Late last year the NSW Government implemented its reform of directors' liability creating new offences of executive liability which took effect earlier this year. 

The Miscellaneous Acts Amendment (Directors' Liability) Act 2012, applies to all legislation which contains director and manager liability provisions in NSW (except Work Health and Safety), by reducing the number and severity of provisions which make directors and managers liable for the offences of the corporation.

The offences for which directors and managers may now be liable for under the Food Act, 2003 (“Food Act”)  are as follows:

1. Executive Liability – where the corporation commits an offence under a reduced number of sections under the Food Act and the director or officer knows or ought reasonably to know that the executive liability offence (or an offence of the same type) would be or is being committed, and  fails to take all reasonable steps to prevent or stop the commission of that offence.

2. Accessorial Liability - where the director or officer is accessory to the commission of the offence by the corporation.

Executive Liability Offences

A new section 122 has been introduced which will deal with an identified list of offences referred to as "executive liability offences".  The offences by corporations that attract "executive liability" are:

(a) section 13 – Handling of food in an unsafe manner
(b) section 14 – Sale of unsafe food
(c) section 15 – False description of food
(d) section 16 – Handling and sale of unsafe food
(e) section 17 (1) or (2) – Handling and sale of unsuitable food,
(f) section 18 (1)-(3) – Misleading conduct relating to the sale of food,
(g) section 19 (1) – Sale of food not complying with purchasers demand,
(h) section 20 - Sale of unfit equipment, packaging or labelling material,
(i) section 21 (1)-(4) – Compliance with Food Standards Code,
(j) section 35 – Failure to comply with an emergency order,
(k) section 64 – Contravention of a prohibition order,
(l) section 104 (1)-(4) – Offences relating to food safety schemes (meat, dairy, seafood, plant products, eggs and vulnerable persons (eg nursing/ aged care homes and childcare centres)).

Prior to the amendments commencing, the Food Act put the onus on directors or persons concerned in the management of a corporation to prove that they:

(a) were not in a position to influence the company with respect to the offence; or
(b) were in such a position, but used all due diligence to prevent the contravention of the offence.

The prosecution will now have to prove all the elements of the offence beyond a reasonable doubt:

(a) the corporation commits an offence; and
(b) if not a director, was in a position to influence the conduct of the corporation with respect to the offence; and
(c) the person knows or ought reasonably to know that the executive liability offence would be or is being committed and
(d) the person failed to take "reasonable steps" to prevent or stop the commission of the offence.

"Reasonable steps" includes (but isn't limited to) the following kinds of actions, as is reasonable in all the circumstances:

(a) actions towards assessing the corporations compliance with the offence and ensuring that the corporation arranged regular professionals assessment of its compliance;
(b) actions towards ensuring that the corporation's employees are provided with information and training to enable them to comply with provision creating the offence;
(c) action towards ensuring that premises, plant and equipment and work systems relevant to compliance with the provision are appropriate in all circumstances;
(d) action towards creating a corporate culture that does not encourage, tolerate or lead to non-compliance.

These factors essentially reflect good corporate governance and due diligence.

Another new section 122A imposes accessory offences this means that the Prosecution will have to prove that the person 

(a) if not a director, was in a position to influence the conduct of the corporation with respect to the offence; and
(b) engaged in aiding and abetting the commissioning of the offence; or
(c) engaged in inducing the commission of the offence by threats or promises; or
(d) conspired to effect the commission of the corporate offence; or
(e) is in any other way, whether by act or omission, knowingly concerned in, or party to, the commission of the corporate offence.

Time limits for prosecutions

Prosecutions (since November 2010) may be commenced within 2 years after the date upon which an offence has been committed.

Penalties

The penalty for executives is the same as that for an individual who commits an offence. Penalties range from $110,000 and/ or 2 years gaol  to$44,000. Importantly liability is not limited to what may be prosecuted under the Food Act as s 122A does not affect the application of any other law relating to the criminal liability of any persons (whether or not directors or other managers of the corporation) who are concerned in, or party to, the commission of a corporate offence.

What do you need to do?

As can be seen from the NSW Food Authority website, there is more enforcement of food offences, including a clear willingness to go after directors and managers, coupled with the large fines available under the Food Act – fines which courts are happy to impose on not juts large businesses but small to medium sized businesses, examples include:

• In the matter of NSW Food Authority –v- GMI Food Wholesalers both directors for the corporation received fines of $63,000 in respect to the sale of food, namely chicken, containing listeria.
• In the matter of NSW Food Authority –v- Sunfield Foods the director received fines of $19,000 in respect to false description and non-declaration of egg and nuts in labels on food.
• In the matter of NSW Food Authority –v- JMAD Pty Ltd t/as Bankstown Bakehouse the director received fines of $12,000 for handling and sale of unsafe food – raw egg mayonnaise which contained salmonella.

In addition details of convictions and fines are published on the Food Authority’s website and can remain there for all to see for up to two years from the date the time for lodging an appeal expires.

Notwithstanding the changes, the need to maintain good corporate governance remains and directors and managers should ensure:

1. food safety program and management systems in the food business are robust and regularly reviewed and audited;
2. the food safety program for the food business is accredited;
3. a scheme (eg. quality assurance program or industry code of practice) that was designed to manage food safety hazards and is based on national or international standards, codes or guidelines provided for that purpose and documented in some way;
4. results of audits are considered and measures are taken to address deficiencies;
5. food safety supervisors are adequately trained, resourced and are performing their roles within the business;
6. appropriate systems and oversight is in place for the vetting of labelling and associated advertising for compliance with the Food Standards Code
7. any due diligence or other reasonable steps are done properly;
8. they draw clear lines of responsibility in their organisation; and
9. their directors' and officers' liability cover is up to date and responds to the full range of liability they might face under State and Federal laws.

Rachael Sutton, our partner specialising in food law is available to provide advice on reducing potential liability for such offences including the risk management measures which should be taken by directors and managers of corporations.