04 March 2014

Director's bonuses to be slashed in the event of health and safety breaches


The judgment of the Lord Chief Justice gives a clear indication that appeals against fines will be difficult to win. In two cases heard at the same time by the Court of Appeal, Network Rail and Sellafield Limited were unsuccessful in their appeals against fines of £500,000 and £700,000 respectively which had been imposed by the Crown Court for breaches of safety and environmental protection legislation.

*Background – Sellafield
*The court heard that between 15 November 2008 and 19 April 2010, Sellafield had breached the stringent standards imposed on the processing and storage of nuclear waste by failing to ensure the adequacy of its system for segregating non-radioactive waste from radioactive waste.

The Judge at first instance concluded that the failings _‘indicate basic management failures … [which] … demonstrate a … custom within the company which was too lax … to a degree complacent and senior management must bear its share of responsibility’.

_In considering the evidence the judge identified three aggravating factors, including the fact that the failure was systematic; that it potentially exposed the public to unnecessary risk; and that it was not Sellafield’s first offence.

The judge also considered that the breaches were not deliberate or reckless and that the company had co-operated with authorities and had pleaded guilty at the earliest opportunity before fining the company £700,000.

*Background – Network Rail
*In an attempt to drive over a level crossing providing access to his farm, a farmer’s car was struck by a train which resulted in the farmer being badly bruised and his 10-year old grandson suffering life changing and long-term brain damage.

The judge concluded that elementary mistakes had been made and that _‘Network Rail’s assessment of the risk and its implementation of control measures fell substantially below the standard expected’.
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After considering a number of factors, including the company’s early guilty plea; its cooperation with the investigation; the fact that the company’s income arose out of public funds and profit was reinvested in the network; and the company’s previous convictions for health and safety breaches, Network Rail were fined £500,000.

*Appeals
*Both companies appealed the levels of the fines and argued that they had not been given due credit for their early guilty pleas and level of co-operation with authorities. They also contended that the level of fines imposed equated with a major public disaster or loss of life.

*Outcome of the appeals
*The Court of Appeal concluded that the level of the fines imposed in both cases was appropriate.

The Lord Chief Justice of England and Wales, delivering the judgment, said that _‘the court [has an] obligation … to have regard to the financial circumstances of the offender. There is no ceiling to the amount of a fine that can be imposed’.
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Lord Chief Justice went on to add that in relation to Sellafield, the level of the fine imposed (equating to around 2% of the company’s weekly income) would _‘achieve the statutory purposes of sentencing by bringing home to the directors of Sellafield and its shareholders the seriousness of the offences … and provide a real incentive to the[m] to remedy the failures … particularly the custom within the company which was too lax and to a degree complacent’.

_As far as Network Rail were concerned, the Lord Chief Justice contended that the fine represented a very generous discount for the mitigation advanced and in particular the fact that the company’s profits were invested in rail infrastructure for the public benefit. He went on to add that, were it not for the mitigating factors, the fine was _‘significantly below that which should be imposed for an offence committed by a company of this size and where the harm was relatively serious and the culpability at local operational management was serious and persistent’.
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Finally, the Lord Chief Justice recommended that a reduction of directors’ bonuses would incentivise the board and _‘would demonstrate to the court the company’s efforts at the level of those ultimately responsible to address its offending behaviour, to reform and rehabilitate itself and to protect the public’.
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What does this mean?

  • Near misses and minor breaches cannot be overlooked as their cumulative effect creates an impression of an organisation that is just focused on ‘High Risk’.
  • Directors must not just say that safety is taken seriously; this must be demonstrated in their day to day behaviours and in their remuneration.
     

Category: Article