Are Company Directors Responsible for Death, Injury and Loss From Events like Cyclone Debbie?
Directors Liable for Climate Risk
Bad weather is bad news for company directors, now more than ever. They can be held directly responsible for deaths, accidents and losses due to severe weather. Law suits against directors failing in their duty of care to mitigate climate risk are inevitable - especially if they have not taken the simplest of remedies to mitigate the threat.
If a worker or contractor driving to or from work in bad weather is involved in an accident, directors can now be held directly responsible. The word which frames this liability is 'foreseeable'. Severe weather, fire and other such risks are foreseeable. Directors can be sued using two mechanisms, ASX governance principles and standing legal opinion on duty of care.
The first liability mentioned arises from amendments to the ASX Corporate Governance Principles that require a listed entity [to] disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks.
The second was realised through the publication of a memorandum of opinion by respected SC Noel Hutley and Sebastian Hartford- Davis. This has provided a legal hammer for all sorts of litigation including class actions against directors. The opinion is detailed in the memorandum titled "Climate change and directors' duties". It states quite unequivocally: "It is conceivable that directors who fail to consider 'climate change risks' now could be found liable for breaching their duty of care and diligence in the future." That's the duty given legislative force by the Corporations Act 2001 under section 180(2) they are talking about. They comment that 'it is likely to be only a matter of time before we see litigation against a director who has failed to perceive, disclose or take steps in relation to foreseeable climate-related risk ...'.
The new reality is that directors who fail to consider climate risks can now be found liable for breaching their duty of care and diligence - ignorance is not an excuse. Businesses need to consider the degree climate risks pose to their staff, contractors and operations, what they are doing to treat this risk and how these need to be disclosed under ASX Listing Rules.
NIBA CEO Dallas Booth is convinced directors will be prosecute. "I think litigation against directors for climate change is very likely. Companies that are not taking steps to protect themselves from related events could potentially face class actions. The advice is out there, it has been widely publicised. The risk is there, the law has been stated through the opinion, it hasn't been challenged, so the class action financiers will no doubt support this if they get a chance to do so."
"It is clear that climate change should, and must be, at the forefront of the mind of directors and leaders in general," Ralph Ronnenberg, Munich Re Australia CEO, told Insurance Adviser.
The legal advice introduces the concept of a risk in respect of climate related risk being 'foreseeable'. Foreseeability is different from probability in that while a risk is unlikely to occur it can nevertheless be foreseeable.
Australia is "highly vulnerable" to increasingly intense storms, and the annual frequency of such storms are likely to rise, according to a recent report "Super-Charged Storms in Australia" from the Climate Council. (http://ow.ly/ctNi3074mCe) In fact, Sydney is likely to see a 30 per cent annual increase, Melbourne 22 per cent rise and 14 per cent for Brisbane by the end of the century, it states.
Additionally, based on Lloyd's City Risk Index 2015-2025, climate events like flood and drought, are in the top five threats to Australia and New Zealand cities, with GDP@Risk at $7.6 billion and $2.5 billion respectively. Not far behind are wind storms ($2.18 billion), solar storms ($2.11 billion) and earthquakes ($0.78 billion).
The Insurance Council also observes that climate change commentary and litigation has already commenced a similar trajectory to the history of liability presented by dust diseases and tobacco smoking in the 50's and 60's. It is highly likely that the restriction, intentional or otherwise, of risk information from an individual concerning a known or predicted weather event or climate change risk will increase liability. This is especially the case where capabilities have been developed and are available to mitigate the effects of severe weather and treat the risk.
Severe weather is an extreme risk to all Australian communities. The consequences of these frequent events are often catastrophic involving fatalities, injuries and substantial financial losses. This is a lesson that we are learning on a more frequent basis each year.
Federal, state and local governments have all recognised that severe weather is a risk and that climate change will only increase that severity. In line with restriction, intentional or otherwise, of risk information from an individual concerning a known or predicted weather event or climate change risk, there exists an immediate implication in a duty of care by all sorts of organisations to warn and inform.
"Severe weather is a recognised hazard and in the application of AS/NZS 4360:2004 is an extreme risk requiring a priority in treatment and the application of all reasonable and practicable measures to mitigate its affects."
At any moment a severe weather event could be experienced with consequences that might have been avoided. Businesses not effectively treating the risk lose the opportunity to minimise impacts and the opportunity to benefit from these experiences. The positive consequence of treatment can help prevent death, personal injury, minimize disruption to operations and reduce financial losses. Acting to mitigate the threat also provides other benefits including a leadership role in adapting to climate change.
According to the Australian Government climate change is already occurring and increasing the risk of severe weather. Business has the opportunity today to become a partner with the community towards building a more resilient future.
Occupational Health and Safety Acts state that once a hazard is identified by any party, employers must take corrective action. This is reflected in numerous management tools such as OH&S statutes, AS/NZS 4360:2004 and the Climate Change Adaptation Framework.
The Australian Government states that the early impacts of climate change have already appeared1 and scientists believe that further impacts are inevitable, no matter what happens to future global greenhouse gas emissions. The Australian Government takes the challenge of climate change seriously. Their approach is to:
- reduce greenhouse pollution in Australia in the short and long term;
- work with the international community to develop a global response that is effective and fair; and
- prepare for the climate change that we cannot avoid.
Since Adam was a cowboy businesses been exposed to the consequences of severe weather. This has impacted operations, assets and people. Until recently this has been accepted as something mostly beyond our control. Times have changed and the capability to minimise consequences of severe events has become simpler. For example, risk environments which can now be better protected include:
- Anyone working outdoors, on the road or travelling in the course of their duties
- Employees working in doors
- Property exposed out doors
- Visitors and customers to a business premises or work site
- Employees commuting home from work, going to a lunch or break
- An employee's property exposed to severe weather events
It should be noted that employees focused on their work will not be aware of potentially severe events developing outside their office, building or working environment. This may impact them personally as they leave their work place or drive home. Damages might also result to their property (i.e. car parked outside damaged by hail which might otherwise have been protected if they were aware of a risk and had the opportunity to do something about it.)
Duty of Care - what is reasonably practicably required?
The primary objective of the nation's various Occupational Safety and Health Acts are to promote and improve occupational safety and health standards. They all impose a general duty of care to protect persons at work from hazards and maintain safe and healthy workplaces. Some of these are to:
- promote and secure the safety and health of people at work;
- protect people at work from hazards;
- eliminate, reduce and control hazards; and
- ensure employees are aware of threats to their health and safety
The employer's position is covered very well in the following summary: The overall test is the conduct of a reasonable and prudent employer taking positive thought for the safety of his workers in light of what he knows or ought to know; where there is a recognised and general practice which has been followed for a substantial period in similar circumstances without mishap, he is entitled to follow it unless in the light of common sense or newer knowledge it is clearly bad;
- where there is developing knowledge, he must reasonably keep abreast of it and not be too slow to apply it;
- where he has in fact greater than average knowledge of the risks, he may therefore be obliged to take more than the average or standard precautions.
The meaning of 'practicable'
Some of the general duty provisions in the various state Acts are qualified by the words 'so far as is practicable'. This applies to general duties for employers, self-employed people, people with control of workplaces, designers, manufacturers, importers, suppliers, erectors and installers. These people are expected to take measures that are practicable. 'Practicable' has a particular meaning in the Act. The definition can be found in section 3(1) (with other definitions). If something is practicable, it is 'reasonably practicable', taking into account:
- the severity of any injury or harm to health that may occur;
- the degree of risk (or likelihood) of that injury or harm occurring;
- how much is known about the risk of injury or harm, and the ways of reducing, eliminating or controlling the risk; and the availability, suitability and cost of the safeguards.
In other words, to be practicable, something must not only be capable of being done, it must also be reasonable in light of the factors mentioned above. The risk and severity of injury must be weighed up against the overall cost and feasibility of the safeguards needed to remove the risk. Only those factors listed above are relevant, and a factor cannot be ignored unless, after considering what a reasonable person at the time would have known, the factor is clearly irrelevant. Each factor is considered in light of what a reasonable person in the position of the person who owes the duty would have known.
Aside from the obvious physical impacts, severe weather affects business governance across three critical issues; climate change, risk management and OH&S. Any treatment of severe weather has a pay off in all three of these areas. The question is; what can a business do today that will achieve that.
A lot of research has been commissioned by government and the Climate Change Adaptation Centre (CCAC), which has been established to help develop approaches to improving resilience to future extreme weather. At the same time other measures such as risk appropriate land use planning and property protection standards have introduced to meet the challenge. The insurance industry has also risen to the challenge by developing new products to financially mitigate risks.
In addition to these passive activities that business has little control over, there is one action that delivers concrete results today which also lies at the heart of the 'information' liability regarding severe weather. As discussed earlier, the restriction, intentional or otherwise, of risk information from an individual concerning a known or predicted weather event or climate change risk is a liability. Because of technology and media this 'information' is readily available in many forms which is why the risk has materialised. However, to continually access, monitor and analyse such information is a considerable imposition to any business.
Fortunately a solution that is both entirely reasonable and practicable is available and is being rapidly adopted by insurers and businesses of all sizes. Unique to Australia is the world's only location-based early warning system for severe weather. This system has been developed to provide warning of severe weather events specific to a location accurate to within meters. The system can warn one person or one million simultaneously over multiple channels. The system and benefits have been well proven over two years and is operational nationwide. Any business location can be registered and protected in less than sixty seconds. This capability delivers to business an extremely efficient treatment to mitigate potential damages and liabilities arising from severer weather events. In summary the treatment can:
- Improve the safety of employees, customers, visitors and stakeholders
- Improve staff moral and sense of well-being both at work and home
- Save money from potential property losses
- Protect business operations from disruption and downtime
- Exceed OH&S and risk management best practices
- Improve emergency and crisis management capability within the business
- Reduce corporate Liability