Large corporations subject to prosecution for health and safety and environmental offences are likely to find themselves subject to fines amounting to hundreds of thousands of pounds, even if there has not been a major disaster or fatality, following an important new judgment.

The decision will have serious ramifications for sizable businesses which find themselves before the Courts and is likely to mark the start of a trend in significant fines for regulatory offences for big organisations.

What did the case involve?

Network Rail Infrastructure Ltd and Sellafield Ltd had pleaded guilty in the Magistrates' Court for breaches of health and safety, following a collision at an unmanned level crossing, and environmental protection legislation, following the disposal of radioactive waste, respectively. The cases had been committed to the Crown Court for sentence.

Both companies had an annual turnover in excess of GBP 1 billion. Sellafield was fined GBP 700,000 and Network Rail was fined GBP 500,000 and both sought to appeal those fines on the basis that they were manifestly excessive. Neither case involved a fatality.

On 17 January, the Court of Appeal delivered its judgment and laid down principles for sentencing Courts.

What is an appropriate fine?

The ruling stressed that, in determining the appropriate level of fine, the Court must consider not only the seriousness of the offence but also the financial means of the offender, which will serve to increase or reduce the level of any fine. This applies whether the case involves a small local business or a multi-million pound corporation.

The Court had called for the provision of company accounts and stated that accounts or financial information must be made available in good time. Where a corporate defendant has a turnover in excess of GBP 1 billion, the Court must carefully scrutinise the structure, turnover and profitability of the company and the remuneration of the directors.

Most importantly, and perhaps controversially, the Court robustly rejected submissions that, on early guilty pleas in environmental and health and safety cases, fines in excess of GBP 500,000 are only appropriate where there has been a disaster or fatality. In fact, the Court stated there was no ceiling on the

amount of a fine which could be imposed, although of course each case will turn upon its own facts and the financial means of the defendant. This is in line with the other health and safety and environmental matters where there is no sentencing tariff.

How did this apply to Sellafield and Network Rail?

In the case of Sellafield, the Court highlighted that a fine of GBP 700,000 represented little more than a week's profit for the company when there had been a systemic failure over the period of four months and what was described in Court as a "lax and complacent" custom within the company.

The Court therefore was of the view that a fine at this level would bring home to the directors and shareholders the seriousness of the offence and provide them with an incentive to remedy the failures.

Similar comments were made in respect of Network Rail, although the Court noted that the fine would inflict no direct punishment on anyone because its profits were reinvested in rail infrastructure. However, such a fine would serve its purpose if it reduced offences of this kind committed by Network Rail, rehabilitated the company and protected the public.

What about director remuneration?

Interestingly, there was evidence before the Court that the bonuses of the directors of Network Rail had been reduced in light of the incident.

The Court held that those bonuses should have been reduced very significantly. Indeed, in future such information would be highly relevant to the sentencing Court's assessment. The Court commented that if the purpose of a bonus is to incentivise a director to perform better, then the prospect of a significant reduction of that bonus should encourage that director to pay the highest attention to protecting the lives of those at real risk from the company's activities.

What are the ramifications?

All large businesses will be affected by this judgment, which is likely to have crucial implications for sentencing in health and safety and environmental offences.

The financial information submitted to the Court will be key. Businesses should be warned that the Court will not just look to turnover and profit but also further to director remuneration, particularly whether the business is encouraging future safety compliance at the highest level. Any business will need to show that it has learnt real lessons from the incident.

It is clear the Courts will not be restricted in terms of the level of fine by whether the accident in question involves a fatality or major disaster. This ruling is likely to result in materially greater fines, even if the harm caused is minor and the mitigation significant, where the business has the ability to pay.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.