Birketts LLP represented NPS London Ltd in relation to their appeal against sentence following a plea of guilty to section 3(1) of the Health and Safety at Work Act 1974:
- NPS is a small organisation – the sentencing judge determined that he could take into account the resources of a linked parent company
- Consequently he sentenced NPS as if they were a large company
- The Court of Appeal in agreeing with our submissions, concluded that the judge was clearly wrong: “It is the offending organisation’s turnover, and not that of any linked organisation, which, at step two of the guideline, is to be used to identify the relevant table.”
- The fine was reduced from £370,000 to £50,000
- This case will provide significant guidance in the future for how courts approach sentencing smaller organisations within a group structure.
NPS made early admissions that they had failed to conduct their undertaking in such a way to ensure, as far as reasonably practicable, that those persons not in their employment were not exposed to risks to their health and safety, following the disturbance of asbestos containing material during the refurbishment works at a London school in July 2012. They were fined £370,000 at the Crown Court. The reasoning behind the judge’s approach to the sentencing exercise formed the basis of the appeal at the Court of Appeal on 15 February 2019; specifically that the judge was wrong to treat NPS as a large organisation for the purposes of the sentencing guidelines. In the judgment handed down 26 February the sentencing exercise was considered afresh and NPS were fined the substantially lower sum of £50,000.
Whilst the company had pleaded guilty in 2015 this case was sentenced in July 2017 and therefore the Definitive Guideline issued by the Sentencing Council applied. Step one of which requires the judge to determine the category of the offence by reference to the offender’s culpability and risk of harm created by the offence.
Step two requires the court to focus on the organisation's annual turnover or equivalent in reaching the starting point for any fine. The guideline offers various tables for organisations of different sizes: ‘large’ (annual turnover or equivalent of £50m and over), ‘medium’ (annual turnover of between £10m and £50m) and ‘small’ organisations (annual turnover of between £2m and £10m). At present the definitive guideline under this step states that: "Normally, only information relating to the organisation before the court will be relevant, unless exceptionally it is demonstrated to the court that the resources of a linked organisation are available and can properly be taken into account.” There is no definition offered for ‘linked organisation’ or any clarification as to what is to constitute an ‘exceptional’ case in which the court may consider the resources of a ‘linked organisation’.
The third step requires the judge to consider if the anticipated fine that is based upon turnover is "proportionate to the overall means of the offender". At this step the court is to have regard to the profitability of an organisation, amongst other things, in finalising the sentence.
The fourth step leads to consideration of any other factors that may warrant adjustment of the fine, such as whether it impairs the offender's ability to make restitution to victims; then the court considers reduction for a guilty plea if relevant.
Fundamentally this judgment offers a long-anticipated clarification that it is the offending organisation’s turnover and not that of any ‘linked organisation’ which is to be used to identify which table should properly be considered to establish the starting point and category range of any fine, at step two. This respects the well-known company law principle of only lifting the 'corporate veil' where it is truly permissible to do so. The judge that carried out the initial sentencing exercise wrongly interpreted the guideline and therefore adopted a starting point that was too high: “It is the offending organisation’s turnover, and not that of any linked organisation, which, at step two of the guideline, is to be used to identify the relevant table.”
It clarifies that a linked organisation can only be taken into account at step two if there is something exceptional about the facts. The norm is that linked organisations finances only be taken into consideration at step three of the sentencing exercise. The judgment offers an example of what exceptionally might lead the court to take linked organisations into account at step two, citing R v Boyle Transport (Northern Ireland) Ltd  EWCA Crim 19;  2 Cr App R (S) 11 by way of example; a subsidiary carrying out work with the intention of reducing or avoiding liability for non-compliance with health and safety obligations.
The judgment confirms that where an offending organisation is a wholly owned subsidiary of a larger organisation, even if in practice the parent would make funds available to assist the offending organisation pay a fine, that does not of itself permit the judge to pierce the corporate veil, by treating the turnover of the linked organisation as if it were the offending organisation’s turnover at step two of the guideline.
The content of this article is for general information only. If you would like to discuss the impact of this judgment further please contact Matthew Gowen or another member of Birketts' Health and Safety Team.