As of the 1 February 2016, the courts in England and Wales will be using the new sentencing guidelines for corporate manslaughter, health and safety and food offences. The guidelines apply to all such offences sentenced from the 1 February, regardless of when the offence was committed. The indications are that ‘large’ and ‘very large’ organisations can expect dramatically higher fines than in the past.
Following the Sentencing Council’s introduction of similar guidelines for environmental offences in July 2014, there has been a substantial increase in environmental fines. Environmental Data Services Ltd (ENDS) recorded five prosecutions of large companies between July 2014 and July 2015 at an average of £296,500. This compares to the previous year where ENDS recorded fines at an average of £94,036 per case. The courts certainly haven’t been reticent in handing down big fines following the introduction of the Environmental Sentencing Guidelines. In March 2015 United Utilities were handed a £750,000 fine after a pump failed at one of its stations, which resulted in seven million litres of raw sewage running into an estuary. Earlier this month Thames Water was fined a record-breaking £1million for offences following the pollution of the Grand Union Canal.
As in the Environmental Offences Guideline, fines are determined through a matrix of three factors: harm/risk of harm, culpability and turnover. The battlefield on which defence and prosecution lawyers must ply their craft has therefore been divided into a chessboard-like matrix, each square having its own defined value. This will make it easier for lawyers to advise on the likely amount of fines but it will also allow for an accurate risk-benefit analysis of fighting for the squares on the board. In all likelihood, this will lead to more energetic litigation between prosecution and defence and probably to more contested hearings in relation to the facts which underpin guilty pleas. There are some confuting factors in the guideline, which have the potential to push fines outside the predefined ranges. Specifically, these are ‘ability to pay’ and the totality principle, which aims to ensure that any factual overlap in multiple offences is reflected in the fine imposed.
For a large organisation where the turnover is more than £50 million, the starting point for corporate manslaughter (high harm, high culpability), is £7.5million. This is in stark contrast to the £600,000 fine which was handed down to CAV Aerospace in July 2015 before the new guidelines came in to force. At the time it was the largest fine imposed for an offence of corporate manslaughter. CAV Aerospace in fact had a turnover of over many times the £50 million threshold but had posted pre-tax losses in the preceding four financial years. Perhaps more interestingly, the £600,000 fine received by CAV Aerospace could now be expected in relation to a much less serious, less culpable, non-fatal incident: £600,000 is the starting point for a category 2 harm, medium culpability health and safety offence for a large organisation.
‘Very large’ companies, whose turnover greatly exceeds the £50 million threshold, face some uncertainty about the level of fines they can expect. The new guidelines expressly deal with such companies, stating: “Where a defendant company’s turnover or equivalent very greatly exceeds the threshold for large companies, it may be necessary to move outside the suggested range to achieve a proportionate sentence.”
This wording already exists in the environmental guidelines and has stimulated some courts to extrapolate the starting point for very large organisations from the increases between micro, small, medium and large companies, resulting in a 5x multiplier for the starting point for very large companies. The mechanics of such an extrapolation have not been described in detail and the Court of Appeal in R v Thames Water Utilities Ltd  EWCA Crim 960 expressed sympathy, but not endorsement, for such an approach. The Court of Appeal went further, saying that the need to have an impact on shareholders, bearing in mind the financial position of the company as a whole, was the guiding factor and that the mechanistic approach was not appropriate for very large organisations. The court indicated that fines equivalent to 100% of annual pre-tax profits could be appropriate, even if this meant fines of £100million.
Health and safety offences
It remains open to the courts to fine organisations out of existence. A notable difference exists here between the guidance on health and safety offences and corporate manslaughter. For health and safety offences, putting the offender out of business will be appropriate in ‘some bad cases’. For Corporate Manslaughter, it will be appropriate ‘in some cases’. There is an inference here that all corporate manslaughter cases are ‘bad’ and that putting those convicted of the offence out of business is therefore a more foreseeable outcome.
Michael Caplan QC of the Sentencing Council has advised that, “although it is not the Sentencing Council’s intention that there will be higher fines across the board, or that they will be significantly higher in most cases to those currently imposed.” Mr Caplan does go on to advise that large companies who create a very high risk of serious harm “can expect a fine proportionate to the seriousness of the offence and their financial means.” In other words, the fines for smaller companies are in the right range already, it is only larger companies who have not been receiving proportionate fines up to this point.
While the law states that standards in health and safety compliance are determined by what is ‘reasonably practicable’, it will be interesting to see how the possibility of very high fines influences board room decision-making in practical terms and in particular the resources allocated to compliance and expectations for best practice.
For more information on the law around health and safety offences or on any of the issues raised in this article, contact Matt Vernon in the Regulatory Corporate Crime team by emailing [email protected]