Sentencing under the new health & safety regime

Tuesday, November 14, 2017

We are now over one year on from the introduction of the Health and Safety at Work Act 2015 (the Act). The Act has significantly reformed New Zealand’s health and safety regime.

The regime is of significance to the insurance market given the prevalence of insurance cover, commonly bought as ‘statutory liability’ cover by businesses in New Zealand, to protect against some of the consequences of a prosecution under the Act. Such statutory liability insurance typically covers legal defence costs and reparation payments to be made under the Act. Fines cannot be insured. Under the new regime, defendants may also be required to contribute to the costs incurred by WorkSafe New Zealand (the new agency charged with administering and enforcing the Act) in pursuing prosecution. The Act does not preclude these awards being insurable, but whether cover exists will depend on the specific policy wording.

The Court’s approach to awards of reparation has not changed under the new Act and to date, has been consistent with awards ordered under the previous Health and Safety in Employment Act 1992.

The Court’s approach to determining the level of fine to be imposed, however, is likely to change given the Act’s introduction of new, substantially higher, maximum fines for health and safety infringements. The maximum penalty for offences by a body corporate, for instance, has increased six-fold from $250,000 under the former regime to $1,500,000 under the Act. Although such fines cannot be insured, the potential for such substantial increases in the fines imposed under the Act ought to be of interest to the insurance market. It is likely that substantially higher fines will lead to greater numbers of defendant parties facing liquidation or bankruptcy, and it may be that directors of defendant parties will be more likely to face prosecution as a result.

At the time of writing, the District Courts have delivered four sentencing decisions under the new Act, with no appellate decisions yet issued. Those four decisions are summarised below. The diversity in approaches taken by the Courts in the decisions to date indicates the Courts are grappling with how best to approach the new sentencing regime, and suggests they would likely be aided by some early appellate guidance being provided, particularly on the approach to the level of fine to be imposed.

Aside from a significant uplift in fines, another key feature introduced by the new regime is the availability of enforceable undertakings as an alternative to prosecution. An enforceable undertaking is a legally binding agreement between WorkSafe New Zealand and a duty holder, which is entered into on a voluntary basis following a breach. The agreement details actions the duty holder must undertake to respond to the contravention. Two examples, one involving Zespri and the other the trust board of St Kentigern’s College, are discussed below, including in terms of the challenges enforceable undertakings are likely to pose for insurers when dealing with health and safety breaches by insureds.

Sentencing under the former regime

Under the former regime, the approach taken to assessing the quantum of penalty was set out by the High Court in Department of Labour v Hanham & Philp Contractors Limited[1]Hanham provided that setting the starting point for a fine involved the Court making an assessment of culpability within the following scale:

Culpability band

Fine

Low culpability

Up to $50,000

Medium culpability

$50,000 to $100,000

High culpability

$100,000 to $175,000

The court in Hanham noted, however, that the figure of $175,000 at the upper end of the high culpability band was not intended to preclude a greater fine up to the statutory maximum of $250,000 in cases of extremely high culpability.

WorkSafe New Zealand v Rangiora Carpets Limited[2]

An employee slipped off the side of a mezzanine floor and fell 2 ½ metres through a false ceiling. She suffered a number of broken bones and a laceration to her head. She was hospitalised for eight days and her husband had to take eight weeks off work to assist her at home while she recovered.

WorkSafe New Zealand submitted that the culpability bands from Hanham (including the de facto fourth band reserved for instances of extremely high culpability) could be translated to sentencing under the new regime simply by uplifting the thresholds of each band as follows:

Culpability band

Fine

Low culpability

Up to $500,000

Medium culpability

$500,000 to $1,000,000

High culpability

$1,000,000 to $1,500,000

In supplementary submissions, WorkSafe put forward an alternative four-band approach:

Culpability band

Fine

Low culpability

Up to $400,000

Medium culpability

$400,000 to $800,000

High culpability

$800,000 to $1,200,000

Very high culpability

$1,200,000 to $1,500,000

Judge Gilbert expressed concerns that both WorkSafe New Zealand’s three-band and four-band approaches would compromise consistency by allowing for enormous potential variation in levels of fines within each band. He therefore approached the sentencing by proposing six culpability bands as follows:

Culpability band

Fine

Low

$0 to $150,000

Low/Medium

$150,000 to $350,000

Medium

$350,000 to $600,000

Medium/High

$600,000 to $850,000

High

$850,000 to $1,100,000

Extremely High

$1,100,000 +

Ultimately Judge Gilbert adopted a starting point of $300,000, based on an assessment of the defendant’s culpability as being near the cusp of the low/medium and medium bands. Judge Gilbert noted the need for appellate guidance but considered that the inclusion of further bands along with modified penalty ranges gave effect to Parliament’s intention to increase the fines but provides a more workable framework than that proposed by WorkSafe New Zealand. Judge Gilbert ordered Rangiora Carpets Limited to pay a fine of $157,000, reparation of $20,000, and prosecution costs of $1,228.

WorkSafe New Zealand v Burrows[3]

The victim, a child, was a friend of the defendant’s son. He had sustained serious injuries when he had fallen under the wheels of a truck that was being used to wet down the track used for training race horses.

The defendant had limited financial means and the sentencing Judge decided not to impose a fine. Starting points and culpability were not discussed in the sentencing notes. Reparation of $23,726 was ordered, but no award as to costs was made.

WorkSafe New Zealand v Budget Plastics (New Zealand) Limited[4]

An employee’s hand was partially amputated when it was caught in the auger of a plastic extrusion machine.

As in Rangiora Carpets, WorkSafe New Zealand submitted the bands from Hanham should be transposed across the full spectrum of available fines under the new regime. The court again responded with concerns that such broad bands would make it difficult to achieve consistency, and result in a starting point that is “too high”.

Judge Large commented that “it was not for the District Court to make sentencing guidelines”, before finding that culpability was moderate in the Budget Plastics case given:

  1. the obvious risk of serious injury;
  2. the actual injury sustained (partial amputation of hand);
  3. potential for more severe injury; and
  4. foreseeability of the harm, the risk had been identified in a prior audit but steps and not been taken to address the risk.

Notably, the Court said that case law from Australia is not particularly relevant given differences in the legislation and the different approach to assessing culpability taken by the Australian courts.

The Judge adopted a starting point of between $400,000 and $600,000. After adjustments, the final orders made against Budget Plastics were a fine of $100,000, reparation of $37,500 and a contribution to WorkSafe New Zealand’s costs of $1,000.00.

WorkSafe New Zealand v The Tasman Tanning Company Limited

An employee, a forklift driver in the tanning industry, was exposed to hydrogen sulphide gas when he was shifting containers. The worker lost consciousness twice, resulting in a concussion, facial gashes and a nose injury. Tasman Tanning had been sentenced five years prior for similar health and safety breaches.

At the time of writing, the full sentencing notes had not been released. It is understood, however, that the Court did not favour the six-band system applied in Rangiora Carpets and instead applied the four-band approach promulgated by WorkSafe New Zealand. It is understood the Court adopted a starting point of $700,000, which was increased to $735,000 for the prior conviction, and then reduced to produce an ultimate fine of $380,000, together with reparation of $18,000.

Early lessons

Rangiora Carpets, Burrows, Budget Plastics and Tasman Tanning reveal a general desire for appellate guidance in relation to the approach to be taken to sentencing under the Act. Until such guidance is received, the District Courts will likely continue to draw on the approach taken under the old regime, and assess what uplift is necessary under the new Act.

One factor it will be interesting to watch is whether the Courts move towards a graduated approach to sentencing under the new Act, reflecting the scale of a defendant’s business. Given the significantly greater maximum fines available under the new Act, there is a danger that without a graduated approach, small businesses may find themselves out of business, while larger businesses do not feel the impact of the new regime. For the meantime, though, sentencing under the new regime remains in a state of flux, marked by some inconsistency and uncertainty.

Enforceable Undertakings

Finally, it is worth noting two cases which have resulted in enforceable undertakings being agreed as alternatives to prosecutions.

The first enforceable undertaking entered into under the Act occurred when two St Kentigern College students suffered serious lacerations to their throats when putting on a stage performance of Sweeney Todd: The Demon Barber of Fleet Street. WorkSafe New Zealand agreed to accept an enforceable undertaking in lieu of prosecution. The school’s trust board agreed to undertake a restorative justice process, including payment of reparations to the injured students. The board also committed to taking steps to improve health and safety within the wider education sector through the development of health and safety guidance and the building and delivery of training for the benefit of schools nationwide. The estimated total cost of the undertaking was $85,682.88.

An enforceable undertaking has also been accepted from Zespri International Limited in relation to a quad bike fatality that occurred at one of Zespri’s kiwifruit orchards. In announcing the arrangement, WorkSafe New Zealand noted that an enforceable undertaking is not usually accepted where an alleged contravention has resulting in a fatality, but in this case Zespri’s failures were not directly causative of the death. Zespri’s undertakings included sponsoring the Horticultural Industry Health and Safety forum, establishing a tertiary scholarship for health and safety studies, and funding research into high hazard areas of the industry. The total expenditure was estimated to be at least $249,500.

For the insurance market, it will be interesting to see how policies respond to enforceable undertakings. Such undertakings may be beneficial for insurers in that they are likely to reduce the defence costs insurers might otherwise incur in dealing with a health & safety prosecution. On the other hand, enforceable undertakings are voluntary arrangements and it remains uncertain how    insurers will respond to requests that they meet the costs of defendants implementing such arrangements, such as the cost of providing educational materials.

For further information please contact Jonathan Scragg or a member of our litigation and dispute resolution team.

 

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

[1] (2008) 9 NZELC 93,095; (2008) 6 NZELR 79 (HC).

[2] [2017] NZDC 22587.

[3] [2017] NZDC 2011.

[4] [2017] NZDC 17395.