Boardroom bliss?
New Law Journal, 16 April 2010 (Issue: Vol 160, Issue 7413)
Authors: Paul Brehony & Iain Daniels
The Sentencing Guidelines Council (SGC) issued "definitive guidelines" in relation to corporate manslaughter and health and safety offences causing death on 9 February 2010. Every court must consider these when sentencing organisations on or after 15 February 2010, irrespective of whether the relevant prosecution was commenced before this date.
The Sentencing Guidelines Council (SGC) issued "definitive guidelines" in relation to corporate manslaughter and health and safety offences causing death on 9 February 2010. Every court must consider these when sentencing organisations on or after 15 February 2010, irrespective of whether the relevant prosecution was commenced before this date.
Ever since the publication of the draft Corporate Manslaughter Bill, an increasingly heated debate has raged between interested lobbying groups concerning the formulation of financial penalties to be levied against an organisation on conviction, specifically whether fines should be calculated by reference to that organisation's turnover.
The genesis of the issues
In 2008 the Sentencing Advisory Panel (SAP) first proposed that the courts, when fining organisations for either corporate manslaughter or fatal health and safety failings under the Health and Safety at Work Act 1974 (HSWA 1974), should fix fines by reference to a percentage of the average turnover of the convicted organisation. The envisaged structure for penalties was based loosely on those of the Office of Fair Trading under the Competition Act 1998 -- which caters for fines of up to 10% of worldwide turnover of large organisations. For organisations convicted of corporate manslaughter, the SAP proposed fines in the range of 1% to 10% of turnover, with the exact percentage applied depending on the extent of the organisation's culpability and other additional aggravating circumstances. The SAP's original consultation paper stated that "fines have been criticised as being too low in relation to the harm and culpability concerned".
Perhaps predictably, this proposed methodology proved extremely unpopular with Britain's corporate community, as was reflected in Janet Asherson's response on behalf of the Confederation of British Industry (CBI) (in her capacity as head of health & safety). As Ms Asherson put it: "..... the introduction of a tariff-based system of penalties based on turnover would be without precedent, would produce disproportionately high fines in the case of large companies and, given that the UK is just about the safest place to work in Europe, would be completely unnecessary."
As the CBI pointed out, the largest fine ever imposed for health & safety offences is £15m. Employing the envisaged turnover related formula for the larger UK based multi-nationals; the court would be obliged to consider sentencing potentially in a range of £3bn-£22.5bn. Again, as Ms Asherson put it: "...we can find no justification for imposing a fine which is potentially 1,000 times greater than the largest fine ever imposed to date. Fines at such levels are manifestly excessive, unjust and oppressive."
As was foreshadowed by the SGC's preliminary consultation guidelines published in October last year, the Definitive Guidelines comes down firmly in favour of a non-turnover formula, as advocated by the CBI.
The reasons the SGC gave for its volte face were that this formula could risk an unfair outcome with fines varying wildly for essentially the same offence; that it was particularly difficult to apply to public and third sector bodies; and may result in corporate re-organisations designed avoid the impact of any fine. The SGC gave no further reasons for rejecting the SAP's proposals. Given that the SGC originally championed a turnover based approach in order to achieve "an even handed impact across organisations of varying sizes", subsequent concerns over varying levels of fines are difficult to fathom.
It remains to be seen what the Health and Safety community and victim support organisations, such as Families Against Corporate Killings (FACK), will make of what is a potentially significant dilution of the legislation as a deterrent. On the other hand employers and particular the construction industry, where much of the work is done by small contractors have expressed some dismay as to the apparent fixed rate of minimum sentences. The proof will be in the eating. With the Cotswold Geotechnical trial imminent, we may have an early precedent.
The nuts & bolts of the Definitive Guidance
The Definitive Guidance create a structure designed to assist the sentencing court without overly fettering its discretion. It creates a framework enabling the court to assess the seriousness of the offence (eg taking account of the foreseeability of serious injury, how far short of acceptable standards the organisation fell, the failure to heed warnings or advice and the impact of cost cutting). Thereafter it creates a non-exhaustive formula intended to a afford mitigation, eg responsible attitude to health & safety, such as the commissioning of expert advice or the consultation of employees or others affected.
It builds in a requirement to take account of the defendant's financial circumstances (specifically the preceding three years published audited accounts and requires particular attention to be paid to (a) turnover, (b) profit before tax, (c) directions remuneration). As discussed above, it concludes that similar offences committed by companies of significantly different size, ought not to attract fines which are vastly different. The report goes on to state that fines cannot and do not attempt to value human life in money. This does, however, beg a question as why an organisation can be penalised much more punitively for an incident of anti-competitive behaviour rather than in relation to an incident involving one or potentially many fatalities.
Boardroom bliss?
The Definitive Guidance is, however, far from a total write-off from a punitive perspective. As the guidance states: "Given the seriousness of a corporate manslaughter conviction (which does, after all, require a 'gross breach' at a senior management level) the guidance states that an appropriate fine will seldom be less than £500,000 and may be measured in millions of pounds."
In respect of offences under HSWA 1974 similar guidance is given with the starting figure being £100,000.
The guidance expressly states that the effect on shareholders (and directors) will not normally be relevant as "those who invest and finance a company take the risk that its management will result in financial loss". Any potential price increases occasioned by a fine are also normally irrelevant.
The Definitive Guidance retain and ring-fence the court's discretion when it comes to sentencing. Plainly a view has been taken that, given the acute fact sensitivity of cases of this type; the court is best placed to formulate a fine befitting the conduct of the convicted defendant organisation.
Sting in the tail
A further sting in the tail for those convicted of corporate manslaughter is the provision of publicity orders which require a defendant to publish the fact of the conviction, the particulars of the offence, the level of the fine and any remedial order.
The guidance foresees that a defendant may well be required to publish these details on its website, however where the media profile of the case is deemed not to be sufficient a newspaper advert may be required, with the size and particular newspaper being ordered by the sentencing court.
All this is of course being applied retrospectively, so any case sentenced after 15 February will be considered in light of the new guidance whenever the death occurred which may lead those who have entered prompt guilty pleas regret that decision.
Discussion
However, as any lawyer who has had any sort of conversation with boardroom members in relation to corporate manslaughter will confirm, it was the potentially cataclysmic fines, referable to turnover, which caused most concern in the boardrooms of larger, multinational organisations.
While the risk of significant fines remains, the "Armageddon factor" which was always going to be the key driver in changing boardroom attitudes towards health & safety, has plainly been diluted. The levels of fines remain potentially fatal to SMEs and small businesses with serious consequences for their staff.
The same can no longer be said of larger companies. This represents a potential shift in inequality in the sentencing process back to small businesses and those that they employ, particularly in cases under HSWA 1974 where the business faces the significant disadvantage of a reverse burden of proof.
Here the SGC finds itself effectively between a rock and a hard place, unable to provide guidance which is fair to all potential defendants and which satisfies the need for proper criminal accountability where there are work related deaths. This may in essence be the problem with any formulaic guidelines in the context of the sentencing of offences which often arise in unique circumstances and involve a wide variety of potential defendants.
The key to the success of these guidelines is how ready sentencing courts will be to see them simply as guidance and not, where the offences or the offenders require something different, slavish adhere to them. In this context it is of note that the Centre for Corporate Accountability has established that, historically, fines for larger corporates in these circumstances were on average less than 1/700 of their turnover. Can this really be fair?
Paul Brehony, partner, commercial litigation department, Stewarts Law LLP. E-mail: pbrehony@stewartslaw.com.
Iain Daniels, Ely Place Chambers. E-mail: idaniels@elyplace.com.
For background to this subject please see the authors' previous article in 159 NLJ 7353, pp 88-89