The long-awaited Corporate Manslaughter and Corporate Homicide Act 2007 finally came into force on 6 April 2008. The Act, which the government had been promising for 10 years, introduced a new statutory offence of corporate manslaughter in England, Wales and Northern Ireland. In Scotland, the offence is known as Corporate Homicide.
Why was it needed?
The need for reform had been widely acknowledged for many years as the previous law did not adequately reflect the reality of modern corporate life. The difficulty lay with the restrictive manner in which the law linked a company’s guilt to the gross negligence of one individual, embodying the decisions and actions of the company - the “directing mind”.
In practice, it proved virtually impossible to prosecute organisations, particularly large companies, where there was usually no one individual within the management structure that had any direct involvement in the circumstances giving rise to the offence. Historically the only successful prosecutions for corporate manslaughter involved small companies where the individual was intimately involved in the company’s activities and the director and company were essentially one and the same.
Essential ingredients of the offence
The Act addressed this difficulty by focusing on whether the fatality was caused by failings in the way the company was managed or organised, rather than the negligence of just one individual. Those failings must be by “senior management”, in essence, those whose role is decisive or influential, whether at a national, divisional or regional level.
The management failure leading to the death must be sufficiently serious to amount to a “gross breach” of the duty of care which the company owed to the deceased. The Act defines this as conduct falling far below that which could reasonably have been expected of the company in the circumstances.
In deciding whether there has been a “gross breach”, a jury will need to consider whether an organisation failed to comply with any relevant health and safety legislation and, if it did, how serious that failure was. It may also consider the extent to which the evidence shows that there were attitudes, policies, systems or accepted practices within the organisation that were likely to have encouraged, or tolerated such failings. In other words; "the corporate culture". This is the first time that this consideration has been enshrined in UK legislation.
Typical examples of a gross breach by a company’s senior managers could undoubtedly include a failure to ensure safe working practices as a result of a lack of proper training and not maintaining either equipment in a safe working condition or premises (for instance, by taking adequate fire precautions).
Who does it apply to?
As the Act aims to provide a more effective method of holding organisations to account, it does not specifically apply to individuals, such as directors.
Proceedings for gross negligence manslaughter and other offences under health and safety legislation will continue to be possible against individuals where their conduct renders them criminally liable. The new offence also applies to certain government departments. For the first time, Crown immunity has been lifted. Crown bodies and other public sector organisations such as the police are now placed on an equal footing with the private sector.
Penalties - fines
The sanctions facing those convicted under the Act include an unlimited fine. Unlike claims for compensation, fines cannot be covered by an insurance policy. In calculating financial penalties, courts have tended to use net profit as a useful indicator of what a defendant company can afford to pay.
Draft guidance produced by the Sentencing Advisory Panel in early 2008 recommended that courts should impose a fine of 2.5% to 10% of turnover, not net profit! However, by late 2009 the Panel had "backtracked".
It has now been decided that a fixed correlation between the fine and either turnover or profit is not appropriate. However, courts must still look carefully at both turnover and profit, and also at assets, to gauge the resources of the defendant. In order to do this, courts must require defendants to provide information as to their financial circumstances. This should be for a three-year period, including the year of the offence.
The published guidance also says that a fine for an offence of corporate manslaughter will seldom be less that £500,000 and may be measured in millions of pounds (compared to offences under the Health and Safety at Work Act where the fine would generally fall within a range of between £100,000 to £300,000).
Penalties - other
Courts may also impose a remedial order requiring a convicted company to remedy the breach that caused the fatality within a specified period of time. In practice, this will rarely be used. It typically takes many years for fatal accident prosecutions to reach court, by which time the failures giving rise to the prosecution will have long since been addressed. A similar power exists under the Health and Safety at Work Act 1974. We have no experience of this ever being used by a court.
In addition, a publicity order may be ordered requiring the various aspects of the conviction and the court’s sentence to be published by the offending company. This option may also serve to punish a company in so far as negative publicity may lead to damage to reputation and a consequential loss of future business or confidence in the company. A publicity order is part of the penalty and therefore any exceptional cost of compliance should be considered in fixing the fine.
The good news (and yes, there is some) is that the Act is not intended to raise the standards which organisations currently have to meet; rather it is designed to focus on the worst cases of management failure which have resulted in a death. Consequently, evidence of compliance with relevant health and safety legal requirements should be sufficient to avoid a charge. Companies should, therefore, take action now to ensure that they are fully compliant. The consequences of failing to undertake a simple review or audit process could be severe.
Further information
Please refer to http://www.hse.gov.uk/corporate manslaughter/index.htm for further details.
Updated by Vikki Woodfine, a Regulatory Solicitor specialising in Transport and Health & Safety Law at DWF.
victoria.woodfine@dwf.co.uk
+44 (0)161 603 5060