Health, safety and environment fines on the rise.

Transcription

1 Health, safety and environment fines on the rise. Hatfield health and safety fines The fines of 10 million and 3.5 million imposed at the end of last week on Balfour Beatty and Network Rail respectively for their part in the Hatfield train crash are the latest in a trend of high-figure fines imposed on large companies. In August this year the High Court of Justiciary in Edinburgh sentenced Transco plc to a fine of 15 million for breaches of health and safety regulations following a domestic gas explosion which killed 4 people. These two cases, in different UK jurisdictions, respond to longstanding public pressure for greater corporate accountability in the wake of public accidents. The Government s draft Corporate Killing Bill is another response to public perception that health and safety breaches are being inadequately punished. Companies need to recognise this trend. The push for greater penalties will continue and the call for personal liability will persist. However, the current mechanisms remain crude, unpredictable, and sometimes unfair (particularly in the arena of personal liability). There is an increased need for the corporate world to engage with regulators and opinion formers in relation to enforcement issues but to do so in a measured and reasonable way. The recently announced review by DEFRA of environmental enforcement mechanisms (including the possibility of regulatory rather than criminal liability) offers a forum for this debate. Contents Hatfield health and safety fines 1 Fines too low 2 Fines that really bite 2 Criteria for setting HSE fines 3 Levels reined in but for how long? 4 Where does that leave us? 4 October

2 Fines too low Sentencing for health, safety and environment (HSE) breaches has been criticised for many years now as being far too low. There is no doubt that in some cases the criticism is well founded. Most offences are heard by magistrates and fines are typically well under 10,000. This is partly because the magistrates hearing an HSE prosecution have rarely had previous experience of such cases (on average they get one in every seven to ten years). In recent years, judicial guidance and other initiatives 1 have been directed at this issue to try to ensure that sentences reflect the seriousness of the offences and the gravity of actual or potential impacts of breach. Fines that really bite The recent guidance, whether set out by the court or otherwise, has consistently made it clear that fines should: be high enough to make the defendant company, its managers and shareholders sit up and take notice and to encourage the defendant company to tighten its regulatory compliance. give confidence to the public that fines are meaningful and appropriate. be high enough to act as a real deterrent to other companies. if imposed on a multi-national have the same impact as a fine imposed on a small company. The court will look at a company s profits in determining the level of a fine. In 1999, the Court of Appeal upheld a higher fine, despite the presence of mitigating factors, because of the severity of the breach and the level of the company s profits 2. In particular, if a company puts profit before safety, this will count as an aggravating factor and increase the level of fine. 1 R v F Howe & Son (Engineers) Ltd ( All ER 249) The Court of Appeal set out criteria (including mitigating and aggravating factors) for setting health and safety fines. These criteria have been refined and restated in later cases. The Sentencing Advisory Panel has published advice to the Court of Appeal on sentencing for five types of environmental offence. In 2001, the Magistrates Association expanded its Court Sentencing Guidelines to include environmental, health and safety offences, followed by a training booklet in 2002 Costing the Earth Guidance for Sentencers. 2 R v Brintons Ltd 1999 LTL 22/6/99 2 October 2005

3 Criteria for setting HSE fines Aggravating factors Mitigating factors Other considerations Death, serious injury or ill-health Prompt admission of responsibility and a timely guilty plea How far short of right standard did defendant fall? Serious damage resulting from breach (still serious if there is serious risk) Genuine lack of awareness or understanding of regulations (unlikely defence to health and safety breach) Standard of care required is same regardless of size of company Adverse effects on animal health or flora Good safety record Isolated incident or repeated breach? Deliberate breach for sake of financial profit Steps to remedy deficiencies after they are highlighted Degree of risk and extent of danger created by offence Awareness of specific risks likely to arise from breach Offender had a minor role with little personal responsibility Fines over half a million reserved for major public disasters No cooperation with regulatory authority Failure to heed warnings Defendant s resources and effect of fine on its business Need for expensive clean-up operation Activities carried out without a licence Interference with other legal activities Health, safety and environment fines on the rise. 3

4 Levels reined in but for how long? There is no doubt that high fines are now being considered and sometimes imposed on very large companies for the most serious HSE offences. That said, the level of fines remains to a certain extent reined in by the Court of Appeal s view that fines of over 500,000 should only be imposed in cases of a major public disaster. This creates a tension with the desire (also expressed by the Court of Appeal) to impose fines which have as significant an impact on larger companies as on smaller ones. The likelihood is that this tension will ultimately be resolved by the Court of Appeal dropping its 500,000 cap for non-public disaster cases. If fines imposed on large multi-national companies were in the same proportion to their turnover or profits, as, say, the fine in R v Howe, these would have the potential to run to hundreds of millions. We are a long way away from this now but the courts are showing themselves more willing to impose really heavy fines that can significantly impact on a company s bottom line. Where does that leave us? The challenge for business is in achieving consistent compliance with HSE regulation in circumstances where liability is strict and the public mood unforgiving. Fines even at this level are not the true source of damage to the corporates concerned. That lies in the damage to reputation that flows from the widespread media reports that ensue. While some legislation is clear and concise, inevitably this is not true of all or even most of it. Compliance obligations can be unclear, internally contradictory, or in conflict with other regulations, such that their interpretation even by the regulators changes over time or depending on the person to whom you are speaking. Furthermore, some of the broader obligations under health and safety law are couched in terms of what must be achieved, leaving the process for achieving them within the operator s discretion. For each relevant obligation it is necessary to (i) assess your risk and the steps required to procure compliance, (ii) educate and inform your workforce appropriately, (iii) implement any requisite procedures, (iv) test and improve those procedures and (v) document steps (i) to (iv). In addition you must identify new legislative requirements, since you will essentially be fixed with knowledge of these, and ensure that your systems and procedures are updated to address these new developments. You must also ensure that 4 October 2005

5 your overall approach to HSE risk is kept under review by the board, you adopt the steps outlined in the Health & Safety Executive s guidance to directors 3 and you are particularly conscious of the impact of profit related issues on decisions relating to HSE compliance (see aggravating factors column). Given the volume of legislation this is truly a Sisephean task. It is also a task which, in the event of a serious accident or near miss, will be scrutinised with the benefit of hindsight. DEFRA has announced a review of environmental enforcement, and the Government seems willing to envisage breach of HSE law as not inevitably entailing criminal liability, but rather an administrative law liability. This is an opportunity which is worth serious consideration in relation to both environmental and health and safety regulation. The decriminalisation of this area of law (save for cases whose facts constitute offences under the criminal law) would better reflect the context in which many breaches arise. Such a change could have other indirect benefits. It may refine the media response to prosecutions, and should also limit the circumstances when, through prosecution of directors, managers or other persons, individuals could be exposed to the risk of imprisonment. 3 Directors responsibilities for health and safety / Health, safety and environment fines on the rise. 5

6 Brussels Rue Brederode 13 B Brussels Tel: (32-2) Fax: (32-2) Bucharest 8 Nicolae Iorga Sector 1, Bucharest Romania Tel: (40-21) Fax: (40-21) Frankfurt am Main Mainzer Landstraße Frankfurt am Main Tel: (49-69) Fax: (49-69) Lisbon Avenida Fontes Pereira de Melo, 14-15º Lisbon, Portugal Tel: (351) Fax: (351) London One Silk Street London EC2Y 8HQ Tel: (44-20) Fax: (44-20) Madrid Calle Zurbarán, 28 E Madrid Tel: (34) Fax: (34) Milan Via Pietro Verri, Milan Tel: (39-02) Fax: (39-02) Paris 25 rue de Marignan Paris Tel: (33) Fax: (33) Prague Palác Myslbek Na Příkopě Prague 1 Tel: (420) Fax: (420) Warsaw Warsaw Towers ul. Sienna 39 7th floor PL Warsaw Tel: (48-22) Fax: (48-22) Editor: Vanessa Havard-Williams vanessa.havardwilliams@linklaters.com This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts at Linklaters, or contact the editors. Linklaters. All Rights reserved 2005 Please refer to for important information on the regulatory position of the firm. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com 6 / /