The Criminal Court of Appeal last week upheld the imposition of large fines against two companies in respect of environmental and health and safety breaches. In doing so, the Court gave some useful guidance on the factors that will be considered when determining the appropriate level of fines for large companies convicted of regulatory offences. Specific commentary was also offered in respect of companies with a turnover in excess of £1 billion.
Key Points
The following learning points can be taken from the Court's findings:
- There is no ceiling on the amount of the fine that can be imposed by the Court (regardless of whether or not an offence results in a 'disaster' or fatalities).
- Of more relevance to the level of the fine will be the financial position of the parties.
- In the case of companies with a turnover in excess of £1 billion in particular, Courts will examine with great care and in some detail the structure of the company, its turnover and profitability and the remuneration of its directors.
- The Court will require the accounts of the offending company and any other relevant information (including details about the corporate structure) to be provided well in advance of the sentencing hearing.
- It will no longer be possible for offending companies to say that it is able to pay any fine in order to avoid scrutiny of its accounts.
- It is important for companies facing regulatory prosecution and enforcement to be well prepared at the sentencing hearing and to have prepared evidence and argument which may mitigate the size of fines which will noticeably affect their profit lines.
The level of fine is a matter which is commonly argued before the court, including in cases where a company recognises fault early and pleads guilty to a regulatory offence. The message from the courts appears to be that large companies must expect big fines simply because that is the only way of making sure they take compliance seriously. Punishment therefore seems to be much more about the characteristics of the party being fined than comparative culpability.
General Principles of Sentencing
Under the Criminal Justice Act 2003, for the purposes of sentencing (whether the offender is an individual or a corporation) the court must have regard to the seriousness of the offence, including the culpability of the offender and the harm caused or which might foreseeably be caused.
In light of the seriousness of the offence, the court must consider the most suitable sanction to impose with regard to the purposes of sentencing, as specified by Parliament. These are:
- the punishment of offenders
- the reduction of crime (including reduction by deterrent)
- the reform and rehabilitation of offenders
- the protection of the public
- the making of reparation by offenders to persons affected by their offences.
When considering the appropriate level of any fine to be imposed the court must also consider:
- the financial position of the offender
- whether the amount of the fine imposed reflects the seriousness of the offence.
The recent appeals highlight that, in respect of companies, any fine should be such that it brings home the deterrent message to those who manage it and its shareholders. In the case of companies with a turnover in excess of £1 billion, the court will examine the structure of the company with care and in detail, including its turnover and profitability as well as the remuneration of the directors.
Case Background
The two cases of R v Sellafield Limited and R v Network Rail Infrastructure Limited were recently heard together by the criminal division of the Court of Appeal. The two corporations were individually appealing against the level of fines imposed upon them for breaches of health and safety and environmental protection legislation.
Sellafield was fined £700,000 for offences arising out of the disposal of radioactive waste. Network Rail was fined £500,000 for an offence arising out of a collision at an unmanned level crossing, causing serious non-fatal injuries to a child. Both companies sought to appeal on the basis that the fines were manifestly excessive.
The Court's Findings
Network Rail
In terms of the seriousness of the offence, the Court found that the actual harm caused was serious and even greater harm was foreseeable. There was however no evidence of specific senior management failures. The failures, serious and persistent though they were, were at a lower operational level.
In respect of the level of the fine to be imposed, the Court found the following:
- The argument that a fine of £750,000 (ie the fine which would have been imposed had Network Rail not entered an early guilty plea) was only appropriate in cases where there had been a fatality was incorrect as it fails to take into account the financial position of the offender.
- Despite having a weekly turnover of £119 million and profits of £14.4 million, Network Rail's parent company has no shareholders who derive profit from the company. All profit is reinvested back into the rail infrastructure. Any fine imposed would therefore not inflict any direct punishment on shareholders and could be said to harm the public.
- However, a fine would serve the other sentencing purposes if it acted as a deterrent to such offending and reformed and rehabilitated Network Rail as an offender. The company's subsequent investment in level crossing safety and reductions to its director's bonuses were reflective of this.
- Nonetheless, the fine of £500,000 already reflected a sizable discount for the mitigation advanced and a materially greater fine could not have been criticised.
Sellafield
In respect of the seriousness of the offence, the Court found that there had been no actual harm and the risk of harm in the future was relatively low. There had been a custom in the company which was too lax and complacent for which the senior management must bear some of the responsibility. This was particularly in light of the duty placed on directors and shareholders of companies involved in the nuclear industry by Parliament, to give the highest priority to safety.
In respect of the level of the fine to be imposed, the Court found the following:
- It was inappropriate to argue that fines of £1 million (ie the fine which would have been imposed on Sellafield had it not entered an early guilty plea) should only be imposed in cases of major disaster as to do so fails to take into account the financial position of the offender.
- Sellafield is an ordinary commercial company which makes profits for its shareholders who are large multinational companies. It has a turnover of £1.6 billion and annual profits of £29 million.
- The fine imposed needed to be at a level to impact on the directors and professional shareholders by emphasising the seriousness of the offences and by acting as an incentive to remedy the breaches.
- A fine of £700,000 after a guilty plea reflected the company's moderate culpability and that no actual harm had occurred and the foreseeable risk of harm was low.
- The fine represented only two per cent of the company's weekly turnover and therefore could not be criticised.
New Environmental Sentencing Guideline
Although not applicable in this instance, the sentencing of certain types of offences is also subject to specific sentencing guidelines, for example the guidelines for health and safety offences causing death. In light of the limited guidance for environmental offences in the Magistrates’ Court Sentencing Guidelines or in Court of Appeal authority, a new environmental offences guideline is to shortly be introduced. This will be of particular relevance to companies operating in the environmental sector.
The draft guideline was consulted upon by the Sentencing Council for England and Wales between March and June 2013. The consultation sought views on a nine-step process for deciding the level of fines. Once introduced, it will apply principally to the main waste offences and to the offences of carrying out activities without an environmental permit.