20 May 2014 / by Regulatory/ in
The Only Way is Up
In-court Analysis: The Court of Appeal
It is common practice for large profitable companies convicted of health and safety or environmental offences not to provide the court with financial information. Instead the judge is told the defendant can pay any reasonable fine.
This approach was acknowledged by the Court of Appeal in R v Transco plc  EWCA Crim 838: “A court imposing a fine will always wish to have some information in relation to the means of the offender. We hesitate, however, to endorse the proposition that… it is necessary for the court to have detailed particulars of the financial position of a company where those acting for the company make it plain to the court that the means of the company are very substantial.”
A company’s accounts are usually only scrutinised when a reduction of fine is sought due to financial circumstances. However, the Court of Appeal judgment in R v Sellafield Ltd; R v Network Rail Infrastructure Limited  EWCA Crim 49 heralds a climate change and signals that future fines are set to rise. Referring to section 164 of the Criminal Justice Act, it said a sentencing court must consider not only the seriousness of an offence but also the offender’s financial circumstances. This may result in the fine being increased or decreased.
It also observed that where a defendant company’s turnover is in excess of £1bn it will always be necessary “to examine with great care and in some detail the structure of the company, its turnover and profitability as well as the remuneration of the directors.” Neither Sellafield nor Network Rail was successful in their respective appeals against a sentence and both had pleaded guilty at the earliest opportunity. Neither had provided financial information to the sentencing crown court, but for the appeals their accounts were called for.
Sellafield admitted seven environmental breaches to adequately set up, test and monitor equipment used to identify and segregate radioactive from non-radioactive waste. The sentencing judge found that the management failures were not confined to specific individuals or failures at certain levels to follow established procedures. He said they demonstrated “a custom within the company which was too lax and… to a degree complacent”.
There was no actual harm caused by the failures though there was a very small risk of some harm. The Court of Appeal concluded that Sellafield’s culpability was medium. It upheld a fine of £700,000 on the nuclear waste management company, which has a turnover of £1.6bn.
Network Rail admitted breaching section 3(1) of the Health and Safety at Work etc Act 1974 following an accident at an unmanned level crossing where a child was seriously injured. In particular that it failed to carry out a proper risk assessment of the level crossing. Network Rail, a not for-dividend company with a turnover of £6.2bn, was fined £500,000. The company’s argument that this level of fine was only appropriate where there had been a fatality was rejected.
The schedule of mitigating and aggravating features agreed between the prosecution and defence was not accepted in full by the sentencing judge: he was more critical of Network Rail. The Court of Appeal said that much greater harm was foreseeable than actually occurred. It found that while there was no evidence of specific senior management failures, there were serious and persistent failures at lower operational levels.
Executive directors, it noted, were paid between £577,000 and £348,000 plus performance-related bonuses. While acknowledging bonuses had been slightly reduced, the Court of Appeal said there should have been “very significant reductions”. It said the prospect of a significant reduction of a bonus will incentivise directors to pay the highest attention to health and safety.
The advantage of an early guilty plea is that it can merit up to a third discount upon the fine.
The question is the starting point for that fine.
Judges tend to more readily accept the prosecution’s interpretation of evidence and submissions on the seriousness of the offence. The Sellafield case is likely to result in more Newton hearings, where evidence is called to assist the judge in determining the level of guilt. There may also be an increase in contested cases because companies take the view that even if convicted, the judge will have gained a better understanding through the trial which overall will benefit the company in the sentencing process.
Originally published in the February 2014 edition of SHP magazine – http://www.shponline.co.uk/