The Court of Appeal has signalled a much tougher regime for the sentencing of companies convicted of health and safety and environmental offences.

There is likely to be a much more forensic examination of a company’s ability to pay based on the financial information which will be required to be provided to the Court and the prosecuting authority.

The case was R v Sellafield Ltd; R v Network Rail Infrastructure Ltd [2014] EWCA Crim 49. Judgment was given on 17 January 2014.

Background

Sellafield Ltd

Following the entering of guilty pleas in the Magistrates’ Court to seven environmental offences in relation to the management and disposal of radioactive waste (and thereby ensuring full credit for a guilty plea) Sellafield Ltd was committed to Carlisle Crown Court for sentence. The sentencing Judge, having accepted that the seriousness of these failures amounted to medium culpability, that no actual harm had been caused and that the risk of harm was very low, fined the company  £700,000.

Sellafield’s annual turnover was £1.6 billon (approximately £30.7 million a week) and annual profit £29 million (£560,000 per week). The Court made the point that the fine imposed equated to 2.3% of the company’s weekly income.

Network Rail

Likewise, Network Rail entered a guilty plea in the Magistrates’ Court to a single health and safety offence for failings at an unmanned level crossing which led to a serious but non-fatal accident involving a ten year old boy. The Company was committed to Ipswich Crown Court where the sentencing judge found that the actual harm was serious, even greater harm was foreseeable and the risk had existed and been obvious for many years. The Company was fined £500,000.

Network Rail’s annual turnover was £6.2 billion with an annual profit of £780 million, all of which was reinvested into the rail network as there were no shareholders in the Company.

Both companies appealed, arguing that that the starting point for sentencing was too high. In relation to Network Rail it was submitted that a starting point of £750,000 was only appropriate where there was more than one fatality (or some significant aggravating factor), or in cases involving a public disaster and where the Defendant had been convicted of corporate manslaughter.

The Court of Appeal’s approach to the sentencing process

The Court began with the fundamental principles of sentencing as set out in the Criminal Justice Act 2003, primarily:

  1. the seriousness of the offence, the culpability of the offender and the harm caused or which might foreseeably have been caused; and
  2. the financial circumstances of the offender (whether to increase or decrease the fine).

Having considered and determined (1) above in relation to each defendant, the Court explicitly made a number of points of principle relevant to cases of this nature:

  • it will always be necessary in the case of larger companies to examine with great care and in some detail the structure of the company, its turnover and profitability as well as the remuneration of Directors;
  • it is not appropriate to consider a fine of £1 million as apposite only to a major disaster;
  • there is no ceiling on the penalty that can be imposed. Fines should reflect a business’s ability to pay and be large enough to deliver a message to whoever can  influence management behaviour, be that shareholders, Directors or the remuneration committee.

Applying those principles to the two cases it was considered that the fine of £700,000 on Sellafield was entirely appropriate. The penalty on Network Rail was considered to be on the low side. Were it not for the fact that the profit generated by NR was reinvested for the public benefit any fine was likely to be considerably higher.

And in the same vein… Within a week the Court of Appeal reinforced this approach in the case of R v Southern Water Services Limited. The Defendant appealed against a fine of £200,000 where there had been no actual harm caused by discharge of raw sewage over a 6 month period when it failed to repair pumps. The Court of Appeal dismissed the Appeal.The Court noted the absence of an explanation by the Defendant of steps taken to prevent the risk of harm and observed there would have been no basis for interfering with the fine even if the lower court had imposed a substantially higher one. This is a clear signal to lower courts to be more robust with large companies.

Practical implications of the judgment

  • It is going to be increasingly difficult to persuade Magistrates’ Courts to accept jurisdiction in cases involving large corporate defendants even where the degree of risk or actual harm is not great.
  • There is likely to be a much more forensic analysis of a company’s finances and ability to pay and indeed the way in which those who manage the company are financially rewarded.
  • The prosecuting authorities are likely to play a more significant role in sentencing.
  • Companies will be required to provide much more by way of financial information to enable the required financial analysis to take place.
  • There is likely to be a significant upward trend in penalties on corporate defendants in health and safety and environmental cases even where the degree of risk or harm is modest. We have already seen further evidence of this in R v Southern Water Services Limited.
  • Such penalties will go hand in hand with the reputational damage that will accompany convictions and the ensuing adverse publicity.