaab207 for the proposition that “junior” officers would probably not be covered. In the one prosecution that she mentions involving a non-director, the defendant was a “site manager” for a large company, with control over the daily deliveries which had led to the pollution incident involved.208 Smith reviews a number of US authorities on the environmental provisions.209 She notes that there has been a marked tendency on the part of Federal prosecutors in the United States to target corporate managers and directors, and that significant custodial sentences have been handed down as a result of convictions.210 Many of these prosecutions have been based, not on specific legislative provisions, but a judicially created “responsible corporate officer” doctrine, which is seen as having its origin in the US Supreme Court decision in United States v Park.211 She comments:
of the Protection of the Environment Operations Act 1997 (NSW). 205 Baird, RJ “Liability of Directors and Managers for Corporate Environmental Offences- Recent Prosecutions” (1999) 16 Env & Planning Law Jnl 192-195; at 193. 206 See n 43 above. 207 (1992) 6 ACSR 488, discussed above. 208 See Street, “Prosecuting Directors”, n 43 above, at 700, 703. The case concerned was Vasel v Aluminates (Morwell) Pty Ltd (unrep; Moe Magistrates’ Court, Magistrate Dugdale, 10 November 1997). 209 S L Smith, “Doing Time for Environmental Crimes: The United States Approach to Criminal Enforcement of Environmental Laws” (1995) 12 EPLJ 168-182. 210 Smith, n 209, at 168-169. 211 421 US 658 (1975). Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 236
This doctrine allows liability to be imputed to responsible corporate officers for the environmental crimes of subordinate employees, unless the officers prove that they lacked the power and duty to control those employees and that they used due diligence to do so.212
The emphasis on “power and duty to control” here seems again a sensible restriction on prosecution of junior officers who would have been unable to prevent the behaviour.
(4) CONCLUSIONS: THE SCOPE OF “CONCERNED IN THE
MANAGEMENT” Decisions on the UK occupational health and safety provisions which refer to a “manager” seem to require some central, overall, authority. The NSW phrase “concerned in the management” may reach a wider group, but clearly there is need not to penalise those who do not have the authority or resources to deal with safety, and who may end up being a “scapegoat” for managerial failures at a higher level.213 The approach adopted by Ormiston J in the Bracht case referred to above seems to be the most satisfactory, and has been adopted by a number of judges, both in Australia and the UK. This is usefully supplemented by the discussion of Bleby J in Griggs. It is suggested that the following numbered propositions represent an appropriate summary of the law to be applied to the question of who will be liable under s 26 of the 2000 Act as “concerned in the management” of a corporation. (1) The person concerned must probably have some authority to contribute to both “policy” and “operational” decisionmaking: Bracht. (2) The authority (to be relevant for the purposes of the OHS Act 2000) must encompass matters which “have some significant bearing on” or “affect significantly” the health, safety and welfare of people at work, or others who may be put at risk by the activities of persons at work: Bracht, s 206A of the Corporations Act 2001 (by way of
212 Smith, n 209, at 173. 213 As noted previously, that this can become a significant issue once corporate liability is taken more seriously is illustrated by the examples offered in W S Laufer, “Corporate Prosecution, Cooperation and the Trading of Favours” (2002) 87 Iowa Law Rev 643 of “Reverse Whistle- Blowing”, where a corporation to avoid a heavy fine co-operates with prosecutors and “blows Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 237 analogy), and picking up the language of the “Objects” clause for the 2000 Act, s 3(a), (b). (3) The authority must be to make decisions which affect either the whole or a substantial part of the corporation: Bracht. (4) Someone will not be “concerned in the management” of a corporation simply because they are “consulted” on safety issues: Re Zion, Holpitt v Swaab.214 (5) However, someone will not be excluded from the category simply because their decisions are subject to review by a higher level manager: Cullen. (6) Determination of the issue will be affected by matters such as the size of the company. Decision-making on certain issues in a large company with a diverse business may not amount to management, whereas it would amount to such in a smaller company with more limited activities: Griggs. (7) The official “organisation chart” of a company with a description of the management hierarchy will not be conclusive, but may be relevant in determining the issue: Griggs. (8) In light of the comments made in the environmental cases considered above, it is possible that the extent of the power of the person concerned to make decisions having an impact on a particular risk may also be relevant to the question whether or not they would be regarded as “concerned in the management” for the purposes of s 26. On the other hand, it could be argued that as s 26 contains within itself defences of “not in a position to influence” and “used all due diligence”, this matter should be taken into account at that stage rather than in determining the scope of the phrase. In other words, a manager who had attempted to deal with a risk but had been denied funds or authority to do so, might still be regarded as someone prima facie caught by the provision, but able through appropriate evidence to make out the relevant defence. Someone, then, who is “concerned in the management” of the company as far as
the whistle” on one of its employees. 214 This is particularly evident under the 2000 Act, as Division 2 of Part 2 now envisages that an employer will “consult” with all employees on issues affecting safety- see s 13, and ch 3 of the Occupational Health and Safety Regulations 2001, dealing with “Consultation Arrangements”. It would no doubt not be envisaged that simply because employees are now to be “consulted” on safety arrangements, that every employee has now become “concerned in management” for the Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 238 its safety procedures go, who has a major input into “policy and decision making” on safety, should probably be regarded as someone who is caught by s 26. While presumably some sort of overall supervisory role would be necessary, it seems likely that the reach of s 26 will be held to come down to local managers of a wide-spread company. It is likely, though, that it will not extend to those who are simply “line supervisors” in a particular part of a factory or workplace. One thing is clear- the position is still ambiguous. Despite this, the NSW Legislative Council Standing Committee’s Final Report adopted the recommendation of its earlier Interim Report on this issue. This was that no amendment to the Act was necessary to clarify the position of “middle management”.215 As noted previously, the Interim Report made its recommendation against the background of a suggestion made by the McCallum Panel of Review that a new section of the Act should be introduced to impose specific obligations on “junior” managers.216 The Standing Committee agreed that the situation of middle managers as “the meat in the sandwich” between the workforce and senior management was difficult. It accepted submissions that defining what amounted to “middle management” would be difficult, and that there would be a danger that middle managers would be put forward as scapegoats for the failure of overall management systems. It also referred to the fact that decisions of the Industrial Court (as it then was) acknowledged the difference in liability under former s 19 between supervisory employees and others. Despite these valid comments, there may be room for the present provisions to be “fine-tuned” to reflect desirable policy goals. A tighter definition of “concerned in management” could be introduced. In this respect it is worth recalling that s 206A of the Corporations Act 2001 has clarified the nature of the activities that are prohibited under that provision, which were formerly simply classified as “being concerned in the management”. A similar legislative clarification of the scope of the phrase in the OHS Act 2000 may provide more certainty for management and “middle managers” under
purposes of s 26. 215 Final Report (November 1998), para 5.6 Recommendation 1; Interim Report (December 1997), para 4.6.8. 216 See Final Report of the Panel of Review of the Occupational Health and Safety Act 1983 (the Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 239 that legislation.
(d) Defences: the relationship between s 26 and s 28 Finally in this chapter, some comments should be made on some vexing questions created by the relationship between s 28 of the OHS Act 2000 (the general defence provision) and the specific “exculpatory” clauses in s 26(1)(a) and (b). Section 28 provides:
28 Defence It is a defence to any proceedings against a person for an offence against a provision of this Act or the regulations if the person proves that: (a) it was not reasonably practicable for the person to comply with the provision, or (b) the commission of the offence was due to causes over which the person had no control and against the happening of which it was impracticable for the person to make provision.
Along with this general defence provision, there are the specific matters dealt with in s 26. The relevant provisions are set out below again for convenience:
26 Offences by corporations—liability of directors and managers (1) If a corporation contravenes, whether by act or omission, any provision of this Act or the regulations, each director of the corporation, and each person concerned in the management of the corporation, is taken to have contravened the same provision unless the director or person satisfies the court that: (a) he or she was not in a position to influence the conduct of the corporation in relation to its contravention of the provision, or (b) he or she, being in such a position, used all due diligence to prevent the contravention by the corporation. (2) A person may be proceeded against and convicted under a provision pursuant to subsection (1) whether or not the corporation has been proceeded against or been convicted under that provision.
The aim of the “manager-specific” exculpatory paragraphs in s 26 seems reasonably clear. These are the only situations in which a director or manager can avoid responsibility for the actions of their company. Former para 50(1)(a) in the 1983 Act, which previously provided a defence of “ignorance”, was repealed in 1995.217 Since
McCallum Report), at 88. 217 See WorkCover Legislation Amendment Act 1995 (NSW), Sch 2 [35]. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 240 that repeal, it is fairly clear that a director who simply chose to play no part in board meetings, for example, could not thereby claim that they were innocent, because they would not be able to show “due diligence”. In this area it seems reasonably clear that the courts would apply principles similar to those laid down in Morley v Statewide Tobacco Services Ltd,218 and Commonwealth Bank of Australia v Friedrich,219 in relation to claims of “due diligence” under the provisions relating to insolvent trading under the Corporations Law (currently s 588G). Those cases hold that a director cannot avoid personal liability for insolvent trading simply by claiming they left financial matters to other board members.220 More recently, the NSW Court of Appeal in Deputy Commissioner of Taxation v Saunig 221 held that a director on whom was imposed a personal obligation to forward tax paid by employees to a company, could not make out the statutory defence of taking “all reasonable steps to ensure” compliance by virtue of a claim that he did not know the appropriate procedures. The Court held that “reasonable” in this context was an objective test, which could not be avoided by a claim of ignorance of the law or of facts that a reasonable director ought to know. The question remains, however, whether a person who is charged under s 26 should be entitled to take advantage of the general defences under s 28. After all, s 26(2) refers to someone being “proceeded against… under a provision”, and s 28 on its face is expressed to apply to “any proceedings against a person for an offence against a provision of [the] Act”. But it seems to be unclear whether the apparently strict terms of s 26 were meant to be qualified by the general defences under s 28. Could a company officer reintroduce a defence of “ignorance”, say, under the heading of “impracticability” in s 28? It should be noted first of all that to a large extent this is a fairly “academic” question, in the sense that whichever answer is adopted is unlikely to lead to very
218 (1992) 10 ACLC 1233. 219 (1991) 9 ACLC 946. 220 See also, for example, Metropolitan Fire Systems v Miller [1997] 399 FCA for an application of these principles. Of course these provisons have civil rather than criminal consequences, and so may see a less “strict” interpretation offered by the courts. But there seems no doubt that in recent years courts have required a higher standard of care from company officers. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 241 different conclusions. Suppose a director who, to use the above example, claimed that because they never attended board meetings it was not “practicable” for them to comply with provisions requiring safety to be ensured. It is unlikely that a court applying s 28(a) would conclude that it was not “practicable” for the director to obtain information about safety and to otherwise contribute to discussions of the issue in some way. If through some unlikely set of circumstances documents were being withheld from the director, then it is likely that the manager-specific defence of “due diligence” under s 26(1)(b) could be made out. In other words, in most foreseeable situations any general defence that would be likely to succeed under s 28, would already be covered by the manager-specific defences in s 26(1). But for the sake of accuracy in analysis the best view seems to be to say that the Act does not envisage a general s 28 defence being available to a s 26 charge. One way of viewing the relationship between the two sections is this. Section 28 applies to proceedings for an “offence”. The s 26 offence222 contains two elements, but, unusually, only one of them is a matter within the control of the accused. The two elements are (i) that a corporation has contravened a provision of the Act or regulations; and (ii) that at the time the accused was a director or manager of the corporation.223 The s 28 general defences cannot be relevant to the first part of the charge under s 26, because the elements of s 28 involve behaviour for which the accused is responsible (“practicable for the person to comply”, “causes over which the person had no control”). Yet the first part of the charge under s 26 involves behavior by someone else other than the accused- the separate legal entity, the company.224 In considering whether or not the company has been guilty of a contravention of the Act the s 28
221 [2002] NSWCA 390. 222 It will be assumed for the moment that there is such a thing as a “s 26 offence”. See the alternative analysis proffered below for another view. 223 A third “element” to s 26 is, of course, the fact that the accused is not able to make out the defences in s 26(1)(a) or (b). But these are not elements of the offence as such; they are clearly defences, proof of which rests squarely on the accused. 224 In this respect s 26 is similar to s 73E of the Defence Act 1903 (Cth), which was considered by the High Court in Millner v Raith (1942) 66 CLR 1. There Starke J summarised the effect of the section as follows: “The provisions of sec 73E… make a director or person concerned in the management of a body corporate responsible as a principal for any act or fact specified in [other] sections merely because of his relation to the body corporate.” Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 242 general defences will be applied to the company, but they bear no relevance to the director as an individual who is being charged under s 26. Assuming that the first part of s 26 is established by the finding of a contravention against the company, then the only remaining issue at the preliminary stage of a s 26 prosecution is whether or not the accused is a director or manager. In theory, the s 28 general defences might in a very rare case be applicable to this question- that is, one might ask, did the person become a director of the company “due to causes over which the person had no control and against the happening of which it was impracticable for the person to make provision”?225 But assuming that this will not be an issue then once the two elements in s 26 are established the offence is complete, subject only to the manager-specific defences in paragraphs 26(1)(a) and (b). There is an alternative analysis of the question which comes to effectively the same conclusion. This relies on the observation that a person is not in fact convicted of an offence under s 26 at all. The wording of s 26(1) means that a court is obliged to treat a person who satisfies the criteria there (including being associated with a company which has “contravened a provision of the Act or regulation”) as having “contravened the same provision” as the company. In other words, s 26 operates to create a liability under other provisions. Once this has occurred (through the satisfaction of the two elements of s 26 noted above, company contravention and managerial status), there are then no other “proceedings” against the person in terms of s 28 in which the s 28 general defences could be applicable. The person’s commission of an offence is complete, subject, as noted before, only to the manager-specific defences under s 26. The better view, then, would seem to be that the scheme of the legislation is that a person who is charged with an offence under s 26 cannot rely on defences under s 28. Those defences will be relevant to the question whether the corporation has contravened the Act. But once that matter is established then, apart from very rare cases, the offence under s 26 will be established by showing that the person is a director or relevant manager, and then the onus will be on that person to establish one of the defences in
225 A fairly unusual set of circumstances would have to be present; for example, someone else forging the person’s signature on a consent to act as director. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 243 paras 26(1) (a) or (b). This is another area where legislative clarification, however, would be desirable to avoid confusion.
4. Conclusion This chapter has raised a number of significant issues about the personal liability of company officers under provisions like s 26 of the OHS Act 2000 (NSW), and directed attention to areas which require either judicial or legislative clarification. If the existing law is applied, a person with a senior management role in a company should only ignore the issues of safety in the workplace at their great peril. As has been seen, legislation which covers almost the whole of Australia imposes potential grave personal criminal responsibility on a company officer who allows systems to remain in place which create risks to safety. This is a matter which needs to be clearly brought to the attention of managers by those charged with the improvement of safety in the workplace. Unfortunately the impact of these provisions at the moment is blunted by the lack of prosecutions undertaken at the senior level. In NSW, the overwhelming majority of prosecutions under former s 50 of the Occupational Health and Safety Act 1983 involved small companies, where the director or manager prosecuted was closely involved with the specific incident. The provisions discussed here should be much more widely invoked in the case of senior managers in large corporations, rather than simply in the case of small companies. In that way attention will be drawn to the need for review of overall management policies on workplace safety, rather than merely to the placing of blame for the occurrence of specific incidents. A number of uncertainties in the application of the current provisions need resolution by the courts or the legislature. High level judicial guidance is needed on the appropriate allocation of penalty between the company and the officer in the case of smaller companies. Further indication of what amounts to “due diligence” by officers would greatly assist improvement of workplace safety by focussing attention on specific changes in managerial activity. Consideration could be given to seeking specific sentencing guidelines under Division 4 of Part 7 of the Occupational Health and Safety Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 244
Act 2000 to provide consistency in sentencing officers. Some technical drafting problems were seen in the provisions relating to self-incrimination which may hinder appropriate prosecution of both companies and officers unless addressed. Other States may like to consider adopting the NSW model for managerial liability, which does not require proof of difficult matters of “consent” or “connivance” before a prosecution can be attempted, while still allowing appropriate defences to be brought forward. In all States there are unanswered questions to do with the “vertical” reach of the provisions imposing personal liability. Greater clarity as to what it means to be “concerned in the management” of a company for these purposes would provide more certainty for middle managers. In NSW the relationship between the specific defences provided under the personal liability provision, and the more general defences allowed under the Act, is very unclear. Despite these areas of uncertainty, the NSW experience shows that provisions imposing personal liability can be used and prosecutions successfully obtained. These provisions provide a crucial weapon (in cases unsuitable for the application of the wider criminal law) in the fight for improved workplace safety, and their application should be extended to ensure that the safety “culture” of companies is addressed more effectively by reminding board members of their responsibility.
Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 245
APPENDIX: SUMMARY OF PROSECUTIONS UNDER FORMER SECTION 50 OHS ACT 1983 (NSW) (AS AT 19 APRIL 2002)
Category A- Company Directors
Case Ref Citation Involvement of Other comments director A1 Workcover Authority of Working on site as NSW v Barton, JR “building supervisor” [1996] NSWIRComm 152
A2 WorkCover Authority of High. Mr Brkic was on Discussed in text on sentencing NSW (Insp Pearson) v the site and working issues. Tomislav Brkic [1998] with the injured worker. NSWIRComm 246 He himself was not wearing a safety harness. A3 Workcover Authority of Overall in charge but NSW v Brown, Edward not necessarily “on site” Ernest [1994] NSWIRC on the day 74 A4 WorkCover Authority of High- was the on-site NSW (Insp Tyler) v John supervisor Anthony Brown [1997] NSWIRComm 85
A5 Workcover Authority of Not on the scene, but A fairly low fine- an overall fine of NSW v Charles Sam the company was $3000 split between the company Celea [1996] effectively a “one man” and the director. But a small NSWIRComm 144 company and he was company. responsible for not maintaining equipment A6 WorkCover Authority of Described as the “on Very interesting case for analysis of NSW (Insp Dowling) v site project manager”. “due diligence”- see discussion in Barry John Coster text. [1997] NSWIRComm 154 A7 WorkCover Authority of Described as the In circumstances where company New South Wales “person in charge of the was small and a fine of $30,000 was (Inspector Dall) v R & company's works” on to be levied on the company, court D Enterprises the site in question. entered a finding of guilty but (Newcastle) Pty Ltd applied s 10 of the Crimes [2001] NSWIRComm (Sentencing Procedure) Act 1999 to 329 [individual record no conviction. defendant Dale Andrew Green] A8 WorkCover Authority of Not clear from report The case was a “test case” on the New South Wales question of admissibility of evidence (Inspector Lane) v in s 50 proceedings. Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 246
Australian Winch & Haulage Co Pty Ltd [2000] NSWIRComm 214 [individual defendant Adam Jamie Hemsworth] A9 Workcover Authority of Yes, was involved on Some useful discussion of s 50 NSW (Insp Tyler) v the site. The company defences, esp “due diligence”- see Wayne Barrett Holland was head contractor text. [1998] NSWIRComm when some employees 419 of a subcontractor were injured. A10 Workcover Authority of Site manager Connected with the Vranas case, New South Wales below. Different company. (Inspector Dubois) v Nicholas Housalas [1997] NSWIRComm 16 A11 Workcover Authority of A “one-man” company, Interesting that one of the NSW (Insp Gordon) v virtually; he and his prosecutions under s 50 (failure to Jeffery Simon Hughes brother were directors. ensure safety at height) was not [1998] NSWIRComm Mr Hughes himself was accompanied by a corresponding 161 supervising when the prosecution of the company. The accident occurred. company and the director both pleaded guilty and not much time was spent on the legal issues. A12 Inspector Ian Batty v A “one-man” company Unusual in that it was a prosecution Formhaze Pty Limited where Mr Jenkins was under s 27 (fail to notify accidents); [1999] the “directing mind” CIM found guilty but applied s 556A NSWCIMC 43 (2 to enter no conviction as director had March 1999) [director a good record Peter James Jenkins] A13 Workcover Authority of Yes- arranged the Section 556A recorded, as company New South Wales construction of a kiosk fined separately (small company). (Inspector Corbett) v which subsequently Christopher Thomas collapsed Lamb [1998] NSWIRComm 423 A14 WorkCover Authority of Was supervising Mr Martin was not fined separately NSW (Insp Lacey) v employees at the time of from the company. A small one-man Abalsco & Warren the accident company, evidence that the accident Martin [1998] and loss of business had led to the NSWIRComm 619 near-insolvency of the company.
A15 Workcover Authority of Manager of saw-mill; Small company NSW v Glenford Allen responsible for failure Neaves [1996] of safety systems NSWIRC 58, (1996) 84 IR 240 A16 Workcover Authority of JP was the site Note arises from same incident as in NSW (Inspector supervisor for repair to Hughes (above). Judge assessed Gordon) v John electrical equipment in liability of Pethybridge in Pethybridge [1998] the Abyss premises. circumstances to be less than that of NSWIRComm 647 Directed that the work Hughes and accordingly fine was Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 247
be done but was not on less than that in the Hughes case. NB site when failure to the mother of the deceased worker supervise young worker had obtained a civil judgement led to fatality. against JP’s company prior to the prosecution. A17 Workcover Authority of Not clear Question of law- prosecution New South Wales dismissed because wrong company (Inspector Campbell) v name used Thomas Dean Seccombe [1998] NSWIRComm 131 A18 Workcover Authority of Heavily involved in New South Wales discussions on site (Inspector Dubois) v relating to the ramp Nicholas Vranas [1996] which collapsed. NSWIRC 45 A19 Workcover Authority of Supervisor of sawmill Appeal to Full Bench resulted in NSW v Waugh, Robert increase of penalty John [1995] NSWIRC 14
Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 248
Category B- Other managers (non-Directors)
Case Citation Level of Direct Comments Reference Management Involvement B1 Page v Walco Described as High; while not Comments on sentencing Hoist Rentals Pty “general manager” present had given made by Wright J; manager Ltd (No 2) [2000] of the company orders that work not necessarily same degree NSWIRComm 39 not take place until of culpability as corporation [individual def’t he arrived as a whole Eric Charles Barber] B2 Department of The statutory Not high; was a Def’t was found guilty but Mineral Resources “manager” of the general supervisor held that in these exceptional (Chief Inspector mine in which the but not aware of circumstances s 10 of the McKensey) v accident occurred, particular unsafe Crimes (Sentencing Berrima Coal Pty appointed under practices adopted Procedure) Act 1999 should Ltd [2001] the Coal Mines be applied and no conviction NSWIRComm Regulation Act recorded 130226 [individual 1982 def’t Andrew Bell] B3 Workcover Described as Yes- evidence was This was an earlier and Authority of NSW “plant manager”: led that he had separate incident to the one v Kyle Leslie “responsible for personally ordered dealt with in the next case. Grigor [1995] ensuring that all the disabling of a Penalty of $20,000 personal NSWIRC 226 appropriate safety switch. fine. training, instruction and supervision was provided to employees”. B4 Workcover Not clear: Not clear from this Prosecution dismissed Authority of NSW described in report because the company itself v Grigor, Kyle summons as “a had had its conviction over- Leslie (No 2) person concerned turned; ruled that any [1997] in the prosecution of Mr Grigor NSWIRComm 65 management” would involve an abuse of (5 May 1997) process as it would require a re-litigation of matters already settled B5 Workcover GC McCabe The father was Interesting comments on Authority of NSW (father) was company secretary level of penalty when both a (Inspector Evans) secretary of the and was also company (under s 15) and the v Geoffrey Charles company; TC working on the director and manager are McCabe [1999] McCabe (son) was site; father clearly prosecuted; Kavanagh J NSWIRComm 515 director directly involved; refused to give a “discount”
226 Note that this decision is available from the NSWIRC website, on the page
he was working a of penalty for the directors in crane when a wall light of the penalty for the fell over. The son company, arguing that since (director) held the the legislature had prescribed demolition license the two separate penalties and had prepared a they ought to be considered work plan which separately. Company had the court found substantial assets. Company was unsafe. fined $70,000, individual defendants $15,000 each. B6 Workcover Case turned on the Not S. 50 described by Bauer J as Authority of NSW fact that McL was stated. “both cryptic and elliptic”. v McLachlan, described as a He dismissed the charge Earl Frederick “director” in the because it was not specific [1995] NSWIRC summons when in enough, and also emphasised 220 fact he was an that there was a clear employee. Level difference between the two not otherwise categories of “director” and specified. “concerned in the management”. B7 Inspector Leslie Site supervisor; Very high. As site Deft’s brother, who was a Mervyn Blake v had signed supervisor clearly director but does not appear Paul Menere successful contract bore the major to have had any active role [1997] tender documents, responsibility for on the site, was apparently NSWIRComm 132 provided failure to ensure charged under s 50, but did instructions to the safe procedures for not appear and the matter work force demolition and was “stood over”. Not known (appeared on the removal of what the result of his site every second abestos. prosecution, if any, was. day). The accused pleaded guilty but had been declared bankrupt by the time proceedings commenced and was only fined $2000.
Notes In a number of cases where a possible section 50 prosecution was indicated, the individual prosecution was dropped when the matter came to trial, and the s 15 or other company prosecution was the only one to proceed. Examples included:
• WorkCover Authority of NSW (Inspec Guillarte) v Peter John Genner [2000] NSWIRComm 8 (23 February 2000) [director] • Workcover Authority of NSW (Insp Dowling) v Famello Pty Ltd [1999] NSWIRComm 120 [charge against director dropped; the site supervisor was the one injured]; • Workcover Authority of New South Wales (Inspector Lacey) v Donato Tummillo Chapter 4- Personal Liability for Corporate OHS Breach under Specific Provisions 250
[1998] NSWIRComm 45 [director] • Workcover Authority of NSW v Richard Rowe Baker [1993] NSWIRC 19 [director of “one-man” company]; • Workcover Authority of NSW v Delfos Pty Ltd (Fleck Rubbish Removals) [1996] NSWIRComm 156.
Chapter 5- Insurance & Indemnity 253
CHAPTER 5 INSURANCE AND INDEMNITY
1. Insurance ...... 253 (a) Tort Liability...... 254 (b) Criminal liability insurance...... 255 (i) The normal rule- no insurance for crime...... 255 (ii) Exceptions to the rule for crime based on negligence...... 256 (iii) Exceptions to the rule for “deemed” offences? ...... 257 2. Indemnity for criminal activity ...... 258 (a) Statutory provisions dealing with indemnity for criminal fines...... 259 (b) Common law principles on indemnity for criminal penalty...... 260 3. Conclusion ...... 263
This study has shown that in appropriate situations the law may fix personal liability for workplace injuries on company officers in tort (leading to a potentially large exposure of personal assets), under the general criminal law (including manslaughter), both personally and as an accessory, and under specific provisions targetted at company officers under workplace safety statutes. This brief chapter addresses a topic which may be regarded as peripheral to the main area of interest, but which in fact may have a substantial practical impact: the question of insurance and indemnities for officers.
1. Insurance A number of aspects of insurance warrant some mention. One is the threshold question whether a director can insure against the sort of personal liability discussed in chapters 2 to 4. Secondly, the issue of whether a company may take out such insurance on behalf of a director. If so, would this create the “moral hazard” that such insurance would negate any incentive for a director to behave more responsibly? In the following discussion two separate issues need to be kept in mind, although in practice they are closely related- interpretation and policy. The first is a contractual interpretation issue, as to whether the terms of an insurance policy dealing with a director’s liability cover the particular liability concerned. While there tend to be certain standard terms in insurance contracts of particular types, in the end in specific cases this will come down to interpreting the particular contract. However, the second Chapter 5- Insurance & Indemnity 254
issue can have an impact on this question- the issue of public policy. Some cases (discussed below) establish that as a matter of public policy a term of a contract which provides an indemnity against criminal liability should be regarded as void. A court in providing an interpretation of an insurance contract will have this public policy in mind. Another important issue in the “public policy” cases has to do with the scope of the exclusion. The courts will rarely uphold a provision of a contract which provides insurance against a criminal penalty directly levied on the insured (“penalty of crime” insurance). But a contract of insurance may be so broadly worded that it covers liability for events which “amount to” criminal activity by the insured. The issue which will arise here include whether there is a public policy excluding recovery in relation to such events, and whether, if someone else is injured by this criminal activity, the injured person can have access to the insured’s funds by way of damages. It is useful to distinguish this “third-party damage resulting from criminal activity” case from the “penalty of crime” case mentioned previously.
(a) Tort Liability In relation to tort liability, “director’s and officer’s liability insurance” is very common.1 Section 199B of the Corporations Act 2001 (Cth)2 prohibits payment by the company of insurance against “wilful” breach of duty, but does not exclude insurance against negligence. On the other hand, in practice it seems to be fairly common for existing “D&O” insurance policies to exclude liability for personal injury.3 If chapter 2 is correct in arguing that in some cases a director or officer may be personally liable for injury suffered by a company employee, and were claims against directors for such personal tort liability to become more common, then the question
1 See V Finch, “Personal Accountability and Corporate Control: the Role of Directors’ and Officers’ Liability Insurance” (1994) 57 Modern L Rev 880-915 and C Baxter “Demystifying D&O Insurance” (1995) 15 Oxford Jnl of Legal Studies 537-564 for excellent reviews of the policy issues involved in such insurance, and the UK situation; S Ansell “Directors’ and Officers’ Liability Insurance- Recent Reforms and Developments in Australia and New Zealand” (1995) 23 Aust Business Law Rev 164-173, S J Traves & R N Traves “Directors and Officers Liability Insurance: Reducing the Burden of Legal Liability” (1996) 26 Qld Law Society Jnl 587-604, and M Waller & L Courtice “Insuring against environmental risks in Australia and some recent developments” (1998) 8 Aust Product Liability Reporter 172-181 for some comments from an Australian perspective; and C Parsons “Directors’ and Officers’ Liability Insurance: A Target or a Shield?” (2000) 21 Company Lawyer 77-86. 2 Formerly s 241A of the Corporations Law. 3 See, for example, the article by Traves and Traves above at n 1, at p 604. Chapter 5- Insurance & Indemnity 255
arises whether extending the coverage of D&O insurance to such claims would be desirable. On the one hand it might be argued that this would remove the deterrent effect of such claims. So Finch comments:
Will ‘D&O’ insurance undermine an individual’s incentives to avoid wrongdoing? Such insurance does increase the danger of ‘moral hazard’ in so far as payments for wrongdoing will be made from insurance funds rather than the personal assets of errant directors. Thus, insurance could be said to subvert public policy, encourage unscrupulous directors to pursue questionable activities and dull the incentives of honest directors to be attentive to their duties…4
However, even where insurance is generally available there are a number of disincentives following from an insurance payout in these circumstances. There are penalties from within the insurance system (such as increased premiums):
insurers can reduce moral hazard by, for example, imposing deductibles, restricting cover, imposing conditions and adjusting premiums in relation to the performance records of specific companies and individual directors.5
In addition there is the general deterrent effect of a public finding of liability by a court. A director against whom a finding of personal negligence had been made in relation to a workplace injury might find it uncomfortable to continue in the same company, and difficult to obtain an executive position in another company, for example. Such consequences as these will remain strong factors encouraging directors to behave with due diligence. So there may be a good case for directors and officers to make sure that their insurance policies cover a possible liability for personal injury.
(b) Criminal liability insurance (i) The normal rule- no insurance for crime In terms of criminal liability, an insurance policy will generally not provide coverage for the consequences of a criminal conviction.6 The normal rule was stated this way in Burrows v Rhodes:
4 Finch, above, n 1, at 888. 5 Finch above, n 1, at 888. 6 See, for example, Finch, above, n 1 at 887: “insurance would be ruled out regarding acts involving dishonesty or a crime”. Chapter 5- Insurance & Indemnity 256
It has, I think, long been settled law that if an act is manifestly unlawful, or the doer of it knows it to be unlawful, as constituting either a civil wrong or a criminal offence, he cannot maintain an action for contribution or for indemnity against the liability which results to him therefrom. An express promise of indemnity to him for the commission of such an act is void.7
So in the UK Court of Appeal decision in Lancashire County Council v Municipal Mutual Insurance Ltd, Simon Brown LJ reviewed earlier authority and concluded:
For my part, I unhesitatingly accept the principle that a person cannot insure against a liability consequent on the commission of a crime, whether of deliberate violence or otherwise--save in certain circumstances, where, for example, compulsory insurance is required and enforceable even by the insured.8
(ii) Exceptions to the rule for crime based on negligence The exception mentioned by his Lordship has arisen mostly in the case of motor accident cases. If the general rule were applicable a driver who through recklessness caused the death of a pedestrian (and hence might be regarded as guilty of manslaughter, or a “dangerous driving” offence) would not be able to recover under an insurance policy. This may mean, of course, that the victim’s family would be unable to recover, most drivers being unable to meet the requirements of a damages payout in those circumstances. To avoid this obvious problem the courts have usually interpreted an insurance policy covering reckless driving as including behaviour which would amount to a crime.9 In line with this authority, the NSW Court of Appeal held in Australian Aviation Underwriting v Henry10 that an exclusion clause in an insurance contract dealing with motor accidents, which excluded injury caused by the insured’s “own criminal act”, should be read down to allow the deceased insured’s estate to claim under the policy
7 [1899] 1 QB 816 at 828, cited and approved by Hope JA in Australian Aviation Underwriting v Henry (1988) 12 NSWLR 121, at 123G. 8 [1996] 3 All ER 545, at 554d-e. The earlier cases relied on were Haseldine v Hosken [1933] 1 KB 822, Hardy v Motor Insurers’ Bureau [1964] 2 All ER 742, and Gray v Barr [1971] 2 All ER 949. More recently this principle was supported by a differently constituted Court of Appeal in Charlton v Fisher [2002] QB 578, [2001] EWCA Civ 112. 9 See Tinline v White Cross Insurance Association Ltd [1921] 3 KB 327; James v British General Insurance Co Ltd [1927] 2 KB 311. 10 (1988) 12 NSWLR 121. Chapter 5- Insurance & Indemnity 257
even though he had been guilty of dangerous driving. Hope JA & Priestley JA (McHugh JA dissenting) held that the exclusion should not be held to apply to criminal acts which resulted from “negligence” or “inadvertance” rather than deliberate intention. A similar result followed in the South Australian Full Court decision of Australian Associated Motor Insurance Ltd v Wright.11 As can be seen, this involves not “penalty of crime” insurance (the deceased’s estate would not presumably be able to recover for a dangerous driving fine that was imposed), but is a version of “third party damage resulting from criminal activity” insurance, though slightly extended here through the replacement of the deceased by the fictional legal personality of his estate. Should such an exception be applied to a criminal prosecution of a company officer for either manslaughter or a “deemed” offence under a provision such as s 26 of the Occupational Health and Safety Act 2000 (NSW)? A prosecution for manslaughter will involve, not deliberate intent to harm, but carelessness (even if, of course, of a high degree). It might be argued, by way of analogy with the cases which allow access to an insurance policy in cases of death caused by reckless driving, that such access should also be permitted in the case of careless management conduct. That is, even though a director may be guilty of manslaughter in relation to the death of an employee, there should be no public policy bar to the director having access to an insurance policy to pay an award of damages which might be made to the worker’s estate flowing from the death. That is not to say, however, that the officer themselves ought to be able to recover under an insurance policy a criminal penalty which might be imposed on them for either manslaughter or some other criminal conduct causing harm. In that situation there would seem to be no reason to vary the normal policy rule that “a person… may not stand to gain an advantage arising from the consequences of his own iniquity”.12 (iii) Exceptions to the rule for “deemed” offences? The argument that access to a policy by an officer should be allowed in relation to penalties imposed via provisions like s 26 seems stronger, however, as a “deemed”
11 (1998) 10 ANZ Ins Cas ¶61-390, BC9706546. 12 Lord Hailsham in Gardner v Moore [1984] AC 548, at 558, as cited by Rix LJ in Charlton v Fisher [2002] QB 578 at para [89]. Chapter 5- Insurance & Indemnity 258
offence here involves no mens rea. So in James v British General Insurance Co Ltd Roche J commented on the suggested general principle that public policy precludes an insured from claiming in relation to his own crime:
[T]he principle (if it is applicable at all) affects many other cases besides those of motor insurance. It affects a very large number of workmen’s compensation insurances where workmen are injured by acts or defaults, even though inadvertant on the part of employers, which amount to breaches of the Factory Acts, such as neglect in the fencing of machinery and things of that sort. If the principle be right, that the mere fact that the assured has offended against the criminal law, however inadvertantly, precludes him from recovering under a policy of indemnity, then indeed the results are very far-reaching.13
His Honour’s comments were, of course, obiter dicta as the case related to careless driving, but the general approach may commend itself to a court asked to decide whether a company director should be allowed to access an insurance policy when fined through the deeming provisions of s 26. This general policy of the law concerning insurance also then has implications for any attempt by a company to provide indemnification for the consequences of criminal activity, and is best considered under that general heading.
2. Indemnity for criminal activity Even if insurance is not obtained, can an indemnity be provided by a company in relation to an officer’s criminal liability? That is, may a company promise to reimburse amounts the director is required to pay in relation to breach of a provision of the criminal law? The question may arise as to whether such a term in a director’s contract would be enforcable, or possibly as to whether a company may lawfully make such a payment even if not otherwise obliged to. The Bata decision,14 discussed in the previous chapter in connection with the law on “due diligence”, had an interesting sequel which raised this issue. In handing down sentences on the company and its directors, Ormston PDJ had added a condition to the sentence of the company that it not indemnify the directors against their fines. His Honour did this under a power to impose “probation” conditions on sentence. On appeal
13 [1927] 2 KB 311, at 320-321. 14 R v Bata Industries Ltd (No 2) (1992) 70 CCC (3d) 394. Chapter 5- Insurance & Indemnity 259
to the Ontario Court of Appeal, however, the condition was overturned, as the Court of Appeal ruled that the power to issue a probation order had to be directed to the rehabilitation of the offender (the company), and this order had been made to ensure appropriate punishment for the individual officers, rather than the company.15 What is the position with such an indemnity under Australian law? The question is not entirely free from doubt. The Australian Law Reform Commission discussed the issue in the following terms:
The most effective way of ensuring that an individual upon whom a penalty is imposed bears the burden of that penalty is to impose a penalty that cannot be paid, reimbursed or off-set by the corporation or any other person. Such orders were discussed above. In most cases, however, the penalty will be a monetary penalty. The impact of a monetary penalty, and its deterrent effect, will be small or non-existent if the individual is reimbursed by the corporation by which he or she is engaged. The Corporations Law prohibits a company from indemnifying an officer of the company against a liability incurred by the person as an officer or from exempting an officer from such a liability. It does not prevent a company from indemnifying its officers in respect of liability to persons other than the company, provided the liability does not arise out of conduct involving a lack of good faith. This does not prohibit the indemnification of officers against penalties which do not relate to conduct involving a lack of good faith…It appears that the common law prohibits indemnification against criminal and civil penalties on the ground of public policy, regardless of whether a lack of good faith is involved. [See Askey v Golden Wine Co Ltd and Ors [1948] 2 All E R 35; R Leslie Ltd v Reliable Advertising and Addressing Agency Ltd [1915] 1 KB 652; Hasledine v Hosken [1933] 1 K B 822; Burrows v Rhodes [1899] 1 QB 816.] In the interest of certainty and in order to signal to corporations and officers that indemnifying officers and other persons implicated in contraventions against penalties is prohibited, the Commission recommends that s241 of the Corporations Law be amended to prohibit corporations from indemnifying their officers, employees or agents or any other person implicated in a contravention against criminal or civil penalties imposed upon the officers, employees or agents or other person. 16 [emphasis added; some footnotes omitted]
(a) Statutory provisions dealing with indemnity for criminal fines Section 199A(2)(c) of the Corporations Act 2001 (Cth) prohibits a company from indemnifying an officer for “a liability that is owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith”. However, it seems likely that “liability” in this context does not refer to criminal
15 R v Bata Industries Ltd (1995) OR (3d) 321. No comment was made as to whether a condition that the officers not accept such indemnification could have been attached to the officers’ sentences. 16 Report No 68, Compliance With The Trade Practices Act 1974 (1994), ch 10 at 10.34. Chapter 5- Insurance & Indemnity 260
liability.17 This is shown by two factors. One is the inherent inappropriateness of referring to a criminal penalty payable to the Crown as a “liability… owed to someone”. The second factor is the structure of subsection 199A(3), dealing with costs as opposed to penalties:
(3) A company or related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against legal costs incurred in defending an action for a liability incurred as an officer or auditor of the company if the costs are incurred: (a) in defending or resisting proceedings in which the person is found to have a liability for which they could not be indemnified under subsection (2); or (b) in defending or resisting criminal proceedings in which the person is found guilty; or…
It will be noted that legal costs in relation to subsection (2) are dealt with by para 199A(3)(a), whereas costs incurred “in defending or resisting criminal proceedings in which the person is found guilty” are deal with in para 199A(3)(b). This seems to indicate clearly that Parliament does not intend to include criminal proceedings in the scope of the “liability” dealt with in subsection 199A(2). The question of indemnity against a fine in criminal proceedings, then, seems to be left to the common law.
(b) Common law principles on indemnity for criminal penalty Ford offers the following analysis:
A contract to indemnify a person against criminal liability is illegal if the crime is one which can only be, or in fact is, committed with guilty intent: Treitel GH, The Law of Contract, 8th ed, p 382. The position is less clear where the crime is one of strict liability and the conduct of the offender is morally innocent (compare, for example, Askey v Golden Wine Co Ltd [1948] 2 All ER 35 with Cointat v Myham & Sons [1913] 2 KB 220), though by and large textwriters prefer the view that an indemnity can be given: Treitel, supra, p 383; McGregor on Damages, 15th ed, 1988, p 454.18
17 See the comments on this issue in the Victorian Law Reform Commission Report Criminal Liability for Workplace Death and Serious Injury in the Public Sector (Melbourne: VLRC, March 2002), at 70-71: “It is not clear whether the prohibition of indemnification for liability in section 199A(2)(c) applies to criminal penalties, although the section is capable of this interpretation...” I disagree with the Commission on this point for the reasons discussed in the text. 18 Ford HAJ, Austin RP & Ramsay IM Ford’s Principles of Corporations Law (10th ed; Australia: Butterworths, 2001) [8.410] at 372. Chapter 5- Insurance & Indemnity 261
In Askey the plaintiff was a wholesaler of spirits and had purchased a large quantity from the Golden Wine Co. It turned out that these were contaminated by methylated spirits; the directors of Golden Wine were fined, and subsequently Askey was also fined for selling contaminated liquor. He took an action against the company and its directors to recover the criminal fine of £316 which he had been forced to pay. Denning J (as he then was) in the King’s Bench Division ruled that as a matter of public policy the court would not allow recovery in a civil action of a penalty imposed by the criminal courts.
[T]he punishment inflicted by a criminal court is personal to the offender, and… the civil courts will not entertain an action by the offender to recover an indemnity against the consequences of that punishment. In every criminal court the punishment is fixed having regard to the personal responsibility of the offender in respect of the offence, to the necessity for deterring him and others from doing the same thing again, to reform him, and … to make him more exact and scrupulous in his supervision of the matters for which he is responsible. All these objects would be nullified if the offender could recover the amount of the fine and costs from another by process of the civil courts.19
A factor which also weighed with Denning J was that the plaintiff was not simply an innocent who had been caught by the absolute liability of the food contamination laws- he was said to himself be guilty of “gross negligence”.20 The legislation contained defence provisions of “due diligence” which the plaintiff had not been able to rely upon.21 Given that the reasons for not allowing an indemnity have to do with the personal culpability of the defendant, however, it is perhaps not surprising that in the case of criminal liability which is imposed without personal responsibility the courts have often adopted a different approach. Denning LJ (as he had by then become) himself revisited the issue as part of the Court of Appeal in Strongman (1945) Ltd v Sincock.22 Strongman were a firm of builders who had done work on properties owned by the defendant, an architect, who had undertaken to obtain the necessary licenses but failed to do so. The lack of licenses meant that the work was illegal and the contract
19 Askey v Golden Wine Co Ltd [1948] 2 All ER 35, at 38D-E. 20 Above, n 19 , at 38C. 21 Above, n 19, at 38B, referring to ss 83, 84 and 86 of the Food and Drugs Act 1938 (UK). 22 [1955] 3 All ER 90. Chapter 5- Insurance & Indemnity 262
could not be sued upon directly. Strongman, however, sued the architect for breach of a collateral promise to obtain the licenses. To the defendant’s argument that this would allow recovery for illegal work, Denning LJ commented:
It is a settled principle that a man cannot recover for the consequences of his own unlawful act, but this has always been confined to cases where the doer of the act knows it to be unlawful or is himself in some way morally culpable. It does not apply when he is an entirely innocent party.23
His Lordship distinguished his own previous decision in Askey on the basis that Askey had been personally careless.24 This approach was also seen in Osman v J Ralph Moss Limited.25 Mr Osman had been told by the insurance agents Moss that he was insured against motor vehicle accidents, whereas in fact his insurance had lapsed. When he was involved in an accident, on top of his civil liability to the other driver, to add insult to injury he was fined £25 for driving without insurance. The UK Court of Appeal (Sachs, Edmund Davies & Phillimore LJJ) held that he was entitled to recover this amount from the agents. The Court distinguished Askey on the basis that Mr Osman, unlike Mr Askey, was “entirely free of culpable negligence”.26 More recently, however, in R v Northumbrian Water, ex parte Newcastle and North Tyneside Health Authority,27 Collins J in the Queen’s Bench Division considered the question whether an indemnity could be given by a health authority to a water authority in relation to possible criminal charges. The water authority had been requested to introduce fluoride into the water supply but were concerned that they might thereby in some circumstances incur a liability under s 70 of the Water Industry Act 1991 (UK). Section 70 made it an offence to supply water which was unfit for human
23 Above, n 22, at 93A-B. 24 Above, n 22, at 94A-C. 25 [1970] 1 LLR 313. 26 Above, n 25, per Edmund Davies LJ. A similar reconciliation of the cases was offered by Eames J in the Supreme Court of Victoria in the unreported decision of Krakowski v Trenorth Ltd (formerly known as Eurolynx Properties Ltd) (27 August 1996; BC9603853), at 31-42. The case was not directly on point, however, dealing with the consequences of an alleged fraud rather than of a criminal act. 27 [1999] Env LR 715. Chapter 5- Insurance & Indemnity 263
consumption, which was effectively a “strict liability” offence subject to a defence of “due diligence”. Collins J held that an indemnity in relation to the possible criminal liability could not be given. He referred to Osman, but noted that the ratio of the decision was that the person who had been prosecuted bore “no moral blame”. He continued:
It seems to me that the decision in Osman is clearly limited to cases where there is true absolute liability and no conceivable fault (for want of a better word) on the part of the officer. That would not be the position here because a prosecution under section 70 is defeated by showing all due diligence…28
In other words, where an offence which is on its face absolute is subject to a defence of “due diligence”, then clearly in some sense there is “culpability” in an accused who cannot make out the defence. In those circumstances the policy of the law would be against allowing an indemnity for a criminal fine imposed under that legislation. The decision in Northumbrian Water, then, supports the view that a company officer could not legitimately seek an indemnity from the company against a fine imposed for an offence under s 26 of the OHS Act 2000 (NSW). If the officer, when charged, is unable to make out a defence under either s 26(1) (a) or (b), then to some extent they will bear “personal culpability” for the offence, in failing to use “all due diligence” to prevent the relevant risk to safety.29 If this approach were taken it would also, as previously noted, prevent the officer from seeking an indemnity against a fine that might be imposed in relation to a finding of manslaughter.
3. Conclusion The result of the forgoing discussion may be summarised as follows: (1) There seems to be no bar to a company officer purchasing “director’s and officers” insurance to cover possible civil liability which might arise in circumstances described in chapter 2. However, officers may need to
28 Above, n 27, at 726. 29 This view also receives support from the specific reference made by Denning J in Askey to the fact that Mr Askey had an opportunity to prove “all due diligence” when prosecuted- see above, n 19, at 38B. Chapter 5- Insurance & Indemnity 264
renegotiate existing insurance policies if they do not already cover liability for personal injury or death of company workers. (2) Even though the death of, or injury to, a worker may occur in circumstances where a company officer would be guilty of manslaughter or another serious criminal offence, the courts would be likely to hold that the victim or the victim’s family would not be precluded from gaining access to the officer’s personal insurance policy if needed to cover an award of damages in respect of the incident. (3) It seems to be unlikely, however, that such insurance could, as a matter of public policy, be obtained for the officer’s benefit to cover the risk of a fine imposed for manslaughter or other general criminal offence. There is also some doubt whether insurance (or an indemnity) may legitimately be obtained in relation to the officer’s personal liability for a fine under provisions such as s 26 of the Occupational Health and Safety Act 2000 (NSW), given that such provisions involve defences such as “due diligence” which the officer could use to defend himself or herself. If criminal fines imposed under s 26 and related provisions may not be the subject of an insurance claim or a company indemnity, then this will mean that company officers will need to pay even more careful attention to due diligence. On the other hand, it might be thought that the incentives to avoid a personal conviction of this sort are already fairly strong apart from the burden of the fine, and that to leave this burden with the individual will indeed have the deleterious results discussed in chapter 2 of totally discouraging individuals from taking up company office. In that case consideration ought to be given to specific legislative amendment to allow insurance to be provided, or an indemnity to be given, in these circumstances.
Chapter 6- Conclusion 265
CHAPTER 6- CONCLUSION
1. Inter-relationships...... 265 2. Implications ...... 267
In this conclusion some comments on the inter-relationship between the topics discussed in the body of the paper are offered, and the implications of this paper for further law reform are suggested.
1. Inter-relationships One of things that has emerged in the course of this study is the interrelationship between the topics covered in chapters 2, 3 & 4, which in most studies previously have been dealt with separately.
(a) The fact that in certain circumstances a company officer may owe a duty of care in the law of negligence to workers who may by injured, has ramifications for the criminal liability of officers. Thus the most relevant branch of the law of manslaughter, manslaughter by criminal negligence, requires at least under some analyses the existence of a duty of care in tort. The fact that so few charges of manslaughter have been brought in relation to workplace deaths until recently has probably been due to a number of factors, including a perception that workplace fatalities are “inevitable” and not “really criminal”. Decisions of prosecutors may also, however, have reflected this doubt about a relevant duty. Chapter 2 demonstrates that the existence of a personal duty of care in some cases is by no means unlikely. This, then, strengthens the case for a possible charge of manslaughter by negligence, where the failure to behave in accordance with the duty falls so far short of what the community can expect of an officer that it is worthy of criminal punishment. Chapter 6- Conclusion 266
(b) The study of accessorial liability in chapter 3 reveals that, far from being an aberration of drafting,1 provisions such as s 26 of the Occupational Health and Safety Act 2000 (NSW), and s 50 of the previous Occupational Health and Safety Act 1983 (NSW), which require that an officer who is concerned in the company’s offence be “taken” to have committed the head offence, or “deemed” to have committed it, fall squarely within a long history of “deeming” provisions in criminal legislation. One of the most important is s 5(1) of the Crimes Act 1914 (Cth), which provides that someone who “aids, abets, counsels, or procures” the commission of an offence “shall be deemed to have committed that offence and shall be punishable accordingly”.2 Such provisions are well known, and the operation of these provisions (as demonstrated in chapter 4) can be illuminated by High Court and other decisions on their analogues in other legislation.3
(c) Finally, while recognising that criminal liability is more serious than civil, and that courts should be wary of too ready an invocation of criminal liability, the fact that a potential tortious duty of care exists at common law can and should inform the deliberations of a criminal court when considering the application of the specific legislation discussed in chapter 4. While in some circumstances a person “deemed” to have committed an offence under a statutory provision might be thought less culpable and hence less worthy of punishment, the policy that someone who is in charge of a workplace ought to pay attention to safety issues must remind a court sentencing a company officer that this is no light offence. The liability created by these workplace-safety-specific provisions is no less
1 See the comments of Bauer J in Workcover Authority of NSW v McLachlan [1995] NSWIRC 220 referred to in chapter 4. 2 The main difference between this provision and s 26 is that in s 26 the onus of proof is reversed so that an officer holding the relevant position is deemed to be liable unless able to establish the defences in paras 26(1)(a) and (b). The High Court decision in Hookham v The Queen (1994) 181 CLR 450 involved a similarly structured provision, s 8Y of the Taxation Administration Act 1953 (Cth). 3 See, for example, as well as Hookham, the decision in Mallan v Lee (1949) 80 CLR 198. Chapter 6- Conclusion 267
than a recognition that those with managerial powers and privileges should not be allowed to ignore the responsibility that goes along with those powers- the responsibility to pay careful attention to the risks created for workers, by the enterprise which creates position and profit for the officers.
2. Implications This study, then, has attempted to bring together in a coherent way a number of issues to do with the existence and extent of personal managerial liability for workplace injury and death which have previously been treated in the different “compartments” of tort, serious crime, and “deemed” crime. It is hoped that in doing so it demonstrates the important inter-relationships between the various areas. The study also underlines the need for law reform to be conducted with a careful understanding of the possibilities of the existing law. Calls for a new offence of “corporate” or “industrial” manslaughter, for example, need to be carefully evaluated in light of the current law. There may indeed be some symbolic value in such an offence being available against a company. But it is fairly clear that a company in Australia may already be convicted of manslaughter under the current law, especially if the courts would recognise (as current authority allows) that manslaughter by criminal negligence does not necessarily require a finding of criminal liability against a specific officer of the company. Rather, a serious failure to exercise proper care and foresight in safety procedures which has led to death may be established simply by showing the lack of such procedures, whoever was personally responsible. The failure of proposed corporate manslaughter reforms in Victoria and their seemingly endless postponement in the United Kingdom cannot simply be explained, then, as a desire on the part of those lobbying for “business interests” to resist the formal legal charges of “manslaughter”, however described, that those reforms would introduce. Prosecutions for manslaughter could be achieved under the present regime. Rather, there seems to be a fear among senior managers that the symbolic effect of such laws would be to encourage more activity by prosecutors. There seems Chapter 6- Conclusion 268
no doubt that they are right, and for this reason some progress in enactment of such laws (whichever model is eventually chosen) would seem to be a good thing. This is not to say, however, that in the desire to make the corporate entity symbolically liable, that individual criminal liability of company officers ought to be dispensed with. As noted previously, it is easy for those used to dealing with the complexities of corporate legal personality to misinterpret public calls for “corporate manslaughter” to be introduced. In many cases a review of the literature will reveal that what is being called for is not increased financial penalties for the corporate entity, but rather for some individual persons who are involved in the management of the company to be held accountable for carelessness and neglect which has led to death or injury.4 Any review of corporate manslaughter proposals needs to take this call for increased personal liability into account. The aim of this thesis, then, has been to provide a legally accurate account of the current civil and criminal liability of company officers in the case of workplace injury or death, and to demonstrate that such liability already potentially exists in a far wider range of circumstances than may be assumed by officers and their legal advisers. In a case of corporate insolvency where there has been under-insurance, chapter 2 suggested that injured workers whose claims cannot be met by the remaining company funds may be able to hold individual managers personally accountable, where the managers are personally insured or otherwise have sufficient assets to make this worthwhile. Chapter 3 demonstrated that where there has been such a radical management failure that the company can be regarded as guilty of manslaughter, then it is also possible for individual company officers to be charged as accessories to manslaughter.
4 So Andrew Hopkins comments in his recently published series of articles on the Longford prosecution, “Lessons from Longford: the trial” (2002) 18 Journal of Occupational Health and Safety- Australia and New Zealand 3, at 54: “There has been much talk in Victoria in recent years about the possibility of so-called “industrial manslaughter” legislation. The proponents of such legislation have always assumed that it would target individuals- company directors and senior executives. But the Victorian Bill targeted corporations, not individuals”. {This excellent work became available too late to be properly taken into account in the body of this study, but will be required reading in the future for anyone interested in the OHS liability of corporations and managers.} Chapter 6- Conclusion 269
Chapter 4 showed that there is a clear and reasonably coherent body of law already developing in relation to the very specific personal liability provisions in s 26 of the Occupational Health and Safety Act 2000 (NSW) and analogues in other States. Unfortunately it seems clear that so far the step of holding board members who are not directly involved in a workplace incident, personally responsible under s 26, has not been taken. The reasons for a lack of activity in this area remain unclear. Even in NSW, where prosecutions under former s 50 have been fairly common, the material discussed in ch 4 revealed that mostly “hands-on” officers in smaller companies have been targetted. But since 1995 ignorance of the specific circumstances of the creation of a risk has not been a defence. And it seems difficult to believe that all of the serious injuries or fatalities that have occurred since that time have occurred despite “due diligence” being exercised by directors and managers able to influence company policy.5 It may simply be that it has taken some time for the practice of prosecution authorities to match the possibilities of the legislation.6 Prosecution authorities are urged to seriously consider such actions in situations where there is a clear failure of due diligence by a board in establishing risk assessment and control procedures. Prosecutions should be commenced, not just against the directors of small companies who have been personally involved with the events causing injury, but also against directors and managers of larger companies where failure to put proper safety procedures into place has resulted in a culture where injuries occur. It seems clear that the scope for such prosecutions will be even wider since the introduction of the new “risk management” provisions into the Occupational Health and Safety Regulation 2001, and their commencement on 1 September 2001. These provisions, in Chapter 2 of the new Regulation, are supported by para 3(e) in
5 See the defences in s 26(1)(a) and (b). 6 It is interesting to note that a significant attempt to involve “senior management” in a s 50 prosecution, in a case still proceeding through the courts, was initiated not by WorkCover prosecutors but by a union official under former s 49(1)(c) of the 1983 Act- see interlocutory proceedings in McMartin v The Newcastle Wallsend Coal Company Pty Ltd [2002] NSWIRComm 1024 {a case decided after the “cut-off” point for the research conducted for this study}. Chapter 6- Conclusion 270
the “Objects” clause of the 2000 Act, and para 34(b) of the regulation-making powers under the Act. They represent, if not a major “shift” of the legislative regulation of occupational health and safety in NSW from the “general duties” approach used since 1983, at least a substantial refinement of that approach.7 Under Chapter 2 of the Regulation a company can be found to be in breach of the Regulation where reasonable care has not been taken to identify hazards arising from the employer’s undertaking under cl 9, where risks arising from those hazards have not been properly assessed under cl 10, and where appropriate steps have not been taken under cl 11 to eliminate or control those risks.8 As Brooks comments,
An employer has not “taken care” if, fortuitously, despite the absence of any evaluation of hazards, no risks result in injury or disease. To take care, one must know where and why care is needed.9
Given that the personal obligations cast on directors and managers under s 26 of the 2000 Act arise where the corporation “contravenes, whether by act or omission, any provision of this Act or the regulations” (emphasis added), it is clear that directors and managers will need to be all the more alert to the company’s need to comply with these detailed “risk management” procedures. It may be that where it is apparent that evidence of compliance with these procedures cannot be produced, prosecutors will now be more willing than previously to institute s 26 prosecutions where the failure of a larger company to ensure safety can be seen to derive from neglect of proper risk and hazard management by senior managers. Chapter 4 also raised some matters, however, which need urgent legislative action to ensure that s 26 is able to effectively operate. In particular there is a need to re-enact a provision like the former s 31M(3) of the OHS Act 1983 (NSW) to ensure that the evidence of a company officer may be used in an appropriate case in a
7 See especially the discussion of the new regime in A Brooks, “Risk Management and Consultation Systems: Developments and Disappointments in the New Occupational Health and Safety Legislation in New South Wales” (2002) 24 Sydney Law Review 89, esp at 96-101. 8 “Appropriate” control measures (where elimination of the risk is not possible) are further specified in a detailed and very specific heirarchy set out in cl 5 of the Regulation. 9 Brooks, above n 7, at 120. Chapter 6- Conclusion 271
prosecution of the company. It would also be desirable for the sake of increased certainty to define more clearly the liability of non-directorial managers, the intended scope of the presently ambiguous phrase “concerned in the management”, and the relationship between s 26 and the general “defence” provision in s 28. In addition it would be desirable for there to be further consideration at higher judicial levels of issues such as the appropriate sentence to be applied in the case of both company and officer being prosecuted, the determination of the content of “due diligence”, and the possible liability of managers of Government and quasi-governmental institutions. The matters touched on in chapter 5 indicate that there may be some options for company officers concerned about their personal liability to negotiate appropriate insurance or indemnity arrangements for civil claims. The validity of such arrangements for criminal penalties, however, is less clear, and seems to call for a serious policy debate. Many improvements have been made in recent years in workplace safety, and most responsible employers pay serious attention to appropriate safety procedures. But there are still some companies, and board members of those companies, for whom safety concerns are simply an item on a checklist to be crossed off so that the latest profit statements can be enjoyed. Only as these company officers become conscious that their activities (or lack of activities) in the boardroom may have serious civil and criminal ramifications, will some firms start to move from focussing solely on profit, to taking proper account of the welfare and safety of those whose work makes the profit possible. In the end what is needed is a change in corporate “culture” which sees safety become a priority from the top to the bottom of every major company. Individual officers need to be aware that they cannot shelter behind the corporate “veil” to avoid their own responsibility. The board of directors and senior management as a whole bear responsibility, not just individually but collectively, to see that this change takes place. It is hoped that the clarification of the law offered in this study may make a small contribution towards encouraging this to happen. BIBLIOGRAPHY
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Table of Cases i
TABLE OF CASES
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Collison v Gill (unrep; SC of NSW, Badgery-Parker J; 15 December 1995) Commercial Union v Beard [1999] NSWCA 422 Commissioner for Corporate Affairs v Bracht [1989] VR 821 Commissioner, Indiana Dept of Environmental Management v RLG Inc & Lawrence Roseman 755 NE 2d 556 (2001) Commissioner of Taxation v Ryan [2000] HCA 4 Commonwealth Bank of Australia v Friedrich (1991) 9 ACLC 946 Conway v Inspector General in Bankruptcy (Unrep; AAT, General Administrative Divn: Forrest, DP & Elsum; 21 November 1996) Craig v North Shore Heli Logging Ltd (1997) 34 BCLR (3d) 330 Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59 CSR Ltd v Wren (1998) 44 NSWLR 436 Cullen v Corporate Affairs Commission (1988) 7 ACLC 117 Daido Asia Japan Co Ltd v Rothen (Ch D, Lawrence Collins J; 24 July 2001) 2001 WL 825034 Daniels v AWA (1995) 13 ACLC 614 Decision 205/1993 [1993] 205 IRCommA Delahunt v Westlake & Westlake [1999] SASC 366 Dept of Environmental Protection v Memories (WA) Pty Ltd and Donnes (Unrep; WA CPS, Magistrate Micheledes; October 1998) Dept of Environmental Protection v McMurtry (Unrep; WA CPS, Magistrate Cockram; March 1995) Department of Mineral Resources v Berrima Coal Pty Ltd [2001] NSWIRComm 130 Deputy Commissioner of Taxation v Saunig [2002] NSWCA 390 Director of Public Prosecutions (Victoria) Reference No 1 of 1996 [1998] 3 VR 352 DPP v Esso Australia Pty Ltd [2001] VSC 263 DPP Reference No 1 of 2000 [2001] NTSC 91 Drake Personnel Ltd T/as Drake Industrial v WorkCover [1999] NSWIRComm 341 Duke Group Limited (In Liquidation) v Pilmer [1999] SASC 97 Dunne v J Connolly Ltd [1963] AR(NSW) 873 Equiticorp Industries Group Ltd (In Statutory Management) v The Crown (No 47) [1998] 2 NZLR 481 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Environment Protection Agency v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 Environment Protection Authority v Multiplex Constructions Pty Ltd (ACN 008 687 063) [2000] NSWLEC 6 Fair Trading Administration Corpn v Smith [2001] NSWCA 435 Fairline Shipping Corporation v Adamson [1975] 1 QB 180 Felton v Johnson (2000) Aust Torts Rep ¶81-559 Flannigan v Cudzik 2001 US Dist LEXIS 1436 Frances T v Village Green Owners Association 723 P 2d 573 (1986) Gardiner v State of Victoria [1999] 2 VR 461, [1999] VSCA 100 Gibson v Barton (1875) LR 10 QB 29 Giorgianni v The Queen (1985) 156 CLR 473 Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54 Griggs v ASC [1999] SASC 405 Table of Cases iii
Hamilton v Whitehead (1988) 166 CLR 121, 65 ALJR 80 Hargrave v Goldman (1963) 110 CLR 40 Hatton v Hall [1999] Lloyd’s Rep IR 313 Haynes v CI & D Manufacturing Pty Ltd (No 2) (1995) 60 IR 455 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 Henley Arch Pty Ltd v Clarendon Homes (Aust) Pty Ltd [1998] 863 FCA Hill v Van Erp (1997) 188 CLR 159 Hollis v Vabu (2001) 207 CLR 21, [2001] HCA 44 Holpitt Pty Ltd v Swaab (1992) 6 ACSR 488, 33 FCR 474 Hookham v The Queen (1994) 181 CLR 450 Huckerby v Elliott [1970] 1 All ER 189 Jaensch v Coffey (1984) 155 CLR 549 James v British General Insurance Co Ltd [1927] 2 KB 311 Johnson v Youden [1950] 1 All ER 300 Jones v Thomas 426 So 2d 609 (1983) [Sup Ct of La] Kavanagh v Don Sloan Equipment Rentals Ltd (1988) 8 ACWS (3d) 286 Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd and Others (1998) 42 IPR 111 King v Milpurrurru (1996) 136 ALR 327 Kingscourt Automotive Enterprises Inc v The General Accident Assurance Co of Canada (1992) ACWSJ 61009 Kirkby v A & M I Hanson Pty Ltd (1994) 55 IR 40 Krakowski v Eurolynx Properties Limited (1995) 130 ALR 1, (1995) 69 ALJR 629 Lancashire County Council v Municipal Mutual Insurance Ltd [1996] 3 All ER 545 Landeryou v Taylor (1969) 15 FLR 149 Lapcevic v Collier [2002] NSWCA 300 Laughland v Stevenson [1995] 2 NZLR 474 Le Cornu Furniture and Carpet Centre Pty Ltd v Hamill (1998) 70 SASR 414 Leonardis v Theta Developments P/L & Ors [2000] SASC 402 Lewis v Boutilier (1919) 52 DLR 383 Linework Ltd v Dept of Labour [2001] NZCA 104 Livingston v Bonifant (1995) 7 NZCLC 260,657 Loizidis v SA Sawmilling Pty Ltd [2001] SAIRC 31 London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299, 97 DLR (4th) 261 Lott v JBW & Friends P/L & Endeavour Corp [2000] SASC 3 Luff v Oakley (Unrep; Sup Ct of the ACT, Kelly J; 19 Feb 1986) McCallum & Co Pty Ltd v Allen Manufacturing Co Pty Ltd [2001] FCA 488 Mackintosh v Phillips (Unrep; NSW Chief Industrial Magistrate, 5 May 1992) McLean v Tedman (1984) 155 CLR 306 McLeod v Buchanan (1940) 2 All ER 179 McMartin v the Newcastle Wallsend Coal Company Pty Ltd [2002] NSWIRComm 1024 McNicholas Construction Co Ltd v Customs and Excise Commissioners [2000] STC 553 Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 Maccarron v Future Engineering and Communication Pty Ltd [1998] WASCA 157 Mallan v Lee (1949) 80 CLR 198 Table of Cases iv
Mancetter Developments Ltd v Garmanson Ltd [1986] QB 1212 MCA Records Inc v Charly Records Ltd [2000] EMLR 743 (Rimer J); [2001] EWCA Civ 1441 (CA) Medina v Danbury Sales (1971) Ltd (1991) 30 ACWS (3rd) 770 Mentmore Manufacturing Co Inc v National Merchandising Manufacturing Co Inc (1978) 89 DLR (3rd) 195 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 All ER 918 Merrett v Babb [2001] EWCA Civ 214 Metropolitan Fire Systems v Miller [1997] 399 FCA Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231 Microsoft Corporation v Goodview Electronics Pty Limited [2000] FCA 1852 Millner v Raith (1942) 66 CLR 1 Modbury Triangle Shopping Centre Pty Ltd v Anzil [2001] HCA 61 Moltoni v Shepherd [1999] WASCA 73 Monier Ltd t/a Reliance Roof Tiles v Szabo (1992) 28 NSWLR 53 Monk v Warbey [1935] 1 KB 75 Morley v Statewide Tobacco Services Ltd (1992) 10 ACLC 1233 Morrison v Kiwi Electrix Pty Ltd [1998] WASCA 203 Nairne v Wagon Wheel Ranch Ltd (1995) ACWSJ 77582 National Coal Board v Gamble [1958] 3 All ER 203 National Union of Rail, Maritime and Transport Workers v London Underground Ltd [2001] EWCA Civ 211, [2001] ICR 647, [2001] IRLR 228 Nezer v Knafonit Light Aircraft Co Ltd 1994(2) PM 441 Nilant v Shenton [2001] WASCA 421 Noel v Poland (Queen’s Bench, Toulson J; 14 June 2001) 2001 WL 606328 Norman v Ali; Norman v Aziz [2000] Lloyd's Rep IR 395, 144 SJ LB 18 Nydam v The Queen [1977] VR 430 Oakley Inc v Oslu Import and Export Pty Ltd [2000] FCA 700 O’Brien v Dawson (1942) 66 CLR 18 Odyssey Re (London) Limited v OIC Run-Off Limited (Formerly Orion Insurance Company Plc) 2000 WL 191217 (CA) Ojjeh v Waller (Queen’s Bench, Buckley J; 14 December 1998) Omnicon Video Pty Ltd v Kookaburra Productions Pty Ltd (1995) 13 ACLC 1795, BC9501617 Osman v J Ralph Moss Limited [1970] 1 LLR 313 Owen v Shire of Kojonup [1965] WAR 3 Owen v Willtara Construction Pty Limited [1998] NSWLEC 216 Page v Walco Hoist Rentals Pty Ltd (No 2) [2000] NSWIRComm 39 Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 Perre v Apand Pty Ltd [2001] HCA 36 Pioneer Electronics Australia Pty Ltd v Lee [2000] FCA 1926 Prichard & Constance (Wholesale) Ltd v Amata Ltd and Others (1924) 42 RPC 63 Private Parking Services (Vic) Pty Ltd v Huggard (Unrep, SC Vic; 15 Feb 1996) 1996 VIC LEXIS 831 Pyrenees Shire Council v Day (1998) 72 ALJR 152 Table of Cases v
Quinn v McGinty 1999 SLT (Sh Ct) 27; 1998 RepLR 107 R v A C Hatrick Chemicals Pty Ltd (unrep; Sup Ct of Vic, Hampel J; 29 Nov 1995) BC9507254 R v Adomako [1994] 3 All ER 79, [1995] 1 AC 171 R v Ajax Engineering Services Ltd (unrep; HK CFI, Duffy J, 25 June 1995) R v Annakin (1988) 37 A Crim R 131 R v Bata Industries Ltd (No 2) (1992) 70 CCC (3d) 394 R v Bata Industries Ltd (1995) OR (3d) 321 R v Boal [1992] 2 WLR 890 R v British Steel [1995] 1 WLR 1356 R v Campbell (1984) 78 Cr App R 95 R v Chai [2002] HCA 12 R v Clark [2001] NSWCCA 494 R v Creamer [1966] 1 QB 72 R v Cory Bros & Co Ltd [1927] 1 KB 810 R v D [1984] 3 NSWLR 29 R v Davies [1999] 2 Cr App R (S) 356 R v Denbo Pty Ltd (SC Vic, Teague J; 14 June 1994) BC9405103 R v Dickson & Wright (1992) 94 Cr App R 7 R v Director of Public Prosecutions ex parte Jones [2000] IRLR 372, 2000 WL 331129 R v Director of Public Prosecutions ex parte Stacey (Unrep; Queen’s Bench, Turner J; 20 October 1999) R v Gateway Foodmarkets Ltd [1997] 2 Cr App R 40 R v Goodall (1975) 11 SASR 94 R v Hall [1999] NSWSC 738 R v Her Majesty’s Coroner for East Kent, ex parte Spooner [1989] 88 Cr App R 10 R v Holloway [1993] 3 WLR 927, [1993] 4 All ER 935 R v Holzer [1968] VR 481 R v Kite [1996] 2 Cr App R (S) 295 R v Leskinen (1978) 36 FLR 414 R v Lowe [1973] QB 702 R v Mara [1987] 1 All ER 478 R v Mayor, Councillors and Citizens of the City of Dandenong and Noel Bailey (Unrep; County Court of Vic, Stott J; 8 November 1991) R v Nelson Group Services (Maintenance) Ltd [1998] 4 All ER 331 R v Northumbrian Water, ex parte Newcastle and North Tyneside Health Authority [1999] Env LR 715 R v Ovenell [1968] 1 All ER 933 R v P & O European Ferries (Dover) Ltd (1991) 93 Cr App R 72 R v Pittwood (1902) 19 TLR 37 R v Pullman (1991) 25 NSWLR 89 R v Robert Millar (Contractors) Ltd and Robert Millar [1970] 1 All ER 577 R v Rollco Screw & Rivet Co Ltd [1999] 2 Cr App R (S) 436 R v Saskatchewan Wheat Pool [1983] 1 SCR 205 R v Sheppard [1981] AC 394 R v Shields [1981] VR 717 Table of Cases vi
R v Simpson [1999] NSWSC 842; on appeal [2000] NSWCCA 284 R v Stone [1981] VR 737 R v Tam Ping-cheong and Kwong Tim-yau [1996] HKCA 287 Rainham Chemical Works Ltd (In Liq) v Belevedere Fish Guano Company Ltd [1921] 2 AC 465 Rapid Wash Inc v Watercycle Ltd (CA Cal, 3rd Appellate District, November 29, 2001) 2001 Cal App LEXIS 2798 Rauk v Transtate Pty Ltd [2000] NSWSC 1020 Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 Re Clasper Group Services Ltd [1989] BCLC 143 Re a Company [1980] Ch 138 Re Lewis and the Minister of State for Health (Unrep; Federal Court, McGregor J; 26 April 1985) Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282 Re Supply of Ready Mixed Concrete (No 2), Director General of Fair Trading v Pioneer Concrete (UK) Ltd [1995] 1 All ER 135 Re Zion (Unrep; Federal Court of Australia, Smithers J; 26 September 1986) Rech v FM Hire Pty Ltd (1998) 83 IR 293 Red Bull Australia Pty Limited v Sydneywide Distributors Pty Limited [2001] FCA 1228 Registrar of Restrictive Trading Agreements v W H Smith & Son Ltd [1969] 3 All ER 1065 Richardson v Pitt-Stanley [1995] ICR 303 Rockdale Beef Pty Ltd v Carey [2003] NSWCA 132 Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Limited) v James Hardie & Coy Pty Ltd [2001] NSWCA 461 Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980 Rylands v Fletcher (1866) LR 1 Ex 265 Said v Butt [1920] 3 KB 497 Salomon v Salomon & Co Ltd [1897] AC 22 Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18 Sinanian v EKS Carpentry Pty Ltd (1998) 1 Aust Workers Comp Rev 125 Slivak v Lurgi (Australia) Pty Ltd [2001] HCA 6 Sony Music Entertainment (Australia) Ltd v CEL Music Pty Ltd [2002] FCA 193 Standard Chartered Bank v Pakistan National Shipping Corporation (No 2) [2000] 1 Lloyd’s Rep 218 (CA); [2002] UKHL 43 (HL) State Pollution Control Commission v Kelly (1991) ACSR 607 State Rail Authority of NSW v Dawson (1990) 37 IR 110 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 Stevenson v Southern Bluefin Farmers Pty Ltd [1997] SAIRC 41 Strongman (1945) Ltd v Sincock [1955] 3 All ER 90 Sullivan v Moody [2001] HCA 59 Sutherland Shire Council v Heyman (1985) 157 CLR 424 Sutton’s Hospital Case (1612) 10 Co Rep 1a, 23a; [1558-1774] All ER Rep 11 Sweeney v Duggan [1991] 2 IR 274 SX Holdings Ltd v Synchronet Ltd (Court of Appeal (Civil Division), Potter, May, Tuckey LJJ; 10 October 2000) [2001] CP Rep 43 Table of Cases vii
Taylor v Rover Co Ltd [1966] 2 All ER 781 Taylor t/a Modulec and G T Darke (1992) 10 ACLC 1516 Tepko Pty Ltd v Water Board [2001] HCA 19 Tesco Supermarkets Ltd v Natrass [1977] AC 153 The Thomas Saunders Partnership v Harvey (1989) 30 ConLR 103 Thomas v Sydney Training & Employment Ltd [2002] NSWSC 970 Tiger Nominees Pty Ltd v State Pollution Control Commission (1992) 75 LGRA 71 Tinline v White Cross Insurance Association Ltd [1921] 3 KB 327 TNT Australia Pty Ltd v Christie [2003] NSWCA 47 Trevor Ivory Ltd and Trevor Ivory v Anderson (1992) 6 NZCLC 67,611 Trott v W E Smith (Erectors) Ltd [1957] 3 All ER 500 Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206 Tuck v Robson [1970] 1 All ER 1171 Tucknott v Dykes (Unrep; NSW Chief Industrial Magistrate; 6 March 1994) United States v Iverson 162 F3d 1015 (1998) United States v Park 421 US 658 (1975) Universal Telecasters (Qld) Ltd v Guthrie (1978) 32 FLR 60 Van Dam Egg Co v Allendale Farms, Inc, and John Puglisi 199 NJ Super 452; 489 A2d 1209 (1985) Van Der Lee v. State of New South Wales [2002] NSWCA 286 Watson v Dolmark Industries Ltd [1992] 3 NZLR 311 WEA International Inc v Hanimex Corp Ltd (1987) 17 FCR 274 White v Malco [1999] NSWSC 1055 White Horse Distillers Ltd v Gregson Associates Ltd [1984] RPC 61 Wilke v Astra Pharmaceuticals Pty Ltd [2001] NSWCA 135 Williams v Duvalier Investments Ltd [1999] DCR 897; 1999 NZDCR LEXIS 15 Williams v Natural Life Health Foods Ltd [1998] 2 All ER 577 Wilson v The Queen (1992) 174 CLR 313 Woodhouse v Walsall Metropolitan Borough Council [1994] 1 BCLC 435 WorkCover Authority v Abalsco & Warren Martin [1998] NSWIRComm 619 WorkCover Authority v Australian Winch & Haulage Co Pty Ltd [2000] NSWIRComm 214 Workcover Authority v Baker [1993] NSWIRC 19 WorkCover Authority v Barton [1996] NSWIRComm 152 WorkCover Authority v Brkic [1998] NSWIRComm 246 WorkCover Authority v Brown, E E [1994] NSWIRComm 74 WorkCover Authority v Brown, J A [1997] NSWIRComm 85 WorkCover Authority v Celea [1996] NSWIRComm 144 WorkCover Authority v Coster [1997] NSWIRComm 154 WorkCover Authority v Crown in the Right of the State of NSW (Police Services of NSW) [2000] NSWIRComm 234 Workcover Authority v Delfos Pty Ltd (Fleck Rubbish Removals) [1996] NSWIRComm 156 Workcover Authority v Famello Pty Ltd [1999] NSWIRComm 120 WorkCover Authority v Filrose Pty Ltd (Unrep; NSWIRC, Marks J; 31 August 1999) WorkCover Authority v Genner [2000] NSWIRComm 8 Table of Cases viii
Workcover Authority v Grigor [1995] NSWIRC 226 Workcover Authority v Grigor (No 2) [1997] NSWIRComm 65 WorkCover Authority v Holland [1998] NSWIRComm 419 WorkCover Authority v Housalas [1997] NSWIRComm 16 WorkCover Authority v Hughes [1998] NSWIRComm 161 WorkCover Authority v Idofan Pty Ltd t/a Kingsland Transport (1995) 59 IR 295 WorkCover Authority v Krcmar Engineering Pty Ltd [1993] NSWIRC 34; (1993) 47 IR 359 WorkCover Authority v Lamb [1998] NSWIRComm 423 Workcover Authority v McCabe [1999] NSWIRComm 515 Workcover Authority v McLachlan [1995] NSWIRC 220 WorkCover Authority v Neaves [1996] NSWIRC 58, (1996) 84 IR 240 WorkCover Authority v Pethybridge [1998] NSWIRComm 647 WorkCover Authority v R & D Enterprises (Newcastle) Pty Ltd [2001] NSWIRComm 329 WorkCover Authority v Seccombe [1998] NSWIRComm 131; (1998) 43 NSWLR 390 Workcover Authority v Tummillo [1998] NSWIRComm 45 WorkCover Authority v University of Sydney [1997] NSWIRComm 44 Workcover Authority v University of Western Sydney [1997] NSWIRComm 124 WorkCover Authority v Vranas [1996] NSWIRC 45 WorkCover Authority v Waugh [1995] NSWIRC 14, (1995) 59 IR 89 Wotherspoon v HM Advocate 1978 JC 74 (Scottish High Court of Justiciary) Wright v Dunlop Rubber Co Ltd (1972) 13 KIR 255 Wylie v The ANI Corporation Limited [2000] QCA 314 Wyong Shire Council v Shirt (1980) 146 CLR 40 Yorke v Lucas (1985) 158 CLR 661 Yuille v B & B Fisheries (Leigh) Ltd [1958] 2 Lloyd’s LR 596 Table of Legislation i
TABLE OF LEGISLATION
Australia Commonwealth Constitution Copyright Act 1968 Corporations Law Amendment (Employee Entitlements) Act 2000 Corporations Act 2001 Crimes Act 1914 Criminal Code Act 1995 Criminal Code Defence Act 1903 Designs Act 1906 Health Insurance Act 1973 Income Tax Assessment Act 1936 Occupational Health and Safety (Commonwealth Employment) Act 1991 Taxation Administration Act 1953 Trade Practices Act 1974 Australian Capital Territory Environment Protection Act 1997 Occupational Safety and Health Act 1989 New South Wales Coal Mine Health and Safety Act 2002 Coal Mines Regulation Act 1982 Crimes Act 1900 Crimes (Sentencing Procedure) Act 1999 Environmental Offences and Penalties Act 1989 Evidence Act 1995 Factories Shops and Industries Act 1962 Interpretation Act 1987 Limitation Act 1969 Occupational Health and Safety Act 1983 Occupational Health and Safety Act 2000 Protection of the Environment Operations Act 1997 WorkCover Legislation Amendment Act 1995 Workers Compensation Act 1987 Workers Compensation Legislation Amendment Act 2000 Workers Compensation Legislation Further Amendment Act 2001 Workplace Injury Management and Workers Compensation Act 1998 Northern Territory Criminal Code Act 1983 Criminal Code Work Health Act 1986 Table of Legislation ii
Queensland Workplace Health and Safety Act 1995 South Australia Occupational Health Safety and Welfare Act 1986 Tasmania Workplace Health and Safety Act 1995 Victoria Crimes Act 1958 Occupational Health and Safety Act 1985 Western Australia Environmental Protection Act 1986 Occupational Safety and Health Act 1984
Canada Ontario Occupational Health and Safety Act (RSO 1980 c321) Workmen’s Compensation Act (RSO 1970 c 505)
New Zealand Health and Safety in Employment Act 1992
United Kingdom Children and Young Persons Act 1933 Companies Act 1985 Company Directors Disqualification Act 1986 Control of Pollution Act 1974 Factories Act 1961 Factories Act 1961 etc (Repeals and Modifications) Regulations 1974 (SI 1974/1941) Fire Precautions Act 1971 Food and Drugs Act 1938 Gas Safety (Installation and Use) Regulations 1994 Health and Safety at Work etc Act 1974 Insolvency Act 1986 Offices, Shops and Railway Premises Act 1963 Trade Descriptions Act 1968 Value Added Tax Act 1994 Water Industry Act 1991
United States Clean Water Act (33 USC §1319)