January 18 2017
Many farms operate using trusts, but the changes to the Health and Safety at Work Act now make individuals accountable. Farm trustees, that’s you. Being hands-off in the day-to-day operation of the farm isn’t an excuse any more, and courts have the power to impose significantly increased penalties. If you haven’t reviewed your situation, now is the time.
We’ve written articles examining personal liability for trustees, and the dangers facing independent or professional trustees who have little day-to-day involvement in the running of their trust.
In these articles, we’ve looked at independent trustees arguing that liability shouldn’t attach to them and how it won’t wash with the courts. Now the new law is in effect, liability under the health and safety, tax legislation, or the Resource Management Act 1991 is a serious issue.
What has changed?
The Health and Safety at Work Act 2015 came into force on 1 April 2016. It imposes penalties including fines and imprisonment on individuals, including managers, owners and trustees, who fail to comply with health and safety standards in the workplace.
Looking at the situation in terms of trust law, it’s generally considered good practice for a trust to have an independent trustee. However, this role now comes with significant responsibilities and therefore liability. As a consequence, farm trustees need to take a close look at how their farming operations are structured.
We’re not suggesting trustees should try to avoid responsibility. This is a practical issue for trustees who aren’t involved in the day-to-day running of a farm. They will have greater difficulty in complying with their obligations under the health and safety legislation. The simple solution is to remove trustees from positions of primary responsibility unless they can properly carry out these responsibilities. If you are in this position and need to know where you stand, we urge you to speak with us as soon as possible.
Get clarity about farm ownership and assets
If your trust owns the farmland and the farming business, your independent trustee needs to be able to demonstrate a high level of personal involvement in the farming operation. Otherwise, they shouldn’t be a trustee. In this situation, it’s likely you’ll need to restructure your farming operations so the people who are practically able to carry out health and safety functions are the ones that do so.
For example, a trustee who is an accountant practising 50 to 100 km from the farm will have difficulty, or more likely will be unable to participate in monthly health and safety meetings, to inspect farm buildings and machinery, or to monitor day-to-day activity on the farm to ensure that policies and procedures are followed. Some tasks can be delegated, but an independent trustee is not relieved from the responsibility. They are still required to ensure any delegatee is carrying out their responsibilities properly.
It’s time to get a formal lease
Another common situation is where a trust owns the farmland and buildings, and another entity such as a company or partnership carries out the day-to-day farming, and owns the stock, farm chattels and equipment. Often there’s a lease between the trust farming entity and the farm owner, but in many instances these leases tend to be pro forma affairs with little thought given to the precise terms.
In the new health and safety environment you need a proper formal lease clearly describing the responsibility for repairs and maintenance etc for the appropriate parties. Also, there must be an obligation on the lessee to comply with health and safety legislation, and to provide the lessor with copies of their procedures and manuals. The lessee must be prepared to comply with any lessors’ requirements in terms of health and safety. The ‘quiet enjoyment’ provision, which is usually in leases, will offer some protection for the lessor by conferring exclusive possession on the lessee. The lessor cannot legally come onto the property on a day-to-day basis.
A better structure is for a trust to have a shareholding in the company owning the land or farming business. Trustees would gain greater protection. Under company law, shareholders have little or no control over day-to-day operations. They can appoint directors, approve major transactions and so forth, but the Companies Act 1993 specifically vests the day-to-day running of the company in the directors’ hands. Directors are primarily responsible for operations and are the people Worksafe will look at to ensure the company is complying with its health and safety obligations.
Company directors are often the people personally involved in the day-to-day running of a farm. In practical terms, the directors can exercise that basic obligation of the health and safety legislation: to ‘use all practical steps’ to ensure the workplace is safe.
What to do to ensure safety for all...
It’s easy. If you’re a farm owner, an independent trustee, or recognise risk from any of these situations, we urge you to speak with us as soon as possible. Our legal champions have sound advice and solutions.
Trustees now liable for Health & Safety