AIMS WHITEPAPER: AMENDMENTS TO THE HEAVY VEHICLE NATIONAL LAW

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2 Contents Introduction... 3 Background... 3 What has changed?... 4 Preparing for the Amendments... 5 Insurance implications

3 Introduction With the introduction of the new Heavy Vehicle National Law (HVNL), AIMS in conjunction with Clyde & Co have prepared this newsletter to advise the network of its background, outline the changes and importantly, highlight the potential impact on a corporation s insurance programme. From 1 October 2018, amendments to the HVNL will impose new Chain of Responsibility (COR) obligations upon every party in the heavy vehicle transport supply chain. The amendments to the HVNL will mean that parties to the supply chain will have a positive duty to eliminate and minimise risk by doing everything 'reasonably practicable' to ensure that transport-related activities comply with the HVNL. The COR obligations are expected to impact over 165,000 businesses that use heavy vehicles in their supply chain. Background The HVNL is currently in place in Queensland, New South Wales, the Australian Capital Territory, Victoria, Tasmania and South Australia. The new COR obligations recognise that parties other than drivers of heavy vehicles, may be responsible for action or inaction, or impose demands, that has consequences for safety in the heavy vehicle industry. The changes are designed to recognise that any party in the supply chain in a position to control, influence or encourage particular on-road behaviour is identified, that such persons take positive steps to remove risk and that they will be held accountable for their action or inaction. 3

4 What Has Changed? The COR imposes a non-transferrable primary duty, which extends legal liability to all parties who have control or influence over the transportation of goods in the heavy vehicle supply chain (within the scope of the existing HVNL) including corporations, employers, prime contractors, vehicle operators, schedulers, consigners, consignees, receivers, loaders and unloaders. The COR amendments impose a primary duty upon all members of the supply chain to minimise potential risks by doing all that is 'reasonably practicable' to ensure safety. These new amendments closely resemble the national work health and safety laws (Work Health and Safety Act 2011 (Cth)) and associated regulations (WHS). The COR amendments will also impose a primary duty upon company executive officers to exercise due diligence to ensure that a corporation complies with its duties under the HVNL. Importantly, an executive officer means anyone involved in the management of a corporation. It extends beyond directors and officers, as defined by the Corporations Act 2001 (Cth), to those who have the capacity to impact upon management decisions or exercise managerial discretion. Under the COR amendments, an executive officer may be found personally liable for COR offences committed by employees, or the corporation, under the HVNL. The investigative powers of the regulator will be extended and the regulator will have the ability to prosecute companies for both breaches of the HVNL and for a failure to implement practices which would prevent a breach from occurring. The penalties for breach of the new laws will be a maximum fine of $3 million for a company and a maximum fine of $300,000 or five years' imprisonment (or both) for an individual. In defending a claim for breach of the COR, all participants in the supply chain will need to demonstrate the measures that were in place, at the time of the breach, to prevent breaches of the HVNL from occurring. In addition, it will be necessary to provide evidence that a party did all that was 'reasonably practicable' to minimise risks and ensure safety. In determining whether an entity has ensured safe practices, as far as is 'reasonably practicable', the regulator will consider factors such as the likelihood of the risk occurring; the degree of harm; the entity's knowledge of the risk; ways to remove the risk and whether this is feasible, as well as whether the costs of removing the risk are proportionate. 4

5 Preparing For The Amendments Until the COR amendments come into force and are prosecuted, it is difficult to predict exactly what steps will need to be taken to prevent breaches from occurring. At this stage it is clear that each member of the supply chain has unique compliance obligations which cannot be delegated, via contract or otherwise. In light of the new laws, entities within the transport and logistics industry may wish to take the following actions to ensure compliance: Reviewing internal policies and procedures to ensure that other members of the supply chain are not incentivised to breach the HVNL Revising key commercial agreements to define the role of each entity within the COR Introducing control measures, such as regular compliance monitoring and executive reporting, to ensure that breaches do not occur Developing COR compliance policies (such as a Code of Conduct) or adopting the NHVR Registered Industry Code of Conduct Incorporating COR obligations into employment contracts, such as an express clause requiring employees to comply the COR legislation; and Providing training to employees to ensure they understand and comply with COR obligations The HVNL has a website which provides excellent guidance around: A COR gap assessment tool to assist businesses in their work practices, system controls and activities within the supply chain to address the new laws Risk management steps Roles and responsibilities of each party in the supply chain Categories of breaches and penalties Overall, it will be important for corporations to demonstrate the implementation of policies, procedures and training to effectively manage the risk of breaches of the HVNL within the corporation and throughout the supply chain. The implementation of such a framework may operate to minimise the risk of breach in the future. 5

6 Insurance Implications Companies and relevant employees will need to review their liability policies and consider whether cover will be provided for legal costs incurred in defending a prosecution and/or for penalties that may be imposed under the new HVNL. Insofar as unintentional breaches of the HVNL are concerned, there are a number of liability policies that potentially provide cover to companies and their employees in respect of legal costs incurred defending a prosecution, and for civil fines and penalties that may be imposed. Such policies include management liability policies, directors' and officers' policies and standalone statutory liability policies. The HVNL reforms reinforce the need for insureds (and their brokers) to assess the range of activities they undertake, particularly where insureds may be part of complex supply chains. Based on the insured's activities, if the company and/or its officers could be exposed to prosecution, then the named insureds and scope of cover provided for statutory liability should be reviewed closely. Given the broad definition of 'executive officer' in the HVNL, it will be important to consider which employees are covered under a directors' and officers' policy and whether there is separate liability cover available for penalties that may be imposed on the corporation. The terms and conditions of the policy will also need to be carefully considered in light of the relevant acts or omissions. Cover will not be provided where criminal conduct is proven, or for criminal fines and penalties. Liability for civil penalties arising from acts or omissions that are intentional, deliberate, dishonest, fraudulent, grossly negligent or reckless will also likely be excluded. (a) Penalties The existence of insurance cover for statutory liability may affect the potential penalties imposed by a court. In Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor [2013] SAIRC 22, the sole director of a specialist steel erection business, was charged $200,000 pursuant to the Occupational Health, Safety and Welfare Act 1986 (SA), for failing to take reasonable steps to ensure, as far as was reasonably practical, the safety of two workers, one of whom was killed on-site. At the time of the offence, the director had in place a general insurance policy which indemnified him for fines imposed for criminal conduct. Industrial Magistrate Lieschke expressed the opinion that the availability of insurance cover 'undermined the Court's sentencing powers by negating the principles of both specific and general deterrence. The message his [the director's] action sends to employers is that with insurance cover for criminal penalties, there is little need to fear the consequences of offending'. In the circumstances, his Honour considered it inappropriate to reduce the fine payable by the director's insurance company (despite the fact that the director had admitted liability at the outset of the proceedings). If other courts follow a similar approach in the context of the HVNL, the existence of insurance may be seen as justification for imposing a maximum penalty. This is likely to have underwriting consequences in the area of statutory liability. 6

7 (b) Deterrence effect of personal liability The HVNL reforms reflect a growing trend for personal liability to be imposed upon executive officers to encourage officers to ensure that the corporations they manage comply with legislative obligations. Several members of the Australian judiciary have expressed concern that providing insurance for officers for personal liability removes the intended deterrent effect and punitive rationale of such measures. Insurance cover for these types of penalties is the subject of ongoing public discussion, and it is not inconceivable that in the future there could be legislative reform which prevents this type of risk from being insured. As with any new legislation, it is difficult to predict how much vigour the authorities will use in prosecuting any breaches. However, there has been ample publicity within the transportation industry highlighting the personal injury risks to drivers and other parties and therefore, it is very likely that the authorities will pursue any breaches with the optimum vigour. Until claims are lodged and the courts provide direction on the interpretation of the new law, it is difficult to provide definitive advices on policy cover. Cover will depend on the circumstances of the incident and ultimately, the interpretation of the courts. Therefore, we need to be cautious in advising clients on the extent of policy cover particularly a general perception that the HVNL is just another law similar to OH& S and that insurance cover will react in the same way. The introduction of new amendments to the HVNL present an opportune time to have a general discussion with clients about the new laws, highlight their potential implications and review your clients insurance programme to ensure the best possible insurance cover is in place and any potential gaps are highlighted. Insurance is not a holistic solution and clients also need to be made aware of the risk management steps required to ensure they have done all that is reasonably practicable to avoid prosecution and miminise their risk. 7

8 Whilst AIMS is not able to offer legal advice, we may be able to assist in providing more clarification. If required, please contact Julie Lumbis or John Tippett. Julie Lumbis Technical Manager, AIMS Direct: julie@aims.insure John Tippett Technical Consultant, AIMS Direct: john@aims.insure 8

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