In this section:

- New Bill on Safety Duties for Directors

- Health & safety duties imposed on company directors in different jurisdictions: a CCA report

- Health & safety responsibilities of company directors in the UK

- A history of lobbying for reform in the UK

- Insuring against corporate crime: a commentary by Neil Foster, University of New Castle, Australia

New Bill on Safety Duties for Directors

A Labour MP is pressing for a new law to place legally binding, explicit safety duties on company directors. Aberdeen North MP Frank Doran presented his Health and Safety (Company Director Liability) Bill in a House of Commons debate on 19 January. The Bill is scheduled to receive a second reading on Friday 23 April. The TUC, trade unions, personal injury lawyers, health and safety campaigners and victims' advocates have all called for explicit legal safety duties on company directors. To read the full text from the House of Commons, click here.

International comparison of health & safety duties imposed on company directors

A 2007 Centre for Corporate Accountability report shows that seven out of the nine countries studied contain safety legislation that imposes positive safety obligations upon either directors or senior managers of companies. These are: Germany, France, Italy, Sweden, Japan, Canada (four out of fourteen jurisdictions) and Australia (two out of nine jurisdictions).

There is, in addition, another category of jurisdictions which, whilst not imposing explicit positive duties upon directors, do impose significant responsibilities through the creation of offences that are targeted at directors. This category includes four Australian states.

There are also, however, jurisdictions which either impose minimal or no duties upon directors. Two countries – USA and Holland – do not impose any obligations.

To access the full report, click here.

Health & safety responsibilities of company directors in the UK

Whilst there are clear, positive duties imposed on company directors and senior managers concerning the financial management of their organisation, the same is not true insofar as health & safety responsibilities are concerned.

Directors have no individual legal duties in relation to the safety of their company operations. It is only the company as a separate legal entity and the employees of the company, which have duties under the Health & Safety at Work Act 1974. This means that company directors have no positive obligations in relation to the health and safety of their organisation, and therefore cannot be held individually accountable for safety failures which cause great harm and even death at the workplace. The only exception, Section 37 of the 1974 Act, mentions those cases where a director can be prosecuted – namely, where the offence was caused by “consent, connivance, or neglect” on the part of the director. This however only imposes a duty upon directors to take action if they are already aware that their company is committing an offence; it does not impose a positive obligation on directors to inform themselves of offences being committed, or indeed to prevent offences from being committed.

For more information, read the CCA/UCATT report “Bringing Justice to the Boardroom”, 2007, available here.

History of lobbying for reform in UK

• 2000: Government commitment to develop a code of practice on Directors’ responsibilities for H&S, and look at how the law should be changed to make these duties statutory: see the strategy statement “Revitalising Health and Safety”

• 2001: HSC stated the need for voluntary guidance

• 2003: after having commissioned the consultancy company Greenstreet Berman to undertake a survey about the impact of the voluntary guidance, HSC argued that the voluntary guidance was enough

• 2004: the Select Committee on Work and Pensions’ recommendation to introduce legislation immediately, which reads that “the Government [should] reconsider[s] its decision not to legislate on directors duties and bring[s] forward proposals for pre-legislative scrutiny in the next session of Parliament” (para. 60)

• In response, the Government asked the HSE/HSC to conduct further research on the effectiveness of current measures, and report its findings by Dec 2005

• The research showed that statutory requirements would be more effective than voluntary guidance

• Dec 2005: HSC met to review the research and agreed that the law should be changed

• April 2006: HSC delayed its decision to support legislation, saying that it must wait “to see how proposals interacted with developments on Corporate Manslaughter, Company Law, and the Better Regulation Executive led work on developing alternative penalties” [i.e. the Macrory report on sentencing]. None of these initiatives engaged with the issue of directors’ duties

• October 2007: the publication of new voluntary guidance

Insuring against corporate crimes, by Neil Foster, University of New Castle, Australia

Can and should corporate directors and officers obtain insurance for, or indemnify themselves against, the possibility of a criminal fine following a conviction?  Or should this be deemed to be against public policy? The general rule is that one should not be able to insure against one’s own wrongdoing. Criminal laws would lose much of their deterrent effect if the rule were otherwise in respect of fines-only offences.
        In Australia legal restrictions applying to companies draw a distinction between “indemnity” and “insurance”. Logically an insurance policy would always seem to involve some sort of “indemnity”, but the difference appears to lie in the question whether the source of a promised payment is from company general funds, or from a general policy provided by an insurer and paid for by the company. Under the Corporations Act (s 199A(3)(b),  2001A), a company is not allowed to “indemnify” an officer for legal costs arising in “criminal proceedings” in which the person is found guilty. Herzfeld (below) notes that, due to their so-called “regulatory” character, there may be a question as to whether occupational health and safety law proceedings fall within this description, but concludes on balance that they probably do. (Herzfeld p 281)

        What about the fine itself? While the legislation of most Australian states is silent on the point, it seems that, as a matter of common law public policy, a company cannot indemnify an officer for (or provide insurance against) payment of a criminal penalty. While there is some doubt about criminal penalties for “strict liability” offences, the better view is that where an offence involves any element of personal fault, insurance against payment of the penalty will not be available. (Herzfeld p. 293) Indeed, Herzfeld argues that this should be the case even for offences where fault is not a part of the offence. But at least where a “defence” of “due diligence” would have been available, the courts are reluctant to allow insurance to be available - see R v Northumbrian Water, ex parte Newcastle and North Tyneside Health Authority [1999] Env LR 715, discussed in Foster “Personal Liability” (2004)(below), at 262-263. Since the personal liability provisions in NSW do have such a defence, insurance against payment of a fine is probably not available.
        But what is the reality? Say that a corporate officer violates the law and earns her company millions of dollars. The illegality is discovered, the officer is convicted, and then fined 500,000 dollars. Ah, but what if the officer now receives a bonus of 750,000 dollars for earning millions for her company? Financially, the officer comes out 250,000 dollars ahead even if not indemnified for the fine. How is this to be regulated?
        The question of whether the costs of defending a criminal prosecution, as opposed to the penalty itself, should be insurable is less clear. After all, the corporate officer may well be innocent, but reluctant to invest her own savings in a defence that could leave her financially destitute even should she prevail. Herzberg recommends that Australian legislation should be clarified to allow such costs to be the subject of insurance (Herzfeld p. 294) and there is much to be said for drawing a distinction between the costs of defending a prosecution and a fine following a conviction.

        So far we have looked at criminal fines. But many countries have rejected corporate criminal liability in favour of civil, administrative or regulatory liability. Whatever the label attached to the legal proceeding, the penalty is the same– a fine. However, if the fine is not a “criminal” fine, the question arises whether it can be the subject of insurance. Generally, both natural and legal persons can insure against civil damages damages such as in a tort case. But should the practical financial consequences when there is corporate misconduct turn on whether the identical misconduct is classified as a civil,  administrative, regulatory (quasi-criminal) or criminal offence?
        For further information on this topic, see N Foster, The Personal Liability of Company Officers for Company Breach of Workplace Health and Safety Duties (February, 2004), thesis accepted for award of degree of Master of Laws at the University of Newcastle (copy available on request); ch 5; Herzfeld “Still a troublesome area: Legislative and common law restrictions on indemnity and insurance arrangements effected by companies on behalf of officers and employees” (2009) 27 Company and Securities Law Jnl 267-298; V Finch, “Personal Accountability and Corporate Control: the Role of Directors’ and Officers’ Liability Insurance” (1994) 57 Modern L Rev 880-915, and C Baxter “Demystifying D&O Insurance” (1995) 15 Oxford Jnl of Legal Studies 537-564 for excellent reviews of the policy issues involved in such insurance, and the UK situation; S Ansell “Directors’ and Officers’ Liability Insurance- Recent Reforms and Developments in Australia and New Zealand” (1995) 23 Aust Business Law Rev 164-173, S J Traves & R N Traves “Directors and Officers Liability Insurance: Reducing the Burden of Legal Liability” (1996) 26 Qld Law Society Jnl 587-604, and M Waller & L Courtice “Insuring against environmental risks in Australia and some recent developments” (1998) 8 Aust Product Liability Reporter 172-181 for some comments from an Australian perspective; and C Parsons “Directors’ and Officers’ Liability Insurance: A Target or a Shield?” (2000) 21 Company Lawyer 77-86.