Does the decision in Lion Steel change directors duties in the Healthcare sector for health and safety?
Lion Steel Equipment Limited (“Lion Steel”) recently became only the third company in the UK to be convicted of corporate manslaughter. It is the largest of the three organisations so far convicted of the offence (it has over 140 employees and a turnover of £10 million) but is still nothing like the size of organisation that were the real targets of the changes in the law four years ago, and a large organisation such as those which typify the health sector is still yet to be prosecuted. However, large organisations continue to be investigated for corporate manslaughter and the Lion Steel case almost certainly needs to be considered by senior managers and directors as decisions are made.
The Lion Steel case was unusual in that the company admitted the offence of corporate manslaughter part way through a separate health and safety trial, seemingly in a ‘plea bargain’ that all charges against its directors were dropped. A further charge of failing to ensure the safety of employees under the Health and Safety at Work etc Act 1974 (“HSWA”) will lie on file. Many industry commentators have questioned the logic behind the company pleading to the offence at that stage. In this article we look at director duties and whether a larger entity such as those with national operations could find itself in a similar situation to that faced by Lion Steel. Eversheds did not act for any of the parties involved but did maintain a presence at Court.
Timeline of the legal process
On 6 April 2008, the Corporate Manslaughter and Corporate Homicide Act 2007 came into effect.
On 29 May 2008, a Lion Steel employee fell through a skylight at the company’s premises in Greater Manchester and tragically died from his injuries.
On 1 July 2011, a reviewing lawyer in the CPS’ Special Crime and Counter Terrorism Unit announced that the company would be charged with Corporate Manslaughter and 3 directors would be charged with Gross Negligence Manslaughter. Further charges of a breach of Section 2 of the HSWA (duty to employees) and of a contravention of the Work at Height Regulations were also alleged against the company and of neglect under Section 37 HSWA against the directors. Section 37 is a gateway offence which allows directors and senior managers to be charged with the same offence as the corporate entity as a result of their consent, connivance or neglect.
On 4 May 2012, following legal argument, the corporate manslaughter charge was severed to be heard at a later date after a trial of the other charges. The Work at Height Regulations charge was stayed.
On 12 June 2012, the 3 directors stood trial for manslaughter and the company faced the section 2 HSWA charge.
On 2 July 2012, it was ruled that there was no case to answer in respect of the manslaughter charges against 2 of the 3 directors. Shortly thereafter, Lion Steel pleaded guilty to the Corporate Manslaughter charge even though this was not before the court at the time and the prosecution offered no evidence against the directors on the remaining counts. Not guilty verdicts were entered against the directors on all counts.
On 20 July 2012 Lion Steel was fined £480,000.
Why the sudden guilty plea to the more serious offence of corporate manslaughter?
As the timeline indicates, the directors had faced a 4 year wait for their ‘day in court’ after being charged with the most serious common law offence possible for a director acting in the course of their duties. The possible punishments include life in prison for manslaughter or up to 2 years imprisonment for the S37 breach. A conviction for either offence also could have resulted in disqualification as a director for up to 15 years.
The pressure that the individuals were under as a result of these criminal charges may have encouraged them to sacrifice the company to preserve their liberty. A four year wait, while not unusual in a manslaughter case, does cause enormous tensions. In these circumstances it is not difficult to imagine why, although each was separately represented, the directors instructed the company’s lawyers to plead to corporate manslaughter.
The increasing trend in England and Wales is towards directors finding themselves in the dock as co-defendants to the company, as evidenced in both the Lion Steel prosecution, the earlier Cotswold Geotechnical prosecution and the Atherstone fire-fighters case. This trend seems unlikely to change.
Lion Steel fabricates and manufactures steel cabinets and shelving systems. The company operates from two sites; one in Chester, the other in Hyde and has been trading since 1981. Organisationally, one director had overall responsibility for operations at Hyde whilst another director had the same responsibility for Chester. The third director charged was the Finance Director.
On 29 May 2008, a company maintenance worker went on to the roof at the Hyde location in order to find and inspect a leak which allowed water ingress into the factory below. Quite what happened next is unclear, but he fell 13 metres through a fragile roof panel and suffered fatal injuries. The Prosecution alleged that the deceased had not received proper training to work on the roof, that there was no risk assessment or safe system of work for undertaking work at height at the Hyde site and that supervision was inadequate. In addition, a HSE inspector had warned company management in 2006 that warning notices should be erected to keep people away from fragile roofs. More robust risk assessment processes were in place at Chester compared to Hyde.
The trial of the directors mainly focused on directors’ duties and the duty of care they owed employees for their safety. It seems to us to follow that if the directors had all been found ‘not guilty’ of manslaughter as individuals, then the corporate manslaughter case against the company would have failed, there being no ‘gross senior management failures.’
Directors’ Duties according to the Prosecution
The Prosecution’s case was that each individual director owed the deceased a duty of care, the duty of care had been breached and that the breach of duty which caused the employees death was sufficiently serious to constitute a criminal act. This follows the standard formula for the common law offence of gross negligence manslaughter. The judge commented that prosecuting authorities in cases of gross negligence manslaughter alleged against individuals would be ‘well advised to grapple with the height of the bar set’ in previous cases.
The Prosecution sought to establish a duty of care by virtue of the managerial positions held by each director and relied on information from various surveys and email trails carried out by the company’s insurers and auditors to establish that the directors (and therefore the company) had knowledge that safety procedures and precautions were not as they should be. It was argued that each director personally owed every employee of the company a duty to take care of their safety regardless of the relationship between director and employee, or whether the director had any local management responsibility for the work that the employee undertook. If this proposition is correct, the overall obligations of directors in the UK would have been considerably broadened far wider than those envisaged, even in HSE guidance such as INDG417. Of course, manslaughter is prosecuted by the CPS rather than the HSE.
The Judge’s ruling on directors’ duty of care
The Judge stated that while it is one thing to consider whether an employer is in breach of its statutory duty through vicarious liability, it is another matter entirely to consider if the tragic death of an employee had been caused by the gross negligence of a director. The office of director does not of itself create a duty of care to every employee. There must be a greater nexus. The evidence must be considered against each director individually. This is an important point to avoid ‘carte blanche’ responsibility for every individual in a company who takes a directorship, whether that be in title or legal office. The health sector abounds with titled directors in both the public and private sectors.
When considering whether a director owed a personal duty of care, the court found that the fundamental question is the measure of control and responsibility exercised by the director over the task being undertaken and the systems of work in operation. Click here to follow the HSE’s own enforcement policy. An individual can only be guilty of gross negligence manslaughter for an omission if he was under a duty to act.
Having considered the evidence which had been put before the jury, the Judge in Lion Steel ruled that the Prosecution had failed to adduce sufficient evidence upon which a properly directed jury could convict the director responsible for Chester and the Finance Director of manslaughter.
The Judge found that there was no evidence that the director responsible for Chester owed the deceased a duty of care or that he had any control over work undertaken on the roof at Hyde. Whilst an inference could be drawn that the Finance Director owed the deceased a duty of care, there was no evidence that there had been a breach of that duty, nor that any such breach was gross.
The level of fine imposed by the court, £480,000 plus £84,000 Prosecution costs payable over three years is consistent with published sentencing guidelines, given a guilty plea would normally attract a reduction in sentence of up to 33% (and 20% was ordered in the case). The extended period for payment of the fine and costs reflects submissions made regarding the company’s ability to pay such a significant sum immediately without prejudicing the employment of current employees. The costs awarded were reduced by a factor of 50% due to the delay in bringing the prosecution. Most organisations would be pleased to see greater speed of enforcement action particularly when insurance reserves have to be calculated and held over. The judge ruled that a delay of three years to bring charges when individuals face potential prison was unreasonable.
What does this mean for the future?
This case has demonstrated the extent to which the CPS/ HSE are prepared, and willing, to bring charges against individual directors which more often than not will put pressure on the corporate entity to plead guilty. It is interesting that from an early stage in the case the Judge suggested that the Prosecution may be aiming too high with the case that they had brought, in particular against the individual directors. This did not deter the CPS from pursuing the matter to trial. This is, unfortunately, not new and follows a pattern set in prosecutions following the sinking of the Herald of Free Enterprise and Hatfield. No individual was convicted in either of those cases either. Many of the fatalities in our industry, whether in care homes or hospitals, also include an element of individual scrutiny.
With regard to what the CPS/HSE must now look at when deciding whether or not to prosecute a director, it is clear that they will consider whether the matter was in the effective control of that person. This approach means that we are unlikely to see a main Executive director being prosecuted for manslaughter. Conversely it follows that the more actively involved in an operational context a senior manager is, the more likely they are to be prosecuted. This could include consultants as well as line managers and could extend to treatment decisions.
In this case, the prosecution of the company alongside its three directors will inevitably have caused tension and potentially a conflict of interest; we can only speculate as to whether there was any breach of fiduciary duties under Companies Act legislation. It is likely that where a director is being prosecuted for manslaughter (which carries a potential sentence of life imprisonment), their instructions and evidence will be different from that of the company. It is unclear if the intention behind prosecuting the directors of Lion Steel was to put pressure on the company to plead guilty and whether this will be a tactic that the Prosecution will use in future cases.
What does all of this mean for me going forward?
The Prosecution did not call any Lion Steel employees to give evidence at the trial and mainly relied on correspondence and other documents passing between the company’s insurance broker, insurer and external health and safety consultant, dating back to 2002, to prove their case and establish the role each director played in safety at the Hyde site. This really emphasises the need for senior managers to have regard to paper trails and to act promptly and appropriately when matters are brought to their attention. In our experience, organisations typically have poor ‘corporate memory’ and often lose sight of important matters 2 or 3 years after an incident. Lion Steel reminds the reader that this is not good practice and senior management really need to pay attention to insurer reports, external consultant advice and any previous correspondence with a regulator. Lion Steel had no previous record of any HSE enforcement action but this clean record did not save them from prosecution. In the Health sector, many organisations have fallen foul of a regulator at one stage or another.
The debate on directors duties emphasises the need to delineate roles and responsibilities clearly. In this context, we believe that job descriptions, organisation charts and budgetary authority are all significant factors in determining potential personal exposure to liability.
In addition, the problem of different standards of safety being implemented at two sites was a real weakness in Lion Steel’s defence. It is not at all unusual for larger organisations to be in such a predicament, where an operations director at one location is more ‘tuned in’ to health and safety than his or her counterpart at a different site. As Lion Steel indicates, such a situation may have serious consequences for both the individual and the corporate entity. In this context, healthcare clients are well advised to continue to maintain a full audit programme across each department, function and site to ensure that poor performance is picked up and the individual units meets group standards particularly where care operations are cross site. Senior post holders should be reminded that their ensuring group systems are properly implemented may ultimately prove to be their ‘get out of jail free’ card.
When senior individuals face imprisonment, fiduciary duties must still be complied with. Crisis management plans in large organisations should consider the potential for conflict and ensure that whoever is instructing lawyers acting for the organisation are not personally suspected of committing an offence and that the interests of the directors are not placed above those of the organisation.