Parental advisory – when are parent companies (and their directors) liable for subsidiaries’ safety breaches?

In June 2012, a worker was seriously injured when he fell from the bucket of a loader in which he was working at a mine in Broken Hill.  The mine was operated by a company called Perilya Broken Hill Limited (PHBL).  As a result of the incident, both PBHL, and its parent company, Perilya Limited (Perilya), which was in 2012 an ASX listed company, were prosecuted under the Work Health and Safety Act 2011 (NSW) (the WHS Act).

In a decision handed down last week, the District Court of New South Wales found PHBL guilty but Perilya Limited not guilty. The case has important lessons for the way in which work health and safety issues are dealt with in corporate groups.

Under the WHS Act, an entity will owe safety duties if it is a PCBU (which stands for “Person Conducting a Business or Undertaking”).  The WHS Act expressly provides that more than one PCBU can have safety duties in respect of the same matter and also provides that safety duties cannot be delegated. It was clear that PHBL was a PCBU in respect of the mine at Broken Hill, but Perilya Limited’s case was that it was not a PCBU in respect of the operation of the mine, because the mine was being conducted by PHBL, which was a completely  separate corporate entity.

The prosecutor relied upon statements made by Perilya to the ASX to the effect that Perilya owned and operated the mine.  However, when put in context the court found that the statements referred to the Perliya group (that is, Perilya and its subsidiaries, including PBHL).  the prosecutor also relied upon the fact that safety issues at the mine were raised in the minutes of board meetings of Perilya, but there were apparently no minutes of any board meetings of PBHL. (An absence of relevant board minutes can create a serious problem for companies in many different areas; in this case, the difficulty was the need to prove that the PBHL board had considered relevant safety issues when it was apparently meeting only informally).

However, after having considered all these matters, the Court found that as a matter of practicality, the day-to-day control of the operations of the mine had been devolved from Perilya to PBHL, so that although Perliya retained the legal right to control PBHL’s activities because PBHL was a wholly owned subsidiary of Perilya) that control was not exercised in practice.

Accordingly, Perilya was not a PCBU in relation to the operation of the mine, and could not be guilty of the offence of breaching the duty owed by a PCBU,  However, the case does not mean that safety issues in subsidiaries can be ignored by parent companies, as the Court indicated when it concluded that:

“This is not a case of Perilya transferring its duty to another. Nor is it a case of an agreement or arrangement purporting to limit its capacity to influence and control the matter in respect of which it had a duty. This is a case of Perilya ceasing to have control of the mine and its operations”. 

One of the other key lessons from this case was the use which was made by the Court of the responses to section 155 notices issued to the directors of Perilya Ltd.  Section 155 notices are notices which can be issued by an Inspector of a safety regulator, and which require the provision of documents or the provision of information.  It is an offence to refuse to answer a section 155 notice, and the power to issue them is not limited to the investigation of contraventions of the WHS Act, because they can also be issued to assist monitoring and compliance.

The fact that section 155 notices were specifically issued to the directors requiring the directors to provide information as to how the directors had discharged their safety obligations should give every director pause for thought. If you received a section 155 notice tomorrow asking what steps you had taken to ensure that the company of which you are a director had discharged its safety obligations, what would you say?

If in answering that question, your initial response is, “well, my company is not a mining company, so this is not my problem”, it is worth bearing in mind that safety regulators are increasingly investigating and prosecuting safety issues arising from psychosocial risks, like workplace bullying, which can occur in any workplace. It is also worth bearing in mind that the obligations of directors to exercise due diligence to ensure that safety obligations are are complied arises (and can be tested by regulators) regardless of whether or not a safety incident occurs as a result.

The due diligence obligations of the WHS Act mean that directors need WHS literacy just as much as they need financial literacy. If the processes in your organisation aren’t sufficient to tell directors what they need to know, don’t wait for a prosecution (or a regulator’s notice) before you get on board with WHS obligations.

For more on our work health and safety law capabilities (and in particular, how we can help your organisation to develop a due diligence framework to comply with WHS obligations), contact Leonard Lozina or Angus Macinnis

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March 5
Work health and safety