Why weren’t Board members liable in the Port of Auckland case?
By Steven Moe (Partner) and Hannah Carey (Special Counsel) at Parry Field Lawyers
Former Port of Auckland Chief Executive Tony Gibson has recently been sentenced for health and safety breaches. It’s the first time a high profile CEO has had such a prosecution brought which was in relation to the death of stevedore Pala’amo Kalati in 2020. The outcome: he will pay a $130,000 fine and $60,000 in costs.
Judge Steve Bonnar at the sentencing noted that the CEO had been a “hands-on CEO in relation to health and safety issues at the port”. Perhaps that ironically worked against him, as it may have highlighted and showed a failing in this area. The judge said he had “failed to exercise the care, diligence and skill” which is expected of a reasonable officer.
The impact of the case, and an obvious question
This will likely have a chilling effect on those being recruited for CEO roles – but as this news broke it led to an obvious question. What about the Board of Directors? They seem to be largely silent in the proceedings, yet surely, they were integral to the health and safety at the company as well?
When we talk with clients on governance or provide training an essential part involves emphasising that it is the “PCBUs” who are ultimately responsible. That acronym stands for a “Person Conducting a Business or Undertaking” – and that includes the Directors.
The reason Officers have such potential liability is that they can exercise significant influence over how the business is done.
In this case Maritime NZ brought the prosecution against the CEO and the Company, not the Directors. The Company itself pled guilty and paid fines of more than $500k and the Judge noted it had paid a large amount in private reparations to the family.
So why was the CEO charged?
Mr Gibson was charged alongside the Company and this was done as it was alleged that he did not exercise the due diligence needed to keep workers safe and ensure that the company complied with its health and safety obligations.
In Mr Gibson’s case, he was alleged to have failed to take a number of steps and had not done the following. This had resulted in the exposure of the workers at the Port to risk of death or serious injury because of a failure to:
- Take reasonable steps in order to ensure that the company had appropriate processes in place as well as resources that ensured they were followed, so as to minimise or eliminate key health and safety risks; and
- After they were in place, take appropriate steps to verify the actual provision and use of those resources and processes.
The key factors that led to the CEO being liable
The key factors here regarding why it was the CEO and not Board members who had the proceedings brought against him appear to relate to the fact that the CEO had been the one tasked by the Board with a role of leading the Port company.
This included ensuring its systems and processes were in place to ensure the safety of workers and compliance for health and safety. It also seems that he was ultimately responsible for health and safety at the Port.
Practically speaking, this also meant that Mr Gibson had the capacity and ability to influence the conduct of those responsible for this area at the Port Company. This extended to ensuring reporting processes and policies were in place so that any failures could be addressed prior to their occurring. In other words, the buck stopped with him.
This was shown by the fact that:
- Mr Gibson was not a hands-off or remote CEO, operating at a significant distance from the Port Company’s day-to-day operations. Ironically, this may have made him more liable. This is because he personally took the time to get to know the key risks and what controls were or were not in place. As one example of this, Mr Gibson knew of the high risks involved in stevedoring and the role of the workers, including the specific risk (which was handling suspended loads) which eventually led to Mr Kalati’s death.
- There were other examples of this which likely influenced the decision to bring the action against him. Some of these included:
- While there seems to have been a Health and Safety Committee in place it had actually not carried out its responsibilities – and that was down to Mr Gibson being ultimately responsible for it.
- Yearly health and safety strategy plans in those years which were adjacent to the incident had not been prepared by the company and that was something Mr Gibson was responsible for and approving.
- While there had been an external audit two years before the recommendations for how to improve health and safety, this had not been implemented and Mr Gibson both knew of the recommendations and was also aware that they had not been actioned yet.
The Judge noted that he had not considered hard controls which might have included signage, or barriers, and adequate lighting around operating cranes. However, it seemed clear that a reasonable CEO, with Mr Gibson’s knowledge and experience, would have looked at the practises in place and seen the shortfalls and ensured additional steps were taken to address any shortfalls.
Was this the right approach … how about those Directors?
Even if the situation really was the way it is described in the case it is still unclear to us why proceedings were not brought against the Directors of the Company as well. Is it really because the CEO in this instance had taken on the full burden of the Health & Safety risk?
At a policy level surely, this is going to send the wrong signal – the Board has the ultimate say on how the company fulfils its mission. Yet this result might lead to Boards allocating important supervision work to a CEO as a way to try and abdicate responsibility (and liability) for health and safety. That is unlikely to be the result that is wanted.
It appears that the Court itself recognised this point. This is because it was noted that they were not placing weight on the mere fact that the Board had provided approval of Mr Gibson’s performance. Also, it was noted that the Court was not being asked to consider failings by any other officers (that is, the Directors) – because the prosecution had not been brought against them.
Boiling it down to the essence of the issue
While directors are all officers and, therefore, could theoretically all have been charged, we think the actual decision appears to come down to Mr Gibson having taken on more specific responsibilities, and having more influence in relation to health and safety matters, than the directors. This led to it being easier to show he had more ability to influence the conduct of the company.
We imagine because this was the first of its kind case in NZ, that it was the lowest hanging fruit that they went after, in the hope of a successful prosecution. But every case is going to be very fact specific and the Judge did indicate that, just because you’re not hands on, doesn’t mean you will avoid being charged or avoid liability. You still need to exercise oversight/make appropriate enquiries.
For example, the Judge seemed to recognise this tension and did this when commenting on the difference between what an officer (ie a director) might know vs the practical implementing to happen at paragraph 55:
“A practical tension exists, therefore, between the purpose of the legislation, which is to sheet home the due diligence duty to those at the “apex of large hierarchical organisations” and the fact that officers in such organisations will be, by virtue of the nature of their role and the size of such organisations, removed from the day-to-day implementation of business systems, processes and health and safety standards. There may be several tiers of management sitting between the officer and those on the shop floor. It is clear, however, from the scheme of the legislation and existing authority, that an officer cannot comply with his or her due diligence obligations by simply relying upon those with specific responsibilities for health and safety in the management chain below them or by assuming, without proper enquiry, that the organisation’s systems are adequately addressing health and safety risks.”
Some key takeaways
We have focussed on the fact that it was the CEO who was charged and not the Directors.
While each health and safety prosecution is always highly fact specific, if you are an officer, even in a large organisation, we recommend that at a minimum, a board should ensure that they:
- Don’t just rely on others – this includes those with specific health and safety responsibilities, as you need to check that the systems you believe are there are actually in place and even more important, are being implemented.
- Understand and are familiar with the operations of the business and the activities and the work carried out – that way any risks or hazards will be both properly identified and can be proactively addressed.
- Ensure that you stay updated by having effective reporting lines, which will ensure that you get ongoing information.
- Ensure that if you have assigned health and safety obligations to certain roles, or those with specialist skills, that they do in fact have the ability to perform their roles and regularly monitor and check that they are doing what they are tasked with doing.
The culture is set from the top – if your board doesn’t take it seriously then why will others in the organisation. So, make sure this is prioritised so if there ever were to be an investigation it would be obvious that you had set the right tone for those in the company.
Please note that this article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact us by phone 03 348 8480.
