Landmark ruling: Former CEO convicted of health and safety violations

Pala'amo Kalati worked as a “lasher” at the Ports. He was tragically killed when a container fell on him from a crane. Kalati had been within a crane “exclusion zone” at the time of the incident and the crane driver had not seen him. Changes had been made to supervision at the Ports in 2020 to comply with Covid-19 “bubble” restrictions.  

POAL pleaded guilty to charges under the HSWA relating to Kalati's death.

The novel aspect of the prosecution was the fact that Gibson was also prosecuted for his alleged failings as an officer of POAL. 

Gibson was alleged by Maritime NZ to have breached his duties under the HSWA by not taking reasonable steps to ensure that POAL had available for use, and used, appropriate resources and processes to eliminate or minimise risks to health and safety arising from POAL's work, including by having:

• Clearly documented, effectively implemented, and appropriate exclusion zones around operating cranes (he was convicted on this ground).
• Clearly documented, effectively implemented, and appropriate processes for ensuring coordination between lashers and crane operators (he was acquitted on this ground).

Gibson was also convicted of failing to take reasonable steps to verify the provision and use of those resources and processes.

Duties of officers

Section 44 of the HSWA imposes due diligence obligations on officers of businesses or undertakings (being directors and other individuals who exercise significant influence over the management of the business or undertaking, such as CEOs). 

The obligation is to exercise due diligence to ensure that the business or undertaking complies with the health and safety obligations it owes under the HSWA.

In order to fulfil their due diligence obligations, officers must exercise the care, diligence, and skill that a reasonable officer would exercise in the same circumstances. Reasonable steps for officers to take in this respect are set out in s. 44 of the HSWA, and are stated to include acquiring and keeping up to date knowledge of work health and safety matters; gaining an understanding of the work undertaken by the business and the hazards and risks associated with those operations; ensuring that their organisation has appropriate resources and processes for eliminating and minimising risks, and complying with the HSWA, as well as for receiving and responding to information about risks; and verifying the provision and use of these resources and processes.

The rationale for imposing such an obligation is to “incentivise” leaders of organisations to be proactively engaged in health and safety matters and to set a strong health and safety culture “from the top.”

The court accepted that Gibson introduced a number of initiatives that improved health and safety and was considered to be a good leader who was dedicated to POAL staff. The court noted that “a good leader and a conscientious officer may have the best intentions in the world but may still breach” their due diligence duty.

Failure to exercise care

The judge was satisfied beyond reasonable doubt that Gibson had failed to exercise the care, diligence and skill expected of a reasonable officer to ensure that POAL had complied with its duties or obligations under the HSWA in regard to ensuring clearly documented, effectively implemented, and appropriate exclusion zones were in place around operating cranes. He was also found to have failed to verify the provision of those procedures and processes.

The key factual findings in this respect were:

• As CEO, Gibson was responsible for health and safety matters at POAL at the Executive level and had been delegated authority by the Board to implement its Health and Safety policy. Where Gibson had to assign responsibilities or delegate authority to assist him, he was still responsible for monitoring and reviewing the performance of his subordinates.
• The Health and Safety Steering Committee had failed to carry out its functions in line with the POAL's Health and Safety Manual (something for which Gibson, as its leader, was responsible). POAL failed to prepare its annual health and safety strategy plans in the 2020 and 2021 financial years, which Gibson was responsible for approving.
• POAL's Executive Team did not advance recommendations that came out of a 2018 audit in a timely manner. One of those recommendations was assigning responsibilities and accountability for the Executive Team. Gibson was aware of the report and the lack of timely response.
• Gibson was fully aware of the critical risks associated with stevedoring. However, evidence demonstrated that there was a lack of control management for those critical risks and that reporting on employee practices did not convey enough information to Gibson or the Board to satisfy them that the risks were being addressed.
• Gibson was aware of POAL's four previous convictions under health and safety legislation and was involved in the decisions to plead guilty in each case. He was on notice from late 2018 onwards that POAL had been experiencing on-going difficulties with monitoring the work on the wharves, and was responsible for putting in place appropriate systems to address those failures.
• There had been a widespread culture amongst the stevedores of cutting corners on nightshifts by violating the “three container width rule.” POAL's training materials and documentation were not clear and consistent about the rule and worker understanding varied, together showing that the Ports had failed to provide adequate and consistent training.
• Gibson gave evidence that he was actively engaged in exploring the use of technological controls to manage health and safety issues, which showed that he was personally alert to the critical risks, but a reasonable CEO in his position would have recognised and addressed the shortfalls including through non-technological controls.

In light of these factors, the court concluded that Gibson had the capacity and ability to influence the conduct of POAL in relation to its failures and had not done so. In particular, he had not ensured that effective reporting lines were in place and that the Executive and Board received appropriate recommendations from those at “wharf level.” He had also not taken active steps to obtain adequate information about the nature of the work being undertaken, the risks associated with that work, what controls were in place in relation to those risks, and what additional controls were necessary to remove or minimise those risks.

Gibson was found not guilty of the charge relating to ensuring coordination between “lashers” and crane operators. In this respect, the court heard evidence regarding the implementation of pandemic management plans at the wharves. The prosecution had argued that Gibson had failed to satisfy himself that the changes were being implemented safely. However, the judge was not satisfied beyond reasonable doubt that Gibson had failed to exercise the care, diligence, and skill of a reasonable CEO in the same circumstances regarding those plans, particularly as it was the norm during the pandemic for the industry to lack formalised and documented change management processes.

Scope of due diligence owed by officers

At a high level, the case confirms some core principles. The judgment makes clear that the scope of due diligence obligations owed by officers (even in large organisations) will turn on the risk inherent to their workplace and what they are expected to know as officers. CEOs (or other officers) will be expected to get the right information from the right people and ensure that action is taken to address the risks known to them (or which ought to be known to them). The extent of that duty will vary with the circumstances, as s. 44 itself makes clear. 

The case is significant in holding that the due diligence obligation of officers in large organisations is not just limited to governance or oversight functions. This means that officers who have roles in a PCBU that involve more than governance will be expected to bring due diligence to those activities. This is particularly significant for senior executives who have governance and management duties.

This case also demonstrates some key practical lessons that will be relevant for officers more generally:

• The case reinforces the importance of officers verifying that the health and safety systems that they think are in place are effective and are being followed. It is important for officers to receive information that reflects “work as happening” (or what people are actually doing) rather than “work as designed,” and to then act on the information. Getting the right information from the right people who are on the ground is crucial. This is reflected in the Institute of Directors' Good Practice Guide, which states that hearing about the “reality of work as done,” incorporating direct worker feedback, is important for directors and Boards.
• Officers must also ensure that health and safety initiatives are followed up on and closed out and there is sufficient documentation of what is and is not done. For example, in this case, certain health and safety initiatives appeared to have started but petered out. Again, the Board minutes recorded that Gibson had turned his mind to new technology for the crane exclusion areas, but this had not been implemented. Witnesses recalled that this was for technical reasons, but there was no documentary record of what these reasons were or when and why it had been decided not to implement the measures. 

The Maritime Union has criticised health and safety at the Ports during the relevant period whilst noting that new management has taken a positive approach to engaging with workers and the Union, resulting in health and safety and the wellbeing of workers at the Ports becoming a priority.

Gibson has not yet been sentenced and faces a fine of up to $300,000. It is not yet clear whether he will appeal against the conviction. If he wishes to do so, he will have 20 working days from the date of sentence.

In the meantime, it is important that officers consider the judgment and what it means for them and how they fulfil their due diligence obligations.

Emma Peterson is a Partner in the litigation team specialising in employment law and health and safety at Russell McVeagh in Auckland. Malcolm Crotty is a Partner specialising in commercial litigation and dispute resolution at Russell McVeagh in Auckland. Mark Campbell is a Special Counsel in the litigation and corporate advisory teams at Russell McVeagh in Wellington. Patrick Tumelty is a litigator with specialist knowledge in commercial litigation, health and safety, insurance, and shipping at Russell McVeagh in Auckland.