25 June 2019
The discovery of cracks in Mascot Towers felt like Groundhog Day for Sydney residents. They had heard a familiar story six months earlier, when the Opal Tower was evacuated following structural failures. The potentially catastrophic outcome of the structural failures, and the lack of legal recourse available to residents, highlight the serious regulatory and accountability issues facing the construction industry.
These cases make compelling arguments for the imposition (on public policy grounds) of personal liability on executives for offences committed by corporations.
Executive liability recognises the potential for corporate misconduct to cause public harm. Extending liability to 'pierce the corporate veil' would motivate directors and senior management to actively ensure a corporation's compliance.
The NSW Government has already taken steps in this direction. It has introduced a number of executive liability offences relevant to the infrastructure industry over the past few years, and is likely to further extend its net to other areas. The most recent example is the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW), which introduces executive liability for the service of knowingly false or misleading supporting statements, with penalties of up to $22,000.
We explore some key executive liability offences in greater detail.
Executive liability refers to personal liability imposed by law on:
as a result of the corporation having committed an offence classified as an executive liability offence.
Legislative provisions imposing executive liability include the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) s 34D, and the Building Products (Safety) Act 2017 (NSW) s 59.
The onus is on the prosecution to establish that a director or individual involved in management:
In NSW, the term reasonable steps is defined in legislation. It includes any reasonable action towards:
This depends on the corporation's organisation and structure, which may well be unique to it.
However, those in key management positions (including those at project manager level and senior in-house legal counsel) may be involved in the management of the corporation and in a position to influence its conduct.
People in these positions are involved in managing the risk of projects, decision making, legal governance frameworks and the workings of organisations. They may have advised senior management and the board of directors in setting up those frameworks and processes.
Building and Construction Industry Security of Payment Act Amendment Act 2018
At this stage, only offences regarding the head contractor’s supporting statements attract executive liability (see sections 13(7), (8) and section 34D). The maximum penalty is 200 penalty units (currently $22,000). However, the NSW Government is now seeking feedback on developing accompanying regulations, under which new executive liability offences may be created.
Building Products (Safety) Act 2017
The Act creates bans for using unsafe building products. Once a ban is in force, it becomes an offence to:
These offences attract executive liability with a maximum penalty of $220,000 for an individual.
It is important that executives in the infrastructure industry be aware of their potential personal liability for offences committed by the corporations they work for – and to understand what reasonable steps are required under the legislation in order to offset liability.
When considering whether an employee involved in key management roles may be liable under the executive liability provisions, the questions to be addressed include:
Corporations should consider putting in place risk mitigation measures, including extending their directors’ and officers’ liability insurance to provide coverage for management personnel who are in a position to influence the corporations' conduct.
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.