Dreamworld Tragedy: Legal & Corporate Analysis

This assignment examines the Dreamworld theme park accident of 2017 through a legal and corporate lens. Students must analyze potential claims of negligence against the company and assess their compliance with corporate governance principles and risk management strategies. The case study draws upon relevant Australian legislation, case law, and ethical considerations surrounding corporate responsibility.

Running head: RISK MANAGEMENT
Risk Management
Name of the student
Name of the university
Author note

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RISK MANAGEMENT
a)
One of the most important duties of the board of directors of a company that is listed is to
determine the risk and stipulate a framework that is proper in order to address them. Principle 7
of the Australian Securities and Investment Commission lays this down as a primary duty of the
board of directors of an incorporated company1. When a situation arises where the directors of an
incorporated organization fail to identify the risk and plan ahead, it results in substantial losses
for the consumers, employees, creditors, shareholders and the society in general.2 The board of
directors of a listed company must form a minimum of one committee to primarily determine the
risks and thereafter address the risk in a way that they see fit. This duty of the board of directors
has been recommended by the Australian Securities and Investment Commission. Three
independent directors must be incorporated in the committee. The recommendations of the
Australian Securities and Investment Commission further stipulates that it is the duty of this
committee to oversee the risk management structure of the corporation each year so that they can
be accountable to it3. If the company is exposed to environmental, economic or social risks, it is
the duty of the listed corporation to disclose material facts about such risks and mechanism by
which the company intends to deal with these risks. According to the current situation, a
company named Ardent Leisure Ltd has suffered huge financial losses in respect of a leisure
park owned and controlled by them naked Dreamworld Leisure Park. A ride failure occurred at
this leisure park and this failure caused a tremendous accident that resulted in the death of a few
people. It is a well established matter of law that accidents are beyond anyone’s control including
the owners of a leisure park. However, in the presence of safety measures that are proper, major
accidents can be effectively averted and its results can be subdued to a substantial extent. It has
1 Latimer, P, Australian Business Law CC, 2017 Edition.
2 Council, ASX Corporate Governance, and A. S. Exchange. "Corporate governance principles and
recommendations . ASX Corporate Governance Council." (2014).
3 Graw, Parker, Whitford, Sangkuhl and Do, Understanding Business Law 7th ed LexisNexis Butterworths, 2015.

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been claimed that the company was unable to properly address the situation after the accident.
This feature of the case makes the company liable to pay damages to all the people who have
suffered as a result of the accident. Hence, Ardent Leisure Ltd. has to pay damages to the
victims. It can be positively established that if Ardent Leisure Ltd. has a proper risk management
system in place, this accident could have been averted. In addition to this, if the company claims
that accidents are beyond anyone’s control, a proper risk management system would have
minimized the effects of the accident. However, in the absence of any proper risk management
system, the lives of the people were literally at stake and they eventually died. This resulted in a
tremendous loss of goodwill of the corporation. In addition to this, it resulted in massive
financial and social loss for the company. Therefore, it can be established that the accident was a
direct result of the board of the company to identify and mitigate the risks in respect of the
accident.
b)
The above-mentioned recommendations are a part of principle 7 of the Good Corporate
Governance Recommendations. By this principle and obligation has been imposed on every
incorporated organization to determine and oversee risks by incorporating a proper framework
for risk management.4 According to the principle one or more committee may be formed by a
company for advanced identification of foreseeable risks and a proper framework for effectively
address such risk. If Dreamwork Leisure Park had a competent risk management team in place,
the effects of the accident could have been efficiently minimized and lives could have been
saved. Principle 7 also recommends that every company must disclose all relevant risks of
running a business. If this recommendation of principle 7 would have been followed in a proper
4 Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. Oxford
University Press, USA, 2015

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manner by Ardent Leisure Ltd, the accident could have been prevented or at the very least, the
casualties could have been limited. Hence, it can be positively established that Ardent Leisure
Ltd. has violated the provisions of principle 7 of Good Corporate Governance Recommendations
of ASX.5
Conduct in contravention of principle 7 attracts legal consequences. It also results in
competitive negativity for the company that is found to be in contravention of the principle.
Failing to determine the risks and properly address such risks is a huge detriment to the
company’s interests.6 The organization has to suffer huge losses as a direct result of the accidents
that occur for the lack of any proper risk management framework in place.7 In addition to this,
these accidents show the organization in a bad light which eventually eats away at the value of
the corporation in relation to society. This results in a reluctant attitude in respect of the
company’s investors. Furthermore, employees cannot be held accountable for any accident when
there is no proper risk management framework in place. This results in reduction of productivity
and the quality of services provided by the employees8.
The responsibility to start legal proceedings against Ardent Leisure Ltd in respect of
violation of the rules laid down by the ASX lies with the Executive office of the ASX. The
companies are fee to not incorporate the provisions of principle 7 into its constitution9. However,
in case a company decides not to follow the provisions of principle 7, such company has to
provide a proper explanation for it10. Decisions regarding the enforcement of actions lie with
Chief Compliance Officer of the ASX. Thereafter, an appeal lies with the ASX appeal tribunal.
5 Pritchard, Carl L., and PMI-RMP PMP. Risk management: concepts and guidance. CRC Press, 2014.
6 Council, ASX Corporate Governance. "Corporate Governance Principles and Recommendations, 3rd edn (ASX,
Sydney)." (2014).
7 Glendon, A. Ian, Sharon Clarke, and Eugene McKenna. Human safety and risk management. Crc Press, 2016.
8 Fitzpatrick, Symes, Veljanovski, Parker, Business and Corporations Law; LexisNexis 3rd edition 2017
9 Davenport, S and Parker D, Business and Law in Australia, Thomson Reuters, 2012
10 Redmond, P., Companies and Securities Law - Commentary and Materials, Law Book Co., Sydney, 5th, 2009.

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A penalty of up to $250, 000 might be imposed on any company found in contravention of the
rules provided by the ASX as provided by the Enforcements and Appeals Rulebook of the ASX.
In addition to this, a fine of $1000000 may be slapped on any company in contravention of
Austraclear Regulations. In the landmark case of Sino Australia Oil and Gas Limited, the ASX
imposed a penalty of $80000 on the company.11 In the present case, the ASX may well seek
penalties in a civil capacity. This may include disqualification of the board of directors in
addition to pecuniary penalties12.
c)
Section 180 of the Corporations Act, 2001 provides for a duty of diligence and care by
the directors towards their corporation. Section 180 of the Corporations Act, 2001 stipulates that
a director of an organization must discharge his duty with reasonable diligence and care.
Reasonable diligence and care has been defined as the care and diligence that shall be shown by
any rational person in the position of the director with the respective circumstance in mind.
Section 1313 of the Corporations Act, 2001 lays down the civil penalties that would be attracted
if a director of a company contravenes the provision of Section 18013. A particular business
judgment may be exercised by a director of a company when such judgment has been taken
keeping in mind the best interests of the company, in good faith and a just purpose. In addition to
this, such judgment must not be taken to realize any personal interest and the decision must be
rational and informed. To understand whether an act by a director of a company was rational or
not we must take into consideration of what a rational person would reasonable do under those
unique circumstanced and in the same position as the director.
11 Gilligan, George, et al. "Penalties Regimes to Counter Corporate Misconduct in Australia–Views of Governance
Professionals." (2017).
12 Fisher S, Anderson C, Dickfos, Corporations Law - Butterworths Tutorial Series, 4th Edition Butterworths,
Sydney 2014
13 Tomasic, R. Bottomley,S. McQueen,R. Corporations Law in Australia, 2nd Edition Federation Press, Sydney
2002.

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In the recent case of Australian Securities and Investment Commission (ASIC) v
Cassimatis (No. 8) [2016] FCA 1023, it was held by the court that the directors were liable for
contravention of Section 180 (1) of the Corporations Act, 2001.14 In the landmark case of Re
Centura Global Holdings Pty Ltd [2015] NSWSC 1744, the judge concluded that the
contravention of the provisions of Environmental Planning and Assessment Act, 1979 amounted
to a severe breach of Section 180 (1) of the Corporations Act, 2001, in respect of the directors.15
In the benchmark case of Sheahan (as liquidator of SA Service Stations) (in liq) v Verco (2001)
79 SAR 109, the judgment by the court read that the provisions of Section 180 (1) was in respect
of the duties of the directors towards the organization and not towards the shareholders or the
environment. It legal proceedings are brought against the directors of a company by the ASIC,
they have to substantially prove that their conduct resulted in a loss of the company. In ASIC v
Mariner Corp (2015) 327 ALR 95 at [444], the court held that section 180 of the Corporations
Act, 2001 does not impose exclusive or diverse obligations on the directors of a corporation but
their conduct must be in line with the existing legal provisions.16
The current circumstance in respect of Ardent Leisure Ltd,. it has been established that
the conduct of the directors of the company was in direct contravention of Section 180 of the
Corporations Act, 2001. In addition to their, their inaction also breached Principle 7 of the Good
Corporate Governance Recommendations of the ASX. It can be safely concluded that additional
penalties may be imposed on the directors of the company for the financial losses suffered
Ardent Leisure Ltd.
d)
14 Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023
15 Re Centura Global Holdings Pty Ltd[2015] NSWSC 1744
16 ASIC v Mariner Corp (2015) 327 ALR 95 at [444]

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The massive accident at Dreamworld Leisure park was immediately followed by the
stepping down of the then acting CEO of Ardent Leisure Ltd., Deborah Thomas.17 She has been
vehemently criticized for not being able to respond to the disaster in an appropriate manner. It is
the intention of the company to emerge as one of the global entertainment leaders. It also intends
to focus on the US market. However, post the fatal accident, the shares of the company had
fallen by a massive 7.8%.18 The conduct of the company and its directors has been under
tremendous scrutiny since the accident. In addition to this, a formal investigation has been
initiated in respect of the accident.19 The company came forward and issued a statement to the
effect that they were deeply sorry of the accident. They also extended their condolences to the
families that were involved in the accident. Furthermore, the company claimed that they were
working in tandem with the police to figure out the exact cause of the fatal accident. The
company has suffered a major loss of 49.4 million after the massive accident. In addition to this,
the theme park was shut down for a period of 45 days after the incident. In this period, the
company commenced and commissioned a substantial operation and safety review of the theme
park.20 The company accepted that the way in which the accident was handled in the first 48
hours was not satisfactory. A former employee of Deloitte, Graeme Newton has been taken
aboard the company as a crisis management expert. In addition to this, a former Queensland
policeman named Mike McKay has also been hired by the company. The company has
established a safety review benchmark that all the rides have to pass before initiation. They also
shut down the controversial thunder river rapid ride. On the event of a loss of life that occurs due
to any mishap at the theme park, the first duty of the employees is to inform the deceased’s
17 The Guardian. (2017) <https://www.theguardian.com › World › Australia › Dreamworld>.
18 Dreamworld’S Parent Ardent Leisure Is In Damage Control (2017) NewsComAu
http://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-leisure-in-crisis-
after-fatal-theme-park-accident/news-story/00c3d7a283c19e05427f273bb3a44e39
19 Booth, Simon A. Crisis management strategy: Competition and change in modern enterprises. Routledge, 2015.
20 ABC (2017) <http://www.abc.net.au/news/2017-04-26/ardent-leisure-ceo-to-stand-down.../8472304>.

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family. Establishment of a committee for crisis management, an outcome process that is properly
planned, proper collaboration with the private sector are the mechanisms that has been taken up
by the company in the aftermath of the fatal incident in order to prevent such accident from
happening again as well as to minimize its effects if it does happen. However, it can be safely
concluded that the company is still very much on its back foot in relation to the fatal accident. In
addition to this, they have still not been able to provide any proper justification as to how the
accident took place in the first place. It has been observed that the company is still boasting of its
former achievements which includes the fact that about 30 million patrons visited their theme
park since 1981 and their established “robust policy and procedures”.

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RISK MANAGEMENT
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