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In this issue

Welcome to the August edition of our Corporate and Commercial Briefly.

>   Corporate & Commercial – Managing risks for volunteer board members
>   Work Health and Safety – Liability of 'Officers' under the harmonised legislation

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Corporate & Commercial – Managing risks for volunteer board members

Those of you who serve as volunteer members of boards and committees of not-for-profit organisations may be aware of the Volunteers Protection Act (SA) 2001 and that it affords some legal immunity for volunteers working with organisations.

However, what many volunteer board members don’t realise is that this immunity is very limited. The Act is no substitute for comprehensive directors’ and officer’s (D&O) and public liability insurance policies and an appropriately drafted Deed of Access and Indemnity between the board member and the organisation.

Scope of the Volunteers Protection Act

The Act provides that subject to certain exceptions, a volunteer incurs no personal civil liability for any act or omission in the course of carrying out “community work” for “community organisations” provided that the volunteer is acting in good faith and without recklessness. Instead, the community organisation itself will be responsible for such liabilities.

A community organisation includes any kind of incorporated body (i.e. a company or an incorporated association) which directs or coordinates the carrying out of community work.

Community work is work done for purposes which include:

  • religious, charitable, benevolent purposes
  • for promoting literature, science or the arts
  • for sport, recreation or amusement
  • for conserving resources or protecting the natural environment
  • for preserving historical and cultural heritage
  • promoting the interests of the community generally or of a particular section of the community

Although most not-for-profit entities will be treated as community organisations, the work done by their board members in attending board meetings and making strategic decisions about the organisation and management decisions about the organisation’s community work does not constitute carrying out the organisation’s community work.  

This means that although a board member may be covered by the Act when, for example, rostered on to cook or serve meals to the needy, in providing advice as part of a community counselling service or in assisting with a community event run by the organisation, board members are not covered by the Act in relation to their board activities.

In addition to this limitation, the Act only applies to volunteers. Although a volunteer board member may be reimbursed for expenses incurred or receive a gift as an honorarium, a board member who receives a sitting fee or payment for their services to a community organisation is not covered by the Act.

Indemnities from organisations

Given the above restrictions, it is always advisable that not-for-profit organisations put in place arrangements for the organisation to indemnify the members of their boards for any acts or commissions in the discharge of their duties which are in good faith. Any organisation failing to do so may have difficulty attracting quality candidates for board positions.

Although such indemnities may be contained in the organisation’s constitution or other governing rules, it is always preferable for them to be set out in a separate Deed of Indemnity. This is because first, the constitution or governing rules cease to be enforceable by a board member against the organisation once the board member ceases to hold office. 
Secondly, a constitution may be varied at any time by special resolution passed by the members without the consent of the board members.

In contrast, a Deed of Indemnity may and should be drafted so that it is enforceable against the organisation for as long as the board member is at risk of action being taken against him or her (i.e. six years after he or she ceases to hold office), and so that it cannot be varied or revoked without the consent of the relevant board member.

These indemnities should be drafted very carefully so as to ensure that they operate within the limits permitted by the Associations Incorporation Act (for incorporated associations) and by the Corporations Act (for companies). They should allow the organisation to effectively take over the defence of any claim brought against the board member where the board member wants to rely on the indemnity, otherwise the organisation is effectively handing a board member a blank cheque which may end up being used to defend a claim which is either indefensible, or which should not be defended from a commercial perspective.

Rights of access to documents

A Deed of Access and Indemnity should also include provisions allowing the board member access to records of the organisation which they may need in order to defend themselves from any claims brought against them, or to assist them in bringing action against third parties. Once again, this right should operate for at least six years after the board member ceases to hold office.

Although directors (but not secretaries) of companies have a right to access company records along these lines under the Corporations Act, no such rights are provided to board members of incorporated associations under the Associations Incorporation Act.

In the case of both companies and associations, these rights of access should be drafted carefully so as to ensure that they allow the organisation to restrict access where the relevant documents may be subject to legal privilege and where allowing access may be damaging to the organisation.

Legal advice

There may be times when a board member wishes to obtain independent professional legal or financial advice in order to properly discharge his or her duties. Once again, a Deed of Access and Indemnity may provide that the organisation will pay the reasonable costs of obtaining such advice where appropriate.

Insurance arrangements

As with all indemnities, the practical value of an indemnity contained in a Deed of Access and Indemnity in favour of a board member will depend on the net asset position or reserves of the organisation giving the indemnity. Even large organisations with substantial reserves may have difficulty meeting their liabilities in the event of a claim by a board member under such an indemnity. 

For these reasons, any arrangement for an organisation to indemnify a board member for claims relating to his or her office should be dovetailed with appropriate D&O insurance and public liability insurance policies. Indeed, it should be a requirement of any Deed of Access and Indemnity that the organisation maintains D&O insurance at an agreed level. 

Once again, these provisions should be drafted carefully so as to ensure that a board member can’t “double dip” against an insurance policy and the indemnity, and to ensure that the insurance cover operates to cover the board member for at least six years after the board member ceases to hold office.

We recommend that all companies and incorporated associations review their arrangements and make sure that they have in place comprehensive D&O and public liability insurance policies and an appropriately drafted Deed of Access and Indemnity between all board members and the organisation.

For more specific information on any of the material contained in this article please contact Johanna Churchill on +61 8 8210 1236 or jchurchill@normans.com.au.



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Work Health and Safety – Liability of 'Officers' under the harmonised legislation

The nationally harmonised work health and safety legislation (manifested in South Australia by the Work Health and Safety Act 2012 (WHS Act)) has been in force for some years now across numerous jurisdictions. Generally, ‘persons conducting a business or undertaking’ (PCBU), and their ‘officers’ and ‘workers’ under the WHS Act, should now be cognisant of the practical elements of the WHS Act framework.

However, due to prosecution time allowances, and the nature and length of work health and safety criminal prosecutions, it is only now that we are beginning to see the outcomes of criminal prosecutions under the legislative regime. Such decisions will provide important guidance regarding the interpretation of the as-yet largely untested provisions of the WHS Act.

One critical component of the WHS Act is the departure from the old system of having a single ‘responsible officer’ within an organisation, to a framework where all ‘officers’ of a PCBU have a personal, non-delegable obligation to exercise due diligence to ensure the PCBU complies with its obligations under the WHS Act.

While identifying officers and the content of the duty of due diligence has, until now, been an exercise uninformed by any judicial consideration, a recent decision in the Australian Capital Territory now provides some valuable exposition in relation to these matters.

McKie v Al-Hasani & Kenoss Contractors Pty Ltd (In Liq) [2015] ACTIC 1

This case involved the death of a worker by electrocution, when the truck being driven by the worker came into contact with live power lines at a worksite. The relevant regulator pursued criminal proceedings against both the company (in its capacity as PCBU) and against the project manager responsible for the site at which the fatal incident occurred (purportedly in his capacity as an ‘officer’ of the PCBU).

While the Industrial Court of the Australian Capital Territory found against the company, the more interesting aspect of this matter is the outcome in respect of the purported officer.

Was the project manager an officer?

The relevant legislation (which mirrors the South Australian WHS Act) defines ‘officer’ as including numerous categories of persons. These include some clear categories, such as directors and secretaries of corporations. However, certain other categories of person captured by the definition of ‘officer’ require some evidentiary analysis, namely:

‘a person:

(i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii) who has the capacity to affect significantly the corporation's financial standing; or
(iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation).’

Even though the project manager was at the head of the particular project connected with the fatal incident, the Court determined that it was necessary to look at the project manager’s role and influence across the whole PCBU, not just in relation to that discrete aspect of the PCBU’s operations.

After examining the project manager’s place within the wider organisational structure of the PCBU, the Court determined that the project manager did not satisfy any component of the definition of ‘officer’ and accordingly was not an officer.

This finding demonstrates that courts will take a forensic approach to determining whether a person is an officer, requiring proof beyond a reasonable doubt that an individual was indeed an officer within the broader organisation of the PCBU. This is a factual inquiry which will be different for every PCBU, and will depend on the roles and responsibilities of the relevant person, as well as the nature of the PCBU and its decision-making processes and functions.

Content of the duty of due diligence

While the project manager was ultimately held not to be an officer and therefore not subject to the duty of ‘due diligence’, the Court nevertheless provided some analysis of that duty.

Importantly, the Court reinforced the position that the duty upon officers to exercise due diligence to ensure the PCBU complies with its obligations under the WHS Act is a proactive duty. By adopting the words of an earlier case, the Court indicated that ‘due diligence’:

‘is not done by merely hoping others would or could do what they were told, but also ensuring they have the skills to execute the job they are required to do and then ensuring compliance with that in accordance with the safe standards established. Compliance requires a process of review and auditing, both formal and random, in order to ensure that the safe standards established are in fact being adhered to and under ongoing review’.

The Court listed numerous things that the project manager ought to have done were he subject to a duty of due diligence, but these matters were moot given that the project manager was ultimately held not to be an officer.

Take home message

This case represents the first of what will no doubt be many decisions interpreting the vexed question of who is an ‘officer’ and what their duty of ‘due diligence’ requires them to do. It is a matter which must necessarily be determined on a case-by-case basis.

It is worthwhile to identify who, within your PCBU, is an officer, and to consider whether those persons are discharging their proactive obligation to exercise due diligence to ensure the PCBU complies with its obligations under the WHS Act. Bare minimum requirements for officers in this regard include understanding the operations of the PCBU and the general hazards and risks associated with those operations, ensuring appropriate resources are available for eliminating or minimising such risks, and ensuring adequate procedures and reporting mechanisms are in place. However, the operations of each PCBU will entail further, more specific ‘due diligence’ obligations.

Norman Waterhouse has significant experience in providing advice and representation in work health and safety matters. Further, Norman Waterhouse regularly provides audit services regarding work health and safety documentation and practices, and training regarding PCBU duties, officers’ duties, worker’s duties, bullying and harassment, and other matters.

For more specific information on any of the material contained in this article please contact Amanda Green on +61 8 8217 1306 or agreen@normans.com.au or Chris Alexandrides on +61 8 8210 1299 or calexandrides@normans.com.au.



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