STATUTES AMENDMENT (DIRECTORS' LIABILITY) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 7 March 2013.)

The Hon. S.G. WADE (17:00): I rise on behalf of the Liberal opposition to indicate our support for the Statutes Amendment (Directors' Liability) Bill 2012. The bill is about the risk that our community and business leaders are forced to take on through the performance of their duties. The current laws have left some directors at the mercy of their organisations' actions, actions which they may not have had any control over. It serves as a clear disincentive for leaders to take up positions of responsibility in our community and it is our view that this reform is well overdue.

The bill seeks to implement part of the 2008 Council of Australian Governments agreement to deliver a seamless national economy. The agreement requires all Australian jurisdictions to reform the provisions of their legislation which provides for directors' liability, particularly those imposing vicarious liability on directors for the actions of the corporation.

Two High Court cases, one in the early 1980s and one in the mid-1990s, increased the difficulty of prosecuting directors. In response, governments Australia-wide enacted legislation which went beyond creating the usual accessorial liability, instead imposing personal criminal liability on directors where the company's offending was proved on the basis that they were the company's directors subject to the defence of due diligence. Occasionally, there were no defences, so directors were automatically liable for conviction. These provisions routinely imposed vicarious liability for offences against legislation and regulations.

In about 2009, COAG decided to initiate a reform program for directors' liability. The reform was seeking a more 'consistent and principled approach to personal liability for corporate offences'. It goes on:

such an approach would reduce complexity, aid understanding, increase certainty and predictability and assist efforts to promote effective corporate compliance and risk management.

COAG subcommittees decided on a set of principles against which Australian governments were to audit their legislation. The South Australian government's audit led to the Statutes Amendment (Directors' Liability) Act 2011. Following a scathing assessment of the process by Corrs Westgarth Chambers, COAG issued more prescriptive guidelines against which jurisdictions would need to audit their legislation.

The COAG guidelines describe three types of vicarious directors' liability. Only two of those types are used in South Australia. The first, type 1, are provisions where the prosecution must prove beyond reasonable doubt each element of the offence, including the director's lack of care. Type 3 are provisions which involve the reverse onus where directors are to be found vicariously guilty for corporate offences unless they prove, on the balance of probabilities, they could not have prevented the company from offending by exercising due diligence.

Where offences are to be type 1 offences, the prosecution must prove the corporation's offending and that the accused was a director at the time the offence was committed and that: (1) the director knew, or ought reasonably to have known, that there was a significant risk that such an offence would be committed; (2) that the director was in a position to influence the conduct of the corporation in relation to the commission of such an offence; and (3) the director failed to exercise due diligence to prevent the commission of the offence.

The bill intends to completely remove directors' vicarious liability from 19 acts without replacement. A further 24 acts will have their existing directors' liability provisions repealed and substituted for either a type 1, type 3 or no vicarious liability offence. Concerningly, the bill will allow the regulations to impose vicarious liability for offences against the regulations under the following acts: the Animal Welfare Act, the Authorised Betting Operations Act, the Gaming Machines Act, the Second-hand Vehicle Dealers Act, the Security and Investigation Agents Act, the Taxation Administration Act, and the Travel Agents Act.

COAG decided that laws aimed at preventing very serious harm would be excluded from the review, as it is in the public interest for directors to be held criminally liable for the actions of the company. On that basis the government audit did not consider the following acts: the Occupational Health, Safety and Welfare Act, the Dangerous Substances Act, the Explosives Act, the Adelaide Dolphin Sanctuary Act, the Environment Protection Act, the Marine Parks Act, the Native Vegetation Act, the Nuclear Waste Storage Facility (Prohibition) Act, the Radiation Protection and Control Act, and the River Murray Act.

No South Australian acts or regulations impose personal criminal liability vicariously on the governing body of a statutory corporation. The government has advised the opposition that it believes that the Work Health and Safety Act 2012 is already consistent with the COAG guidelines.

The bill before us today was tabled on 28 November 2012 and, as I said earlier, represents the government's second attempt at reforming the statute book with respect to directors' liability. The bill seeks to further amend legislation that was amended by the 2011 act. Then, on 6 March 2012, the government filed, and had passed, 14 additional amendments to the bill in the House of Assembly; 14 amendments with 40 operative clauses were filed on 6 March and considered by the House of Assembly that day—on the same day, just like that, without industry consultation and without discussion with members of the other place.

The Attorney-General blamed the late tabling of the amendments on the volume of work to be done, and because the bill had to be introduced in November in order to meet a COAG guideline. Had the opposition done such a thing, the Attorney-General would no doubt have gone into one of his usual long-winded rants. The fact is that the bill was introduced on 28 November. I cannot imagine that all the further amendments were identified on 6 March, but that is the day they were tabled and the House of Assembly passed them. For a bill that deals with leadership, the leadership displayed by the government during this process has been lacking.

Despite this, the feedback the Liberal opposition has received from the Law Society of South Australia, the Australian Institute of Company Directors, and the South Australian Joint Legislation Review Committee is generally supportive of the bill. There have been some concerns raised about particular elements. The Australian Institute of Company Directors, while supportive of the changes, does not believe they go far enough to limit the criminal liability of directors. The AICD suggests that 21 acts should be reformed by this bill, seven of which the government has chosen not to address. These include the Aboriginal Heritage Act, the Community Titles Act, the National Electricity (South Australia) Act, the Public and Environmental Health Act, the Second-Hand Dealers and Pawnbrokers Act, the Strata Titles Act, and the Summary Offences Act.

Additionally, the AICD argues that 25 of the 50 acts amended by the bill retain provisions reversing onus of proof. This is high compared with other jurisdictions. New South Wales's recent reform in the area amended 44 acts, and there are no type 3 provisions remaining in any of those acts. The bill before the Victorian parliament will leave type 3 provisions in only four of the acts it proposes to amend.

The Law Society has also suggested that the reverse onus type offences provisions in this bill should be amended so that a director has a defence if they can show that they exercised due diligence. The Law Society is concerned that while the defence of due diligence is available, the bill does not state the standard of proof to which the defence must be proved. The society submits that it is intended to be on the balance of probability, not beyond reasonable doubt.

The JLRC is concerned that concepts such as 'due diligence', 'position to influence' and 'significant risk' are subject to judicial interpretation, which is influenced by the relevant act and organisation, and this may detract from the government's goal of achieving certainty and clarity. The AICD, the JLRC and the Law Society have all reported serious misgivings about the bill's proposal to allow regulations to 'impose such liability that be considered appropriate in particular cases'. This allows the regulations to impose vicarious civil and criminal liability on directors if it were 'considered appropriate'. It is a questionable use of the executive's regulation-making power. The imposition of liability, especially criminal liability, should be subject to parliamentary scrutiny.

The proposed regulation-making powers can be used to determine the reform process by including the liability provisions in the regulations. The Aboriginal Legal Rights Movement notes that the bill proposes to amend the Anangu Pitjantjatjara Yankunytjatjara Land Rights Act and the Maralinga Tjarutja Land Rights Act. ALRM submits that the respective provisions were intended to hold directors of unscrupulous mining companies vicariously liable where the company sought or obtained permission, via bribery and side payments, to carry out mining operations on the lands without the proper permission of the statutory corporations. ALRM queries whether the government should be amending these provisions, given that they were intended to assist the good government of the Aboriginal statutory corporations. Perhaps the government could give some consideration to these matters over the coming weeks.

I suspect that this will not be the last of the reforms proposed by COAG. This is an important area of reform, and it is important that we get the balance right to ensure that the people truly responsible are held accountable, not just a person who is the most visible and who has put themselves forward to lead. With those remarks, I look forward to the committee stage of the bill.

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for the Status of Women, Minister for State/Local Government Relations) (17:11): I take this opportunity to thank honourable members for their second reading contribution. The passing of this bill will achieve South Australia's commitment, through the national partnership agreement, to deliver a seamless national economy, to reform provisions that impose vicarious personal criminal liability on directors and members of management committees or bodies corporate by reason of the position they hold rather than by reason of their own acts or omissions. The bill will amend 50 acts. This is in addition to amendments to directors' liability provisions in 25 acts in 2011. The act and this bill represent two audits of all our acts and regulations and a great deal of painstaking work across the South Australian public sector.

Decisions about how particular offence provisions should be treated under the original COAG principles and the subsequent COAG guidelines involved many value judgements. Reasonable and well-informed people might come to different conclusions about some of them, and an elected government's responsibility is to weigh up the competing considerations and to make the best decision it can in the interests of the whole community, and that is what the government has done. I commend this bill to the council.

Bill read a second time.

At 17:14 the council adjourned until Tuesday 30 April 2013 at 14:15.