December 2017


NZILA President's message
Jonathan Scragg

Sentencing under the new health & safety regime

It is now more than a year since the introduction of the Health and Safety at Work Act 2015, which has significantly reformed New Zealand's health & safety (H&S) regime.

The regime is significant to the insurance market given the prevalence of cover, commonly bought as statutory liability cover by NZ businesses, to protect against some of the consequences of prosecutions under the Act. Statutory liability insurance typically covers legal defence costs and reparation payments made under the Act. Fines cannot be insured.

Under the new regime, defendants may also be required to contribute to costs incurred by WorkSafe NZ (the agency charged with administering and enforcing the Act) in pursuing prosecution. The Act does not preclude those awards being insurable but whether cover exists will depend on specific policy wordings.

The courts' approach to reparation awards has not changed under the new Act and, to date, has been consistent with awards ordered under the previous Health and Safety in Employment Act 1992.

But the courts' approach to determining the level of fines to be imposed is likely to change, given the Act's introduction of new, substantially higher maximum fines for H&S infringements. The maximum penalty for offences by a body corporate, for instance, has increased six-fold from $250,000 to $1.5 million under the Act. Although those fines cannot be insured, the potential for such substantial increases imposed under the Act ought to be of interest to the insurance market. It is likely substantially higher fines will lead to greater numbers of defendant parties facing liquidation or bankruptcy and it may be that directors of defendant parties will be more likely to face prosecution as a result.

At the time of writing, District Courts have delivered four sentencing decisions under the new Act (see below), with no appellate decisions yet issued. The courts' diversity in approaches in the decisions to date indicates the courts are grappling with how best to approach the new sentencing regime and suggests they would likely be aided by some early appellate guidance, particularly on the level of fine to be imposed.

Aside from a significant uplift in fines, another key feature introduced by the new regime is the availability of enforceable undertakings (EUs) as an alternative to prosecution. An EU is a legally binding agreement between WorkSafe NZ and a duty holder, which is entered into on a voluntary basis following a breach. An EU details actions a duty holder must perform to respond to the contravention. Two examples, involving Zespri and the trust board of St Kentigern College, are detailed below, including the challenges EUs are likely to pose for insurers when dealing with H&S breaches by insureds.

Sentencing under the former regime

Under the former regime, the approach to assessing the quantum of penalty was set out by the High Court in Department of Labour v Hanham & Philp Contractors Ltd. Hanham provided that setting the starting point for a fine involved assessing culpability within the following scale:

Low Up to $50,000
Medium $50,000 to $100,000
High $100,000 to $175,000

The court in Hanham noted, however, that the figure of $175,000 at the upper end of the high culpability band was not intended to preclude a greater fine up to the statutory maximum of $250,000 in cases of extremely high culpability.

WorkSafe New Zealand v Rangiora Carpets Ltd

An employee slipped off the side of a mezzanine floor and fell 2.5 metres through a false ceiling. She suffered several broken bones and a laceration to her head. She was hospitalised for eight days and her husband had to take eight weeks off work to assist her at home while she recovered.

WorkSafe NZ submitted that the culpability bands from Hanham (including the de facto fourth band reserved for instances of extremely high culpability) could be translated to sentencing under the new regime simply by uplifting the thresholds of each band:

Low Up to $500,000
Medium $500,000 to $1 million
High $1 million to $1.5 million

In supplementary submissions, WorkSafe put forward an alternative four-band approach:

Low Up to $400,000
Medium $400,000 to $800,000
High $800,000 to $1.2 million
Very High $1.2 million to $1.5 million

Judge Gilbert expressed concerns that both WorkSafe NZ's three-band and four-band approaches would compromise consistency by allowing for enormous potential variation in levels of fines within each band. He approached sentencing by proposing six culpability bands:

Low $0 to $150,000
Low/Medium $150,000 to $350,000
Medium $350,000 to $600,000
Medium/High $600,000 to $850,000
High $850,000 to $1.1 million
Extremely High $1.1 million +

Ultimately Judge Gilbert adopted a starting point of $300,000, based on an assessment of the defendant's culpability as being near the cusp of the low/medium and medium bands. He noted the need for appellate guidance but considered including further bands and modified penalty ranges gave effect to Parliament's intention to increase the fines but provided a more workable framework than that proposed by WorkSafe NZ. Judge Gilbert ordered Rangiora Carpets Ltd to pay a fine of $157,000, reparation of $20,000, and prosecution costs of $1,228.

WorkSafe New Zealand v Burrows

The victim, a child, was a friend of the defendant's son. He had sustained serious injuries when he fell under the wheels of a truck being used to wet down a track used for training race horses.

The defendant had limited financial means and the sentencing judge decided not to impose a fine. Starting points and culpability were not discussed in the sentencing notes. Reparation of $23,726 was ordered but no costs award was made.

WorkSafe New Zealand v Budget Plastics (NZ) Ltd

An employee's hand was partially amputated when it was caught in the auger of a plastic extrusion machine.

As in Rangiora Carpets, WorkSafe NZ submitted the bands from Hanham should be transposed across the full spectrum of available fines under the new regime. The court again responded with concerns such broad bands would make it difficult to achieve consistency and result in a starting point that was "too high".

Judge Large said "it was not for the District Court to make sentencing guidelines", before finding culpability was moderate in the Budget Plastics case given:

  1. the obvious risk of serious injury
  1. the actual injury sustained (partial amputation of hand)
  1. the potential for more severe injury
  1. foreseeability of the harm – the risk had been identified in a prior audit but no steps taken to address it.

Notably, the court said Australian case law was not particularly relevant given differences in the legislation and the Australian courts' different approach to assessing culpability.

The judge adopted a starting point of $400,000 to $600,000. After adjustments, final orders made against Budget Plastics were a fine of $100,000, reparation of $37,500, and a contribution to WorkSafe NZ's costs of $1,000.

WorkSafe New Zealand v The Tasman Tanning Company Ltd

An employee, a forklift driver in the tanning industry, was exposed to hydrogen sulphide gas when he was shifting containers. The worker lost consciousness twice, resulting in a concussion, facial gashes and a nose injury. Tasman Tanning had been sentenced five years beforehand for similar H&S breaches.

At the time of writing, full sentencing notes had not been released. However, it is understood the court did not favour the six-band system applied in Rangiora Carpets and instead applied WorkSafe NZ's four-band approach. It is understood the court adopted a starting point of $700,000, which was increased to $735,000 for the prior conviction, and then reduced to produce an ultimate fine of $380,000, plus reparation of $18,000.

Early lessons

Rangiora Carpets, Burrows, Budget Plastics and Tasman Tanning reveal a general desire for appellate guidance about the approach to be taken to sentencing under the Act. Until guidance is received, the District Courts will likely continue to draw on the approach taken under the old regime, and assess what uplift is necessary under the new Act.

One factor it will be interesting to watch is whether the courts move towards a graduated approach to sentencing under the new Act, reflecting the scale of a defendant's business. Given the significantly greater maximum fines available under the new Act, there is a danger that, without a graduated approach, small businesses may find themselves out of business, while larger businesses do not feel the impact of the new regime. In the meantime, sentencing under the new regime remains in a state of flux, marked by some inconsistency and uncertainty.

Enforceable undertakings

Six cases have resulted in EUs being agreed as alternatives to prosecutions.

The first EU entered into under the Act occurred when two St Kentigern College students suffered serious lacerations to their throats when putting on a stage performance of Sweeney Todd: The Demon Barber of Fleet Street. WorkSafe NZ agreed to accept an EU in lieu of prosecution. The school's trust board agreed to a restorative justice process, including payment of reparations to the injured students. The board also committed to taking steps to improve H&S within the wider education sector by developing H&S guidance and building and delivering training for the benefit of schools nationwide. The EU's estimated total cost was $85,682.88.

An EU has also been accepted from Zespri International Ltd after a quad bike fatality that occurred at one of Zespri's kiwifruit orchards. WorkSafe NZ said an EU was not usually accepted where an alleged contravention had resulting in a fatality but, in this case, Zespri's failures were not directly causative of the death. Zespri's EU included sponsoring a horticultural industry H&S forum, establishing a tertiary scholarship for H&S studies, and funding research into high hazard areas of the industry. Total expenditure was estimated at more than $249,500.

For the insurance market, it will be interesting to see how policies respond to EUs. EUs may be beneficial for insurers in that they are likely to reduce defence costs insurers might otherwise incur in dealing with H&S prosecutions. On the other hand, EUs are voluntary and it remains uncertain how  insurers will respond to requests they meet defendants' costs to implement EUs, such as the cost of providing educational materials.

The year in review

2017 has been another successful year for NZILA. Four highlights warrant special mention:

• In March, we held NZILA’s second annual lecture series. Neil Campbell QC spoke in Christchurch, Wellington and Auckland on Inherent vice: Limits and tensions. He gave an insightful look at the development of inherent vice as a maritime insurance concept, before discussing exclusion clauses commonly found in broadform liability policies today, such as faulty workmanship exclusions.

• In September, we held our annual conference at Te Papa in Wellington. It attracted more than 300 delegates. Feedback has been extremely positive.

• We continued our program of Liability Discussion Group sessions in Auckland, held jointly with the Insurance Council of NZ. This year we had four sessions and each was well attended.

• NZILA rebranded with a new logo, which was launched concurrently with NZILA’s rebuilt website.

2018 looks to be another busy year. Two key dates to mark in your diaries:

• Early March: Professor Rob Merkin QC will present the third annual NZILA lecture series in Christchurch, Wellington and Auckland.

• 19-21 September: NZILA returns to Christchurch for the annual conference, themed Beyond Adversity. It is the first conference in Christchurch for eight years and the first there since the 2010 and 2011 earthquakes.

I wish all Resolve readers a very happy Christmas, a prosperous New Year and an enjoyable summer break.

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