The recent UK Court of Appeal judgement in the case of R v Whirlpool UK Appliances Limited provides a useful analysis on the approach that courts should take when sentencing “very large organisations” under the Sentencing Council’s Definitive Guideline on Corporate Manslaughter, Health and Safety and Food and Safety Hygiene Offences (“the Guideline”).
Background facts
Whirlpool engaged Clive Dalley, a self-employed contractor, to carry out work on the fire and heat detection systems in its factory at Yate, near Bristol. Mr Dalley had met with the factory maintenance co-ordinator two days before the work was carried out to discuss and walk through the work. The work was scheduled for a Saturday so that fewer people would be on the premises. Mr Dalley was advised that other people would be working on an overhead conveyor system and that their work would take priority to his. Mr Dalley was issued with a permit to work and there was also a risk assessment for working at height. It was agreed that Mr Dalley would tell the other workers when he wanted to do his work to enable them to turn off the conveyor system.
On the morning of the work (21 May 2015), Mr Dalley told the other workers that he was going to have a cup of coffee before starting work. The other workers continued with their work which required them to turn the conveyor system on and off intermittently. Mr Dalley then went back to working from an elevated platform which he had manoeuvred between two hanging baskets on the overhead conveyer system. Unfortunately, the other workers were unaware that Mr Dalley had returned to work and switched on the conveyor system, causing the baskets to strike the elevated platform, which subsequently toppled, sending Mr Dalley falling to the ground. Mr Dalley suffered multiple fractures and died from complications 10 days later.
For failing to require Mr Dalley to prepare a job-specific risk assessment and method statement for the work, and for not preparing a more detailed permit to work specifically identifying the risk posed by using the platform in the vicinity of the overhead conveyors and the control measures needed, Whirlpool were charged with a breach of section 3 of the Health and Safety at Work, etc. Act 1974. Whirlpool pleaded guilty and were fined £700,000 and ordered to pay costs of £11,466. Whirlpool subsequently appealed, contending that the trial judge had erred in applying the Guideline with the result that the fine handed down was manifestly excessive.
The Guideline
The Guideline sets out a step-by-step approach to calculation of penalties for corporate manslaughter, health and safety, and food and safety hygiene offences. The steps for breaches of health and safety law by organisations in the Guideline can be summarised as follows:
- Step 1 requires the court to determine the offence category by reference to the culpability (either low, medium, high or very high) and harm (depending on the seriousness of the harm risked and the likelihood of that harm, ranging from Harm Category 4 (for the least serious) to Harm Category 1 (for the most serious)).
- Step 2 sets the starting point and range for the fine by reference to the offence category and the size of the organisation (either ‘large’, ‘medium’, ‘small’ and ‘micro’ according to the organisation’s turnover), and, depending on applicable aggravating and mitigating factors, the fine can be set at the upper or lower end of the range. The starting point and range for fines for large organisations is set out below:
|
Large Turnover or equivalent: £50 million and over |
||||
| Starting point | Category range | |||
| Very high culpability | ||||
| Harm category 1 | £4,000,000 | £2,600,000 – £10,000,000 | ||
| Harm category 2 | £2,000,000 | £1,000,000 – £5,250,000 | ||
| Harm category 3 | £1,000,000 | £500,000 – £2,700,000 | ||
| Harm category 4 | £500,000 | £240,000 – £1,300,000 | ||
| High culpability | ||||
| Harm category 1 | £2,400,000 | £1,500,000 – £6,000,000 | ||
| Harm category 2 | £1,100,000 | £550,000 – £2,900,000 | ||
| Harm category 3 | £540,000 | £250,000 – £1,450,000 | ||
| Harm category 4 | £240,000 | £120,000 – £700,000 | ||
| Medium culpability | ||||
| Harm category 1 | £1,300,000 | £800,000 – £3,250,000 | ||
| Harm category 2 | £600,000 | £300,000 – £1,500,000 | ||
| Harm category 3 | £300,000 | £130,000 – £750,000 | ||
| Harm category 4 | £130,000 | £50,000 – £350,000 | ||
| Low culpability | ||||
| Harm category 1 | £300,000 | £180,000 – £700,000 | ||
| Harm category 2 | £100,000 | £35,000 – £250,000 | ||
| Harm category 3 | £35,000 | £10,000 – £140,000 | ||
| Harm category 4 | £10,000 | £3,000 – £60,0000 | ||
There is also a category of ‘very large organisation’ for those organisations whose turnover greatly exceeds the turnover threshold for large organisations (£50 million) where the Guideline states that it may be necessary to move outside of the suggested range to achieve a proportionate sentence.
- Step 3 requires the court to check whether the proposed fine based on turnover is proportionate to the overall means of the offender.
- Step 4 states that the court should consider other factors that may warrant adjustment of the proposed fine.
- Step 5 requires the court to consider any factors which indicate a reduction, such as assistance to the prosecution.
- Step 6 states that the court should take account of guilty pleas (up to a one third reduction is generally allowed).
- Step 7 requires the court to consider making compensation and/or ancillary orders.
- Step 8 provides that the court should consider whether, where more than one offence is being sentenced, the total sentence is just and proportionate to the offending behaviour.
- Step 9 states that the court should give reasons for its decision.
Issues
The Court of Appeal considered three particular issues in its decision:
- The impact of death on the approach to the ranges set out in the Guideline;
- How one identifies and then treats a ‘very large organisation’ under the Guideline; and
- The impact of relatively poor profitability in the context of an organisation with a substantial turnover.
The impact of death on the approach to the ranges set out in the Guideline
The Court agreed with the trial judge that the offence should be treated as being one of ‘low culpability’ (because Whirlpool did not fall far short of the appropriate standard) and ‘harm category 3’ (because, although there was a risk of harm including death or serious injury, there was a low likelihood of that harm materialising). The Court noted that it was a consistent feature of sentencing policy in recent years that the fact of death substantially increases a sentence. In fact, the Court considered that the fact of death would justify a move not only into the next category, but to the top of the next category range. In this case, therefore, the sentence should increase to the top of the scale for ‘harm category 2’ for large organisations (i.e. £250,000).
How one identifies and then treats a ‘very large organisation’ under the Guideline
Whirlpool’s turnover was over £672 million in 2014 and over £710 million in 2015, and, whilst it made a pre-tax profit of over £24 million in 2014, it made a loss of over £165 million in 2015 (allegedly caused by two exceptional items: a product recall and an impairment to an investment in a related company). Nevertheless, director remuneration was £579,000 in 2014 and £584,000 in 2015, with the highest paid director receiving £480,000 in 2014 and £488,000 in 2015.
The Court recalled the view of the trial judge in R v Thames Water Utilities Limited that a defendant should not automatically be treated as being a ‘very large organisation’ if its turnover exceeds £150 million over a three year average and agreed against adopting such a mechanistic approach. The Court noted that the trial judge did not explicitly state that Whirlpool was a ‘very large organisation’, but it was clear that it fell within this category.
Nevertheless, the Court noted that even if a company’s turnover ‘greatly exceeds’ £50 million, the Guideline provides for flexibility by stating that the Court may, not ‘must’, move outside of the suggested range. In addition, whilst Whirlpool may be a ‘very large organisation’ the decision of the Court in R v Tata Steel UK Limited made it clear that the Guideline should not be approached in a linear, arithmetic way. In the circumstances, the Court considered that it was right to move Whirlpool again into the top category (i.e. ‘harm category 1’) which has a range of between £180,000 and £700,000. Furthermore, it considered that the starting point should be increased from £300,000 to £500,000.
Given the strong mitigating factors identified by the trial judge (for example, Whirlpool’s excellent health and safety record, the steps it had taken to ensure that Mr Dalley was aware of his duty to act under a code of practice which highlighted the risk of working at height, and the fact that Whirlpool was aware that he was qualified to undertake the work he was doing) and the lack of aggravating factors, the Court considered that a reduction to £450,000 should be made before allowing a one-third discount to take account of the Whirlpool’s guilty plea resulting in the final fine being reduced to £300,000, thereby quashing the original £700,000 fine.
The impact of relatively poor profitability in the context of an organisation with a substantial turnover
The Court distinguished organisations trading on wafer-thin margins from others where profits shared between the partners or shareholders form a substantial part of turnover. Likewise, the Court considered it important to treat organisations with a consistent recent history of losses differently from those with a consistent recent history of profits. Furthermore, it was stated that high remuneration of the directors relative to turnover is likely to attract a higher penalty than where the opposite is the case. In the case of Whirlpool, the Court understood that it had an underlying profitability; the recent loss was the result of exceptional items, and the losses had not affected the directors’ remuneration. In addition, Whirlpool’s assets for both 2014 and 2015 were worth about £550 million.
Conclusion
The Court of Appeal noted that courts should not lose sight of the fact that they are engaged in an exercise of judgement appropriately structured by the Guideline, but not straitjacketed by it. Furthermore, the Court emphasised that the circumstances of this case were unusual in that they flowed from an offence of low culpability and low likelihood of harm, and that, had there been any increased culpability or likelihood of harm, then the appropriate fine would have been much larger. It was observed that no two health and safety offences are the same and that the same degree of actual harm can deliver very different fines depending on the circumstances. Therefore, notwithstanding that the Court reduced the fine imposed on Whirlpool (as it had previously done in the Tata Steel case), very large organisations remain vulnerable to very large fines.