Director and Shareholder Liability at Pike River Coal
| Author | Alison Pavlovich and Susan Watson |
| Position | Financial Accounting and Taxation Lecturer, School of Business, Eastern Institute of Technology, Hawke's Bay, New Zealand/Professor of Law, Faculty of Law, the University of Auckland, New Zealand |
| Pages | 1-43 |
1
(iv)
DIRECTOR A ND SHAREHOLDER LIABILIT Y
AT PIKE RI VER COAL
A P*
S W **
A
More than ve years on from the tragedy that occurred at Pike River mine,
no individual has been held to account for the many failures at the mine that
have been exposed subsequently. is article explores the events leading to the
tragedy and considers whether directors and shareholders of the company are
liable under New Zealand company law for the losse s sustained by the miners and
their families.
e result of the analysis in this article is the nding that shareholders will
not be liable merely in their capacity as shareholders. e ability to pierce the
corporate veil in New Zealand in the absence of fra ud or evasion is remote at best.
ere may, however, be grounds for liability to arise upon directors as they
have failed in their duty of care to the company (s 137 of the Companies Act
1993). is liability may extend to New Zealand Oil and Gas Limited in their
capacity as a shadow director up until 20 07.
As the miners and their families remain creditors of the company, they may
pursue an action against the directors under the remedies available under s 271
or s 301 of the Companies Act 1993.
I. I
irty-one men went to work in a mine deep in the Paparoa Ranges on
the West Coast of the South Island of New Zeala nd on 19 November 2010.
A methane gas explosion burst through the mine at 3.45pm that afternoon.
Two men, Daniel Rockhouse and Rus sell Smith, walked out of the mine later
that afternoon. Five years on, the other 29 men remain underground.
During the early days following t he explosion, hopes remained that the
men would be rescued, the New Zeala nd public holding on to fresh memories
of the dramatic rescue of 33 Chilean gold mine workers af ter 69 days trapped
* Financial Ac counting and Taxation L ecturer, School of Busine ss, Eastern In stitute of
Technology, Hawke’s Bay, New Zealand.
** Profess or of Law, Faculty of Law, the University of Auck land, New Zeala nd.
e authors wou ld like to thank Joa nna Manning for he r comments on this ar ticle; in
particu lar on the section relating to ACC .
2 Canterbury Law R eview [Vol 21, 2015]
underground. Five days later, another explosion at Pike River wiped out all
hope of rescue. It had become clear the conditions were far too dangerous for
any attempted rescue to take place and the chances of survival were slim. e
public became aware that coal mining carried a dierent set of risks to gold
mining.
Days and weeks passed a s the families waited for the bodies of the men
to be returned. Hopes were raised and then da shed time and time again. In
November 2014 the current owners of the mine, Solid Energy Ltd, decided
that the mine would not be re-entered due to safety reasons. Fami lies have
been forced to accept that this is the tomb in which their beloved family
member will remain. For many, especially those fam ilies who live in Australia,
South Africa and the United Kingdom, having their loved ones so far from
home is hear t-wrenching.
A Royal Commission Inquiry report leaves litt le doubt that the tragedy
that occurred at Pike R iver Mine in November 2010 was a result of poor safety
standards that were a llowed to continue for a combination of reasons. One of
those reasons, the focus of thi s article, was the low priority the company gave
to the safety of its employees.
e article focuses on corporate law liabilit y - in particular, the law around
liability of the shareholders and directors of Pike R iver Coal Ltd (“Pike River
Coal ”) for the failure of the company to provide a safe work environment at
the mine. e article is clearly specu lative in its nature. If there were obvious
remedies and causes of action, these paths would have been followed already.
Part II will explore the issues sur rounding the tragedy at the mi ne and the
factors that contributed to the event.
Part III looks at whether sha reholders could be ac countable to the fam ilies
of the dead men and the two surv ivors, who now stand as unsecured creditors
of Pike River Coal following a judgment against the company under the
Health and Safety in Employment Act 1992. Is it possible, in circumstances
such as those surrounding Pike R iver Coal, to “pierce the corporate veil” and
reach the deeper pockets of shareholders, in order to satisfy the liabilities
owing to the families a nd survivors? e conclusion reached in this part is
that the law, as it stands today, will not allow a court to pierce the veil and
hold shareholder s accountable for the company’s debts solely due to their
position as shareholders.
Part IV looks at the potential liability of the directors of Pike River Coal.
is part considers the directors’ statutory duties, in particular s 137 of the
Companies Act 1993, which imposes upon directors a “duty of care”. Who
are the directors who share these duties? W hat is meant by the “best interests
of the company”? What is the “duty of ca re”? ese issues are examined
and the conclusion is reached that the directors of Pike River Coal may be
accountable for failing in their duty of c are to the company. Amongst the pool
of directors failing in t his duty may be New Zealand Oil a nd Gas Limited
(“NZOG”) in their capacity as a shadow director, a controller and also as the
major shareholder of Pike River Coal - the shareholder with “deep pockets”
and ironically the biggest cred itor of the company.
Director and Shareh older Liability at Pike River Coal 3
II. P R C L
A. e Royal Commission Report
Almost two yea rs on from the initial explosion, the Royal Commission on
the Pike River Coal Ltd Mine Tragedy reported to the Governor General on
the questions of what happened in the Paparoa Ranges a nd what can be done
to prevent such a tragedy occurring again.
e Royal Commission concluded that the immediate cau se of the tragedy
was a large metha ne explosion. Methane gas is emitted from the coa lface and,
when mixed with air, creates a highly a mmable combination. It is still not
clear exactly what c aused the methane explosion but several potential ignition
sources were identied by the Commission, including: 1
... arcing in the mine electrical system, a diesel engine
overheating, contraband taken into the mine, electric
motors in the non-restricted part of the mine and frictional
sparking caused by work activities.
e Royal Commission found that, while the direct and immediate cause
of the deaths was methane gas explosion, the more probing question was
determining the underlying factors t hat contributed to that immediate cause.
ey state: 2
... any system relying on error-free human performance is
fundamentally awed. In any event, accidents are rarely
the result of a single action, failure or factor, but rather a
combination of personal, task-related, environmental and
organi sational factors, some longstand ing.
In investigating the underlying c auses of the tragedy, the following issues
were identied by the Commission:3
• is wa s a process safety accident, being an unintended escape of metha ne
followed by an explosion in the mine. It occurred during a drive to achieve
coal production in a mine with leadership, operational systems a nd
cultu ral problems.
• Such problems coincided with inadequate oversight of the mine by a health
and safety regu lator that lacked focus, resourcing and inspection capacity.
• e legal framework for health and safety in underground mining is
decient.
1 Hon Graham Panck hurst, Stewart Be ll and David Henry Royal C ommission on the Pike River
Coal Mine Tragedy - Volume 1 (October 2012) at 15.
2 Hon Graham Panck hurst, Stewart Be ll and David Henry Royal C ommission on the Pike River
Coal Mine Tragedy - Volume 2 (October 2012) at 28.
3 Royal Commis sion Report Vol 1, above n 1, at 15.
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