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Published 28 January 2014
On 17th January the Court of Appeal dismissed two appeals by Network Rail and Sellafield Ltd in relation to fines imposed for offences to which the companies had pleaded guilty. This decision is particularly relevant to health and safety and environmental cases where the defendant company has a turnover in excess of £1 billion. Companies will be expected to provide accounts or financial information to the court well in advance of the sentencing hearing. The court, when considering the level of the fine may scrutinise the structure of the company, its turnover and profitability as well as the remuneration of its directors as the fine must be fixed to ensure that the message is brought home to the directors and shareholders.
Sellafield Limited is a commercial company with corporate shareholders and a turnover of £1.6bn. In February 2013 the company pleaded guilty to seven offences contrary to environmental legislation arising out of the disposal of radioactive waste between 2008 and 2010. Sellafield was committed to the Crown Court for sentencing as the Magistrates accepted their powers of sentencing were insufficient. The maximum penalty the Magistrates could have imposed was a fine of £230,000. In June 2013 Carlisle Crown Court imposed a fine of £700,000. Credit was given for Sellafield’s full cooperation with the authorities and early guilty plea. The further mitigating features relied on by Sellafield were: the breaches were not deliberate or reckless; no harm had been done and the risk of harm was low. The judge sentencing the company accepted this, however, he found there was a custom in the company which had been too lax and complacent for which senior management must bear responsibility. In addition, the company’s failings were easily avoidable.
Sellafield appealed the fine on grounds that it was “manifestly excessive”, arguing that it equated with a major public disaster or loss of life, a significant nuclear event or an unmitigated pollution incident.
The Court of Appeal rejected the appeal and considered that for an incident of this kind the culpability was “medium”.
The CoA considered the financial information provided by Sellafield in order to determine the level of the fine, noting that the shareholders could hold the directors to account. Having regard to Sellafield’s turnover of £1.6bn and its annual profit of £29m, a fine of £700,000 was not excessive. The fine equated to about 2% of the company’s weekly income and would, in the CoA’s view, provide an incentive to the directors and shareholders to remedy the failures including in relation to the company’s culture.
Network Rail, owned by Network Rail Ltd, is a "not for dividend company" with a turnover of £6.2bn. Profits are invested in the rail network. The company was fined £500,000 in Ipswich Crown Court following an accident in 2010 at an unmanned level crossing resulting in life changing injuries to a 3 year old child.
Network Rail accepted at an early stage that there were significant failings in relation to their risk assessment of the level crossing. In appealing the sentence, the company argued that the Judge failed to take account of the mitigating features and the steps taken by the company to improve its safety record, which included significant expenditure on level crossing safety. The CoA considered the actual harm was serious and even greater harm was foreseeable; the culpability of local management was serious and persistent, but there was no specifically identified failure by senior management. The CoA rejected the argument that a starting point of £750,000 on conviction was only appropriate where there had been a fatality. In this case, the CoA said, the judge could have imposed a materially greater fine, in view of the size of the company, its failures and the harm caused.
The CoA acknowledged that as the company’s profits were invested in the network, a significant fine might be said to harm the public. Nonetheless, the fine must bring home to the directors and others the need to improve safety. Information was provided by the company about the basis on which directors were paid bonuses; there was evidence that lower bonuses were paid in part because of the poor level crossing safety record. It is worth noting the CoA commented that:
“Plainly the bonuses should have been very significantly reduced".
These cases illustrate the increasingly tough approach taken by the courts to sentencing for serious safety offences and the desire for accountability. Defendants should be prepared for a detailed scrutiny of their financial arrangements including the basis on which they reward their directors.
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