The Courts in England and Wales must follow a Definitive Guideline issued by the Sentencing Council when sentencing health and safety cases. In this article, Forensic Accountant Fred Brown from business advisory firm Grant Thornton and Health and Safety specialist Solicitor Sue Dearden from health and safety and engineering experts and consultants Finch Consulting consider what impact, if any, COVID 19 is likely to have on sentencing in these cases.
The Guideline
The Health and Safety Offences, Corporate Manslaughter and Food Safety and Hygiene Offences Definitive Guideline (“the Guideline”) effective from 1st February 2016 must be followed by Court in sentencing health and safety cases in England and Wales. The Guideline is referred to but not binding in Northern Ireland and Scotland.
In sentencing, the Court is required firstly to make an assessment of culpability (how bad) and harm (a balance between how likely was the occurrence of harm, how serious that risk was, and whether anyone has actually been harmed) which leads to a ranking which is then applied to a sentencing table to identify a starting point and range for the fine to be imposed.
Which sentencing table is used, depends on the annual turnover of a business, normally by reference to its accounts for the past 3 years. Where the fine falls within a given range will firstly be influenced by mitigating factors (e.g. previous good record) and aggravating features (e.g. previous bad record).
The Court is then directed to consider what is described as “other financial factors” to ensure that the fine proposed is going to be proportionate. This will include consideration of profitability, director’s remuneration, liabilities, and assets. The Judge also needs to ensure that the penalty fulfils the objectives of sentencing. This includes ensuring that the fine reflects the seriousness of the offence and will have a sufficiently substantial impact, but also has regard to the economic realities of the organisation, its profitability and whether it can survive payment of the proposed fine.
The Court will consider any available evidence presented about the wider impact of the fine on innocent third parties, staff, service users, customers, and local economy (but not shareholders and directors). Where the offender is a charity or public body the fine would normally be substantially reduced if the proposed fine would have a significant impact on the provision of its services.
After following this stepped process, the Court will then apply a discount to the final figure to take account of any guilty plea. This discount is directed by another Sentencing Council Guideline and can be up to 33.3%.
How might Covid 19 impact offences?
Covid 19 could have an impact on the offence before we get to sentence. Although legal duties have not been changed as a result of the pandemic in the UK, a criminal breach of duty could arise from a failure to ensure, so far as is reasonably practicable, the safety of staff and others for example by not having a suitable and sufficient Covid 19 risk assessment in place or by failing to follow control measures identified. That is likely to be a breach of the legal duties owed under sections 2 and 3 of the Health and Safety at Work etc Act 1974 (“HSWA”) as well as a breach of regulation 3(1) of the Management of Health and Safety at Work Regulations 1999.
The offences that arise for breach of duty, relate on the whole to inadequately controlled risk for which an injury, or proof of a connected injury, is not a prerequisite. As there is a wider risk of Covid 19 infection through contact with others in many areas of our lives, it is going to be difficult to prove that any infection has resulted from contact at work. Patterns of infection in a particular workplace though may be highly suggestive of inadequate controls in place and if infection results from a breach of duty this will increase the seriousness of the offence and sentence.
For many, the financial impact of Covid 19 has been significant. It is likely to continue to have a financial impact on businesses for some time to come. Supply chains have been disrupted, customers have been impacted, and workforces may suddenly need to be isolated because of their contact with others – all of which have the potential to close a strong business overnight.
How will Covid impact on fines?
An adjustment to reflect the impact of Covid appears possible. As the impact of Covid on a business can be anything from a sharp decline with possibly the cessation of the business, to a change in business model with improved trading, specific evidence of the impact on the business is needed. General comments about the wider impact of Covid are likely to be less helpful than specific evidence of the actual impact on the business.
A business’ turnover is the primary parameter used in the Sentencing Council Guideline to determine an appropriate level of fine. The Guideline expects offenders to provide comprehensive accounts for the previous three years, such as annual statutory accounts: however, many businesses have been changed almost overnight by the pandemic making such historical information unrepresentative of their current position and ability to pay a fine. Where statutory accounts are the only information the Court has to rely on, there is a risk that they will not fairly reflect the business’ performance in the Covid 19 era, and its expected performance in the post-Covid 19 era.
Whilst management could present evidence stating why the accounts do not reflect the business as it is now, more weight may be given to the evidence if accompanied by an independent accountant’s report. This could consider management accounts and forecasts and cross-check this information to wider sector information. This is particularly important given that there are thresholds for turnover of £2m, £10m, and £50m set out in the Guideline, above each of which the business is tipped into a higher level of fine.
As well as considering turnover, the Guideline requires the Court to have regard to a business’ profitability; and whether the fine will put the offender out of business. The Court must also consider the wider impact of a fine on the business’ ability to improve health and safety conditions, and other factors such as the ability to pay employees. This is likely to be more of an issue for certain types of business, particularly in the hospitality sector, than it was in the pre Covid era.
Robust presentation of the financial information of a detrimental Covid impact may provide an argument for a reduced or deferred fine, to allow the business to use its available funds in the business at a difficult time.
Is there any evidence of a Covid discount so far?
There is already an indication that delivering accounting reports to the Court alongside the last 3 years’ accounts (which are required), and particularly whilst the economic impact of Covid 19 is and continues to be felt, can materially decrease the penalty imposed.
Whilst in the largest health and safety case in recent months (£1.2m against Phillips 66 Ltd in May 2020), a Covid discount does not appear to have sought or considered, on 3rd June 2020 IFG Drake Ltd was fined £366,850 and almost £24k prosecution costs for a breach of section 2 HSWA following a fatal accident resulting from machinery guarding failures on plant used to make fibres to reinforce tea bags, which trapped an employee when he attempted to clear a blockage.
The business turnover for the past 3 years had been £33m p.a. (which put it in the Medium business sentencing table) but due to the pandemic it was operating at a reduced capacity and was heading for a substantial loss this year. Evidence was submitted that predicted turnover for the year ending June 2021 would be nearly £10m down on previous years.
In sentencing, the Judge said his starting point was £750k. This figure was reduced to £650k for mitigation. Following the presentation of accounting evidence, the Judge then gave a further £100,000 discount because of the projected Covid related drop in turnover. The early guilty plea discount further reduced the fine by one third to £366,850 and because of evidence about its limited profitability the company was allowed 5 years to pay so that it would not be put out of business by the penalty.
Conclusion
The penalties for breaches of health and safety duties are not insurable costs and are intentionally punitive as the Sentencing Council Guideline directs that the fines must be “sufficiently substantial to have a real economic impact which will bring home to both management and shareholders the need to comply with health and safety legislation”.
The Sentencing Council Guideline only directs that a convicted business’ previous 3 years’ accounts should be made available to the Court and these will normally determine (based on turnover) which sentencing table should be used to calculate the fine.
Nothing, however, prevents additional evidence being adduced which the Court must consider and which:
- might result in a lower table being used where turnover is on the cusp (around £50m, £10m and £2m) and particularly when there has been a downturn for the company since its last accounts. Moving to a lower table would have a significant impact on the level of fine that could be considered;
- explains the impact of the Coronavirus (or indeed other adverse factors) upon the business, and advises the impact a fine will have, in order to deliver a substantial discount to the fine imposed.
For further information about Forensic Accounting Reports and the Defence of Health and Safety Prosecutions contact either of:
[email protected] 07771 974 282
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