Litigation, Disputes and Employment
HEALTH AND SAFETY LAW UPDATE
LIABILITY OF TRUSTEES UNDER HEALTH AND SAFETY LEGISLATION
The Health and Safety at Work Act 2015 (“the Act”) provides a legal framework to ensure the health and safety of workers and workplaces. Within this framework, persons conducting a business or undertaking (“PCBU”) fall within the definition of those required to comply with the Act.
The High Court was recently asked to consider the novel question of whether a trust fits the definition of a “person” under the Act, or alternatively, whether trustees collectively qualify as a “person.” This was in the case of WorkSafe NZ Mhi Haumaru Aotearoa v RH & JY Trust [2023] NZHC 3871, which was an appeal against the District Court’s finding that alternative charges laid against a trust and its trustee collective for breaching duties owed by a PCBU could not be made out.
The High Court found a trust is not a “person” as defined under the Act. However, trustees of a trust are collectively a “body of persons” within the definition of “person” under the Act. On that basis, the High Court concluded that the District Court erred in law by holding that trustees could not be charged collectively as a single PCBU under the criminal provisions of the Act. The High Court additionally found that the Act does not prohibit trustees from being indemnified from trust assets for fines received resultant to any prosecution.
Background
WorkSafe NZ Mhi Haumaru Aotearoa v RH & JY Trust concerned identical charges laid under section 37(1) and 48 of the Act in relation to fatal injuries sustained by a child while visiting his grandfather at his place of work (a dairy farm). The primary charge was laid against the RH & JY Trust (“the Trust”). The alternative charge was laid against the Trust’s three trustees as a collective. Two of the trustees were natural persons and one was a professional trustee company.
The trustees were the legal owners of the farm in accordance with the terms of the Trust. However, the farming operations were primarily carried out in the Trust’s name. In WorkSafe’s view, this meant liability primarily rested with the Trust, because it was the Trust that was conducting business operations and the failures that lead to the workplace incident were systemic failures of governance and management, rather than personal failures by the trustees.
The charges laid against the Trust itself and the trustee collective were both for breaching duties owed by a PCBU. The Act’s definition of “person” (comprising part of the term ‘PCBU') does not specifically include trusts – person instead means “the Crown, a corporation sole, a body of persons, whether corporate or unincorporate”. For the Trust itself, or the trustee collective, to qualify as a PCBU, the phrase “body of persons” in the Act had to be interpreted as capturing a trust.
The trustees conceded that they were potentially each individually liable under the Act but challenged WorkSafe’s position that the Trust or trustee collective could be liable, because the Trust was not a legal entity, and nor were the trustees collectively. If correct, the maximum fine per charge would be $300,000 (being the maximum penalty for an individual), not $1.5 million as alleged by WorkSafe (being the maximum penalty for "other persons").
District Court Decision
The District Court dismissed the charge against the Trust on the basis that a trust does not meet the definition of “person” under the Act. The District Court concluded that WorkSafe’s approach was contrary to equity and common law principles. It emphasised that a trust is not a legal entity, that trustees are individually accountable for the way they carry out their duties, and liabilities of the trust attach to trustees directly. As for the alternative charge against the trustees collectively, the District Court found that because personal liability attaches to an individual, there was no basis to charge the trustees collectively. Therefore, the correct approach was for WorkSafe to charge the trustees as individuals rather than as a trust or trustee collective.
High Court Decision
WorkSafe appealed the District Court’s decision to the High Court. The question of law requiring determination was whether a trust, or its trustees collectively, meet the definition of “person” under the Act, who could be charged as a PCBU under the Act.
The High Court found that on a policy basis (health and safety protection), there was support for both a trust and trustees collectively falling under the definition of “person”. This was in recognition of the common use of trusts to run businesses and the collective nature of trust decision making. Also, a wider interpretation of the definition of a PCBU may be necessary to give effect to the Act’s purpose of achieving effective deterrence in light of different penalties being applicable to individuals and entities under the Act.
The High Court preferred the interpretation that trustees collectively fall within the definition of person (as "a body of persons ... unincorporate”), rather than a trust itself. This was because finding that a trust was a person would be contrary to the established trust law principle that a trust is not a discrete entity. Given the widespread and well known use of trusts in business in New Zealand, it could be expected that Parliament would have expressly included trusts in the definition of “person” as it had done in other legislation, if that interpretation had been intended. The High Court further considered that this finding meant the conceptual and practical difficulties with prosecting a trust were avoided. The High Court also considered there was no advantage in prosecuting the trust rather than the trustees collectively, as the maximum penalty under s 48(2)(c) of the Act (a fine of $1.5million) would be available in either instance.
The High Court further found that section 29 of Act does not prohibit trustees being indemnified from trust assets when fined under the Act. Because it had found that a trust was not a “person” under the Act, the section 29 prohibition that a “person must not … indemnify … another person” did not apply. The High Court however commented that just because indemnity was not prohibited, did not mean it was always available – it would depend on the wording of the trust deed and the general law of trustee indemnity as provided for in the Trusts Act 2019 (including that the terms of trust must not grant a trustee indemnity for breaches of trust arising from gross negligence, wilful misconduct, or dishonesty). So, it may be that the trustees are not indemnified under their trust deed for a fine under the Act, depending on the wording of the trust deed.
The overall result was that the High Court allowed the appeal in part, concluding that the District Court erred in finding that trustees could not be charged collectively as a PCBU under the Act.
The Trust has been granted leave to appeal the High Court’s determination regarding the definition of trustees as a “body of persons” under the Act to the Court of Appeal. Until then, the High Court decision is the current law on health and safety liability for trustees.
