On 1 February 2016 the Definitive Guideline ("Guideline") for sentencing health and safety offences came into force introducing a brand new sentencing framework for the courts to follow, intending to improve fairness and consistency and raise the profile of health and safety for employers and other duty holders. The Guideline sets out a prescribed nine step process that judges are now obliged follow when sentencing health and safety offences.
Most of these nine steps mirror existing well-established principles of sentencing, as well as principles such as:
- the culpability of the offender;
- harm risked;
- the overall proportionality of the sentence to the offence; and
- the means of the offender.
However, one of the most significant changes for organisations is the introduction of stipulated ranges for levels of fine, which are proportionate to a defendant organisation's turnover. In essence, the Guideline formalises yet simple principle that the greater an organisation's turnover, the greater its exposure to higher fines.
The fine ranges applicable to organisations under the Guideline are set out in the table below, in size order from "micro" to "large".
WHAT WAS PREDICTED?
Whilst the Guideline sets out prescribed ranges of fines and a clear framework to follow in calculating appropriate fines within those ranges, there remains ample room for judicial discretion. When the new regime was announced in November 2015, many legal and industry commentators speculated on the effect it might have, anticipating measures such as:
- Fines of well over 10 million for "very large organisations";
- Generally higher fines for medium sized and large organisations; and
- Increase in appeals against sentence.
The anticipated upwards trend in sentencing for health, safety and environmental crime had already attracted judicial endorsement well before the Guideline was even published in draft form. For instance, in the Court of Appeal decision in R v Sellafield Limited and Network Rail Infrastructure Limited in November 2013 (albeit a sentence based on the similarly structured environmental sentencing guidelines) it was held that in the worst cases of environmental crime involving very large organisations (those with a turnover of 50,000,000 or more), the sentencing court may well be justified in imposing a fine of up to 100% of the defendant company's pre-tax net profit for the year in question, even if this results in fines in excess of 100 million. The court explicitly drew a comparison with fines in the financial services markets.
THE STORY SO FAR
Although in 2016 we saw some large and very large organisations sentenced for some serious breaches, we are yet to see a fine of over 10 million as predicted. The largest fine to date was that of 5 million imposed upon Merlin Attractions Operations Limited after the incident involving the "Smiler" rollercoaster at Alton Towers in June 2015. Nonetheless, many of the fines that organisations received for health and safety offences in 2016 were still headline grabbing.
HIGHER FINES IN 2016?
Fines imposed from February 2016 onwards include a fine of 4 million imposed on Network Rail Infrastructure (turnover 6.1 billion, a fine of 3 million (turnover 197 million) on Cristal Pigment UK Limited and a fine of 2.6 million imposed on Balfour Beatty Utility Solutions Ltd (total group turnover 3.1 billion).
Analysis of higher level fines (more than 500,000) shows a notable increase on imposable fines for corporate defendants convicted of health and safety offences from January to December 2015.
It is also clear that the highest fines have not been reserved for cases involving fatalities and/or serious injury. Indeed, the emphasis of the Guideline is very much upon sentencing to reflect the risk of harm rather than the actual harm caused.
This is also borne out by the Health and Safety Executive's Annual Statistics which go beyond just the fine figures in isolation. In 2014/15, there were 682 successful convictions of health and safety offences with 19 million was raised in fines. In 2015/16, there were 660 successful convictions of health and safety offences with 38.3 million raised in fines. Total fines have doubled yet the number of successful convictions has actually reduced during this period.
It seems that the remarks of one judge fining a corporate defendant in 2016 may well have been correct:
"...the definitive guideline marks a new dawn. The calculation of a fine is heavily dependent upon turnover and organisations potentially affected by these guidelines had better wake up to this fact".
EVEN MORE BAD NEWS FOR "VERY LARGE ORGANISATIONS"
"Where an offending organisation's turnover or equivalent very greatly exceeds the threshold for large organisations it may be necessary to move outside of the range to achieve a proportionate sentence".
During its first year in force, the Guideline did not provide a settled approach by the judiciary when dealing with companies whose turnover "very greatly exceeds" the threshold for large organisations or when it is "necessary" to move outside of the range to achieve a proportionate sentence. A number of organisations sentenced in 2016 had turnover in the billions (such as BT, Network Rail and Tesco) well in excess of the 50 million for large organisations. In a number of cases the sentencing judge considered it would be "disproportionate" to sentence outside the fine range for large organisations, explaining that remaining in, or very close to the range was proportionate and sufficient in the circumstances. In particular, His Honour Judge Armstrong's decision not to go outside the fine range for large organisations when sentencing BT has received a certain amount of criticism amongst some commentators.
What we have seen is that when sentencing these "very large organisations", even in circumstances where the admitted breaches resulted in the risk of death or serious and multiple injuries, the sentencing courts are not automatically making an upward adjustment to the fine range for the "billion plus club" that was anticipated.
Whilst this trend continues, Judges may become more reluctant to "break the mould" and go outside the range, even for the largest and most financially resilient of organisations.
It is difficult to reach definitive conclusions as in many cases, the precise grounds upon which sentence has been passed (such as crucial information on risk of harm, culpability and those important aggravating or mitigating factors) remain unknown. This trend might equally reflect that the "very large organisations" sentenced thus far have successfully advanced robust mitigation sufficient to keep any fine relatively low.
Whilst we have not yet had any examples of "very large organisations" being fined outside of the range for large organisations (3,000 10 million) there is clear appetite to do so from the Court of Appeal. In the Court of Appeal decision in R v Conocophillips, heard in October 2016, the defendant organisation was sentenced 3 million following three major gas release incidents. The defendant had a turnover of over 4.5 billion and pleaded guilty to three offences. Although this sentence was passed under the old sentencing regime, the Court of Appeal nonetheless commented that the defendant would have been a "very large organisation" under the Guideline had it applied to this case. The Court of Appeal considered what the sentence might have looked like if the Guideline had been applicable and commented that:
"Since this organisation exceeds the threshold for large organisations by a huge margin, it would indeed be necessary to move well beyond that range to achieve a proportionate sentence".
Undoubtedly there is willingness amongst the judiciary to go beyond the range for large organisations in the Guideline it is not a question of "if" but "when" it will happen in the future. Where an organisation's turnover "very greatly exceeds" the 50 million threshold there remains a real possibility that they might face a fine of well over the highest fine for 2016 of 5 million even with a one third discount for an early guilty plea.
BUCKING THE TREND?
Although there is an undeniable upwards trend, there have also been some surprisingly low fines for larger organisations.
The Co-operative Food Group was sentenced for breaching S3(1) of the Health and Safety at Work at 1974 after a pensioner was hit by a reversing home delivery van on the Bath store's premises. The organisation's accounts are submitted to the Mutuals Public Register and indicate it would have been categorised as a `medium' sized organisation according to the table above with a fine range of 1,000 to 4,000,000. The organisation was fined 20,000 for the incident by magistrates (who have unlimited sentencing power for health and safety offences). This was heavily criticised by commentators, including the HSE, who suggested that:
"given a failure to segregate pedestrians and workplace vehicles is a well-known problem....it is difficult to see how the magistrate arrived at a fine of just 20,000."
This decision appears to be quite exceptional and should be treated with caution. The sentencing remarks have not been published and it is not clear what mitigating factors the magistrates took into account.
These cases highlight the need to actively engage with the sentencing process and to assist the Judge as much as possible with his/her ability to sentence in a proportionate way.
FINANCIAL MEANS BEYOND TURNOVER
Whilst it is tempting to focus solely on an organisation's turnover as an indication of financial means, turnover is far from the whole picture and the Guideline encourages Judges to look at an organisation's full accounts for the preceding three years.
A clear and established principle under the Guideline is that a fine should have real economic impact for both shareholders and management. From our experience in this area Judges are actively analysing defendant organisation's accounts to ensure they fully understand what means are available (including, specifically, director remuneration) so as to ensure this requirement is fulfilled.
Large organisations celebrating success or financial security in their annual accounts or shareholder briefings, or attracting headlines reporting significant remuneration for senior board members, should be aware that such statements are unlikely to be ignored by a sentencing Judge.
FINANCIAL MEANS BEYOND THE OFFENDER
2016 has also seen clear examples of Judges exercising their discretion to look beyond simply the financial resources of the particular defendant organisation but to linked organisations, particularly group companies. For instance, when sentencing Tesco Maintenance Ltd (a subsidiary of Tesco plc) His Honour Judge Everett, emphasised that as Tesco Maintenance Ltd was a subsidiary of Tesco plc and did not carry out work for any other clients, the two entities were effectively the same organisation, so he was entitled to sentence on the basis of the turnover of Tesco plc (39.8 billion) rather than the much smaller turnover of Tesco Maintenance Ltd (166 million).
In another example, Balfour Beatty Utility Solutions Ltd (a subsidiary of the Balfour Beatty Group) was unable to provide specific accounts for the defendant subsidiary company, as all of the subsidiaries' accounts were subsumed within Balfour Beatty Group accounts. His Honour Judge Brown decided that as the defendant company was unable to differentiate its figures, he would use the group's results to assess the starting point for the fine.
Despite predictions 2016 saw no appeals of sentences imposed under the Guideline. This may well reflect the fact that we have not yet seen any manifestly excessive fines giving rise to strong grounds for appeal. It may also reflect the phenomenon of "litigation fatigue" that often follows cases of this nature, and the uncertainty and cost implications of an appeal. Many responsible large organisations instead, focus their attention on implementing structural change or refreshing their management of risk.
We understand that there is at least one appeal in the pipeline for 2017 but it is yet to be heard and reported.
PROTECTING YOUR ORGANISATION
An organisation cannot change its turnover from previous years, but it can take measures to proactively ensure it has robust and effective health and safety policies and procedures that its workers comply with. The importance of having a robust mitigation cannot be underestimated and this requires organisations to get their houses in order now, to reduce the commercial risk they may face from a large fine, should they find themselves facing prosecution in the future.