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There is an old riddle: “If a tree falls in the woods and no one hears it, does it make a noise?”

A newer more relevant riddle is perhaps: “if an employee causes a club to breach an offence provision of the Registered Clubs Accountability Code and the club’s secretary and the board are unaware of it, can they be personally liable?”

Unfortunately, for club secretaries and directors the new riddle is easy. The answer is “yes- a secretary and each director can be personally liable for a maximum penalty of $11,000”.

In 2018 the Registered Clubs Act 1976 (“Act”) was amended to introduce the Registered Clubs Accountability Code (“Accountability Code”) which is contained in Schedule 2 to the Registered Clubs Regulation 2015.

It is critical that all club directors and employees read and understand their obligations under the Accountability Code.

Personal liability

The Act makes an individual personally liable if he or she breaches one of the “offence provisions” of the Accountability Code.
Section 41C(3) provides:

“(3) A person who contravenes a provision of the Code that is identified by the Code as an offence provision is guilty of an offence.
Maximum penalty: 50 penalty units.”

Accordingly, if a director or employee of the Club breach one of the offence provisions of the Accountability Code (for example, failing, when required, to disclose a gift or discount) he/she can be personally liable for a maximum penalty of $5,500.00.

Personal liability for offence “by club”

In addition to the above, club secretaries and directors need to pay very close attention to section 41C(4) of the Act which provides that a club secretary or director may be personally liable if the club itself breaches an offence provision of the Accountability Code. There are a number of ways a club could breach an offence provision of the Accountability Code. For example, a club could lend money to a director, fail to make information available to members as required by the Accountability Code or enter into a “commercial arrangement” without board approval as required by the Accountability Code.

For the avoidance of doubt, a director or secretary can be personally liable for a club’s breach of an offence provision of the Accountability Code even if he/she has not personally caused the breach.

Section 41C(4) provides:

“(4) If a registered club contravenes a provision of the Code that is identified as an offence provision, the club is not guilty of an offence under this section but each person who is the secretary of the club, a director of the club or a close associate of the club is guilty of an offence punishable by a maximum penalty of 100 penalty units unless the person satisfies the court that

(a) the club contravened the provision without the actual, imputed or constructive knowledge of the person, or

(b) the person was not in a position to influence the conduct of the club in relation to the contravention, or

(c) the person, if in such a position, used all due diligence to prevent the contravention by the club.”

That is, if the Club breaches an offence provision of the Accountability Code then the secretary and each director is liable for a penalty of $11,000 each unless they can establish one of the matters set out in 41C(4)(a), (b) or (c) (the “Defences”).

What are the “Defences”?

Firstly, a secretary or director of a club will not be liable under section 41C of the Act for a breach of the Accountability Code by the Club if the director or secretary did not have actual, imputed or constructive knowledge of the contravention.

It is critical to note that this does not require the secretary or director to have “actual” knowledge of the breach.

“Constructive knowledge” is knowledge that a person would have obtained had he or she made enquiries that an “honest and reasonable person would have made in the ordinary course”.

Accordingly, simply being “unaware” that the club was breaching an offence provision of the Accountability Code will not be a defence.
The issue will be whether the individual director (or secretary) could have discovered the breach by asking questions that an ordinary director (or secretary) would have asked.

Secondly, an individual will not be personally liable for a club’s breach of an offence provision of the Accountability Code if that person was not in a positon to influence the conduct of the club in relation to the breach.

As the club’s secretary and directors are responsible for the management and affairs of the club it may be practically difficult for this defence to be relied upon.

In our view, this defence could be available if a director was seriously ill and had been absent from board meetings and the club for a number of months.

Thirdly, a secretary or director will not be personally liable for a club’s breach of an offence provision of the Accountability Code if the secretary or director “used all due diligence to prevent” the breach.

In our view, this will be the most important defence available for secretaries and directors in relation to a potential breach of the Accountability Code.

This is because secretaries and directors can take positive steps to avoid the club breaching an offence provision of the Accountability Code.

These steps should be properly documented so that the individual can rely upon them if there is a risk that the Club has breached an offence provision of the Accountability Code.

What “due diligence” is required to prevent a breach of the Accountability Code?

For a secretary or a club director to be able to claim that he/she used all “due diligence” to prevent a contravention by the club, it is important that each director and secretary fully understand their (and the club’s) obligations under the Accountability Code.

If you are uncertain as to the meaning of any of the provisions of the Accountability Code you should seek advice to ensure that you understand it.

Furthermore, in our view, it will be critical that directors and secretaries can show that they informed all relevant persons of their duties and obligations under the Accountability Code.

That is, it will be critical that in the event that an employee breaches the Accountability Code that directors and the secretary are able to, at a minimum, show that they had previously informed that employee of their obligations under the Accountability Code.

Accordingly, we recommend that clubs write to each of the following individuals setting out their obligations under the Accountability Code:

1. each director of the Club;

2. the secretary/chief executive officer;

3. each “top executive” of the club; and

4. each employee of the club.

Clubs need to have systems and procedures in place to ensure that they comply with the Code.

For example, clubs need to have systems and procedures that ensure that all relevant enquiries are made when entering into contracts or agreements to ensure that the club is complying with its obligations under the Accountability Code.

For advice on your club’s obligations under the Accountability Code or for pro forma letters and documents that can be sent to all directors and employees of the club please contact any member of the Clubs team on 8251 777 or by email:

John Ralston:j.ralston@pigott.com.au
Bruce Gotterson:b.gotterson@pigott.com.au
Ray Travers:r.travers@pigott.com.au
Michael McCluskey:m.mccluskey@pigott.com.au
Matt Goodwin:m.goodwin@pigott.com.au

 

This newsletter is produced by Pigott Stinson. It is intended to provide general information only. The contents of this Newsletter do not constitute legal advice and should not be relied upon as legal advice. Formal legal advice should be sought from us in respect of the matters set out in this Newsletter. Liability limited by a scheme approved under Professional Standards Legislation.