The Corporate Manslaughter and Corporate Homicide Act 2007 (the Act) will be brought into force in early 2008. The Act will make it easier for successful prosecutions to be brought against larger organisations where a management failing has led to a death. This is likely to have an impact on D&O.
The new offence
An organisation will be guilty of corporate manslaughter if the way in which its activities are managed or organised causes a person’s death and amounts to a “gross breach” of a relevant duty of care to the deceased (s1(1)).
To be deemed a gross breach, the organisation’s conduct must “fall far below what could reasonably have been expected of the organisation in the circumstances” (s1(4)(b)). Furthermore, the contribution of senior management must be regarded by the jury as a substantial element in the corporate causation of the breach of duty (s1(3)). A vast range of civil law duties of care are encompassed by the Act, and companies will owe a duty of care in most situations, for example:
- as an employer (to employees and other persons working for the organisation)
- as an occupier of premises and
- when supplying goods or services.
There are no limits on the court’s powers to impose financial penalties where an organisation is found guilty under the Act. Recent multimillion pound health and safety fines have set the benchmark. However, given that this is a statutory homicide offence, it is expected that corporate manslaughter fines will exceed health and safety penalties by a significant margin.
Increased risk for directors and officers
As a result of the Act’s requirement to prove senior management involvement in the breach of duty, there will be a far greater focus than before on the conduct of senior management and whether their acts or omissions contributed to the fatality.
Although s18 of the Act states there is no individual liability for corporate manslaughter, the new law could increase directors and officers’ risk in two main ways.
First, the investigator’s evidential focus on the conduct of senior management could increase the likelihood of parallel health and safety charges being brought against individual directors and managers. Directors convicted of safety offences will be liable to fines and disqualification as company directors.
Second, if companies are found guilty under the Act and substantial fines are imposed then it is possible that companies (or shareholders) will seek to recoup these losses from D&O policies by bringing negligence claims against the senior management that is found in the criminal proceedings to have been at fault.