Rising fines for Health and Safety Breaches?
Sentencing under the Health and Safety Offences, Corporate Manslaughter and Food Safety and Hygiene Offences Definitive Guidelines 2016.
Since the introduction of the Health and Safety Offences, Corporate Manslaughter and Food Safety and Hygiene Offences Definitive Guidelines (“Guidelines”) which came into force on 1 February 2016, we have seen a number of significantly increased fines imposed on Companies for Health and Safety Breaches. In the summer, Merlin, as operators of the “Smiler” ride at Alton Towers, which crashed resulting in serious injury to several individuals, were fined £5 million. The sentence would have been up to £7.5million if the Company had not admitted breaches and pleaded guilty at an early stage. The fine was referenced to the Company’s turnover of around £300million.
The aim of the Guidelines is to bring more consistency to sentencing of Health and Safety offences. Previously, sentencing was fact specific and on a case by case basis, which made predicting the level of fines uncertain and hugely inconsistent. The Guidelines state that a fine “must reflect the seriousness of the offence” and “take into account the financial circumstances of the offender”. Further “the level of fine should reflect the extent to which an offender fell below the standard required…it should not be cheaper to offend than to take the appropriate precautions…”. In conclusion, the Guidelines aim to ensure that “the fine must be sufficiently substantial to have real economic impact which will bring home to both management and shareholders the need to comply with health and safety legislation.”
The Guidelines apply in England and Wales but are being taken into consideration and applied by the Scottish Courts. The Guidelines apply to sentences after 1 February 2016, regardless of the date of the breach or offence. That means that breaches which have been slow to reach trial are still subject to the new Guidelines.
Fines for large companies, as defined, could exceed £10m for serious health and safety breaches or £20m in corporate manslaughter cases. A large company is defined as a company with annual turnover, or equivalent, of over £50 million.
How the Guidelines work
In the event of a guilty plea or where guilt is established at trial, the Court will decide an appropriate sentence by reference to nine specific steps set out in the Guidelines. This framework should ensure a much more consistent approach.
The Guidelines require the Court to assess the seriousness of an offence and the harm or risk of serious harm. Various other aggravating or mitigating factors will determine if a fine will be adjusted up or down from that starting position. An early guilty plea will usually result in a reduction of the fine by one third. This means that proper consideration should be given to an early guilty plea in the appropriate circumstances.
The Guidelines set out a matrix of fines for different types of breach, according to the size of the Company, based on the annual turnover as follows:
- Micro Company– Turnover not more than £2 million
- Small Company– Turnover between £2 and £10 million
- Medium Company– Turnover between £10 and £50 million
- Large Company – Turnover over £50 million
The Guidelines state that for “Very Large Companies”, where turnover greatly exceeds £50 million, “it may be necessary to move outside the suggested range to achieve a proportionate sentence”. When sentencing Merlin, the Court considered their turnover of £300 million within the matrix of a large company rather than a very large company. However, the fine of ConocoPhilips (UK) with a turnover of £4.8 billion was considered within the scope of a very large Company.
Mitigating factors the Court will consider include evidence of voluntary steps taken to remedy a problem and co-operation with the investigation, beyond that which will always be expected. Aggravating factors include previous offences, deliberate concealment of the illegal nature of an activity and whether the offence was committed for financial gain. The Court will always look at the Company’s Health and Safety record and procedures and Companies must be prepared for such scrutiny.
Not only do the Guidelines give power to fine an organisation but individual company directors found guilty of “consent, connivance or neglect” in relation to an offence could face a prison sentence of up to two years.
It was anticipated that the Guidelines would result in a significant increase in the level of all fines. In reality, what we have seen is that large companies are receiving significantly increased fines but micro and smaller companies are receiving more modest fines in relation to the severity of the offence. This can be seen by the examples of fines in 2016.
Sentences since February 2016
In February 2016, ConocoPhillips (UK) Limited were the first “very large organisation” to be convicted and sentenced using the new Guidelines. The Company, which has a turnover of £4.8 billion, pleaded guilty to three breaches of health and safety regulations relating to a series of uncontrolled and unexpected gas releases at one of its offshore installations. There was no actual harm but the Judge concluded that the risk of death or serious injury would have been extremely high had there been a gas ignition.
Although the Company had procedures and safeguards in place, the Judge noted a failure to properly identify and control risks. In mitigation, the Company pointed to its high level of cooperation with the HSE as well as significant investment in new systems designed to prevent recurrence.
The fine imposed by the court was £3 million, equating to £1 million for each offence. This is a sizeable fine for a breach where no actual injury or harm resulted. It demonstrates the willingness of the Court to impose significant fines where the risk of serious harm is considered high.
In contrast, Monovon Construction Ltd was fined £550,000 for the death of two pedestrians when they fell on hoarding that was insufficiently secured on a building site. Monovon was the first organisation sentenced for a corporate manslaughter offence under the new Guidelines as a micro-company (annual turnover of less than £2million). The Company pleaded guilty to two counts of corporate manslaughter and were fined £250,000 for each death. There was a further fine of £50,000 for a beach of the Health and Safety at Work Act 1974. This is a much lower fine for a fatality which would be classed as high harm and culpability. It demonstrates that a Company’s turnover can act to reduce what could be a more significant fine.
Watling Tyre Service Limited of Kent, a Company with an annual turnover of £21-£25 million, were fined £1million as a result of the death of a tyre fitter. The Court found he was not properly trained, defective equipment was being used and risk arose from the inadequate system of training and supervision and an unsafe system of work. The Company appealed the sentence and requested time to pay the fine over two years. The Judge allowed the Company only one extra month to pay the fine on the basis that the Company should have put funds aside to pay the fine. The appeal of the sentence was rejected by the Court of Appeal.
This is an example of the Court imposing strict payment provisions and Companies must do all they can to ensure funds are available for the immediate payment of any fine. The Guidelines give the Court discretion to allow a Company time to pay or an amount to be paid in installments but this provision is not often applied. The Guidelines clearly state that if the effect of a fine is putting an offender out of business, this may be an “acceptable consequence”.
Diverse Ventures Ltd, a Company which fell under the definition of micro-company was fined £45,000 following the death of a worker at a scrapyard in Portsmouth. The fatality occurred when a mooring rope being used to pull a crane snapped causing fatal injuries. In sentencing the Judge said “there were no basic safety measures”. It seems surprising that the fine for the fatality was limited to £45,000. The Judge used as a starting point a fine of £100,000 and reductions were made for the Company’s early guilty plea and other mitigating factors.
Very recently the Company Wilko, a large company with a turnover well in excess of the £50million point, was fined £2.2 million for health and safety breaches when an overloaded roll cage fell on an employee resulting in her paralysis. The prosecution described this as a “high culpability case” as there was no risk assessment for the lift being used or the roll cages. There was also found to be inadequate training and supervision. The Company pleaded guilty to four breaches which significantly reduced the potential fine for the Company which has a turnover of £1.4billion.
The fines above demonstrate that the Courts have a real appetite for imposing their new sentencing powers. The Guidelines give a clearer indication of what a Company can anticipate if pleading guilty or found to be guilty of a breach of Health and Safety legislation, by reference to their turnover. Fines for large and very large Companies are increasing and it is expected that will continue.
Ultimately, a Court will have regard to evidence of suitable and sufficient health and safety systems in place and such evidence may potentially reduce a Company’s sentence, even where those systems have been breached. It is clear that Health and Safety systems must be thorough and well documented to enable a Company to defeat prosecutions in the first instance, or reduce potential fines in the event that guilt is established.
At Sentencing Hearings, Companies are now required to provide Company accounts for the last 3 years to the Court. There is provision for the Court to take into account “linked organisations” where appropriate. This gives discretion to the Court to consider other organisations which may be linked or part of group companies. The Prosecution may try to persuade the Court to consider the accounts of larger parent companies with higher turnovers when the Court is sentencing smaller or less profitable subsidiaries.
If Companies fail to provide relevant financial information, the Court is entitled to infer that the Company can pay any fine. It is therefore very important to supply the relevant documents to ensure the fine is referenced to the Company’s financial performance.
A significant amount of additional work will be required by the Prosecution and Defence to assist the Court in establishing the correct levels of ‘harm’ and ‘culpability’ and it is anticipated that sentencing hearings will be longer and expert evidence may be required. Mitigating and aggravating factors will be strongly argued by both sides and evidence will need to be prepared for the Court.
As identified, the Guidelines require immediate payment of fines and provision must be made in the accounts for swift payment if an extension or requested instalments are denied.