Changes to Directors' Liability Laws for Corporate Offending in Western Australia

What you need to know

• The Act amends The Criminal Code and other laws to introduce a standardised set of liability provisions in Western Australia which impose personal criminal liability on directors (and other company officers) for offences committed by a company.
• Under the new provisions, officers will be held liable for an offence of the company where those officers have failed to take reasonable steps to prevent the company's offending.
• Penalties which apply to offences committed by a company will be applicable to offences committed by company officers.
• The Act does not affect the criminal liability of officers who have committed offences themselves or impose any new obligations on or create new offences in relation to officers.
• The Act does not affect the liability of a company for any offence.

The Directors' Liability Reform Act 2023 (WA) (the Act) came into force on 4 April 2023.

The Act amends The Criminal Code and other Western Australian legislation to introduce a set of standard liability provisions that set out the circumstances in which directors and other officers of a body corporate can incur criminal liability as a result of an offence by the body corporate.  Under the new provisions, officers will be held liable for an offence by the body corporate where those officers have failed to take reasonable steps to prevent the body corporate's offending.  The Act does not affect the liability of a body corporate for any offence.

The new regime brings Western Australia into line with other Australian jurisdictions that have legislated to achieve a nationally consistent approach to the imposition of personal criminal liability for directors and other corporate officers, in accordance with the Council of Australian Government principles for the imposition of personal criminal liability for directors and other corporate officers in circumstances of corporate fault.

By standardising the liability provisions for corporate offences across Western Australian legislation, the new Act will reduce the regulatory burden and risk of personal criminal liability for company directors, as well as executive officers and managers of corporations.

New standard liability provisions

The Act amends The Criminal Code to introduce a set of three "standard provisions", respectively established by sections 39, 40 and 41 of The Criminal Code, which determine when an officer will be held liable for an offence of a body corporate. 

The "standard provisions" each provide that if a body corporate is guilty of an offence to which the section applies, an officer of the body corporate is also guilty of the offence if the officer failed to take all reasonable steps to prevent the commission of the offence by the body corporate.

There are three types of liability, with a different standard of proof to be applied under each.

The three types of liability are:

• Type 1 (The Criminal Code section 39):  The prosecutor has the onus of proving that the officer failed to take all reasonable steps to prevent the commission of the offence by the body corporate.  The intent of the section is that the prosecution must establish that there was a reasonable step (or steps) that the officer could have taken but did not take.
• Type 2 (The Criminal Code section 40):  The prosecutor has the onus of proving that the officer failed to take all reasonable steps to prevent the commission of the offence by the body corporate if, and only if, evidence that suggests a reasonable possibility that the officer took all reasonable steps is first adduced by or on behalf of the officer.  Here, the onus is on the officer to adduce evidence to suggest a "reasonable possibility" that the officer took all reasonable steps to prevent the commission of the offence.  If the officer leads such evidence, then the prosecution must prove that there was a reasonable step (or steps) that the officer could have taken but did not take.
• Type 3 (The Criminal Code section 41):  The officer has the onus of proving that they took all reasonable steps to prevent the commission of the offence by the body corporate.  Here, the officer is deemed to be liable for the offence, unless they can show that either they took all reasonable steps, or that there was no reasonable step they could have taken.

Under each type of liability, a court must have regard to certain factors in determining whether acts or omissions by the officer constitute reasonable steps.  Those factors are:

• what the officer knew, or ought to have known, about the commission of the offence by the body corporate;
•  whether the officer was in a position to influence the conduct of the body corporate in relation to the commission of the offence; and
• any other relevant matter.

Amendments to other legislation

Currently in Western Australia, more than 60 pieces of legislation contain provisions that impose personal liability for corporate fault (or a mixture of personal liability for corporate fault and accessorial liability).  Part 3 of the Act amends the existing legislation by either deleting former forms of liability from that legislation or by replacing the relevant provisions with provisions that incorporate the standard provisions in The Criminal Code.

Only one of the standard provisions can apply in relation to a particular offence (The Criminal Code section 37(2)).  The provision that is applicable is determined by the legislation under which the particular offence is created.  The majority of legislation amended by the Act incorporate Type 1 liability and several acts impose Type 3 liability, including the Environmental Protection Act 1986 (WA) and the Public Health Act 2016 (WA).

Presently, no legislation has been amended to implement Type 2 liability in relation to any offence.  However, the provision has been included in case it is desirable for this type of liability to be adopted for certain offences in the future.

Penalties

Where the new standard liability provisions apply to an offence, any penalty that is applicable to the body corporate for the offence will also apply to the officer (The Criminal Code section  43).  The maximum penalty for the offence if committed by an officer of a body corporate is one-fifth of the maximum penalty that could be imposed on the body corporate.

Other amendments affecting criminal liability of company officers

The Act includes a number of other provisions to implement effective operation of the standard provisions, including:

• An officer of a body corporate may be charged with, and convicted of, an offence in accordance with sections 39, 40 or 41 whether or not the body corporate is charged with, or convicted of, the offence committed by the body corporate (The Criminal Code section 42(3)).
• An officer may claim that the body corporate would have a defence if it were charged with the offence, in which case the onus of proving the defence is on the officer and the required standard of proof is the standard that would apply to the body corporate in relation to the defence (The Criminal Code section 42(4)).
• The new provisions of The Criminal Code do not affect the liability of an officer or any other person under Chapters II, LVII, LVIII and LIX of The Criminal Code (The Criminal Code section 42(2)).  These chapters contain provisions relating to accessorial liability.  This means that the new provisions will not affect the liability of officers who are parties to offences committed by bodies corporate.

Impact on directors and officers in Western Australia

The Act substantially reduces the number of derivative liability provisions in Western Australia, and has completely removed such provisions from 21 acts.  The Act has also reduced the number of offences in which the onus of proof is reversed so as to require the officer to prove that they should not be held criminally liable for a corporate offence.  This reduces the regulatory burden in relation to criminal liability of officers for offences committed by bodies corporate.

At the same time, by introducing a uniform set of standard provisions in relation to corporate offences, the Act provides simplicity, consistency and greater certainty in relation to the liability for officers of bodies corporate in Western Australia, while ensuring that officers will be held liable in appropriate circumstances.