Following the Court of Appeal's ruling in the case of Sellafield Limited and Network Rail Infrastructure, who were recently fined GBP 700,000 and GBP 500,000 respectively as reported in our previous article- see link here- we commented on the start of a trend in significant fines for regulatory offences for large organisations.

A recent case reinforces that where the turnover of a corporate approaches a billion pounds, companies can expect fines that send a real message throughout the business.

However, a further significant development is the fact this latest case specifically commented that in regulatory cases it will be incumbent on the CEO and Board to explain their behaviour and the steps they are taking to prevent reoccurrence.

What was the case about?

The case involved a large water utility company which appealed against a fine of GBP 200,000 following a discharge of raw sewage over a six-month period when it failed to repair its sewage pumping station at Margate.

Whilst the Lord Chief Justice accepted there had been no actual harm caused by the discharge, he noted it was important to consider the potential harm and, particularly in environmental cases, the impact on the local economy. He found that any loss of confidence in the use of the coastal waters of Kent could have a serious effect.

Significantly, he also noted the absence of an explanation by the company of steps taken to prevent the risk of harm and observed there would have been no basis for interfering with the fine even if the lower Court had imposed a "very substantially greater one". The appeal was therefore dismissed.

What are the ramifications?

This is a very clear signal to the lower Courts to be more robust with the largest companies which have the ability to pay big fines in health and safety and environmental cases, even where there has not been a fatality, any significant harm caused, or (as in this case) any actual harm but where there was the potential for significant harm.

Such corporations should be warned that:

  • The Courts are likely to treat turnover as the key in determining the level of fine, even though it is arguably the worst indicator of affordability
  • The CEO and the Board will need to be able to demonstrate to the regulator and the Court how the business is ensuring an end to further criminal conduct and what has been done to put it right, particularly where there is a history of previous offending
  • The Court specifically said that, "in offences of the seriousness of the kind represented by this case it is incumbent on the Chief Executive and main board of the company to explain to the Court the cause of its offending behaviour, the current offence and its proposals for protecting the public from such further offending"
  • A record of previous offending is likely to have a significant impact on the level of fine
  • Companies will be required to provide much more by way of financial information to be scrutinised by the Court as it seeks to impose fines large enough to deliver a message to those who can influence management decisions and attitude
  • There will be a continued significant upward trend in penalties in health and safety and environmental cases, even where the degree of harm is modest or non-existent but there is a potential risk of harm
  • Such penalties will go hand in hand with the adverse publicity and damage to reputation
  • It will become increasingly difficult to persuade Magistrates' Courts to accept jurisdiction in cases where large companies are involved, even where the actual harm is minimal but the potential for harm existed

What is clear is that fines falling well into hundreds of thousands for large corporations will no longer only be reserved for cases where there has been a major disaster or fatality.

We are entering a new era of sentencing practice, where penalties are likely to be much greater than what was previously thought appropriate for the seriousness of an offence, and CEOs and the main Board can expect to be held to account for what the business is doing to improve its safety record.

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