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Limebite 07/21

Victoria to ban indemnities for penalties under OHS and other legislation

Joel Zyngier
Joel Zyngier, Henry Baker,

The Victorian Parliament is set to ban indemnities for penalties under OHS and other legislation

The Occupational Health and Safety and Other Legislation Amendment Bill 2021 (Vic) (amending legislation) is currently before the Parliament and is likely to soon become law. It will amend the Occupational Health and Safety Act 2004 (Vic) (OHS Act).

The amending legislation brings significant changes for statutory liability insurers (and possibly some D&O insurers) and their insured customers, with amendments to the following legislation:

  • Occupational Health and Safety Act 2004 (Vic);
  • Dangerous Goods Act 1985 (Vic); and
  • Equipment (Public Safety) Act 1994 (Vic)

This follows the introduction of similar legislation in Western Australia (yet to commence) and New South Wales (see related article here).

Insurance and indemnity clauses voided; new criminal offences established

The amending legislation applies to any contract or other arrangement that purports to insure or indemnify a person for their liability to pay a penalty under the OHS Act (Penalty Indemnity Contract). Any terms in contracts of insurance or indemnity which purport to provide this kind of cover will be made void as soon as the amending legislation commences. There is no grace period.

Significantly, the amending legislation makes it a criminal offence to enter into, offer to enter into, or be a party to a Penalty Indemnity Contract, without reasonable excuse. This applies to insurers and insured customers. It would also apply to officers with contractual indemnities provided by the corporation of which they are an officer. The new criminal offence will commence 12 months after the amending legislation receives Royal Assent, giving insurers and insured customers a grace period to review and change their arrangements.

If a Penalty Indemnity Contract indemnifies other costs, the new offences would only prohibit the clauses which cover monetary penalties for committing workplace safety offences. Other terms of such contracts would still be permitted, including terms providing for defence costs – see below.

The inclusion of a reasonable excuse exception gives some flexibility in cases where there may be an acceptable reason for the conduct constituting the offence. At present there is no guidance about the scope of this defence. Depending on the circumstances, it may be arguable that a ‘reasonable excuse’ could include having entered into the contract or arrangement before the legislation commenced.

Officers of corporations which contravene the new laws are exposed to personal liability if the contravention is attributable to a failure by the officer to take reasonable care.

Similar provisions will apply to contracts that insure or indemnify the payment of monetary penalties under the Dangerous Goods Act 1985 (Vic) and the Equipment (Public Safety) Act 1994 (Vic).

Penalties for the new criminal offences

A person entering into, offering to enter into or being a party to a Penalty Insurance Contract will be exposed to significant penalties and criminal conviction. The penalties are:

  • a maximum penalty of 300 penalty units for a natural person, which equates to $54,522 as of 1 July 2021, and;
  • a maximum penalty of 1500 penalty units for a body corporate, which equates to $272,610 as of 1 July 2021.

Differences between Victoria and NSW

There are a number of significant differences between the amending legislation and similar NSW provisions, including:

  • the amending legislation goes further than NSW in that it is an offence to be a party to a Penalty Insurance Contract (whether insurer or insured).
  • the new laws will immediately void all offending terms in existing Penalty Insurance Contracts as soon as the amending legislation commences.
  • he new criminal offences will take immediate effect. Any person who is a party to an existing Penalty Insurance Contract when the new criminal offences commence will be committing a criminal offence, unless they have a reasonable excuse.
  • there is no ‘grandfathering’ for the prohibition on providing or receiving a benefit under an existing Penalty Insurance Contract. This means it would be an offence to indemnify or receive indemnity for an OHS penalty in respect of an incident which occurred months or even years earlier. This is different to NSW, where it is not an offence to receive indemnity in respect of an incident which occurred before

Defence and other significant costs still insurable

Importantly, the amending legislation does not prohibit insurance covering defence costs for OHS investigations and prosecutions. Such defence costs can often exceed the amount of penalties ultimately imposed. The amending legislation also does not prohibit payment of prosecution costs, which will almost always be ordered by the Court if a prosecution results in a guilty plea/finding of guilt. It also does not prohibit payment of damages which may be ordered by a Court.

Additionally, it will still be permissible to indemnify the legal and implementation costs of an enforceable undertaking (EU). If accepted by the regulator, EUs avoid a conviction and any fine. EUs can also result in better outcomes for workers, businesses and the community at large.

Insurers and insured customers need to get ready

Any offending contract term will be void from the date of commencement. However, as the offences and penalties for being a party to such a contract will not come into effect for a period of 12 months, businesses will be able to unwind contracts in place providing this kind of cover and change standard form contracts. This gives insurers and insured customers some time to review policy wordings.

This publication constitutes a summary of the information of the subject matter covered. This information is not intended to be nor should it be relied upon as legal or any other type of professional advice. For further information in relation to this subject matter please contact the author.