The Sentencing Guidelines Council (SGC) recently published its definitive sentencing guideline for organisations convicted under the Corporate Manslaughter and Corporate Homicide Act 2007 and for health and safety offences which cause death.
The guidelines came into effect on 15 February 2010, and arrived just before the proposed trial of the first company to be charged under the Corporate Manslaughter Act, Cotswold Geotechnical Holdings, although the trial was subsequently delayed due to the ill health of its managing director.
The Corporate Manslaughter Act, which came into force in April 2008, was the New Labour government’s most radical piece of legislation in the field of health and safety law. The Act only passed through Parliament after several defeats in the House of Lords and a government climb-down on deaths in police custody.
It abolished the old principle that a company could only be liable for manslaughter if the “directing mind” was proven to be responsible for gross failings which resulted in death. The Act replaces the directing mind principle with a gross negligence test, in which a substantial element of the breach must be caused by the way in which the organisation’s activities are managed or organised by its senior management. Police authorities, employers’ associations, trade unions and partnerships that are employers, and many government departments may also be liable under the Act.
The Act was expected not just to extend liability, but also to inaugurate a new regime of tougher enforcement and stricter penalties for culpable firms. Many saw fines for breaches of health and safety laws causing death as too low, especially for large corporations. Back in 1994 the Criminal Bar Association suggested that fines should be set at 10% of companies’ annual turnover, and following consultation on the draft Bill in 2005 the joint Parliamentary Select Committee reported that this figure had been supported by many respondents. In November 2007 the Sentencing Advisory Panel, which advises the SGC, proposed that courts should normally start from a figure of 5% of annual turnover, and then decrease or increase that amount between 2.5% and 10% of annual turnover depending on various factors. When this was first announced, the Centre for Corporate Accountability (in line with other interest groups) protested that the proposed level of fines was “simply too low”.
A cautious revolution?
The SGC’s decision to forego the proposed link between fines and annual turnover altogether has therefore caused much disappointment. However, the justifications provided by the SGC are compelling. First, profitability varies widely, so two companies with similar turnover may be impacted very differently by the same level of fine. Second, company law allows businesses to structure their operations in a variety of shapes and sizes, and any link would be likely to create a “perverse incentive to manipulation of corporate structure”, for instance by transferring risky operations into a separate but affiliated company. Finally, and to a degree in opposition to the first argument, similarly serious offences should attract fines which are not “vastly different”. The SGC does not develop this argument, but clearly huge variations could have the effect of giving smaller firms a competitive advantage over large corporations.
At first glance, the new guidelines appear to ratchet up the level of penalties considerably. Data available for the last five years on the Health and Safety Executive’s website shows that there have only been five fines for a breach of health and safety at or exceeding £500,000. Only one of these was a multimillion pound fine: £15m against Transco in 2005.
The judicial thinking behind the previous level of fines may be found in R v Friskies Petcare (UK) Ltd [2000] 2 Cr App R(S) 401, in which Brian Walsh QC, delivering the judgment of the Court of Appeal, said that the “reported cases show that fines in excess of £500,000… tend to be reserved for those cases where a major public disaster occurs, for example the collapse of a major railway tunnel under Heathrow Airport, or derailment of railway trains”.
If the courts now routinely impose fines of £500,000 or above for corporate manslaughter, a level of fine will now come into play for the deaths of single employees, albeit in circumstances of a “gross breach”, that was previously reserved for public disasters. This would represent the jolt upwards in penalties many sought for organisations which cause death through their gross negligence.
The seriousness of the breach
The £500,000 and £100,000 levels are, however, only starting-points. The seriousness of the offence and the size and circumstances of the firm must be considered by a court determining a fine. The SGC’s guidelines do not go far beyond the guidance for sentencing health and safety offences provided by Scott Baker J (as then he was) in the Court of Appeal in R v F Howe and Son (Engineers) Ltd [1999] 2 Cr. App. R.(S.) 37, although there are some potentially significant differences of emphasis.
Seriousness is first assessed by asking four questions: How foreseeable was the serious injury? How far short of the applicable standard did the defendant fall? How common is this kind of breach in this organisation? How far up the organisation does the breach go? Then the court addresses particular aggravating and mitigating circumstances, of which a non-exhaustive list is provided. As in Howe, cost-cutting at the expense of safety (or, in Baker J’s words “where safety regulations are deliberately flouted for reasons of economy”) and failure to heed warnings by the HSE are among the particularly aggravating circumstances. Other aggravating factors—failure to pay heed to warnings by employees or to respond to “near misses”—confirm that firms must have very responsive health and safety cultures and reporting systems.
Legal and health and safety advisors to organisations should also have regard to the mitigating circumstances listed by the SGC. A good health and safety record overall, and a responsible attitude to health and safety demonstrated by commissioning expert advice and/or employee consultation, will lessen the seriousness of the offence. It is unlikely, however, that a good overall health and safety record will afford much mitigation when the breach that resulted in death was persistent and major. In Howe, for example, the sole recent breach was bad wiring which caused a worker to be electrocuted; a “continuing dangerous state of affairs rather than an isolated lapse” which undermined the mitigation afforded by the company’s otherwise good safety record.
After a breach has caused a death, organisations should be advised that they can still avail themselves of mitigation. A prompt acceptance of responsibility, a high level of co-operation with the investigation (“above that which will always be expected”), and genuine efforts to remedy the defect will all be likely to persuade a court that the level of fines can safely be reduced because the organisation recognises the seriousness of its breach. As with other criminal offences, a timely guilty plea will see a reduction in fines of up to a third.
The effect of the fine
After considering seriousness, the court will look at the nature, organisation and resources of a defendant, and also consider the consequences of a fine. The SGC echo Howe again, both by insisting that “the law must expect the same standard of behaviour from a large and a small organisation”, and also by acknowledging that the financial circumstances of a company is relevant to assessing fines. The guidelines suggest that it is just for a larger company to pay a higher fine, and also necessary for the fine to be punitive.
They also develop guidance provided in Friskies Petcare relating to what financial information a defendant should provide if it wishes to argue for a lower fine due to financial hardship. Notably, the guidelines specify that directors’ remuneration, loans, and pensions must be provided, so it appears that courts are being encouraged to show little mercy to companies which appear to be unprofitable but pay out large sums of remuneration to their board.
Paragraph 19 is perhaps the most telling section of the new guidelines. It contains instructions to the courts as to which factors will and will not be relevant to the appropriate level of fine. The effect on shareholders, directors and prices is to be disregarded. However, the courts are enjoined to consider the effect on innocent parties a fine may have, such as whether innocent employees may lose their jobs as a result of the fine. If the organisation is a monopoly provider of goods, then the courts may take the effect on prices into account, and likewise if it is a public body, the effect of a fine on the provision of services to the public will be a relevant factor. The guidelines do soften their stance slightly by allowing the effect of putting the organisation out of business to be a relevant factor, but also emphasise that “in some bad cases this may be an acceptable consequence”.
In addition to fines, the courts have powers to make compensation, remedial and publicity orders under the Corporate Manslaughter Act. The guidelines are quite stringent in specifying that a publicity order will normally be appropriate. The prosecution will serve a draft order on the court and the defendant, and the judge must personally endorse the final form of the order. Convicted organisations will therefore be unable to control the information which reaches their shareholders or the public about the particulars of their offence.
Providing clarity or muddying the waters?
The new guidelines appear to be a significant development in the enforcement of health and safety obligations. By s 172 of the Criminal Justice Act 2003 every court must have regard to SGC guidelines, where available. The statutory guidelines therefore clarify the starting point and the arguments that may be presented to a court for either side. Whether they will have the desired effect remains to be seen, however. Significantly, the guidelines do not quantify what weight the various factors should be given. As a consequence, the courts retain a very large area of discretion over the level of fine they impose. It is true that there has been upward pressure towards higher fines driven by greater concern for health and safety across the board, but in fact the financial circumstances many companies now face has seen the level of fines fall. With the CPS struggling to bring the first prosecution before a jury, the sentencing territory is largely uncharted.
Jennette Newman is a partner in the safety, health & environment team at Berrymans Lace Mawer LLP
The article is not a substitute for specific legal advice and should not be relied upon as such.