Inspector Aldred v Herbert and others

Inspector Aldred v Herbert and others - [2007] NSWIRComm 170 - NSWIRComm 2007 case summary — Zoe

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1 The defendants Christopher Herbert, Niall Chang and Brian Wadley have each pleaded not guilty to charges under s 8(2) by virtue of, or pursuant to s 26(1) of the Occupational Health and Safety Act 2000 (2000 Act). 2 The defendants are all alleged to be directors of a fourth defendant, Salamander Shores Hotel Pty Ltd. The corporate defendant has entered a plea of guilty to one offence under s 8(2) of the 2000 Act. The matter has been stood over generally, pending determination of the hearings against the three personal defendants. 3 The corporate defendant carried on the business of operating a hotel/motel. The hotel/motel was purchased by the corporate defendant on 22 February 2002. About 50 staff were employed including six full-time maintenance personnel. James Christie was employed as the maintenance manager. Jeff Pennell, a licensed electrician, had been employed to provide electrical maintenance services up to September 2002. Thereafter the services of a contract electrician was utilised by the business. Ian Mitchell was employed as the general manager and licensee from September 2002 and Neil Gordon was employed as the operations manager also from September 2002. 4 The hotel/motel was located on approximately 3 acres of land (the premises). A swimming pool was attached to the motel section of the premises. Childproof gates secured access to the pool. A semi-enclosed area at the western end of the pool was located beneath the balconies of two accommodation rooms. There was no access path to this area and the only means of access was either from the top of a terraced garden to the north or by climbing over the pool fence or over the balconies. 5 A metal conduit pipe 25mm in diameter and 1.8m in length lay inside the semi-enclosed area. It was attached at one end to the base of the balcony floor of room 206, one of the accommodation rooms, by means of a metal saddle, and at the other end, to the wall. The pipe had been bent apparently to allow for a difference in height between the motel building and the pool wall. As a result of this action (at some undisclosed time) some 400mm length of pipe was exposed to view. The pipe had been installed at the time the pool was constructed which was in about 1971. It contained double insulated electrical cables that supplied power to the pool filter and to a light under the pool deck. 6 On 1 December 2002 a 13 year old boy, Lucas Morgan, was swimming with a friend in the pool. Master Morgan was not a hotel guest. He lived locally and had not obtained the permission of hotel staff to use the pool. The motel's general manager was not aware that Master Morgan occasionally swam in the pool or that he was swimming in the pool that day. Some of the motel's maintenance staff were aware that Master Morgan had on earlier occasions used the pool. On those occasions he had been asked to leave the pool by the staff. 7 At about 4.45pm Master Morgan climbed into the semi-enclosed area where the conduit pipe was located in order to retrieve a tennis ball that had been thrown into the area. While attempting to return to the pool by climbing the retaining wall and the pool fence Master Morgan stood on the pipe, and sustained an electric shock. He later died from injuries consistent with electrocution. The physical evidence suggested that while attempting to climb over the fence back into the pool Master Morgan, who was wet at the time, had placed his foot on a corroded section of the pipe which collapsed and cut through the insulation layers exposing an active wire and causing the pipe upon which he was standing to become electrified. 8 Anthony Lawrence, an electrical mechanic employed by Energy Australia, conducted an examination of the conduit pipe and electrical installations at the premises following the accident. He observed that no residual current device (RCD) had been fitted to the main switchboard. Such a device is described in the evidence as a device intended to isolate supply to protected circuits, socket-outlets or equipment in the event of a current flow to earth which exceeds a predetermined value. In evidence given during the coronial inquest Mr Lawrence explained that following the collapse of the pipe the exposed active wire would have come into contact with the metal pipe. When Master Morgan placed his bare foot on the electrified pipe he also, according to witness accounts, touched the metal pool fence. In his statement given to the WorkCover Authority Mr Lawrence said that the electrical supply (by means of the pipe) to the swimming pool equipment and a flood light passed between the motel building and the swimming pool. The pipe was located about one metre above ground level and was fractured at a point about 150mm from the swimming pool retaining wall. It was not anchored at each end. 9 Mr Lawrence conducted tests on the pipe and on the swimming pool fence. He examined the cables running inside the pipe and the corroded section of the pipe and discovered that the cables' outer insulation had been damaged at the point of fracture of the pipe. Removal of the outer sheathing on the cables revealed a small portion of blackened insulation on one active conductor, with the bare copper conductor being visible at that point. Tests carried out on the swimming pool fence revealed that with supply energised to the pool equipment, the voltage measured between the metal pipe and the pool fence was 222 volts. Mr Lawrence postulated as "feasible" that Master Morgan when touching the metal fence (which had earth potential) while standing on the pipe could have formed an electric path from the live pipe to earth, thereby receiving an electric shock. 10 An investigation into the circumstances of the accident was undertaken on 1 December 2002 by Detective Senior Constable Whayne Scott Day of the Forensic Service Group, New South Wales Police. The Detective made several observations of the scene of the accident including an observation that the pipe was severely rusted at its eastern end (the section immediately below the swimming pool fence). He also observed that the pipe contained a significant quantity of water. He concluded from this that the water would have contributed to the supply of electricity being conducted to the pipe and to the body of Master Morgan when he stood on the pipe. 11 Detective Day was also present during the post-mortem examination by a Dr Lee. During the examination, burn marks were detected on the body which Detective Day said were consistent with an electrocution. Dr Lee formed the opinion that Master Morgan had been electrocuted on 1 December 2002 while climbing onto the pool platform (after retrieving the tennis ball). 12 Detective Day later carried out a further examination of the pipe and associated wiring. An inspection of the damaged area of the wiring revealed arcing on one active wire at a section where the sharp edge of the rusted section of pipe had cut through the insulation. The appearance of the arcing together with the damage to the insulation, Detective Day concluded, was consistent with the finding that Master Morgan had been electrocuted. 13 According to the agreed facts, on or about May 2002, the pool perimeter walls had been painted under the supervision of Mr Christie. He assessed the semi-enclosed area between the pool and the balcony rooms of the motel prior to the painting. He recalled touching the pipe at that time and said it was fixed at both ends. He detected no fault with it. 14 The elements of an offence under s 8(2) by virtue of, or pursuant to, s 26(1) are that:

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(v) the risk arose from the conduct of the corporate defendant's undertaking. 19 According to the agreed facts the corporate defendant at the time of the alleged offence was an employer employing approximately 50 staff to run the hotel/motel. A workers' compensation policy schedule issued by Allianz Australia Workers Compensation (NSW) Limited shows that between the period 10 October 2002 to 10 October 2003 the corporate defendant paid an insurance premium in the sum of $79,229.93. This amount was calculated by reference to "estimated wages" in an amount of $1,593,461. In addition Messrs Christie and Mitchell have confirmed in statements that both were employed by the corporate defendant on 1 December 2002. Based on this evidence I am satisfied that the corporate defendant on 1 December 2002 was an employer. 20 At the time of the alleged offence Master Morgan, a 13 year old boy, was a visitor swimming in the pool without authorisation. Based on this evidence I find that Master Morgan was a non-employee, at the corporate defendant's place of work at the time of the alleged offence. The corporate defendant's premises, of which the swimming pool and surrounds (including the semi-enclosed area between the fence and the motel balcony rooms) formed part, comprised some 3 acres of land devoted to the business of operating a hotel/motel. Under s 4 of the 2000 Act "place of work" is defined as a premises where persons work. The whole of the premises, comprising some 3 acres, was utilised by the corporate defendant for the purpose of operating the hotel/motel business. I find, based on this evidence that the swimming pool and immediate surrounds where Master Morgan was swimming on 1 December 2002 was a place of work. 21 The issue which now falls for consideration is whether Master Morgan was at risk to his safety by reason of one or all of the three failures to act, alleged against the corporate defendant. I propose now to examine separately each alleged particular by reference to the evidence. Failures to ensure that the premises was safe and without risks to health: installation and maintenance of cabling; RCD; risk assessment.

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22 The evidence has disclosed, in relation to the first alleged particular, that the electrical cabling encased inside the pipe, provided power to the pool filter or pump, as well as to a light. At the time of the fatal accident, the exterior of the pipe was corroded. An examination following the accident by Mr Lawrence revealed that the outer insulation of the cabling had been damaged at the point of fracture of the pipe. Mr Lawrence removed the insulation and detected a small portion of blackened insulation on one active copper conductor. He observed at that section of the cabling that the active conductor was bare and visible. 23 Mr Lawrence's examination starkly demonstrates the very hazardous nature of the pipe and its contents at the time of the fatal accident to any person coming into contact with the pipe or being present in the area where the pipe was located. 24 The evidence reveals that the condition of the pipe and the cabling had deteriorated to such a hazardous state in the absence of any maintenance of the assemblage at any time from its installation which, according to records, was probably some time in 1971, at the same time that the pool was installed. 25 Mr Herbert, one of the three directors of the corporate defendant on 1 December 2002, nominated Mr Christie as the person in charge of maintenance at the premises. Mr Herbert did not know who maintained the pool. He did not know of the existence of the pipe. He said he relied on his staff to attend to safety issues at the premises and he regarded the management team of the business as responsible for the safety of visitors. The other two directors, Mr Wadley and Mr Chang, stated that prior to the fatal accident, they did not hold any board meetings to discuss occupational health and safety issues at the premises; they believed that there was a safety system in place at the premises, but that management had responsibility for such a system. As directors, they provided no input, nor did they play any role in the management of the system. They provided no induction training or instruction to the managers. They did not require the managers to report to them in relation to an occupational health and safety system. They did not nominate any processes to ensure that the managers were correctly addressing safety concerns. 26 Mr Christie, the maintenance manager, said no major work had been performed on the swimming pool or its surrounds of which he was aware. The only maintenance that had been carried out in the void (the semi-enclosed area where the pipe was located) was occasional collection of rubbish and painting of the external walls of the pool enclosure. He knew the pipe was there. He had touched it in May 2002 when he was collecting rubbish in the area. He was not aware that the pipe housed electrical cabling until after the accident. Mr Pennell, the electrician at least until some time in September 2002, thought that the pipe supplied water to the pool. Although he knew that there was an electricity supply somewhere near the pool, he did not know that the pipe was an electrical conduit. He had never carried out any work on the pipe, nor on the pool, nor on the electrics for the pool. His approach to inspection of items at the premises was, to use his words, "... if you saw something you'd fix it". He said he did not go looking for problems. 27 Mr Mitchell, the general manager, commenced work at the premises in September 2002. He did not know of the existence of the pipe or of any electrical cabling installation in the semi-enclosed between the pool wall and the balcony of room 206. He was not aware that that area could be accessed. There was no pathway leading to the area. The area was out of bounds except to maintenance and garden staff. He regarded himself and Mr Gordon, the operations manager, as responsible for ensuring that adequate inspections, maintenance and risk assessments were conducted at the premises. 28 The evidence supports findings to the requisite criminal standard that no RCD had been fitted to the electrical circuitry relevant to the pool area, nor had any risk assessment been conducted in relation to the electrical cabling which provided power to the pool area, prior to the date of the accident. Mr Mitchell confirmed that no RCDs (he referred to the device as an earth leakage switch) had been installed or incorporated into the electrical circuit. This was supported by Messrs Christie and Pennell. Mr Pennell said no RCDs had been installed on the main switchboard. He also agreed in evidence that he gave during the coronial inquest that such devices were cheap and easy to install. Mr Mitchell said that the business had never conducted a risk assessment on the electrical installation involved in Master Morgan's accident because he was of the view that no one knew of the cable's existence. He also said that both he and Mr Gordon were responsible for ensuring that adequate inspections, maintenance and risk assessments had been conducted at the premises. Mr Christie said that no signs were displayed at the accident location warning that the area was hazardous. In evidence given at the coronial inquest, he agreed that no system of audit or assessment of risk was in place prior to the accident date. According to him, he had not taken any steps to assess risks to the safety of visitors posed by electrical installations and had never been required to do so. Mr Pennell gave some evidence during the inquest on the subject, agreeing that no one had requested him, as the resident electrician, to assess the pool area for safety risks that might arise from electrical installations. The area to which he was referring included the void where the pipe was located. He said that he did not undertake any assessment of the pool filter electrics apart from the power points. Messrs Wadley and Chang both said in statements that they did not take any measures to ensure that persons working on the site were not exposed to risks to safety. Mr Wadley added that, "... we left that to the managers as well". 29 Notwithstanding Mr Mitchell's view that he was jointly responsible with Mr Gordon for maintenance matters, s 8(2) (as well as s 8(1)) directs attention to the employer as the person or entity solely responsible for ensuring the safety of all persons at its place of work. This obligation may be discharged directly because, for example, the employer possesses the necessary skills, expertise and capacity. The obligation may also be discharged indirectly if the employer does not have the necessary skills. In those circumstances, it must ensure that some other person or entity is suitably qualified to ensure the safety of all persons in the workplace. In addition, the employer must ensure that such suitably qualified persons carry out all instructions on safety matters as directed by it. It is incumbent upon the employer to monitor, on a consistent basis, the activities of the person or entity to whom the responsibility for safety matters has been delegated to ensure that those instructions are properly and adequately complied with. These observations are based on well-established principles developed in a number of authorities of this jurisdiction. A recent affirmation of these principles can be found in the Full Bench judgment of Kirk Group Holdings Pty Ltd & Anor v WorkCover Authority of New South Wales [2007] NSWIRComm 86. In that judgment, the Full Bench found that an employer may not delegate the whole of its responsibility for health and safety to another person and thereby avoid liability under the relevant occupational health and safety legislation: at [35]. The judgment dismissed an appeal by the defendants at first instance against the decision of Walton J, Vice-President, to convict the corporate defendant of offences under ss15(1) and 16(1) of the Occupational Health and Safety Act 1983 (the 1983 Act), the predecessor sections to ss 8(1) and 8(2) of the 2000 Act; and, to convict the individual defendant of offences under ss 15(1) and 16(1) by virtue of s 50(1) of the 1983 Act (s 50(1) being the predecessor section to s 26(1) of the 2000 Act). At first instance, Walton J had referred with approval to WorkCover Authority of New South Wales (Inspector Patton) v Fletcher Constructions Australia Ltd (2002) 123 IR 121 as authority for the proposition that an employer cannot discharge its duty by wholesale delegation of safety matters to a supervisor or manager: see, WorkCover Authority of New South Wales v Kirk Group Holdings Pty Ltd (2004) 135 IR 166 at [127]. 30 In Patton v Fletcher Constructions Walton J (with whom Wright J, President, agreed) said at [40]-[42]:

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[42] To adopt what was stated by the Court in WorkCover Authority v Kellogg (No 1) (at 258), these are matters to which a "managerial mind" should be directed. Whilst the content of such policies and procedures may well be the subject of appropriate advice, ensuring that such steps are taken is a matter for the employer; it is the employer, be it a natural person or corporation, upon whom the Act places the obligation to ensure a safe workplace. 31 In Patton v Fletcher Constructions, the corporate defendant had engaged a site manager as a qualified person to ensure safety at the work site. Having installed the site manager, it took no further steps to ensure that the site manager properly and competently discharged the duties with which he had been entrusted, to ensure that the work site was safe and that the work being undertaken at the work site was being performed safely. In my view, the corporate defendant's conduct in the present circumstances falls short of the measures required in Patton v Fletcher Constructions of an employer in order to discharge its statutory obligations. Here, the evidence is capable of supporting the inference that the corporate defendant did not direct its mind to identifying safety issues at its premises except perhaps to the extent that it believed or assumed without making any checks or enquiries that its managers were both appropriately qualified and actively engaged in ensuring that the premises was safe for employees and other visitors. 32 The very serious risk to safety posed by the electrical cabling housed inside the corroded pipe was a direct result of the corporate defendant's failures to ensure maintenance of the cabling; to have fitted an RCD; and to ensure an adequate risk assessment was conducted of the cabling, followed by any measures that may have been necessary to prevent any risk arising from exposure to the cabling. None of these matters were attended to at any stage, nor did the corporate defendant take any steps to implement a maintenance programme or undertake a risk assessment or ensure that a safety switch such as a residual current device was fitted to the electrical circuitry. Instead, the corporate defendant appears to have assumed, without making proper enquiry, that safety matters in general lay within the province of management and would be attended to. As a result of the corporate defendant's failures Master Morgan was placed at risk to his health and safety when he entered the semi-enclosed area from the swimming pool to retrieve the tennis ball. The risk to safety posed by the electrical cabling housed inside the corroded pipe arose from the conduct of the corporate defendant's undertaking which was the operation of the hotel/motel business at the premises. I therefore find beyond reasonable doubt that the corporate defendant contravened s 8(2) of the 2000 Act by reason of its failure to maintain the electrical cabling housed inside the pipe, its failure to ensure that an RCD was fitted to the electrical circuitry providing power to the pool area, and, its failure to conduct an adequate risk assessment in relation to that cabling. 33 The first particular in the amended charge also relies on a failure by the corporate defendant to ensure its premises were safe by failing to ensure that the electrical cabling providing power to the pool was safely installed. There is little evidence in support of this allegation apart from an indication that at some undisclosed time the pipe was bent. According to the agreed facts this was done in order to accommodate the height difference between the pool and the motel building. The evidence in relation to this issue is insufficient in my opinion to support a finding beyond reasonable doubt that the installation of the electrical cabling, and associated alleged failures on the part of the corporate defendant, created a risk to safety. The prosecution has therefore failed to prove to the requisite standard that the corporate defendant failed to ensure the safety of Master Morgan by failing to ensure that the electrical cabling was safely installed. 34 The three directors are therefore taken to have contravened s 8(2) of the 2000 Act unless they each satisfy the Court, on balance of probabilities, that they have established a defence under s 26(1) of the 2000 Act. Defences under s 26(1) of the 2000 Act

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(1) If a corporation contravenes, whether by act or omission, any provision of this Act or the regulations, each director of the corporation, and each person concerned in the management of the corporation, is taken to have contravened the same provision unless the director or person satisfies the court that: (a) he or she was not in a position to influence the conduct of the corporation in relation to its contravention of the provision, or (b) he or she, being in such a position, used all due diligence to prevent the contravention by the corporation. 36 All three defendants gave oral evidence and relied on further material by way of affidavit evidence during the proceedings. 37 Mr Herbert in his affidavit said that neither he nor his fellow directors had any experience in running a hotel/motel business. A decision was therefore made to appoint a qualified and experienced manager to carry out the day to day management of the hotel/motel and to provide reports. A company, Spectrum International, was engaged to assist in the selection process. A husband and wife team, Paul and Alison Pease, were selected as hotel managers on the basis that they had the highest level of relevant experience and expertise. The business was purchased in late February 2002 from Ron Roberts, a person who was well known in the hospitality industry and held in high regard. Mr Herbert says that because of Mr Roberts' reputation in the industry he and the other two directors were confident that the property purchased from him would be in good order. 38 In about the third week of March 2002 the three directors, according to Mr Herbert attended an all day meeting at the premises to discuss any issues raised by Mr and Mrs Pease as well as any issues raised by the directors. Thereafter the three attended meetings approximately once a month to discuss the running of the business. Mr and Mrs Pease did not raise any issue concerning electrical installations including installations connecting the swimming pool. Mr Christie, who Mr Herbert regards as an experienced and licensed builder, did not raise issues about the electrical installations in or around the swimming pool, in particular the pipe located in the semi-enclosed area. Nor did Mr Pennell, the qualified electrician. Inspections of the site were also undertaken according to Mr Herbert. He said that it appeared to him the hotel/motel was well maintained. Following the purchase of the business a number of safety related matters were attended to including the installation of fire stairs, and the removal of a trip hazard. There was also a system of reporting by both staff and the public which was implemented by means of a log book kept in the reception. Any items requiring rectification which had been noted in the log book were attended to by the maintenance team or an external contractor. Staff were also required to report through the management team to Mr and Mrs Pease on matters that, "...required attention or presented a risk". 39 Mr Pennell left the employ of the corporate defendant in late September or October 2002. Thereafter the corporate defendant relied on the services of a local electrical contractor (which Mr Herbert does not name). Mr Herbert says that in about September 2002 he and the other two directors became concerned about the performance of Mr and Mrs Pease. Messrs Mitchell and Gordon were employed as replacement managers in September 2002. Mr Herbert was satisfied that both persons had extensive experience in the hospitality industry. Mr Herbert formed the view after the two replacement managers commenced employment with the corporate defendant that both were proficient managers. They introduced procedures and Mr Herbert says he was in daily communication with them in relation to the management of the hotel. Mr Herbert was also aware that sometime prior to Master Morgan's fatal accident, the two managers had commenced revising the occupational health and safety policy and procedures in place at the business. They had completed a quality policy statement which at the time of the fatal accident was in draft form awaiting finalisation. Mr Herbert has annexed a copy pf this document to his affidavit. It consists of one page and appears to be a statement of aims which contains nothing specific about health and safety issues. 40 In cross-examination Mr Herbert said that no discussions or steps had been taken to arrange any audit of the business. He said that after the purchase of the business he looked generally at maintenance of the property. He assumed that Mr and Mrs Pease would arrange for risk assessments and he had a "level of comfort" that risk assessments had been undertaken by the maintenance team. He had never enquired as to whether a safety audit of the electrical installations had been undertaken. Mr Herbert also conceded that as a director he had the capacity to direct the management teams to, for example, check that the electrical circuitry at the premises was safe. He did not however issue directions instead relying on the system of reporting and the recommendations of management. A passage extracted from the cross examination illustrates Mr Herbert's concession that as a director he had the capacity to direct hotel/motel management to attend to various operational matters:

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Q. And you could have done that either when you met with them every three or four weeks or on the telephone when you spoke to them? A. Correct. Subject to an agreement with my co-directors I would make personally decisions without consulting my two co-directors. 41 Mr Chang in his affidavit confirmed that he had no experience in running hotels as a commercial enterprise prior to his joint purchase of the business with the other two directors. He also confirmed Mr Herbert's account that the three directors retained the services of the recruitment company, Spectrum International, to recruit an experienced management team to run the business, and that with the assistance of this company, they appointed Mr and Mrs Pease. Mr Chang said that his role as a director concerned the financial management of the business. He visited the premises no more than six times following the purchase, and always in company with the other directors. On those occasions Mr and Mrs Pease would raise operational issues some of which required capital expenditure. After the purchase of the business a number of capital works were undertaken including the installation of fire stairs and a lift. He recounted his concerns about the management style of Mr and Mrs Pease and confirmed Mr Herbert's account concerning the Pease's unsatisfactory performance and their eventual replacement by Mr Mitchell and Mr Gordon. He said that he had a discussion with Mr Mitchell who advised him that he was seeking advice about how to upgrade occupational health and safety at the premises. Any changes to systems of work or procedures according to Mr Chang were directed to and managed by Mr Mitchell, although Mr Chang did not recall having any conversations with staff about day to day management issues or any other issues. 42 In cross-examination Mr Chang said that he made no enquiries as to whether any risk assessments had been undertaken at the site nor did he request a safety audit, or ever receive one. He conceded that he made no enquiries of management as to whether the employees of the business were discharging their duties in relation to operational health and safety issues. He said, "they informed me rather than I asked them". He agreed that he conducted general inspections of the site but at no stage did he look for safety issues. In relation to this aspect of his evidence a portion of the transcript of his cross-examination records:

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Q. That was not something that you were concerned with? A. I'm concerned with safety issues. But it's not something that I would look at specifically. I have no - once again I have no experience in running a motel business and, therefore, I don't - my expertise is in finance, safety issues is not my - identifying safety issues is not my expertise and, therefore, I rely on Mr Pease to draw those issues to my attention. 43 Mr Wadley in his affidavit confirmed the evidence of the other two directors in relation to the appointment of Mr and Mrs Pease as managers of the business following its purchase. Following the appointment Mr Wadley says that he had no day-to-day involvement in the running of the business. He visited the site no more than about four to five times. He relied on Mr and Mrs Pease to inform him in relation to requirements for proper management. This included occupational health and safety issues. Whenever Mr and Mrs Pease made a request for additional funding, the money was provided. Following the recruitment of Mr Mitchell and Mr Gordon as replacement managers Mr Wadley says that no matters were brought to his attention concerning occupational health and safety, and in particular, no information was provided to him to suggest that the pipe housing the electrical cabling to feed the pool pumps required replacement. He regarded his role in the business as that of financial backer. He received financial and other reports. The day-to-day running of the business he left to the other two directors. 44 In cross-examination Mr Wadley said that he did not ask Mr and Mrs Pease about safety audits nor did he ask them to prepare a risk assessment. The only safety issue he recalls encountering at the business was a crack in some concrete. This issue he says was discussed in the context of a risk assessment during one of the site inspections. The crack was attended to and the concrete replaced. He does not recall giving management any directions about safety matters. He did not ask Mr and Mrs Pease any questions about occupational health and safety. Mr Wadley also agreed in cross-examination that as a director he had the capacity to issue directions to management about safety matters. The relevant portion of the transcript which discloses this is extracted below:

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Q. That was a direction you had given? A. Not a direction from us, we discussed that was one of the issues that came up, and said they had to fix. 45 The defendants' counsel, Mr Buchanan QC commenced his submissions by making four general points. First he suggested that the circumstances established a real and practical distinction between the directors and the corporate defendant, namely, that the corporation's failures (to which a plea of guilty has been entered) were accomplished through its employees past and present, but that this result did not provide a sufficient connection between the directors and the corporation such that the directors could be held responsible. Secondly, it was contended that there is an inevitable search to attribute blame to someone after the fact of a tragic accident but in the circumstances here it is not reasonable to attribute the blame to the three directors who purchased a business which had been operating successfully and without incident for a lengthy period of time. Thirdly, the allegations alleged against the corporate defendant are very specific, being directed towards the electrical cabling housed within the pipe located in the semi-enclosed area between the pool and two motel room balconies. The defect in the installation which was revealed by the accident was the culmination of a very special set of circumstances none of which, individually, could have been predicted (or foreseen), and collectively, even less so. Fourthly, the assessment of matters by reference to the risk to safety posed by the electrical cabling housed within the pipe requires expertise such as might be possessed by a qualified electrician or a maintenance manager. None of the directors possessed any of this expertise, contrary to the corporate defendant's employees, many of whom did. The enquiry as to whether the three directors were not in a position to influence the corporate defendant's contravening conduct must include attention to the interaction between any influence they might have had or diligence they might have exercised, as well as any expertise that they possessed (in relation to electrical cabling). In the absence of any relevant expertise possessed by any of the directors it is not unreasonable to propose that people will rely on the expertise of others. Here the three directors purchased a business and relied upon professional staff to run the business. In the event of an accident it is clearly not the intent of the 2000 Act, according to the defendants, that an absentee owner (or in this case the directors) would be held liable. 46 According to the defendants any consideration of the question whether someone was in a position to influence the conduct of a corporation as a director, or whether a director used all due diligence, can only be judged against the obligation of directors as understood in the modern legal context. 47 Several authorities were relied upon by the defendants to illustrate this point. In the first of these, Daniels and Others v Anderson and Others (1995) 37 NSWLR 438 the Court of Appeal held by majority (Clark JA and Sheller JA) that directors of a company owed a duty of care to the company to take reasonable steps in the performance of their office (at 505B-C). The authority also traces the development of the modern approach to directorial responsibility, as distinct from the earlier approach. The former approach imposes greater responsibilities upon directors which are set in the context of a legislative pattern. The latter approach represents the position departed from, a criterion of which was what the directors knew not what they ought to have known, as a necessary prerequisite to establishing liability. The defendants relied in particular on the expression, "guide and monitor", adopted by the majority in Daniels v Anderson as representative of the modern approach to directors' duties. The expression appears to derive from a judgment of the Supreme Court of New Jersey, USA given by Pollock J, in Frances v United Jersey Bank 432A 2d 814 (NJ 1981). In that judgment Pollock J undertook an analysis of what was required of directors in order to satisfactorily discharge their duty of care. In a detailed discourse (see Daniels v Anderson at 503) his Honour said that directorial management does not require a detailed inspection of day-to-day activities but rather a, "general monitoring" of corporate affairs and policies. The majority in Daniels v Anderson commented:

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In our opinion the responsibilities of directors require that they take reasonable steps to place themselves in a position to guide and monitor the management of the company. The board of AWA met only once a month for half a day. But to our mind the board should meet as often as it deems necessary to carry out its functions properly. The question is what in the particular case are the duties and responsibilities of the directors and then what time is required of them as a board to carry out these duties and responsibilities. It is not a matter of tailoring the extent of the duty or function to pre-fixed intervals between board meetings. 48 The second authority relied upon by the defendants as illustrative of the modern approach to directorial liability is Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113. In that decision Spiegelman CJ discussed the major legislative and common law reforms in relation to directors' duties. His Honour identified that by 1992 the standards of skill and care required of a corporate director had changed and that since that time directors were expected to be proactive. His Honour also referred to Daniels v Anderson as a "landmark judgment" in which directors were held to have responsibility to take reasonable steps to put themselves into a position where they could "guide and monitor the management of the company". A little later in the decision his Honour observed (at 140): [107] For present purposes it is sufficient to note that there will be circumstances in which a director will be found not to have been negligent, by failing to make inquiries or otherwise participate in the decision-making processes of the company, when that director acts in reliance on assurances from, or the conduct of, another director whom he or she has come to trust. That this is so does, in my opinion, illuminate the scope of what is capable of constituting "good reason" for purposes of the various statutory provisions in which the formulation appears. However, nothing in Biala v Mallina Holdings suggests that total non-participation is permissible.

[55]

...Although the second defendant was an important and crucial part of the management of the first defendant, nevertheless he was a manager in the context of a small company which was a family company which was itself managed and run by a highly experienced manager who had many years of experience in the industry, as did those members of the family who preceded him. He was not the alter ego of the company. It would be appropriate therefore to proceed on the basis that although the second defendant would have had a significant role in decision making as to employment and the like and otherwise in the running the first defendant, it could not be assumed that he could make all crucial decisions, or changes to practices, relating to a change in employment policy as to, for example, the qualifications that would necessarily be required of all employees. 50 The defendants here consider that they had the authority to make "crucial decisions" in relation to, for example matters of management. They all lacked, however, any relevant expertise in matters pertaining to the corporate defendant's contravening conduct. They were therefore entitled to rely on others possessing the relevant expertise. They contend that they also, in the circumstances, did not fail to exercise all due diligence by failing to make what in hindsight seem like prudent enquiries about matters which did not lie within their fields of expertise. None of them for example, were qualified electricians. In addition there was a well established maintenance department under the control of a licensed builder. They also employed experienced hotel managers who had the control of the business. According to the defendants, in order to be in a position to influence something, one has to have knowledge, experience and expertise. If a matter is beyond a person's experience and expertise then judgments cannot be made about it and other persons must be relied upon. This is what the defendants say they did, that is, lacking the necessary expertise in electrical matters and matters of maintenance, they attempted to put in place competent managers upon whom they relied. The defendants contend that because they did not have the experience or expertise to make judgments about electrical matters; and, because none of them had any control over the initial installation they were therefore not in a position to suggest changes by way of maintenance and repair. Nor, for the same reasons were they in a position to suggest the fitting of an RCD. They had no personal knowledge or training which might have enabled them to suggest that such a device might be fitted, nor did they receive any advice to that effect from the electricians or other persons involved in the management of the business. As to the corporate defendant's failure to undertake a risk assessment (in relation to the electrical cabling providing power to the pool area) the defendants say that they had no basis for suggesting a risk assessment in relation to the cabling and none was suggested to them. Nor did they have any knowledge of the existence of cabling that had been installed for some 30 years which might have placed them in a position to appreciate that some investigation of the state of the cabling may have been warranted. Although the corporate defendant had available to it the personnel and the expertise (and therefore the capacity to discover the defect) the individual directors were not in the same position. They could only rely on information which was available to them through the people whom they employed. 51 Finally, the three defendants directed the Court's attention to the Full Bench judgment of Daly Smith Corporation (Aust) Pty Ltd v WorkCover Authority (NSW) (Inspector Mansell) in which the Full Bench dismissed an appeal by the defendants at first instance against findings by the trial judge including a finding that the second appellant (a director of the first defendant) was guilty of an offence under ss 15(1) and 50(1) of the 1983 Act, having failed to establish a defence under s 50(1). The facts from which the finding of guilt was made against the second appellant revealed that the second appellant had a "significant and hands-on role" in the corporate appellant's operations, and that he was in a position to influence the conduct of the corporate appellant because he had been involved for many years in addressing safety responsibilities and formulating occupational health and safety policy, although, as the evidence showed, he did not attend to, nor affect any concern about the overall conduct of the business: at [18] - [21]. As I understand the defendants' reliance on this authority in the present proceedings it provides some kind of a benchmark of directorial responsibility under s 26(1) and that the present defendants' respective involvements in the corporate defendant's conduct fall short of the director's role in Daly Smith, such that they have successfully established defences under the sub-section. 52 Section 50(1) of the 1983 Act was examined in some detail by the Court of Appeal in Powercoal Pty Ltd and Another v Industrial Relations Commission (NSW) and Another (2005) 156 ACrimR 269, Spiegelman CJ with whom Mason P and Handley JA agreed said (at [109] - [112]; [116]):

[59]

[112] Although the words "and is punishable accordingly" do not appear in terms, the provisions of the defence in s50(a), as originally existing, and (b) and (c) are to similar effect. The Court is concerned with a person who has a level of complicity in the commission of the offence by the corporation. Such complicity arises in a context where persons in a managerial role could have taken steps to ensure that the object of the Act are achieved. 53 In my view, the fact that a person is a director, is enough, subject to the defences, to establish liability for the corporate defendant's contravention. This conclusion is based on the responsibilities and duties of a director of a corporation and the clear words of s 26(1). The other category of persons who may also attract liability under the section is "...a person concerned in the management of the corporation". In two recent decisions of this jurisdiction, a manager of a mine was held to fall within this latter category because the position of mine manager carried with it, "...the widest possible charge and control of the mine, all persons employed in it and all operations of the mine": Newcastle Wallsend Coal Company Pty Ltd v WorkCover Authority (NSW) (Inspector McMartin) (2006) 159 IR 121 per Walton J, Vice-President and Boland J at [485]; and, "the highest level of supervisory control of all matters at the Awaba Colliery and ultimate supervisory control over all occupational health and safety matter (sic) at the Awaba Colliery": Morrison v Powercoal Pty Ltd and Another at [173] - [175]. 54 A director by reason of his or her position within the corporate structure sits at the top of the corporate hierarchy with the authority to make decisions on matters of operations, policy and management. In Daniels v Anderson, Clarke JA and Sheller JA (at 493) observed, in relation to the evolution of the duties and functions of directors, that the courts now recognise that the legislature requires both diligence and action of a director as opposed to, "supine indifference". In Inspector Kumar v David Aylmer Ritchie [2006] NSWIRComm 323, (a decision brought to the attention of the Court by the prosecutor), Haylen J rejected a submission made on behalf of the defendant that s 26(1) of the 2000 Act did not apply to all directors. At [167 - 168] his Honour said:

[61]

[168] Earlier cases dealing with s 26 or s 50 of the 1983 Act have contained observations indicating that only limited assistance is available from cases dealing with different legislation where similar and sometimes very similar terms have been adopted, particularly in cases dealing with corporations law. I accept the caution expressed in those cases but it is significant that the term "persons concerned in the management" of a corporation has generally been treated as encompassing those who have decision making and policy powers such as exercised by directors. The essence of these provisions is the control exercised by the individual. Not surprisingly, all these cases treat a director as at the apex of control and authority and, in my view, s 26 adopts the same approach. 55 These matters do not necessarily conflict with the notion advanced by the defendants here that there exists a real and practical distinction between themselves and the corporate defendant. A distinction was recognised by Wright J, President in Walco Hoist at least insofar as assessing the respective culpabilities of the corporate and individual defendants for the purposes of penalty. The distinction however which the defendants seek to make involves a complete avoidance of any liability in relation to the corporate defendant's contravening conduct. In Walco Hoist the personal defendant did not seek to remove himself from all liability for the impugned conduct, on the basis that the conduct could be wholly attributed to someone else. Rather, the personal defendant in Walco Hoist contended, and his Honour found, that his degree or level of complicity in the offence was less than that of the corporate defendant. 56 The defendants here place particularly reliance on the passage extracted earlier in this judgment from the judgment in Walco Hoist (at [39]) to support their submission that a real question for consideration is whether it was reasonable for them, given their lack of expertise in the relevant areas concerning the electrical cabling, for them to have intruded into the affairs of management in the context of their respective roles to guide and monitor the affairs of the corporation. It was conceded by the defendants here that the conduct of the business was under their authority as directors. They contend however that they were entitled to rely on others even if they failed to make prudent enquiries about matters which lay outside their fields of expertise. 57 In relation to the contention that the role of directors is limited to one of guiding and monitoring the affairs of the corporation, it appears that the expression "guiding and monitoring" has been extracted from a line of authorities which reflect the modern approach to directors' duties and responsibilities in the context of other bodies of law dealing with negligence, company and taxation law. The issue whether the defendants were not in a position to influence the conduct of the corporation does not in my view fall to be considered by reference to cases on the law of negligence or company or taxation law, but rather by reference to the statutory context or regime in which the defence is found, namely s 26(1) of the 2000 Act. The words, "...not in a position to influence the conduct of the corporation..." must be assessed by reference to their statutory surrounds which would include the objects of the 2000 Act. The Court of Appeal in Powercoal v Industrial Relations Commission (NSW) rejected a similar attempt by the Claimant to invoke case law dealing with persons constituting the directing mind and will of the corporation and with various provisions of the Corporations Act 2001 (Cth), as being applicable to s 50(1) of the 1983 Act (at [95] - [99]):

[66]

[99] Section 592 of the Corporations Act is concerned with the determination of persons who participated in management at a time when a debt was incurred and when there were reasonable grounds to suspect that the company was not able to pay its debts as and when they became due. Such a context points quite directly to persons concerned with the central management of the company who are likely to have knowledge about the broad range of a corporation's debts, rather than to a manager of a particular unit of the corporation's entity, who may have no knowledge of that general character. 58 Similarly here, case law concerned with issues of a duty to take reasonable care are not directly relevant to the consideration of issues arising in relation to s 26(1). Even if it were acceptable to apply the line of case law relied upon by the defendants to the 2000 Act (specifically s 26(1)) the defendants in my opinion could not succeed in establishing a defence under s 26(1)(a). In Daniels v Anderson the majority referred to the requirement to, "take reasonable steps to place (directors) in a position to guide and monitor the management of the company", as part of the responsibilities of directors, (see also Spigelman CJ in DCT v Clark at [109]). Other commentary on directorial responsibility in the judgment suggests that the requirement to take reasonable steps (in order to guide and monitor) may involve a director informing himself about the affairs of the company, and becoming familiar with the business of the company and how it is run (at 500G). In commenting specifically on the area of negligence, the majority made clear that directors can not safely proceed upon the basis that ignorance and a failure to inquire are protections against liability for negligence (at 502B-C). 59 The evidence in the present proceedings reveals that the three directors did very little to inform themselves about the affairs of the corporation, in particular its safety policies and procedures, its maintenance regime and workplace safety in general. They did not take reasonable steps to familiarise themselves with the operations or the running of the corporation. Apart from installing persons whom they regarded as competent and experienced managers, making occasional site inspections and attending to some safety matters which had been specifically brought to their attention, the directors on the evidence, attended to little else by way of safety issues. They made no enquiries into matters of safety. Rather, as they have sought to emphasise, they placed complete reliance on others whom they considered possessed the necessary expertise. They themselves had no experience or expertise in running a hotel/motel business, nor they said, did they possess any experience or expertise in safety matters generally. 60 Whether the defendants can each establish defences under s 26(1)(a) falls to be considered by reference to the corporation's contravening conduct. This conduct involved three failures or omissions under s 8(2) of the Act, namely the failures to ensure the electrical cabling at the pool area was safely maintained; that an RCD was fitted to the electrical circuitry; and, the failure to conduct an adequate risk assessment in relation to this electrical cabling. Ignorance of electrical or maintenance matters of itself could not facilitate a conclusion that the directors were not in a position to influence the conduct of the corporation. This conclusion is even more compelling in circumstances where the defendant abdicated all directorial responsibility and placed complete reliance on others of whom they said possessed the requisite experience. None of the directors, according to the evidence provided any input or played any role in the management of a safety system. (Messrs Chang and Wadley merely believed one was in place at the premises.) Mr Herbert said he regarded the management team as responsible for the safety of visitors. No board meetings were held prior to the accident to discuss occupational health and safety issues. Having appointed experienced management teams to run the business the directors relied on the management teams to raise any issues including issues of safety. Mr Herbert said that he assumed Mr and Mrs Pease would arrange for such risk assessments and he had a "level of comfort" that risk assessments had been undertaken by the maintenance team. 61 Although these matters may also apply to considerations of whether the defendants used all due diligence under s 26(1)(b) (an issue to which I will shortly turn) they illustrate in my view the inherent flaw in the defendants' submission that they were not in a position to influence the conduct of the corporation because they lacked experience and expertise in the specific area of electrical cabling. In my view they were entitled to rely on others who possessed the relevant experience and expertise but only if they satisfied themselves that those other persons to whom the vital functions of detecting and obviating risks to safety had been delegated, could discharge and were discharging that function. An occasional site inspection and an otherwise passive role adopted by the defendants in relation to safety issues does not and cannot amount to reliance on others for the purpose of successfully establishing a defence under s 26(1). 62 In addition, the directors conceded that they had the authority to make decisions about all matters of safety which affected or may affect the corporation's operations. The approach in Inspector Kumar v Ritchie recognises that directors by reason of their role as directors within the corporate structure are capable of influencing the actions of the corporation, and that the defences provided under s 26(1) are therefore limited in nature having regard to the extent and capacity of a director to influence corporate decision-making and having regard to the objects of the occupational health and safety legislation. In relation to these considerations his Honour said (at [170]):

[67]

...the Act imposes a strict or absolute liability on employers in relation to safety at the workplace. It is quite consistent with that approach that where a corporation is the employer that strict liability applies to those who are the operative minds of the corporation, namely the directors. There is nothing incongruous or unlikely about such an approach. The legislature has, however, provided a limited defence by allowing liability to be avoided if the director demonstrates that he or she was not in a position to influence the conduct of the corporation in relation to the contravention or, being in such a position, used all diligence to prevent the contravention by the corporation. Those defences focus upon the contravention and, in a sense, recognise that in the "real world" (so heavily relied upon by the defendant) there may be situations where, for a variety of reasons, a director was not able to influence the conduct of the corporation. Hypothetical examples are of necessity artificial but it is not beyond the realms of possibility that a director may have been in a minority on the Board in urging a more costly but effective system of safety that the other directors were not prepared to adopt or, as suggested by the prosecutor, at the relevant time a director was on leave of absence or suffering some other disability when a particular policy decision was taken and may not have been informed of that decision. Indeed, in Newcastle Wallsend a defence was established where, at the relevant time, the defendant did not hold a position of authority to influence the conduct of the corporation although he did so at another relevant time. Those examples are sufficient to indicate that there is an opportunity for the sub-section (1)(a) defence to be availed of by a director but it is no answer to say that the defences are narrow and limited. Much the same comment might be made in relation to the general defences found in s 28. The limited nature of these defences is understandable having regard to the public purpose served by safety legislation, especially having regard to the objects of the Act set out in s 3, namely, (a) to secure and promote the health, safety and welfare of people at work; (b) to protect people at a place of work against risks to health or safety arising out of the activities of persons as work; (e) to ensure that risks to health and safety at a place of work are identified, assessed and eliminated or controlled; (g) to provide a legislative framework that allows for progressively higher standards of occupational health and safety to take account of changes in technology and work practices; and, (h) to protect people (whether or not at a place of work) against risks to health and safety arising from the use of plant that affects public safety. To secure these objectives the legislature has adopted a system of strict or absolute liability of employers and has adopted provisions like s 26 to emphasise responsibility of persons in the corporate structure to ensure the safety of workplaces. 63 None of the limited examples cited in the above extract are applicable to the present circumstances, nor have the defendants contended otherwise. Even if s 26(1)(a) was not of such limited application as suggested by Haylen J, I would find based on the conclusions which I have earlier drawn as to the respective roles of each of the three directors that they have each failed to establish defences under s 26(1)(a). Each defendant submitted that they were not in a position to influence the corporation because they lacked the expertise in the very specific area of electrical cabling and in circumstances where the business had been operating without incident for a lengthy period of time and where the defect in the electrical cabling installation, which only became apparent at the time of the accident, could not have been known or predicted or foreseen. In relation to the corporate defendant's contravening conduct as particularised, the evidence suggests that the electrical cabling was installed some 30 years before the accident but that no records were available which might have indicated that the installation at any stage had been maintained. The three directors might have lacked expertise in relation to matters of electrical cabling but they had the authority to enquire into the history of maintenance of the cabling and whether, with regard to risks to safety, there were any risks associated with the cabling or, whether relevant risks had been assessed or identified, and whether the cabling needed to be, or could be rendered more safe by the fitting of some safety device such as an RCD. None of these actions would have required any prior knowledge or foresight (or expertise) as preconditions which had to be present before enquiries could be instituted. Each director, as one of three directors of the corporate defendant, was in a position to make decisions about safety matters in particular. According to their evidence when specific safety matters (such as the installation of fire stairs and the removal of a trip hazard) were brought to the their attention by management they provided the funds. They did not however, having employed persons whom they considered to be competent and experienced managers, initiate any further steps or make any enquiries to ensure that persons at the premises, in particular Master Morgan would be protected from risks of injury to safety, while at those premises. I therefore find that each defendant has failed to establish a defence on the balance of probabilities under s 26(1)(a) of the 2000 Act. 64 The defendants' submissions in relation to the defence under s 26(1)(b) have been made in conjunction with their submissions in relation to the defence under s 26(1)(a). The legislative scheme under s 26(1) requires that both defences be given separate consideration. If a defendant has relied upon, but fails to make out the defence under s 26(1)(a), then s 26(1)(b) falls next for consideration as to whether a director, being in a position to influence the conduct of the corporation in relation to its contravention, has used "all due diligence" to prevent the contravention. 65 The Court's attention was not directed to any authorities that have considered the provision, or more specifically, that have focused on the meaning of the words "all due diligence". In State Pollution Control Commission v Kelly (1991) 5 ACSR 607, Hemmings J considered the meaning of "all due diligence". In that judgment an individual defendant, a director, faced a charge under s 10(1) of the Environmental Offences and Penalties Act 1989 (repealed on 1 July 1999), a provision almost identical to s 26(1) of the 2000 Act. The director, Mr Kelly, raised the defence that he, being a person in a position to influence the conduct of the corporation in relation to its contravention, "used all due diligence to prevent the contravention by the corporation". His Honour considered that the expression "all due diligence" required the taking of appropriate precautions aimed at preventing the conduct of the corporation which led to the contravention (at 609). The expression "all due diligence", his Honour said, depended upon the circumstances of the case but, "contemplates a mind concentrated on the likely risks". In Inspector Kumar v Ritchie, Haylen J considered whether the defence of all due diligence under s 26(1)(b) was made out in circumstances where the defendant was ignorant of the various risks to safety and of the processes necessary to obviate the risks, commenting that in those circumstances it was "quite impossible" to make a finding that the defendant had used all due diligence. Haylen J found that the evidence before him did not disclose "a director's mind concentrated on the risks of the operation..." (at [177]). 66 The application of the above considerations to the evidence here does not reveal directorial minds concentrated on the likely risks to safety involved in running a business or in addressing procedures or processes to expose any risks to safety. According to the defendants they had no knowledge of, and would have been unable to predict any risks to safety arising from the electrical cabling installation located in the semi-enclosed area near the pool and they did not possess the relevant expertise which would have, or might have, enabled them to identify and address those risks. Instead the defendants have maintained that it is sufficient for them to make out the defences under s 26(1) by taking the actions that they did, namely, employing competent managers whom they believed possessed the relevant experience and expertise. But this measure only amounts to a preliminary step and, in my view, more is needed in order to have taken appropriate precautions to the extent required to make out the defence that they used all due diligence to prevent the contravention of the corporation. 67 Nor in my view does "all due diligence" (or "...being in a position to influence", the contravening conduct of the corporation) require as a minimum or threshold requirement that the directors have played a "significant and hands on role" in the corporate defendants operations or that they have responsibility for day-to-day decision making. Reliance on the Full Bench judgment of Daly Smith Corporation does not assist the defendants in this regard. The case is not authority for some threshold requirement of directorial liability, namely that the director must have a direct and substantial (a "hands" on) role in the company operations in order to attract liability. Much will depend on the circumstances of each individual case. Liability will be attracted where, as here, circumstances reveal that the directors played a limited direct role in the operation of the business, preferring to leave the decision-making, relevantly in relation to safety matters, to the management team but without at the same time making consistent and on-going enquiries aimed at ensuring that management was both capable and competent of discharging the corporation's statutory obligations as to safety. 68 I find that the defendants have each failed to establish a defence under s 26(1)(b) of the 2000 Act. 69 The defendants are therefore guilty respectively of an offence under s 8(2) by virtue of, or pursuant to, s 26(1) of the 2000 Act. Orders

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