Australian WHS Laws – First Judicial Guidance On Who Is An ‘Officer’.

Background

In our earlier Update we referred to a decision in June this year of the ACT Industrial Court which involved a prosecution against an alleged officer of a Person Conducting a Business of Undertaking (PCBU) for failing to exercise due diligence, contrary to the duty set out in section 27 of the Work Health and Safety Act 2011 (WHS Act)

Chief Industrial Magistrate Lorraine Walker has now published her reasons for dismissing the charge against Mr Al-Hasani. 

The decision provides some useful guidance as to the factors that are likely to be relevant in assessing whether, for the purposes of the definition of an 'officer' under section 9(b)(i) of the Corporations Act 2001 (Cth), a person is someone who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation. 

The key facts 

Relevantly, the facts were as follows:

• Kenoss Contractors Pty Ltd (Kenoss Contractors) used two compounds while performing road works (the Project); a main site and a second smaller site which was solely used to store materials (Site);

• On 23 March 2012, Michael Booth a driver employed by a contractor engaged by Kenoss Contractors to deliver materials for the Project, was fatally electrocuted when the bucket of his truck came close to or contacted overhead power lines at the Site;

• Kenoss Contractors' corporate structure was not fully described but appears to have comprised a number of senior roles, including a director, general manager and safety officer.  Mr Al-Hasani was described as 'Project Manager' and was responsible for managing all major projects for Kenoss Contractors;

• The organisational chart for the Project noted Mr Al-Hasani at the head with the safety officer below him.  A project engineer, surveyor and general foreman also appeared as direct reports to Mr Al-Hasani;

• Mr Al-Hasani said he reported to the general manager and company director and that, in terms of his scope of decision making power:

  • the general manager was "El supremo";
  • there were other people in the accounting and administration departments between him and the general manager and company director;
  • he could not unilaterally direct payments to be made to any party or employ people or purchase basic consumables;
  • he prepared tenders but proposed prices had to be approved by 'management';
  • he performed traditional Project Manager responsibilities and decision making including:
    • sometimes making decisions as the Project Manager and sometimes participating in making decisions with the general manager and company director;
    • participating in management meetings;
    • maintaining computer systems;
    • liaising with customers;
    • implementing procedures, plans and safe work method statements;
    • managing and supervising performance of project teams;
    • keeping the general manager advised of developments;
    • managing customer supplied items and materials,
    • managing variations in contract price;
    • verifying conformance with documented processes in project plans and taking necessary remedial actions; and
    • reviewing and approving project documents and signing off on completion of projects.

The decision

The learned Magistrate concluded that notwithstanding Mr Al-Hasani's role as Project Manager, the prosecution had not proven that he did, in fact, make decisions or participate in decisions that affected either the whole or a substantial part of Kenoss Contractors' business. 

In reaching this conclusion, the learned Magistrate:

• said the limited evidence established that Kenoss Contractors had a relatively flat management structure and Mr Al-Hasani sat close to the top of the structure; 
• observed that there was no specific evidence, however, from either the general manager or company director as to the scope of their own roles or where Mr Al-Hasani sat and his level of influence within Kenoss Contractors;
• noted that there were clear limits on Mr Al-Hasani's participation in decision making delineated by his role as Project Manager;

• stated that Mr Al-Hasani's acceptance that he did make decisions and participate in decisions that affected either the whole or a substantial part of Kenoss Contractors' business was not conclusive of the issue of whether he was an officer;

• noted the absence of any decisions on the definition of officer under the work health and safety laws and relied on observations made by the High Court in Shafron v Australian Securities and Investment Commission  [2012] HCA 18 at [23] to [26], including the following:

First, the inquiry required by this paragraph of the definition [sub-section 9(b)(i) Corporations Act] must be directed to what role the person in question plays in the organisation.  It is not an enquiry that is confined to the role that person played in relation to the particular issue in respect of which it is alleged that there was a breach of duty"

"the notion of participation in making decisions presents a question of fact and degree in which the significance to be given to the role played by the person in question must be assessed"

• decided that all that had been established was that Mr Al-Hasani's participation in the business was operational and whether it went beyond that to being organisational was only speculative.

What can we learn from the decision?

Drawing from the learned Magistrate's reasons, some of the potentially relevant factors that will come into play when deciding whether a person makes decisions or participates in decisions that affect either the whole or a substantial part of a PCBU's business can be summarised as follows:

FACTOR	SUGGESTS GREATER ABILITY TO MAKE OR PARTICIPATE IN DECISIONS	SUGGESTS LESSER ABILITY TO MAKE OR PARTICIPATE IN DECISIONS
Overall role played in PCBU	Role is across all or many aspects or business divisions within PCBU	Role is limited to certain business divisions
Hiring employees or contractors	Power to hire employees	Able to identify potential employees but no power to hire employees
PCBU funds	Power to commit PCBU funds	Not permitted to commit funds
Business development	Power to direct the type or specific contracts pursued by the PCBU and approve tenders	Responsible for preparing tenders but not permitted to approve tenders or direct type of work pursued
PCBU policies, procedures etc.	Involved in preparing corporate level policies	Involved in preparing, implementing and monitoring compliance with project specific procedures, plans and method statements
Board meetings	Attends board meetings	Attends only management meetings
PCBU corporate legal obligations	Responsible for lodging ASIC returns and quality assurance compliance	Not involved
Management of operations	Manages overall operations with day to day responsibility delegated to project manager	Liaises with customers and manages customer supplied items and materials, manages variations in contract pricing, supervises project teams and signs off on project completion

Observations

Many of the learned Magistrate's observations are instructive. However, we offer some food for thought.

Interpretation and the Shafron decision

Heavy reliance was made on observations of the High Court on the proper interpretation of the section 9(b)(i) limb of the definition of 'officer'. These observations were made in the corporations context with reference to the particular circumstances that arose and submissions that were made in Shafron. 

Here, the circumstances were quite different and attention was not directly turned to the potential impact of the work health and safety context in which the definition appears including the objects of the WHS Act (which are quite different to those of the Corporations Act), the overall context of the WHS Act and any relevant non-legislative materials, in accordance with ACT's Legislation Act 2001.

How these matters are addressed next time will be interesting to see.

The participation and affect requirements

Mr Al-Hasani was not an officer because he did not participate in decisions that affected the whole or a substantial part of the business of Kenoss Contractors.  He made or participated in decisions that affected certain operational aspects of the projects operated by the business.  In this sense it is the overall impact or importance of the decision that is assessed: a decision that affects the whole business may be described as a critical decision that impacts all aspects of the business, whereas a decision that affects a substantial part of the business may be seen as an important decision that impacts on many aspects of the business.  The decisions that Mr Al-Hasani could make or participate in did not have these qualitative characteristics.

It seems that the phrase "a substantial part of the business" may also be applied in a more physical sense such that a decision that affects a separate division of a business may be a relevant decision if that division is a substantial part of the overall business of the PCBU. 

According to the Interpretive Guideline – Model Work Health and Safety Act – The Health and Safety Duty of an Officer under Section 27 issued by Safe Work Australia, a business may have various, defined divisions based on product or service categories and each of the divisions may be a substantial part of the business depending on their role within the organisation as a whole.  The Guideline states that some or all of the following criteria are relevant in identifying whether a part of a business is a substantial part:

1. The degree to which the part contributes to the revenue of financial standing of the business
2. The degree to which the part is significant to the reputation of the entity
3. Whether the part is considered to be a core part of the business, or ancillary to the core business.
4. The proportion of personnel of the whole business who are engaged in activities within the part.
5. Whether those who manage that part of the business make significant strategic or policy decisions, or whether those decisions are made at a higher level.

It appears both qualitative and quantitative characteristics will be able to be considered when determining what is a substantial part of a business.

Next steps

The first chapter of the judicial interpretation of an officer's due diligence duty under Australian work health and safety laws has been written.  We now have some guidance on the factors to consider in determining whether a person is an officer of a PCBU. 

However, some big questions remain and more guidance is needed.  Stay tuned for the next chapter – we will let you know when it is written.