Mike Appleby, of Bivonas Law, looks at the likely impact of dramatic increases in corporate fines for health and safety offences.
Michael Appleby
Sentencing guidelines for corporate manslaughter and health and safety offences were published on 3 November 2015, coming into force on 1 February next year. These are closely modelled on the guidelines for the sentencing of environmental offences already in place.
When a judge fines a company, the guidelines require a step-by-step assessment based on the degree of culpability, the level of harm or potential harm caused by the offence, and the size of the defendant organisation by reference to its turnover. There are four categories of organisation: micro (under £2m turnover); small (£2m-£10m); medium (£10m-£50m); and large (£50m plus).
The guidelines set out a sentencing range for each category from which the judge determines the starting point and then considers aggravating and mitigating factors which respectively increase or decrease the fine, before arriving at the final figure.
For large organisations convicted of a health and safety offence resulting in a fatality with the highest level of culpability, the range is £2.6m to £10m and for corporate manslaughter £4.8m to £20m.
Where an organisation’s turnover is significantly greater than £50m, fines will be even higher. In the environmental case R v Thames Water [2015] EWCA Crim 960 the defendant had a turnover of £1.9bn. The Court of Appeal warned:
“In the worst cases… the need to impose a just and proportionate penalty will necessitate a focus of the whole of the financial circumstances… the objectives of punishment, deterrence and the removal of gain… must be achieved by the level of penalty imposed.
“This may well result in a fine equal to a substantial percentage, up to 100% of the company’s pretax net profit for the year… even if this results in fines in excess of £100m.”
The guidelines set out a sentencing range for each category from which the judge determines the starting point and then considers aggravating and mitigating factors which respectively increase or decrease the fine, before arriving at the final figure.
On the whole, profit margins in the construction industry are low. While the court is required to “step back” to review the fine and adjust if necessary, it is unlikely this factor will persuade the judge to make a reduction. More likely is that the organisation will be given time to pay by instalments, which could be over several years.
The new guidelines also cover sentencing of individuals convicted of health and safety offences, and bring the prospect of a custodial sentence much closer. This will be of concern to boards as there is a growing trend for directors and senior managers to be investigated for their role in alleged corporate wrongdoing.
Last year an independent health and safety consultant was convicted of breaching s7 of the Health and Safety at Work etc Act and sentenced to nine months imprisonment. A fatality occurred following a trench collapse at a site where he was contracted to make monthly visits. At the time of the incident, the method statement he had drafted was not being followed and his last site visit had been nine days earlier. During the sentencing hearing, the judge made specific reference to the draft proposals for these new guidelines.
With the changing landscape, now is a good time for companies not only to review their management of health and safety risks but also their processes for responding to a criminal investigation, which might cover:
- Obtaining early legal advice and dealing with potential conflicts of interest when senior individuals are also being investigated;
- Dealing with requests for documents and interviews from the investigating authority;
- When to make an internal investigation legally privileged;
- Whether to challenge an improvement/prohibition notice or a finding of material breach under HSE’s Fee for Intervention scheme because of the effect this may have on the eventual outcome; and
- Dealing with the media.
The impact of the new guidelines is likely to be that fines for convicted medium and large companies will in many cases rise dramatically. As a consequence, there are also likely to be more trials and Newton hearings (fact finding hearings to determine the level of guilt) as well as detailed argument in respect of within which sentencing category a defendant comes.
This will, in turn, mean a greater scrutiny in court of the prosecution evidence than has occurred in the past. It remains to be seen whether HSE is ready to meet that challenge.
Mike Appleby is a partner and head of the health and safety investigations team at Bivonas Law
