Lacking due diligence: Officer convicted under WHS legislation

What you need to know

• An officer of a company has been convicted by the South Australian Employment Tribunal for failing to exercise due diligence to ensure that the company complied with its health and safety duty under the South Australian Work Health and Safety Act 2012.
• The Tribunal found that while the company and officer were let down by experts upon which they relied, the officer had opportunities to be more careful in relation to her duty to discharge the due diligence obligations of an officer.

What you need to do

• Ensure those at the highest levels within your company, who are likely to be considered to be officers, are taking appropriate steps to exercise due diligence in relation to work health and safety.
• Consider the approach regulators take to the "due diligence" duties of officers under harmonised work health and safety legislation.

Background

At the Royal Adelaide Show in September 2014, an eight year old girl suffered fatal injuries when she was thrown from an amusement ride, called the Airmaxx. The company who owned and operated the Airmaxx and one its directors were charged by the regulator, SafeWork SA, with breaches of the WHS Act.

(Separately, the engineering company engaged by the operator who had conducted an engineering inspection of the Airmaxx 12 days prior to the incident, together with its director, were also charged with breaches of the WHS Act.)

The operator was charged and pleaded guilty to failing to provide and maintain plant in a safe condition, failing to have safe systems of work in place (section 19(2)), and using plant without an authorised design in accordance with the WHS Regulation, resulting in persons being exposed to risk of death or serious injury.

The director pleaded guilty to breaching the "due diligence" duties in the WHS Act (section 27) by failing to exercise due diligence to ensure that the operator complied with its duties under the WHS Act. The director had extensive involvement in the day-to-day operations of the company and the maintenance and operation of the Airmaxx. 

How did the director fail to exercise due diligence?

The director pleaded guilty to failing to take due diligence steps to ensure that:

• repairs, maintenance and inspection of the equipment was performed by appropriately qualified persons
• safe systems of work were provided and maintained (including in relation to having in place, or consistently enforcing policies and procedures for the operation of the equipment)
• the operator had appropriate systems and processes in place to record maintenance and repair work undertaken on the equipment, as well as recording hazards, risks or injuries relating to the operation of the equipment; and
• the equipment was appropriately registered and that it was not used until its design registration was authorised.

What does this mean from an officer's due diligence perspective?

In its decision in Boland v C, J & Sons Amusements Pty Ltd and Jenny-Lee Sullivan [2017] SAET 68, the Tribunal stated that both the operator and director had been "let down" and "not properly guided" by experts they had engaged and relied upon, in the purchase, registration and operation of the equipment. However, the Tribunal considered that there were "ample opportunities" for the director to "be a lot more careful in relation to her duty to discharge the obligations as a director".

The Tribunal noted that while the operator and director did not behave in a reckless or intentional manner, the lack of due diligence and the way in which they "did not necessarily cover everything they ought to have", were matters in the circumstances that could be understood but not excused.

The Tribunal emphasised the significance of general deterrence where operation of equipment such as the Airmaxx involved "significant risk." The Tribunal determined that penalties of $94,500 against the operator, and $63,000 against the director (after a 30% reduction for an early plea) would have been imposed. Due to the "precarious financial situation" of the operator and director, however, the Tribunal recorded convictions but did not order penalties against the defendants.

Insights

There are very few decisions of courts and tribunals under the model WHS laws dealing with the duty of officers to exercise due diligence. The decision of the Tribunal in this case reinforces the need for employers to have in place safety corporate governance structures at the highest levels, and for directors and officers to ensure that they are taking steps to demonstrate the exercise of due diligence.

The decision of McKie v Al-Hasani & Kenoss Contractors Pty Ltd (in liq) [2015] ACTIC 1, covered in our Safety Matters Alert in September 2015, remains the leading decision on the due diligence duty of officers, and which persons will be considered to be officers, under the model WHS laws.

The cases that have come before the courts so far have primarily involved officers of smaller enterprises where the officers have significant and direct day-to-day involvement in operations. Certain insights can be distilled, however, from the charges laid against officers by regulators, in relation to the level of due diligence that they appear to expect be exercised. How regulators and the courts will approach different situations, such as in larger organisations where the involvement of officers in operational matters may be more distant, is yet to be seen.

Recklessness offences

Employers should continue to monitor developments in the related prosecution proceedings involving the engineering company and its director. They are among the first defendants to be charged with recklessness (category one) offences under the model WHS laws, for their role in undertaking inspections of the Airmaxx involved in the incident. The engineering company and director have unsuccessfully challenged the validity of the charges against them in the SA Industrial Relations Court (Boland v Safe is Safe Pty Ltd & Munro [2017] SAIRC 17). If they are ultimately convicted, they face maximum penalties of a fine of $3 million for the engineering company, and a fine of $300,000 or a five year jail term for the director.

Authors: Trent Sebbens, Partner; Dom Fleeton, Senior Associate; and Tess Birch, Graduate.