Hillman v De-Construct Pty Ltd [2010] SAIRC 41

"1. On 30 March 2007, at Adelaide in the State of South Australia, the first defendant, being an employer, failed to ensure as far as was reasonably practicable that a person, not being an employee employed or otherwise engaged by the first defendant, namely David Perry, was safe from injury and risks to health whilst that person was in a situation where he could be adversely affected through an act or omission occurring in connection with the work of the first defendant;

Contrary to section 22(2)(b) of the Occupational Health, Safety and Welfare Act 1986

Particulars

1.1 At all material times the first defendant carried on a demolition business.

1.2 At all material times, David Perry was neither employed nor engaged by the first defendant.

1.3 On 30 March 2007, employees of the first defendant were demolishing air-conditioning ducts on the roof of a property known as 'Lodging House' located at 221 Wakefield Street, Adelaide.

1.4 On 30 March 2007, David Perry was exposed to a risk of injury while he was present in a car park adjacent to the Lodging House site when a metal rod fell from the roof of the Lodging House site.

1.5 The first defendant failed to ensure that safety precautions were in place with respect to the car park adjacent to the Lodging House site, and in particular that steps had been taken by the second defendant to exclude persons from the car park, prior to commencing the demolition of the air-conditioning ducts."

2

The defendant has pleaded guilty to this charge.

3

As is evident from the complaint, the charge arises out of an incident that occurred on 30 March 2007 at premises in Wakefield Street. In fact a second defendant was named on the complaint; that being Mossop Group Pty Ltd (Mossops) which was a building company which sub-contracted certain work, including demolition work, to the defendant. The second defendant was charged with failing to ensure that safety precautions were in place with respect to the car park adjacent to the Lodging House worksite and failing to take steps to exclude persons from the car park prior to the defendant commencing demolition work. The Mossop Group was acquitted of the charge on the basis that it was not reasonably practicable for it to exclude persons when there was no knowledge of the defendant being on the roof for the purposes of demolition.

4

The defendant company provides various building services including demolition, renovation and general reconfiguration of buildings. On the date specified in the complaint it was engaged in demolition work of old air-conditioning ducts. The defendant tendered for and obtained the contract of demolition which entailed substantial removal of internal structures such as walls and ceilings, as well some external work relating to the removal of gates and paving. The air-conditioning ducting in question emerged from a plant room and entered the ceiling space of the building and was also to be removed.

5

The ducting itself was on the roof of the third floor of the Lodging House. On the ground below and between it and the nearby Red Cross building was a car park. The photographic evidence shows that the ducting had been installed quite close to the roof edge of the building overlooking the car park. The roof was peaked and was referred to as being at an angle of about 30 to 45° from horizontal. Looking at the exhibits, I think it was closer to the former. The work itself required the use of harnesses and lanyards for workers and a crane to remove various items from the roof to the ground. The defendant had created a Job Safety Analysis in which it dealt with numerous potential hazards and controls. It had also created a demolition methodology which it had conveyed to the Mossop Group. The methodology refers to a risk of property damage and specifies an exclusion zone on the ground in the event of a fall of any equipment. As a further consideration the document speaks of "Advanced notice to be given to Red Cross for car park access for the purpose of creating an exclusion zone immediately below the roof works. This will be performed by Mossop's."

6

The methodology was signed by Shaun Cooke as Project Manager on 14 March 2007 on behalf of the defendant. It was thus prepared a fortnight before the incident.

7

The demolition of the air-conditioning ducting commenced the day before the incident. On that day, the subject of the charge, three of the defendant's employees were undertaking demolition of the ducts. The supervisor left the site for other work purposes leaving two employees to continue with the work when a piece of angle iron of about 50mm x 50mm and 2.5m long which had previously been fixed by means of bolts and rivets, fell from the underside of the ducts along the roof and down the side of the building into the car park and onto a motor vehicle parked below. The weight of the item has not been provided but it was quite heavy and only able to be lifted with some effort.

8

At the time that the iron fell, Mr David Perry, an employee of the Australian Red Cross, was walking through the car park and saw the iron fall. He was approximately 10m away.

9

The prosecution contends that the defendant failed to ensure that safety precautions were in place with respect to the car park and failed to ensure that steps had been taken by the second defendant, Mossops, to exclude persons from the car park prior to commencing the demolition of the air-conditioning ducts.

10

The defendant had advised Mossops that it was its responsibility to clear the car park as the principal contractor and as the liaison point with surrounding businesses and with all the other trades.

11

The act or omission that it is alleged put Mr Perry at risk was the commencement by the defendant of the demolition of the ducting on the roof when there was no exclusion zone in place. The demolition methodology was clear in its terms and stated, as referred to above, that it was Mossops' responsibility to arrange with the Red Cross that there be an exclusion zone in the car park. It is not alleged that it was the defendant's responsibility to arrange for that exclusion zone.

12

As indicated above the defendant had provided the methodology to Mossops prior to the commencement of the roof work so the parties were or should have been clear as to it being Mossops' role to arrange the exclusion zone. However that was not the case and it was not in place.

13

Ms Herzig who appeared for the prosecution submitted that it would (or should) have been obvious to the employees on the roof that the exclusion zone was not in place. They could see from the roof into the car park and down to the cars directly below. It was not clear however whether the employees were aware that the exclusion zone was to be in place. One worker said in his statement that he had not seen any policies, JSAs or safe work method statements for the job. The supervisor, Mr Day, said that he had been told by Mossops and a certain Mr Cooke to be careful about fall prevention but he did not receive any information or instruction about public safety or stopping material falling off the roof. He told the two remaining workers to be careful and make sure that nothing was dropped but no other specific precautions were taken. Mr Cooke said that a copy of the methodology had been given to the supervisor prior to the commencement of the work. That would appear to be in dispute but the prosecution maintains in any event that it was not clear whose role it was to check whether the exclusion zone was in place. It was submitted that the fact remained that there was no zone. Work was being undertaken close to a car park through which people could walk. Ms Herzig submitted that one of the employees who knew that work on the roof was to be undertaken, and who knew that there should have been an exclusion zone in place, should also actually have checked whether the exclusion zone was in place before work commenced and that this was a reasonably practicable step that the defendant could have taken in the matter.

14

It was also alleged that there were no steps taken to ensure that should anything fall, there could not possibly be anyone below who might be injured. Had the defendant ensured that the exclusion zone was in place in accordance with the methodology, the risk to which Mr Perry was exposed would have been eliminated.

15

There were no injuries as a result of the incident but there was a very substantial risk. The item was very heavy and it was submitted that any person hit by it would be quite seriously injured. In my view it was also possible that such a person could be killed.

16

The prosecution accepted that the plea was an early one and that the defendant did not lack systems or have no regard for safety. It understood its obligations with respect to work safety and risk control.

17

On behalf of the defendant Mr Waye submitted that the JSA and the demolition methodology identified the risk and the steps necessary to prevent them. It was submitted that there was a gap of understanding between the workers on the roof and Mossops picking up the responsibility to clear the car park. However it was accepted that the defendant had to ensure that the car park was cleared.

18

Mr Waye indicated that the defendant had changed hands since the incident. At the time of the incident the defendant was owned by another construction group but was bought by the present owners on 1 July 2007; some three months later. It was not denied that the defendant De-Construct continued as an entity with the same name and style and function. However the shareholders had completely changed and so largely had the management and effectively it was argued that any punishment arising from the incident would be exacted upon the new owners and the new management who were not responsible at the time of the offence. It was submitted that even if general deterrence was still important in determining penalty that specific deterrence had little or no role in view of the change of management and ownership because those who were the mind of the company at the time were no longer in that capacity.

19

I understand that the purchasers of the company were unaware of the incident at the time of settlement. The then owners did not disclose it and subsequently no indemnity has been given. There is no recourse against the former owner.

20

Mr Waye submitted that no conviction be recorded because the current owners and management had nothing to do with the incident and the fact of a conviction had implications in the obtaining of further work. Hence a conviction was said to have a further affect upon the current owners, managers and employees.

21

He submitted that for the purposes of s 16 of the Criminal Law (Sentencing) Act there was no likelihood of further offending. The defendant had no prior convictions in any event and currently, almost three years after the event and under new ownership and management, this was reinforced by the measures the defendant had taken to develop its operations with a view to safety, including the production of a new operational manual said to be a significant step taken by the company to strengthen its commitment to occupational health and safety and produced at considerable expense. This had been accompanied by an increase in personnel engaged to ensure safety obligations. The defendant now has a full-time occupational health and safety officer and has increased the number of safety supervisors from two to six and has increased the number of first aid officers. I accept the submission that reoffending is unlikely particularly in view of the incident free last three years.

22

The second limb of s 16 is that of extenuating circumstances which Mr Waye submitted was demonstrated by the change in ownership and management of the company and the effect of the conviction on those persons and the company employees. I am told that the defendant undertakes substantial work for government which might be affected by a conviction.

23

The defendant as constituted on 30 March 2007 had, according to Mr Waye, done nearly all that it could in any event. He pointed to the fact that the defendant had directed its mind to the risks associated with the work identified in the JSA and the demolition methodology. However there was a gap in communication and the defendant proceeded without ensuring that there was a safety zone. Because it had informed Mossops of its methodology it had gone a substantial way towards securing the zone but that would appear not to have been followed up or subsequently checked.

24

I agree with Mr Waye that specific deterrence ought not to be a factor in imposing penalty. The present personnel of the defendant had nothing to do with the commission of the offence and for the reasons given above are not likely offend themselves. Hence the likelihood of the defendant reoffending is small.

25

I accept that this is an unusual case for which I can find no precedent. It is unusual because of what I understand to be a complete change in ownership and a substantial change in management if not in all personnel well after the event. The defendant took on three persons at the time of sale in a management role and one of those became a shareholder and director as well. As I understand matters, Mr Eames, who was at the time of the incident a consultant general manager of the defendant company, employed by the holding company, the Sarah group and who became the current owner/director, had nothing to do with the implementation and direction of safety systems which came mostly from the Sarah group. Hence in terms of the overall policy, control and implementation of the company at the time of the incident, that was in the hands of the Sarah group and changed when the business changed hands. However it cannot be said that the company was unaware of the incident at the time of purchase even if there was no awareness of prosecution action. Mr Eames knew of the incident and the investigation and had been interviewed about it at length but was not aware of a prosecution until the end of March 2009. It was his view when interviewed in relation to the incident and when the company changed hands that Mossops was the entity responsible for the incident and he was surprised when made aware of the prosecution.

26

I have been asked to apply s 16 of the Criminal Law (Sentencing) Act. I will not repeat the provision itself. There are two discretionary steps to take before doing so and to impose a penalty without recording a conviction. The Court must consider that the defendant is unlikely to commit such an offence again, and that good reason exists for imposing a penalty without recording a conviction.

27

For reasons given above I am of the view that the defendant is unlikely to offend again.

28

With respect to the second limb of s 16 It was submitted that the extenuating circumstances arose out of the change of ownership of the defendant company, in that, as in the decision of Her Honour Judge Parsons in Diversified Industrial Services v Moore[1], the defendant company could have done little or no more to address safety issues and the board (and owners) was also allegedly being punished for the actions of a previous board of the company.

29

In that matter the incident complained of, which was the subject of a similar complaint, occurred in short order after the defendant company had taken over the company concerned. Accordingly there was little opportunity afforded to the subsequent board to remedy and effect its own OHS procedures before equipment which had been defectively repaired by the company under the old management had been properly assessed and its defects remedied.

30

It seems to me that the defendant in the present matter can make out an even stronger case, in that whilst it might be submitted that Diversified Industrial Services had limited opportunity and should arguably have not used equipment and procedures which it had not fully assessed the present defendant had absolutely no opportunity to control events which occurred prior to its takeover of the company. Diversified had considered the company's equipment and safety operating procedures and had found them wanting but that was not so here where there was no opportunity at all to do so.

31

I think though that Ms Herzig was correct in arguing that the principles in Diversified still hold true. In that matter Judge Parsons said:

"18 Essentially it was submitted that in the very short period between acquisition by South Coast Equipment Pty Ltd and the date of the offence the new Board of Directors was addressing safety issues which it had inherited, and that the recording of a conviction effectively 'punishes' the new Board of Directors 'for the crimes of the old board' (tr 11). In putting this submission reference was also made to the high safety standards of the parent company, South Coast Equipment Pty Ltd, and the role of specific deterrence in light of the change in ownership.

19 The difficulty which I have with this argument is that referred to by the learned Industrial Magistrate, namely the appellant was the employer charged with the offence. Pursuant to s 4 of the OHS&W Act 'employer' means 'a person by whom an employee is employed under a contract of employment ...' Pursuant to s 4 of the Acts Interpretation Act 1915 as amended 'person' in that act and every other act includes a body corporate.

20 The appellant has a distinct corporate entity. For the purposes of the OHS&W Act it is an artificial legal person which is separate from the legal persons who are associated with its formation or are its shareholders. It is also independent from a parent company.

21 The extenuating circumstances relied upon the appellant in its application pursuant to s 16 require the lifting of the corporate veil. South Coast Equipment Pty Ltd, whether it be described as the parent company or the shareholder, seeks, through the submissions put on behalf of the appellant, to be relieved of the opprobrium and potential economic consequences of ownership of a company with a conviction pursuant to s 19 of the OHS&W Act.

22 By this appeal the shareholder seeks to avoid the undesired effect of an indivisible corporate personality. However, in reference to the corporate veil, H A J Ford, R P Austin and I M Ramsay, Ford's Principles of Corporations Law (10th ed, 2001) Butterworths, comment at 4.420 that:-

'It has been said of the corporate veil that "the view from outside of the members behind the corporate entity varies in clarity with various purposes for which observation is made. When the veil is opaque it is opaque both ways"; D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118 per Bryson J. Members of a company are not free to treat corporateness as "a genie in a bottle, to be summoned out at will and nunc pro tunc".'

Ford (supra) also refers to the decision of Morgan v 45Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 694 - 5 which involved a commercial dispute in which Young J said:-

'So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better, for worse, for richer or poorer, in commercial sickness or commercial health.'"

32

I also note and respectfully adopt Her Honour's further observations:

'Moreover, the recording of a conviction against an offender charged with a regulatory offence or one created by social legislation is part of the effective means of enforcement referred to by Duggan J in Piva (supra). The recording of a conviction for such an offence is an important element of punishment of the offender and is a specific and general deterrent (Szep supra). In that context the respondent's compliance with its statutory duty was not a sufficient basis for the exercise of the discretion. It was quite appropriate for the learned Industrial Magistrate to determine the level of monetary penalty taking into account the respondent's responsible and pro-active approach to the safety of employees, however reliance on those matters, to excuse conviction, in the absence of some other exceptional subjective circumstance which elevated considerations personal to the offender above those of the community, fails to provide effective enforcement or to meet the need for general deterrence.' (pars 35, 36)

25 In this instance the learned Industrial Magistrate took into account the nature of the offence. He made no appealable error when he concluded that a change in ownership and management, and a simultaneous improvement in attention to safety issues, did not provide a good reason for not recording a conviction."

33

As in that matter I take into account the respondent's responsible approach to employee safety and the prior good record of the company but am not of the view that it has been established that the defendant has demonstrated that extenuating circumstances exist within the meaning of s 16(b)(iii). The defendant, a distinct legal entity has committed an offence against s 22(2)(b).

34

However I am also of the view that the circumstances described above relating to the takeover have considerable bearing upon specific deterrence and have concluded that there should be no such component in the penalty I now fix for that factor.

35

I have concluded that a certain component for general deterrence is appropriate. Whilst in other circumstances I would have imposed a penalty of $45,000, I consider that in the circumstances of this matter a penalty, after taking into account all of the submissions of the defendant and excluding specific deterrence, of $25,000 is appropriate. I consider that there should also be a further discount of penalty in relation to the defendant's early plea of guilty of 25%.

36

There will be a conviction and I order that the defendant pay the following:

Counsel fee (payable to Crown Solicitor's Office) 800

[1] [2006] SAIRC 4