PDF DOWNLOADExtension of OHS liability to directors
Most jurisdictions in Australia impose personal liability on directors for safety breaches. In NSW, section 8(1) of the Occupational Health and Safety Act 2000 (NSW) (OHS Act) imposes a duty on employers to ensure the health, safety and welfare at work of its employees. Under section 26 of the OHS Act, if a company contravenes any provision of the OHS Act, each director of that company is also taken to have contravened the provision unless the director can satisfy the court that:
- he or she was not in a position to influence the conduct of the company in relation to the contravention; or
- he or she, being in such a position, used all due diligence to prevent the contravention by the company.
Until recently, there was uncertainty in NSW as to the meaning of “director” in section 26 of the OHS Act. This uncertainty arose because “director” is not defined in the OHS Act and it was unclear whether the term was limited to directors appointed in accordance with a company’s constitution or if it included shadow and de-facto directors under the extended meaning of “director” in section 9 of the Corporations Act 2001 (Cth) (Corporations Act).
Inspector James v Ryan (No 3) [2010] NSWIRComm 127
The case arose from a tragic incident, where an employee of Dekorform was fatally injured by a timber board that “kicked back” as it was being fed into a circular saw.
In the trial judge’s decision, Marks J found that Dekorform had contravened section 8(1) of the OHS Act. However, a charge under section 26 of the OHS Act against Mr Justin James Ryan, who was alleged to be a director of Dekorform, was dismissed because Marks J was satisfied that Mr Ryan had not been appointed a director of Dekorform pursuant to its constitution. In his decision, Marks J stated that the meaning of “director” in section 26 of the OHS Act did not extend to encompass shadow and de-facto directors as referred to in the meaning of “director” in section 9 of the Corporations Act.
The decision of Marks J was appealed by WorkCover to the Full Bench, who further examined the meaning of “director” in section 26 of the OHS Act. The Full Bench held that Marks J erred in holding that the term “director”, where it appears in section 26 of the OHS Act, does not include the extended meaning in section 9 of the Corporations Act. The Full Bench found that the word “director” in section 26 of the OHS Act “embraces the concept of a de-facto director” and would also capture shadow directors. The Full Bench determined that a finding otherwise would have the effect that a person could avoid liability if the Company simply failed to comply with its own internal procedures of appointment.
Notwithstanding the expanded meaning of “director”, the Full Bench held that Mr Ryan was not a shadow or de-facto director of Dekorform. The Court considered the accepted definitions of those roles and applied them to the facts. The critical factors in this case which supported the view that Mr Ryan was not a director were:
- he had not been appointed to that position in accordance with Dekorform’s constitution;
- despite the fact Mr Ryan was a director of a holding company of Dekorform and it was both his and Dekorform’s intention that he would be a director of Dekorform, Mr Ryan did not act in the position of director in an ongoing capacity and was not performing top-level management functions at Dekorform. Accordingly, the Full Bench found that he was not a de-facto director of Dekorform at the time the incident occurred; and
- there was no evidence that that the board of Dekorform were accustomed to act in accordance with Mr Ryan’s instructions or wishes and, accordingly, he was not a shadow director.
The meaning of “director” under the proposed harmonised legislation
Shadow and de-facto directors will continue to be on the hook for safety contraventions under the proposed harmonised OHS legislation due to commence on 1 January 2012.
In the draft Model Work Health and Safety Bill, the term “officer” replaces “director” in the context that the term is used in section 26 of the OHS Act. The draft legislation defines “officer” to include “an officer within the meaning of section 9 of the Corporations Act”, which in turn captures the roles of shadow and de-facto directors.
Lessons for employers
The case of Inspector James v Ryan now makes it clear that the meaning of “director” in NSW is not limited to directors appointed in accordance with the constitution of the company, but will also include shadow and de-facto directors as referred to in the extended definition of “director” in section 9 of the Corporations Act.
Accordingly, persons who may be considered shadow or de-facto directors of the company can also be found liable in respect of OHS incidents and this will continue to be the case under the proposed harmonised legislation. To avoid such liability, a director of a company, despite the reason that they are regarded as such, must exercise “due diligence”. Those duties are further explored in the article “Changes to Personal Liability of Directors and Officers”. Concerned managers and businesses (who may also be shadow or de-facto directors) may also wish to review their arrangements in light of this exposure.