When is a person conducting a business or undertaking?

A recent NSW District Court decision, Inspector Nash v Perilya Limited [2018] NSWDC 29 (read decision), looks at the interesting question of when a person is conducting a business or undertaking.

On 28 February 2018, Perilya Broken Hill Limited (PBHL) was convicted of charges under the Work Health and Safety Act 2011 (NSW) (Act). PBHL was a wholly owned subsidiary of Perilya Limited (Perilya), and Perilya was also charged with offences under the Act, arising from the same incident.

Perilya argued it was not conducting a business or undertaking in the operation of the mine.

In the end, the Court found Perilya was not a Person Conducting a Business or Undertaking (PCBU) under the Act.

The prosecution had argued several matters in support of their position, including;

• Perilya published documents pronouncing that it owned and operated the mine.
• The HSE Management System Overview was published in the name of Perilya and recorded that the Perilya Board had a role to ensure that effective and appropriate systems were in place to ensure safety controls were adequate.
• Perilya’s Board received HSE reports in relation to the operation of the mine.
• Employees of PBHL reported to the Board of Perilya about HSE at the Mine.

Relevantly, Perilya underwent significant changes in 2008, because of the Global Financial Crisis. This included:

• Downsizing its Perth office from 40 people to 8.
• Establishing PBHL as a standalone business as Perilya had no staff to provide support services.
• Disbanding the HSE board subcommittee, after which Perilya did not have any committee dealing with health and safety, either in its own operations or any of the entities it owned.
• The PBHL board had responsibility for HSE, including developing its own policies and procedures.
• The Perilya board was responsible for oversight functions, rather than hands-on management and had no day-to-day involvement in the activities of PBHL.

After the downsizing the only operating asset was PBHL and it was made a standalone business unit.  It had the necessary people, facilities, capability and assets to conduct business activities without support from a corporate office.

The Court noted Perilya:

 … could have controlled everything that happened at [PBHL] but did not have the resources to.

With respect to HSE reporting, the Court said:

The Perilya board considered HSE reports, but did not make any decision on them. The HSE reports considered by the Board were the consolidated group reports rather than the individual reports from the subsidiaries. To comply with its disclosure and reporting obligations, Perilya would need to keep abreast of matters that could affect its share value, financial position or reputation. HSE would fall within that. It was by reason of Perilya’s disclosure obligations that it received reports.

And

The Perilya Board received a budget from PBHL annually or more frequently. The budget had an impact on Perilya. Likewise, for reasons of disclosure and reporting, Perilya necessarily had to receive this information.

In the end, the Court looked at the practical application of the relationship between PBHL and Perilya. The Court recognised it did not matter that Perilya could have chosen to take over and run the mine.  Being able to take over and run the mine because it was the sole shareholder of PBHL did not make Perilya a PCBU, rather:

It is what was happening in practice that is important

In practice, with only eight staff in Perth, it was impractical for Perilya to be involved in the operation of the mine, and day-to-day management of the mine was in the hands of PBHL.  The Court also said PBHL could change the HSE system without referring to Perilya.

This is not a case of Perilya transferring its duty to another. Nor is it a case of an agreement or arrangement purporting to limit its capacity to influence and control the matter in respect of which it had a duty. This is a case of Perilya ceasing to have control of the mine and its operations. Control must be more than a legal right to control otherwise every parent company with a 100% shareholding of a subsidiary would be, without more, under a duty under s19.

The Perilya decision shows that a close relationship between corporate entities is not enough to make either of them a PCBU.  What must be established is that an entity was conducting a business or undertaking, and in each case, this requires an examination of the relationship between the entities and their role in the relevant business or undertaking.