August 2012

Criminal penalties face vendors and lessors under new WH & S legislation

The new Work, Health & Safety legislation which took effect in New South Wales on 1 January 2012, imposes substantial obligations on persons selling or leasing real estate or selling businesses.  An alarming consequence for vendors and lessors is the risk of criminal penalties for breaches of those obligations under the new legislation which can be as high as $600,000 or 5 years imprisonment, or both, for individuals, and $3m for companies.

In this Bulletin, we look at the obligations and implications facing vendors and lessors of real estate, and vendors of businesses, found in this new legislation.

WH & S legislation applies to “supplies”

In New South Wales, the Work, Health and Safety Act 2011 and the Work, Health and Safety Regulation 2011 replaced the Occupational Health and Safety Act and the Occupation Health and Safety Regulation on 1 January 2012.

The new WH & S Act imposes obligations on “persons conducting a business or undertaking” and refers to such persons as PCBUs.  For the purposes of this Bulletin, the important point is that “person conducting a business or undertaking” is defined broadly to cover persons involved in any business or enterprise.  PCBUs might be private sector businesses or government agencies and can range from large public companies to individuals. 

It should be assumed that everyone is a PCBU unless they are engaged in a purely domestic transaction such as a person selling their own home.

Obligations under the WH&S legislation apply to PCBUs in relation to a range of transactions, including designing, manufacturing and installing, but this Bulletin focuses only on one transaction, the “supply” of “plant, substances or structures”. 

The WH & S legislation imposes significant obligations on PCBUs who supply plant, substances or structures.  The term “supply” is defined in section 6 of the WH & S Act as including “a supply and a re-supply of a thing by way of sale, exchange, lease, hire or hire purchase, whether as principal or agent”.

Section 25(1) of the WH & S Act provides that obligations apply to any PCBU that supplies:

“(a) plant that is to be used, or could reasonably be expected to be used, as, or at, a workplace, or

a substance that is to be used, or could reasonably be expected to be used, at a workplace, or

a structure that is to be used, or could reasonably be expected to be used, as, or at, a workplace.”

The term “structure” includes buildings.  The obligations apply to any PCBU which supplies a building or other plant or substances under a contract for sale or lease of real estate, and any PCBU who supplies plant or substances under an agreement for sale of business. 

Most sales or leases of real estate, and sales of business, will involve the supply of some plant, substance or structure which could reasonably be expected to be used at or as a workplace.

What are the obligations?

Section 25(2) provides that a supplier must:

ensure, so far as is reasonably practicable, that the plant, substance or structure is without risks to the health and safety of persons

who use or otherwise come into contact with the plant or substance or structure at or in the vicinity of a workplace.

Section 25 and other provisions of the WH & S Act and WH & S Regulations go on to spell out in detail what the supplier must do to ensure that it complies with its obligations.  The obligations include an obligation to carry out tests to find out whether plant, substances or structures will pose a risk to the health and safety of persons and to provide the results of such tests, and any other relevant information, to the purchaser / lessee.

Section 25(2) (and other relevant provisions) requires the supplier to ensure that plant, substances or structures are without risk to the health and safety of persons “so far as is reasonably practicable”. 

Section 18 defines “reasonably practicable” as meaning “that which is or was at a particular time reasonably able to be done in relation to ensuring health and safety” and goes on to specify various matters which should be taken into account in determining what was reasonably practicable.

What should vendors/lessors do?

The new WH & S legislation provides that the parties cannot contract out of their obligations, so vendors and lessors cannot avoid their obligations by requiring purchasers and lessees to agree that the obligations the WH&S legislation do not apply. 

There may however be situations where the position of the vendor / lessor can be improved by appropriate conditions in the contract, such as a statement from a purchaser as to the intended future use of the property.

Where a sale or lease involves significant items of plant, the vendor / lessor should consider obtaining a plant hazard report for inclusion in the contract.  There are organisations which specialise in providing such reports.

Where a sale or lease involves a building, the vendor / lessor should consider including any existing building reports in the contract, and where there are no existing building reports, the vendor / lessor should consider obtaining a new building report for inclusion in the contract, particularly if the vendor / lessor has reason to believe that the building will pose some risks to the health and safety of persons who use or otherwise come into contact with the building. 

Where a new report is obtained, the person preparing the report should be directed to prepare the report in a way which addresses the vendor / lessor’s obligations under the new legislation.

The above highlights some of the steps that vendors / lessors might take.  A prospective vendor / lessor who wishes to ensure that they have complied with all of their obligations under the WH & S legislation should seek legal advice as to the full extent of those obligations.

Penalties, not civil remedies

Unlike most legislation which applies to commercial contracts, the WH & S legislation does not give the purchaser or lessee a right to cancel the relevant contract or any other direct civil rights. 

The legislation is criminal in nature and is designed to protect people in workplaces by imposing substantial penalties on persons who breach obligations.  The extensive nature of the obligations, and the size of the penalties, means that the issues must be taken seriously.

Conclusion

The previous Occupational Health and Safety legislation imposed some similar obligations, but the wording of the new WH & S legislation appears to go further than the previous legislation. 

The true extent of the obligations on suppliers under the new legislation, and how rigorously they will be enforced, has not yet been established, and there is a feeling that the legislation may not have been intended to apply as broadly as its wording suggests. 

However, until the position is clarified by case law, or perhaps amending legislation, “suppliers” and their advisors should be aware of their obligations and the penalties for non-compliance.

Author - Jack Gordon