Engineering Due Diligence - The confusion between Risk, Assurance & Diligence

In this episode of "Risk! Engineers Talk Governance," due diligence engineers Richard Robinson and Gaye Francis revisit the fundamentals of engineering due diligence in response to listener feedback about confusion between risk, assurance and diligence.

The discussion covers how R2A became specialised in due diligence engineering through their expert witness work, where they learned that due diligence serves as a defense against negligence with two key components: having reasonable control in place and taking all reasonable steps to protect against foreseeable harm.

Richard explains their decision to move away from quantified risk assessments using target risk levels, as this cannot adequately demonstrate due diligence. Instead, R2A advocates for a top-down approach that identifies critical issues, evaluates available controls, and determines what's reasonable in the circumstances.

They clarify that while due diligence obligations are explicitly stated for corporate officers in workplace safety legislation, all professional engineers have an implied duty to demonstrate due diligence as part of their professional responsibilities, and emphasise that simply following regulator approval doesn't guarantee protection from negligence claims. Engineers must take a holistic approach rather than relying solely on Standards or regulatory compliance.

The books they mention are:

• For Directors: Criminal Manslaughter, How Not To Do It https://www.r2a.com.au/store/p/r2a-criminal-manslaughter-directors-booklet

• For Engineers: Risk Management & Negligence; Due diligence Essentials for Engineers https://www.r2a.com.au/store/p/due-diligence-essentials-engineers-booklet 

For further information on Richard and Gaye’s consulting work with R2A, head to https://www.r2a.com.au.

Gaye is also founder of women’s safety workwear company Apto PPE if you’d like to check out the garments at https://www.aptoppe.com.au

Transcript

Megan (Producer) (00:00):

Welcome to Risk! Engineers Talk Governance. In this episode, due diligence engineers Richard Robinson and Gaye Francis revisit the topic of due diligence. And this is thanks to an email from Chris who wrote that they've been listening to the podcast to better understand risk due diligence, Rail Safety National Law, and duties of engineers, and that it's hard to rationalise the relationship and hierarchy of Rail Safety National Law versus (e.g.) Victoria's OHS Act, what is and isn't required to be diligent, and the relationship of risk assurance and diligence.

(00:40):

We hope you enjoy their chat. If you do, please give us a rating and subscribe on your favorite podcast platform. And if you'd like more information on R2A's work or have any feedback or topic ideas, do what Chris did and head to www.r2a.com.au.

Gaye Francis (00:58):

Hi Richard, welcome to a podcast session.

Richard Robinson (01:01):

Good to be here again, Gaye.

Gaye Francis (01:04):

Today we're going to revisit due diligence and part of it's based that we've recently had an enquiry about an observation that there's some confusion and differing views out and about around the risk space, around risk and assurance and diligence and what it actually means. And I thought what we'd do today, we've covered due diligence on a number of our podcasts, but if we go back today and have a look how we actually started in the engineering due diligence space and why we did it and how we apply due diligence in the engineering work that we do, that might be a useful conversation. So I'll get you to give an intro into how we became due diligence engineers.

Richard Robinson (01:50):

I can do that. I must firstly observe. It was surprised to me to see that you'd never actually listened to one of our podcasts. I recommend you do that. Gaye.

Gaye Francis (01:58):

Oh, well, we're only in Season 5 Richard. I'll get around to it.

Richard Robinson (02:01):

Excellent. Now, anyway, the reason why we became due diligence engineers, and as far as I know you were around during the entire process, was that we were doing this as response to expert witness matters before the courts. Now we're engineers, not lawyers. So what happened was that every time you do an expert witness case, the lawyers tell you to read various things, and they directed our attention to various relevant cases, particularly Wyong Shire Council vs Shirt, where Chief Justice Harry Gibbs talking about the balance of the significance of the risk versus the effort required to reduce it. But what became patently clear to us about all of this was that due diligence has always been a defense against negligence. And there were two parts against the defense against negligence. The first part was the no power defense, that you could only be responsible for matters over which you had control. And the second part was that in the circumstances as a reasonable human being, you would do all reasonable things to protect against foreseeable bad things that might happen to other people around you or the people, your clients and so forth. And so due diligence was articulated quite clearly to us as a defense against negligence.

(03:08):

Now, the world moved on, and in 2004, Maxwell QC reviewed the OHS Act in Victoria, and he put in place that you had to eliminate hazards so far as reasonably practical and if you couldn't eliminate, you had to reduce them so far as reasonably practicable. But the Victorian Act doesn't talk about due diligence anywhere. But nevertheless, we were cognisant of what the Act was talking about. And we were doing at the time, quantified risk assessments where you target levels of risk and safety around major hazard facilities. And I've got to say it's a prosperous area of activity to be in.

Gaye Francis (03:41):

It is.

Richard Robinson (03:42):

But when you looked at that and you looked at what due diligence as a defense against negligence was which engineers had to apply. I mean, you have to pay PI insurance if you're an engineer, and that's mandated under Registration of Engineers, under the Code of Ethics of Engineers Australia, if you don't happen to be a Registered Engineer, you have to do these things. And we basically had to say to the major hazard's regulator of Victoria and all other jurisdictions, and this includes quantified risk assessment in railways, which we had to walk away from, quantified risk assessment in the aviation sector, which we had to walk away from, we said, you cannot demonstrate due diligence by using target levels of risk and safety because there's two parts to it. Apart from the difficulty of actually knowing what the number is for high consequence, low likely things, which is a rabbit hole, which I'm about to test in a court case in the very near future in Brisbane. The other one is, the other side of the equation is what's reasonable in the human effort. Because designating human effort, you can't quantify that unless you're just going to put dollars to it or something and that doesn't work when you talk about life safety.

(04:46):

So we have to say to the major hazards regulator of Victoria and all the other places, we're not going to do it anymore. And why aren't we going to do it anymore? Because we've given up on using target levels of risk, and what your duty is as an engineer and your common law duty is to demonstrate due diligence.

Gaye Francis (05:04):

To show that all reasonable, practicable precautions are in place.

Richard Robinson (05:08):

Now at this point, you could have knocked us over with a feather when Julia Gillard turned up and then started promoting the WHS legislation, taking the SFAIRP approach from Victoria, because remember, she was Victorian, well at least for the purposes of, she went back to South Australia, but for the purpose of this, she was a Victorian. And then she became Workplace Relations Minister, the Chair as Deputy Prime Minister and so forth. And she obviously put her heart and soul in, and she basically tucked due diligence into the WHS legislation, but quite correctly as some people say, and as far as I know, we've always been quite crystal clear on this, that due diligence obligation in a statutory sense applied to the officers of the corporation, the business, the PCPU has to demonstrate that that all reasonable controls are in place. Anybody who works there, you've got to demonstrate all controls are in place.

Gaye Francis (05:58):

Reasonable care

Richard Robinson (05:59):

But the due diligence obligation, and remember due diligence only includes, it doesn't mean the six items in the WHS Act. And I spent a lot of time with Barry Sheriff giving presentations on behalf of Engineers Australia all over Australia, talking about all this because he would talk about what's required. Then I'd say, well, here's what you have to do to demonstrate due diligence with regards to how an organisation would show that all reasonable practicable controls are in place. Now, at this point, seemed being pretty clear to me, the due diligence provisions of the WHS legislation, the onus on directors came from the common law due diligence as a defense against negligence. And I haven't had any lawyer ever disagree with that understanding. That it came from the common law and due diligence as defense against negligence in the common law. Now, that means from a practical viewpoint, all engineers anyway have to demonstrate due diligence...

Gaye Francis (06:52):

Even though it's not explicitly said in the legislation.

Richard Robinson (06:56):

Yeah, because you've got to demonstrate it anyway.

Gaye Francis (06:59):

As a professional engineer.

Richard Robinson (07:00):

As a professional engineer, if that's what you hold yourself out to be. And then as the Chief of the Navy goes to some trouble to say in his documentation, anybody who works in that organisation had better help the officers demonstrate the officer's due diligence. And how do you do that? You demonstrate that all reasonable practicable controls are in place. To say that the engineers don't have that duty, I just find bizarre.

Gaye Francis (07:26):

Yeah, it's sort of inferred in a way, isn't it? And that's how you go about your business as an engineer. How do we show that we're not being negligent or we use due diligence as the demonstration and the process to do that?

Richard Robinson (07:38):

Don't use risk assessments except as the second part. You work out what the core issues are. Because remember, we always came top down. And that's the other thing that R2A always does. We always say, you must come top down working on what the credible critical issues are, and then you work out what the options are. And then you're saying, in the circumstances, the balance, what's reasonable? Because that's the only way you can practically do it.

Gaye Francis (08:01):

Yeah. So we want to do that completeness check like we talked about, what all the controls are that can be put in place and what is reasonable in the circumstances.

Richard Robinson (08:09):

And if you want to be a worthwhile engineer and value to the organisation, particularly if you're a young engineer, starting your career, and this is something we say all the time when we're training young engineers. If you can show that whatever decision you are making has been diligent in a way that will satisfy your managing director and your board, you are worth your weight in gold. And if you are unable to do that, then you are not going to be a very successful engineer, not in this day and age.

Gaye Francis (08:39):

And helps inform decisions to be made.

Richard Robinson (08:41):

Correct.

Gaye Francis (08:42):

So by doing it throughout the organisation and people are right, they come and ask, and there's questions that some of the legislation or some of the regulations and hierarchy control, for example, there's some mismatch between...

Richard Robinson (08:57):

The regulators are muddled.

Gaye Francis (08:58):

And there is some confusion out there and what the requirements are. But as we said, we've always used due diligence as a defense against negligence and the hierarchy controls as the court sees it. So those three: elimination, prevention and mitigation.

Richard Robinson (09:14):

But it actually goes on. Remember some people, and I've seen this written a number of places. Well, if the regulator says It's okay, we're good. No! If it goes badly wrong and the public prosecutor wants to have a go at you, the fact almost all regulators and all that I've ever read, as long as they're acting in good faith, they can't be prosecuted for negligence. But the company can still go down.

Gaye Francis (09:39):

Even though they've followed the rules of the regulator.

Richard Robinson (09:41):

Even though they follow what the regulator said. Unless your legislation for your regulator specifically says that acceptance by the regulator has satisfied all your obligations, and most regulators try to avoid that!

Gaye Francis (09:56):

I was going to say they're more clever than that to say that in full on statement like that.

Richard Robinson (10:01):

Well, that's not quite right because the Victorian major hazards regulator, they have to accept it. But that's not what all jurisdictions say in all the regulatory regimes. You want to be very cautious and have a think about exactly what it is your regulator can and cannot accept.

Gaye Francis (10:19):

Comes back down to that question that we've talked about on a number of occasions and the topic we've talked about on a number of occasions, that you have to think these things through for the circumstances that you find yourself in and the organisation, in the whole of context that you're in. It's not just all of the silos, that you've got to put all of that together and have a holistic approach on this.

Richard Robinson (10:40):

And relying on a Standard as your core defense, you've got to think it through and then you test against the standard to make sure you haven't overlooked anything.

Gaye Francis (10:49):

True. True. Which we covered in our podcast very, very recently.

Richard Robinson (10:54):

Indeed.

Gaye Francis (10:55):

So what we want to talk about today was that there is some confusion out there. There's differing views.

Richard Robinson (11:03):

I suppose it's actually relevant from our point of view, our book "Criminal Manslaughter, How Not To Do It", that's aimed at directors.

Gaye Francis (11:09):

Correct.

Richard Robinson (11:10):

And our latest publication, which was...

Gaye Francis (11:13):

"Risk Management and Negligence, A Guide for Engineers"

Richard Robinson (11:18):

Due Diligence Essentials for Engineers. Because one of the points we make in here, I think it's Section 22, basically points out that designers have a particular duty...

Gaye Francis (11:27):

Under the WHS legislation.

Richard Robinson (11:28):

Correct. And that duty is to eliminate hazards so far as reasonably practicable. And how do you go about demonstrating so far as reasonably practicable that you've achieved those design obligations? Anybody who says you don't have to do due diligence to achieve that, I think is courageous.

Gaye Francis (11:47):

Well, maybe on that note, we would just say, think about what you need to do. And as I said, we've always used due diligence as a defense against negligence in the work that we do. And we would recommend...

Richard Robinson (12:03):

Continuing that way, do not change it. <laughs>

Gaye Francis (12:07):

Thanks for joining us today, Richard, and we will see you next time. Thanks everyone.

Richard Robinson (12:10):

Thanks Gaye.