Northern Territory Second Reading Speeches

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STATUTE LAW AMENDMENT (DIRECTORS' LIABILITY) BILL 2015

Madam Speaker, I move that the bill be now read a second time.

The purpose of this bill is to implement the Council of Australian Governments (COAG) approved reforms for nationally consistent provisions in legislation imposing criminal liability on directors for breaches of laws by corporations.


In 2008 COAG recognised that directors’ liability provisions across Australian law were in need of reform. COAG had two main concerns with directors’ liabilities provisions generally. Firstly, it was concerned that some directors’ liabilities laws unfairly imposed criminal liability on directors such as fines and imprisonment for breaches of laws by corporations where the director has no personal liability for the circumstances in which the breach may occur. While COAG recognises that in certain contexts the personal criminal liability imposed upon directors is justified, particularly in situations where non-compliance may have serious consequences for the public and in some instances it also may be unfair. For example, a director may not be aware of or may not always be in a position to prevent an offence from being committed by an employee of the corporation.


Many of the Northern Territory’s directors' liabilities provisions fall into this category. A number of our statutes impose personal criminal liability on directors for corporate breach by virtue of their positions regardless of whether or not they knew of or were involved in the commission of the corporation’s offence. Many statutes in the Northern Territory also impose directors' liability for corporate offences unless the director can prove an available defence. The provisions override the presumption of innocence and reverse the usual onus of proof in criminal law where the prosecution must prove guilt of an accused person beyond reasonable doubt. For these reasons, many of the current directors' liability provisions in the Northern Territory may seem unfair.


COAG’s second concern with directors' liabilities provisions crystallised following the release of a study by the Organisation for Economic Cooperation and Development (OECD) which found that Australia had the least harmonised directors' liability laws among the 30 countries it profiled. The OECD study found that the subject matter of Australian statutes imposing personal liability was diverse and the provisions varied with respect to the person subject to liability, the type of conduct that attracted the liability, the defences available and the language adopted. COAG concluded that inconsistent regulatory requirements across statutes and jurisdictions created complexity and uncertainty for directors and corporations and could raise compliance costs and impede efforts to ensure compliance for Australian corporations that operate into more states or territories.


Accordingly, during 2009-10 COAG agreed on a set of principles as the basis for the reform of directors' liabilities laws across Australia. It also developed guidelines for the application of the principles. When applied, the principles and guidelines ensure the imposition of personal criminal responsibility is justified and such liability is applied as consistently as possible across all legislation.


In summary, the COAG principles provide that a corporation is always liable for corporate breaches in the first instance, and the directors should not be liable unless they have personally assisted in the commission of an offence or been negligent or reckless in relation to the corporation’s offending. The principles also recognise the directors should take reasonable steps to prevent the corporation’s offending and that there are some circumstances where personal liability may be attributable to a director. For example, there is a strong public policy reason for imposing personal liability where liability of a corporation alone is not likely to sufficiently promote compliance or where it is reasonable in all circumstances that the director be liable.


The COAG guidelines set out a number of criteria that can be used to determine whether a directors’ liability provision is justified. These criteria include:


·
whether the offence could cause significant public harm

·
the size and nature of the penalty applying to the conduct
· whether the underlying offence committed by a corporation is central to the regulatory regime
· the extent to which directors can directly control the corporate conduct
· the effectiveness or enforcement against the corporation
· the extent to which similar offences are subject to a directors’ liability.

If a directors’ liability provision is justified, the COAG guidelines establish three types of director’s liability provisions that may be applied. The type of provision depends on the extent to which the onus of establishing whether a director took reasonable steps to prevent a corporation’s offending falls on the defence or the prosecution.


In a Type 1 provision, the failure of the director to take reasonable steps to prevent corporations offending must be proved by the prosecution beyond reasonable doubt. Until it is proved the director is presumed to be innocent, this is the standard director’s liability provision.


In a Type 2 provision a director is deemed to be liable unless they can produce enough evidence that there was a reasonable possibility that a defence applies. It is then up to the prosecution to prove beyond reasonable doubt that the defence does not apply. In this type of provision the director bears any evidential burden of proof, while the more substantial legal burden of proof is retained by the prosecution.


In a Type 3 provision, the director is deemed to be liable for a corporate breach unless they can produce enough evidence to prove their defence on the balance of probabilities. In this type of provision the director bears a legal burden to establish the defence, which reverses the usual onus of proof in criminal law. As this reversal is inconsistent with the general presumption of innocence until proven guilty, Type 3 provisions are intended to be applied only in exceptional circumstances, such as where the offence is of a very serious nature and, for example, where it dangers public safety and where the nature of the particular offence makes it difficult for the prosecution to discharge its burden of proving beyond reasonable doubt. For example, where one party - the director - is the only party able to possess the specific knowledge required to either prove or disprove the offending.


The Department of the Attorney-General and Justice undertook and audit of the Northern Territory’s statute book, identifying some 58 acts containing offences that impose personal criminal liability on directors. Those acts were then assessed by agencies responsible for administering them to determine whether or not the imposition of a director liability was appropriate and, if so, what type of liability should be applied.


The bill culminates that review. Existing directors’ liability provisions are repealed in 40 acts with the COAG default position of direct or accessorial liability to apply through the general application of the criminal law. Where it has been identified that a higher standard of director accountability is required to give effect to a particularly regulatory regime, either a Type 1, Type 2 or Type 3 liability provision has been applied. While a number of acts have been identified as necessitating retention of directors’ liabilities provisions to ensure compliance, the evidentiary burden on the directors has been greatly reduced with only 13 Type 2 provisions and just two Type 3 provisions to be introduced by this bill.
Twelve acts have had directors’ liability provisions repealed entirely, meaning that the general application of the criminal law will apply in determining whether a director was an accessory to the body corporate’s offending. The wording of each provision depends on which type of liability it is. However, generally speaking, the bill achieves a harmonised legislative approach to provisions imposing directors’ liability by applying a consistent structure to the provisions and using consistent terminology and definitions for ‘executive officer’ and ‘declared provision’.


Each amended provision contains a subsection that lists declared provisions relevant to the section and defines executive officer. In each provision, an executive officer of a body corporate is defined to mean ‘a director or other person who is concerned with or takes part in the management of the body corporate’. It is intended that the term ‘body corporate’ used in this bill has the same meaning as the term ‘corporation’ as defined in section 57A of the
Corporation Act 2001 of the Commonwealth.

Each Type 1, Type 2 and Type 3 provision provides a list of considerations that court must take into account when deciding whether a director took reasonable steps to prevent the body corporate’s offending. The considerations are not exhaustive and the court may take other matters into account. However, the directors’ liabilities provision provides a minimum standard to assist directors in discharging their obligations. Those minimum standards consider that the actions the director took to ensure that the body corporate arranged regular compliance assessments; whether the body corporate appropriately implemented any recommendations from those assessments; and whether or not the director ensured that the body corporate’s employees, agents and contractors had reasonable knowledge and understanding of the requirement to comply with the declared provisions. In addition to those general preventative requirements the standard also considers the director’s response and actions upon becoming aware that the body corporate was, or could be, about to contravene the law.


The two different drafting styles applied throughout this bill reflect the styles that under Part II of the
Criminal Code Act, which is the Griffiths model of the Criminal Code) and Part IIAA of the Criminal Code Act which is the Model Code style. As the Northern Territory acts are reviewed, their offence provisions are converted to the Model Code style. The differencing styles in this bill are reflective of whether a respective act has, at the time of the introduction of this bill, been converted to the Part IIAA model code style.

The elements which comprise the director liability offence are dictated by whether the offence is drafted by the Griffiths Code style or the Model Code style and whether it is a Type 1, 2 or 3 provision. Under the Griffiths Code style for a Type 1 provision, a director will attract liability if it can be shown that the director knew, or could have been expected to know, that under the circumstances the body corporate could commit an offence. Under this provision the prosecution will have to prove either a director’s direct knowledge of the likelihood of the body corporate offending or apply the reasonable person test of whether or not an ordinary person under similar circumstances would make the same conclusion as the director on the foreseeably of the body corporate committing the offence.


Type 2 and 3 Griffiths Code provisions are deemed to be regulatory offences to reflect the more serious nature of the body corporate’s offending. Under the Type 2 and 3 Griffiths Code provisions the regulatory offence removes the mental element of the intention or
mens rae of the director from consideration at the first instance as to whether the director’s liability arising as a result of the body corporate’s offending. The onuses is placed on the director to establish whether or not the director was in a position to influence the conduct of the body corporate, whether the director took reasonable steps to prevent the body corporate offending, or whether the director was in a position to know or reasonably expect to have known that the corporate offending would happen.

For Model Code Type 1 provisions, the fault elements consider the recklessness of the director in relation to whether a contravention by the body corporate would happen, and the taking of reasonable steps to prevent that contravention. The Type 1 provision prescribes the physical element of the director being in a position to influence the conduct of the body corporate as a strict liability matter, reflecting that the general proposition is that directors are ultimately in control of the organisation. Application of strict liability in this instance gives rise to the defence of mistake of fact in the director’s actual position or influence over the body corporate’s conduct.


Similar to the Type 2 and 3 Griffiths Code provisions, the Model Code Type 2 and 3 provisions remove the fault element associated with the offence in the first instance but provide an available defence. The onus under the Model Code provisions is placed on the director to establish whether or not the director was in a position to influence the conduct of the body corporate; whether the director took reasonable steps to prevent the body corporate from offending; or whether the director was in a position to know, or reasonably expected to have known, that the body corporate offending would happen.
Absolute liability is prescribed against the Model Code Type 2 and 3 provisions to reflect the more serious nature or the body corporate’s offending. Attributing absolute liability for serious offences precludes a director from relying on mistake of fact for an offence based on some prior consideration of past circumstances, reflecting the ongoing need for directors to maintain a high standard of due diligence towards potential serious offending by the body corporate.


Transitional provisions which have been included in the bill set out how the amendments are to apply to the director’s potential liability for corporate offending. The transitional provisions clarify that the new provisions only apply in circumstances where all or both the body corporate’s and director’s deemed offending occur after commencement. Additionally, for the new provisions to apply all of the conduct constituting the offence, and engaged in by both the body corporate and director, must have occurred after the commencement. This is to ensure that no element of retrospectivity applies that would disadvantage directors by potentially changing their duties to prevent corporate offending. On the other hand, where all or all of the offence occurred prior to the commencement, or where some of the conduct prior to the commencement, the transitional provisions dictate that the old provisions will continue to apply ensuring that there is no gap in the regulatory regime.


The government’s reform of directors’ liability provisions in accordance with the COAG principles and guidelines promotes two main benefits. Firstly, it restores the general principles that an individual should only be responsible for his own acts or omissions, and that the prosecution must bear the burden of proving the guilt of an accused person and not the other way around. Secondly, it creates consistency both across the Northern Territory statute book and with the rest of Australia. Along with Western Australia’s recent introduction of the amendments into their parliament, the introduction and passage of the Northern Territory’s bill will complete the COAG reform. A harmonised approach to the imposition of personal liability for corporate fault reduces complexity, uncertainty and business compliance costs by overcoming the need for corporations and individuals to respond to differing standards across various pieces of legislation and across jurisdictions. In this way the reforms will help to ensure corporations comply with their responsibilities.


In short, the bill completes the Northern Territory’s commitment to a national law reform agreement and creates a fairer, less complex legal system in relation to the criminal liability of directors for corporate fault.


I commend the bill to honourable members and table a copy of the explanatory statement.


Debate adjourned.

 


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