Duties and obligations of
Directors and officers
Aviation Industry Association
2013 Aviation Week conference
Aviation Industry Association 2013 Aviation Week conference
Overview
Statutory duties of directors and officers
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Company and commercial law
Industry Specific – Civil Aviation Act 1990
Health and Safety in Employment Act 1992
Easy Rider
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What happened
Charges against AZ1 Enterprises Limited and Gloria Davis
Pike River
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Charges against Pike River Coal Ltd and Peter Whittall
Case law on prosecution of directors
Current law reform and other initiatives
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Statutory obligations and duties
Companies Act 1993
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Directors must manage, or direct or supervise the management of, the
business and affairs of the company: s128(1)
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Statutory duties of directors:
- to act in good faith and best interests of company (s131)
- not to incur obligations or trade recklessly (ss135, 136)
- to exercise the care, skill and due diligence expected of directors
exercising their powers under the Act (s137)
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Duties primarily owed to company; liquidator and creditors can also take
action to enforce duties; could result in personal liability of directors
Other commercial statutes may impose specific duties giving rise to civil
and/or criminal liability – eg finance company prosecutions
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Civil Aviation Act 1990
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Definition of operate, in relation to an aircraft, includes “cause or permit”
to be operated, whether or not the person is present with the aircraft
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Offence provisions in the CA Act refer to persons who “cause or permit”
an aircraft to be operated in a manner causing unnecessary danger
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Easy Rider case – will test extent to which these provisions can apply to the
director of an operator/owner company
Aiding or abetting, being party to offences
Tax Administration Act 1994
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s148: Persons aiding or abetting offences may be prosecuted - could apply
to directors – eg failure to account for PAYE
Crimes Act 1961
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s66: Parties to an offence – includes a person who does or omits an act for
the purpose of aiding any person to commit an offence; or incites, counsels
or procures commission of offence
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Health and Safety in
Employment Act 1992
Object: To promote the prevention of harm to all persons at work
and other persons in, or in the vicinity of, a place of work
Duties of employers
Employers must take “all practicable steps” to ensure:
s6:
The safety of employees while at work including to:
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provide a safe work environment
ensure that plant and equipment is safe for use
have systems to eliminate, isolate or minimise hazards
develop procedures for dealing with emergencies
s15:
That no action or inaction of any employee while at work
harms any other person
s13:
Duty to provide adequate training and supervision of staff
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Duties of principals
s18:
Principals must take “all practicable steps” to ensure that no
contractor or subcontractor, or their employees, is harmed
while working for the principal
Duties of persons controlling place of work
s16:
Person who controls place of work must take “all practicable
steps” to ensure no hazard in workplace harms person
lawfully working in the workplace;
Duties of employees
s19:
Employees must take “all practicable steps” to ensure
their own safety at work; and that no action or inaction of
the employee while at work causes harm to any other person
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No specific duties for directors or officers BUT:
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s56(1) Directors, officers or agents who have “directed, authorised, assented
to, acquiesced in, or participated in”, the failure of a body corporate to
comply with the Act, is party to and guilty of the failure, and subject to
same penalties
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S56(2) Extends to directors, officers, agents or senior managers of Crown
organisations
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Applies whether or not the entity is prosecuted = liquidation of company
does not prohibit action against directors
Contravention of above provisions by any person is an offence liable
to conviction and fine of up to $250,000: s50(1)
Note – reparation orders must also be considered – Sentencing Act
requirement – this may affect level of any fines imposed
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“All practicable steps”
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s2A(1): Must take all steps to achieve a safe result that it is reasonably
practicable to take in the circumstances, having regard to
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The nature and severity of any injury or harm that may occur
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The degree of risk or probability of injury or harm occurring
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How much is known about a hazard, and any means of eliminating,
isolating or minimising the hazard
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The availability and cost of safeguards (weighed against the potential
consequences of failing to provide those safeguards)
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s2A(2): Person required to take all practicable steps – only required to take
those steps in respect of circumstances that the person knows or ought
reasonably to know about
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Judgment of what is “reasonably practicable” will take into account common
practice and knowledge within an industry
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Easy Rider – what happened
Easy Rider capsized and sank in Foveaux Strait 15 March 2012, with the
loss of eight lives and one survivor
TAIC Findings:
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The vessel was loaded with too much weight, stacked too high
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Vessel design flaws meant it had limited stability reserves
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Weather forecast was for gale force winds, unsuitable for voyage
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Large wave engulfed boat; caused the vessel to roll and capsize
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Insufficient life jackets on board for all persons; life raft only capable of
holding four people
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Skipper did not hold required skippers certificate, and did not
understand concept of vessel stability
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Vessel was operating as commercial fishing vessel and was not authorised
to carry passengers and their equipment
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Prosecution – AZ1 Enterprises
Maritime Transport Act 1994
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It operated the ship knowing that a maritime document was required
(skippers certificate) and knowing it was not held: s68(2)(a) MTA
CAA equivalent: s46(1)(a) – maximum fine $100,000
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It caused or permitted the ship to be operated in a manner causing
unnecessary danger or risk to the persons on board: s65(2)(a) MTA
CAA equivalent: s44(2)(a) – maximum fine $100,000
Health and Safety in Employment Act 1982
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As an employer, it failed to take all practicable steps to ensure:
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the safety of its employees while on board the ship: s6 and 50(1)
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That no action or inaction of any employee while at work harmed any
other person on board the ship: s15 and 50(1)
As principal, it failed to take all practicable steps to ensure that no contractor
or subcontractor was harmed while doing work on board the ship that he was
engaged to do: s18 and 50(1)
Maximum fines up to $250,000 each
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Prosecution – Gloria Davis
Maritime Transport Act 1994 and s66 Crimes Act 1961:
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She operated the ship knowing that a maritime document was required
(skippers certificate) and knowing it was not held: s68(2)(a) MTA
CAA equivalent: s46(1)(a) – maximum fine $10,000
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She caused or permitted the ship to be operated in a manner causing
unnecessary danger or risk to the persons on board: s65(2)(a) MTA
CAA equivalent: s44(2)(a) – maximum fine $10,000
Health and Safety in Employment Act 1982:
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As a director, she acquiesced and participated in the failure of AZ1 Enterprises Ltd
as an employer to take all practicable steps to ensure:
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the safety of its employees while on board the ship: s6 and 50(1)
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that no action or inaction of any employee while at work harmed
any other person on board the ship: s15 and 50(1)
As a director, she acquiesced and participated in the failure of AZ1 Enterprises Ltd
as a principal to take all practicable steps to ensure that no contractor or
subcontractor was harmed: s18 and 50(1)
Maximum fines up to $250,000 each
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Pike River prosecutions
Pike River Coal Ltd (in receivership) is awaiting sentencing for nine
charges, of failing to take “all practicable steps” to ensure:
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The safety of its employees: s6, s50(1) x 4 charges
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The safety of its contractors, subcontractors and their employees: s18, s50(1)
x 4 charges
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That no action or inaction of its employees harmed another person: s15,
s50(1)
Peter Whittall (CEO) is facing trial as an officer of the company, with
twelve offences:
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That he acquiesced or participated in the failures of Pike River Coal Ltd as an
employer (x 4) and as a principal (x 4); and
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That he failed as an employee to take all practicable steps to ensure that no
action or inaction of his harmed another person (x 4)
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Case law – director prosecutions
Department of Labour v IcePak Coolstores (2009)
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Fire alarm activated in coolstore
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Fire brigade attended, entered and attempted to deal with source when there was
an explosion – one fire fighter killed, seven injured
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Company had recently changed to a hydrocarbon-based refrigerant;
environmentally friendlier and cheaper, but highly inflammable
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System put in place by contractor company Mobile Refrigeration Systems via its
sole employee Mr Cook did not meet standards AS/NZS 1677
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No continuous ventilation system, electrical equipment not explosion proof,
inadequate gas detection device, no means of eliminating all sources of
ignition on detection of a leak
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Explosion caused by the leaking of a hydrocarbon-based refrigerant that somehow
ignited – thought to be spark within the main switchboard
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IcePak Coolstores accepted its own safety systems and practices were inadequate,
safety equipment available to staff was inadequate
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Outcome
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IcePak Coolstores pleaded guilty to:
- s6 failing to take all practicable steps to ensure safety of its employees
while at work ($30,000 fine)
- s16(3) failing to warn person other than employee or contractor of
risk of hazards ($95,000 reparation; fine $3,600*)
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Mobile Refrigeration Specialists pleaded guilty to:
- s15 failing to take all practicable steps to ensure that no action or
inaction of its employee Mr Cook while at work caused harm
(reparation $175,000 and fine $56,000)
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Wayne Grattan, Managing Director of IcePak, pleaded guilty to:
- s56, as a director of the company he acquiesced in the failure of IcePak
Coolstores to ensure the safety of its employees while at work (fine
$30,000)
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IcePak and Mr Grattan – offending assessed as low-medium culpability,
starting point $50,00; MRS as medium-high culpability, starting point
$100,000
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Western Australian case
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Section 19 OSH Act – employer required “so far as is practicable” to provide
and maintain a working environment in which employees are not exposed to
hazards
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s55 OSH Act – a director, manager, secretary or other officer will also be guilty
of the offence if attributable to their “consent, connivance or neglect”
Fry v Keating (2013), Western Australian Supreme Court
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Mr Murrie, rigger operator, killed when pack of 16 crane components weighing
over 375kg fell from a crane and struck him
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D&G Cranes prosecuted for breach of s19 OSH Act. Two directors prosecuted
on the basis that the breach was attributable to their neglect
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Two methods had been employed for lifting the crane packs:
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Method 1 – a safe and appropriate method where all parts securely
encapsulated
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Method 2 – unsafe method, where all parts were not secure and some at
risk of falling; some riggers had been known to use this method in the past
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In 2004 risks of Method 2 identified and directors resolved that Method 1 should
be the only method used
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Evidence was that Yard Supervisor had number of administrative duties which
prevented him from providing full attention to the work in the yards
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In this instance, Method 2 had been used and the pack had slipped
Findings
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Court found D&G Cranes failed to ensure Method 1 was in place and enforced
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This omission caused Method 2 to be used
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Method 2 was extremely dangerous and its use demonstrated failure of D&G
Cranes, so far as practicable, to provide and maintain work environment where
employees not exposed to risk of being injured or killed as a result
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D&G Crane’s failure caused the death of Mr Murrie
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The two directors were guilty of the offence due to their neglect in ensuring
Method 1 was used at all times; appealed
Appeal to WA Supreme Court
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Supreme Court said the Directors were not remote from the business; they were
hands on; in those circumstances, they were neglectful in being unaware that
the supervision had broken down and in failing to enforce Method 1
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Appeal to WA Court of Appeal
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Directors appealed on grounds that prosecution had failed to prove that they
ought to have known that Method 2 was being used
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Directors claimed there was a system in place to deal with unsafe work
practices, including supervision by the Yard Supervisor; that they hired
qualified riggers; neither director saw Method 2 being used when they visited
the yard; one director was overseas at the time of the incident
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Appeal failed, Appeal Court highlighted fact that:
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none of the employees had a consistent, documented induction process
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there was no written safe working procedure documenting Method 1
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the employees had no formal training in Method 1
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no dedicated health and safety officer
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the yard supervisor’s duties required his attention away from the yard
The Court held that the directors were not entitled to assume that Method 1 was
being used at all times; they had a duty to take reasonable steps to ensure that it
was in fact being used
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Comment on implications for Easy Rider / Pike River cases
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“acquiesced” not defined in HSE; not tested in IcePak due to guilty pleas;
DoL’s position was the director was aware of the circumstances, was in a
position to do something about it, and failed to do so
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Western Australian case – took view that directors ought to have known
that the safe method was not being consistently used – refer s2A HSE
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In IcePak the fact that Mr Grattan was a working director was considered
relevant to DoL’s assessment that he was in a position to do something
about it; in the Australian case, both directors also described as “hands on”
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Easy Rider - Open to interpretation how “acquiesced or participated in” will be
applied to a “silent” director (assuming company found to have breached
HSE Act)
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Pike River – strong parallels to the facts in IcePak, regarding the reasons
contributing to the explosion, and close involvement in the business; could
result in liability for him as “officer” for acquiescing or participating in the
breaches of the company
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Current law reform initiatives
Health and Safety in Employment Act
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Recommendations of Pike River Commission, and work of Government
Task Force on health and safety
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likely to result in specific duties for directors under the HSE
likely to lead to greater enforcement of breaches by directors and
officers of companies
Likely to see introduction of corporate manslaughter charge
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Minister of Labour indicates he does not favour extending this to
individual officers, directors or employees, but early days
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Note also that individuals could be directly charged with
manslaughter if causal link between death and conduct of individual
(refer: R v Potts and Horrell, convicted of manslaughter of pilot due to
finding of gross negligence in performing maintenance work)
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Other initiatives
Health and Safety in Employment guidelines
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Institute of Directors and MBIE
• Good Governance Practices and Guidelines for Managing Health
and Safety Risks published (applies to 20+ employees)
• Guidelines for smaller companies being developed
• Other industry specific guidelines exist – see MBIE website
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CAA – SMS initiatives currently under way – consider integrating SMS to
incorporate all aspects of health and safety systems and processes
Commercial law reforms
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Initiatives to introduce criminal offence provisions for breach of duties
under Companies Act and Limited Partnerships Act – in particular,
concerning duty not to carry on business in way that causes substantial
losses to creditors; knowingly acting against best interests of company
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