Viewpoint – Coining it

As the HSE settles down to review responses to the recent consultation on how it plans to recover costs for its interventions, Paul Verrico and Andrew Bennett explain why they think the new scheme will be far from straightforward and could lead to a serious breakdown in the relationship between the regulator and duty-holders.

It is widely acknowledged in health and safety circles that the HSE has been one of the biggest casualties of the Government’s public-spending review. The next stage in the review is to change policy to allow the HSE to recover costs for all enforcement action taken in respect of “material breaches” by duty-holders.¹ This opens the door for the HSE to charge for the cost of anything from a letter of advice to complying with a Prohibition Notice.

The HSE proposes to charge a blended rate of £133 for work related to enforcement action; best estimates state it anticipates a letter of advice to cost an average of £750 and a Prohibition Notice, £1500. It is not clear if VAT would be charged on top; in three recent prosecutions in the Crown Court in which the authors were involved, the prosecution suggested that, owing to a change in government policy, HSE, prosecution and counsel costs should all have VAT added to base costs.

Eversheds recently canvassed the views of its clients in preparation for our own formal response to the proposals. We drew on the experience of big-name organisations from the manufacturing, local government, mining, logistics, education and service sectors.

In broad terms, our clients appreciated the need for some level of recovery of costs by the HSE. However, the main fear was that a lack of transparency and consistency in how the proposals are rolled out could lead to the system becoming viewed as something akin to “fines without convictions” and a culture of suspicion and mistrust developing towards the HSE.

The point was quite validly raised that when the Police first started using speed cameras on UK roads more than a decade ago, the number of offenders rose disproportionately, as some forces allegedly used the cameras as an extra revenue stream.

The current system – all straightforward?
R v Associated Octel Limited (Costs) sets out the principle that the HSE can claim back “just and reasonable” costs against a defendant in the event of a conviction. Since Octel, the HSE has sought to achieve costs recovery over an ever-changing landscape. Courts are often presented with lengthy costs schedules for complex and time-consuming investigations involving multi-faceted organisations. On many occasions, the HSE costs awarded by the courts have dwarfed the size of the fine awarded to a guilty organisation.² In short, achieving the standard of “just and reasonable” for HSE prosecution costs has not been straightforward.

The next step – a straightforward extension?
If “just and reasonable” has been hard to achieve simply for prosecutions, there is every reason to believe that there will be similar problems if costs recovery is extended. In particular, three things make consistent application of the proposed extension of costs recovery anything but straightforward:

1    The complex landscape of HSE enforcement action
In the current proposals, the HSE states that it will only seek to recover its costs for ‘material breaches’, and not for technical breaches of health and safety law. So, the scope of what is being recovered has moved from what was originally envisaged in the Government review, i.e. ‘serious material breaches’ to ‘material breaches’.

The example given for a technical breach that would not attract recovery of costs is of a failure to display a guidance poster. We observe that there are a lot of breaches that fall somewhere above this example but below a breach necessitating prosecution action. Our clients fear that the HSE will be keen to find breaches and term them as ‘material’ in order to claim costs. One client remarked that he could envisage an inspector becoming increasingly frantic three or four hours into an inspection if no ‘material breaches’ had been found, and thus may move from traditional safety issues to more esoteric areas, such as asking for stress risk assessments (an area in which, it is commonly accepted, many organisations are weak, and where enforcement is equally feeble).

2    The diversity of health and safety duty-holders
The HSE regulates an incredibly wide and diverse range of industries and organisations. Some organisations produce large profits whereas others are much less financially successful. There will be differences in the complexities of the organisations that the HSE inspects, and in the level of risk that is associated with each organisation. While the guideline enforcement charges may be relatively insignificant for a large company with a multi-million-pound turnover, to a small company these figures may be disproportionately excessive.

In a large-scale investigation, involving many interviews, the hourly rate will be something that companies will not be able to budget for, given the unpredictability and complexity involved. We have been involved in two cases this year, one involving a fatality and the other a serious personal injury, in which the HSE decided not to prosecute, although it did send letters to our clients warning them of improvements that it expected to be made. The HSE’s costs in investigating each case probably ran to £50,000 – in a brave new world, would our clients be expected to pay those costs where breaches of legislation have been found but the HSE is not sure a jury would convict?

In our opinion, the uniform hourly rate of £133 intended to be applied to all enforcement action is arbitrary. Moreover, set against the rate that an expert HSE inspector charges under the COMAH Regulations (£156), we say the figure is too high. As part of our preparation for this article, we considered HSE prosecution schedules for the last 10 HSE cases that we have defended. Our research revealed that many HSE inspectors working on a prosecution case charge £66, with Principal Inspectors charged out at £80 an hour on costs schedules presented to court.

We therefore have to ask on what basis has the figure of £133 been calculated for all other types of HSE enforcement action? Is it really that expensive to have administrators draft a bill and chase payment?

3    The temptation to inspect to enforce to recover…
The HSE admits that the proposals may give rise to a temptation to take enforcement action. The regulator’s reassurance against this in the impact assessment is that: “Special attention will be paid to performance management and assurance programmes to ensure decision-making is in line with the Enforcement Management Model and the principles of the Enforcement Policy Statement.”

With respect, in our experience, HSE inspectors do not uniformly apply the Enforcement Management Model. We have clients who operate in certain postcodes who feel persecuted by their local officer. Those clients are told that if they have a problem with enforcement they should complain to the Principal Inspector. Those same clients, now a little paranoid, dare not make a formal complaint for fear that regulatory scrutiny will increase.

With a varied workforce of inspectors, some more experienced than others, the HSE has a difficult job in monitoring how the extension of costs recovery is affecting the amount and consistency of enforcement action. Also, experienced inspectors will, naturally, take less time than an inexperienced inspector. Under the costs proposals, this disparity in time will have direct financial consequences for an organisation.

In Scotland, in contrast to the position in England and Wales, there is currently no system in place for recovery of any HSE costs. Introducing the costs-recovery proposals to Scotland would inevitably lead to a disparity, whereby costs could be recovered for enforcement action falling short of prosecution, but not for prosecutions themselves. Clients with interests north of the border are understandably concerned that this disparity may create a situation in which the HSE writes more letters of advice, or issues enforcement notices instead of taking prosecutions simply because they can recover their costs associated with the former but not the latter.

Conclusion
The costs-recovery proposals need to be accompanied by extensive training for inspectors, a proper ‘roll-out’ period, and a clear monitoring process by the HSE to ensure that recovery of costs does not drive future health and safety enforcement. The current hourly rate for inspection needs to be removed and replaced by something that can be adapted to the individual circumstances of each organisation.

However, even with these changes, the proposals would still be far from straightforward. It is hard to believe that the proposals will not lead to more administration for organisations, as well as for the HSE, as it seeks to justify reasons behind enforcement action, and defend the inevitable appeals that will be submitted against recovery-of-costs orders. Under the proposals, the HSE would be judge and jury of its own charges at any appeal.

Perhaps the greatest worry is that the introduction of recovery of costs may increase suspicion of the HSE by organisations and an increasingly polarised “us and them” relationship between the HSE and the organisations they inspect. Re-establishing mutual trust and respect, once broken, is never straightforward and that, in itself, is a reason for the HSE to do everything it can to listen to and act on the concerns of all those who responded to the three-month consultation on the proposals.

References
1    ‘HSE consults on cost recovery from non-compliant businesses’ – in SHP September 2011, News – www.shponline.co.uk/news-content/full/hse-consults-on-cost-recovery-from-non-compliant-businesses
2    See, for instance: www.shponline.co.uk/incourt-content/full/worker-seriously-injured-by-falling-object-from-unstable-stack and www.shponline.co.uk/incourt/content/full/global-brewing-company-fined-twice-in-one-day

Paul Verrico is an associate and Andrew Bennett a solicitor in the Eversheds’ Health and Safety Team

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