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July 23, 2015

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Sentencing guidelines analysed: Size really does matter



By Kizzy Augustin and Oliver Brooks, Pinsent Masons LLP

From the end of 2015/early 2016, new sentencing guidelines for health and safety offences, including corporate manslaughter, are likely to be in force. The proposed guidelines indicate that there will be a significant increase in the level of fines handed down to corporate offenders. It is presumed that the guidelines will be retrospective in application, meaning they will apply to cases involving incidents that occurred before the date on which the guidelines come into force.

The Proposed Approach

The Sentencing Council have indicated that these guidelines will mirror the environmental guidelines (in force since July 2014) that purport to issue proportionate sentences by linking starting points for fines to the size of the organisation involved. Currently, judges typically approach the sentencing process by taking account of all the circumstances of a case, whilst acknowledging the presence of any aggravating or mitigating features. This may include the seriousness of the offence, the presence of previous convictions/good safety record and cost cutting at the expense of safety.

The proposed new guidelines direct the Courts to determine the offence category by looking at various culpability and harm factors. The turnover of the offending organisation is then considered to determine a starting point for the appropriate level of fine. The third stage involves a consideration of whether the fine suggested by the two preceding steps is “proportionate to the means of the offender”. In assessing the offender’s means, the court may also take into account factors such as the profitability of the business before tax, directors’ remuneration, loan accounts and pension provision, and the assets of the business. The fourth step provides for the consideration of any other factors that may warrant an adjustment of the proposed fine. For example, if the organisation is a public body the fine is likely to be reduced if it can be shown that it would have a significant impact on the provision of their services.

The final steps in determining an appropriate sentence are already set out in the current Sentencing Council guidelines, including factors such as reduction for guilty pleas and consideration of the totality of the sentence if dealing with more than one offence for that offender.

Size Really Does Matter…

The draft proposals seek to impose fines on companies calculated according to their turnover as opposed to profit, and is based on a tariff system with specific starting points and ranges. Inevitably, that means that fines will be far in excess of current levels, especially for larger organisations. In respect of corporate entities, the Sentencing Council has adopted the principle that any fine “should be sufficiently substantial to have a real economic impact which will bring home to both management and shareholders the need to comply with the legislation and achieve a safe environment for workers and members of the public.”

The guidelines set out starting points and ranges of fines for small (£2-10 million), medium (£10-50 million) and large organisations (£50 million plus). However, no specific guidance is given for ‘very large’ organisations, other than to say “where an organisation’s turnover greatly exceeds the threshold for large companies, it may be necessary to move outside the suggested range to achieve a proportionate sentence“.

For example, the proposed health and safety guideline fines for large organisations committing the most culpable breaches of the Health & Safety at Work Act 1974 would have a starting point fine of £4m and a range of £2.6 to £10 million, with a starting point of £7.5 million with a range of £4.8 to £20 million for corporate manslaughter offences.

These guidelines and the complicated tariff ‘matrix’ should make businesses sit up and pay attention. The draft guidelines intend for fines to be deliberately punitive and to remove any economic gain that may be derived from health and safety offences. Very large organisations face greater uncertainty in sentencing, with the possibility of “through the roof” fines and the absence of guidance for this particular type of organisation giving rise to the potential for inconsistency.

The court should adjust the starting fine in light of any aggravating and mitigating factors, which are likely to relate to the wider circumstances of the offence and also include factors relating to the offender. Examples of aggravating factors include cost cutting at the expense of safety and a poor health and safety record. Relevant mitigating factors might include an absence of previous convictions and having effective health and safety procedures in place.

Lawyers defending corporate offenders may find that the proposed fine tariffs will encourage defendants to challenge the prosecution’s assessment of the facts of the case through ‘Newton hearings’ (a hearing that, following a guilty plea, determines a factual dispute between prosecution and defence version of events where it is likely to affect the appropriate resulting sentence) or even contested trials in an attempt to avoid severe fines.

A Glimpse into the Future?

The Court of Appeal’s decision in the recent R v Thames Water Utilities case relied on the 2014 environmental guidelines and highlighted the Court’s approach of imposing significantly higher level of fines for “very large” corporate organisations. In June 2015, a £250,000 fine imposed on Thames Water Utilities in relation to the spillage of sewage into a rare woodland was upheld. The Court of Appeal said that the fine was proportionate, considering the profits made by the company.

Mr Justice Mitting, on behalf of the three Court of Appeal judges, explained that in order “to bring the message home to the directors and shareholders of organisations which have offended negligently once or more than once before, a substantial increase in the level of fines, sufficient to have a material impact on the finances of the company as a whole, will ordinarily be appropriate. This may therefore result in fines measured in millions of pounds.”

The judge said that fines equal to “up to 100%” of a company’s pre-tax net profit would be appropriate in the very worst cases, “even if this results in fines in excess of £100 million”.

For very large organisations in particular, this environmental case provides an unnerving glimpse into the future upward trend in the level of penalties for health and safety offences. The key message for most organisations is that “size” really does matter! If you commit an offence covered by the proposed guidelines, you can expect a hefty fine, potential reputational damage, and at worst to be put out of business. Organisations should check that they have robust compliance systems in place and should seek specialist legal advice as soon as it becomes apparent that an offence may have been committed.

Kizzy Augustin is a senior associate at Pinsent Masons LLP

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