Legal spotlight Dec/Jan

A PARENT company's turnover will be largely irrelevant when considering the appropriate level of fine for a company found to be in breach of its health and safety obligations, according to the Court of Appeal when it recently halved the £3million fine handed to BUPA Care Homes (BNH) Limited (BNHL).

Underlining the basic principle of company law that a corporation is to be treated as a separate legal person with separate assets from its shareholder(s), the appeal court held that only in exceptional circumstances will it be necessary to adjust a fine based on the 'economic realities' of a parent.

In sentencing BNHL for health and safety failings, the judge had regard to the Sentencing Council's Definitive Guideline for Health and Safety etc offences (the Guideline), concluding that the case was one of high culpability, harm category 2. BNHL's turnover in 2016 of £89 million put it in the Guideline's large company category, despite the fact it had made losses in that financial year. This gave rise to a starting point of £1.1 million with a range of £550,000 to £2.9 million. Confirming that the determination of a starting point within that range did not depend on a rigid or mechanistic application of a set formula but instead involved consideration of the particular facts, including those going towards harm and culpability, and taking into account aggravating and mitigating factors, the sentencing judge reached a starting point of £2.25million.

The Guideline then required the sentencing judge to consider whether other factors should be taken into account to ensure that the proposed fine was proportionate. Here the sentencing judge looked at the previous Tata Steel and Whirlpool cases concluding that they confirmed the 'economic realities' of the situation were such that the nature and financial position of the parent company, BUPA Limited, which had a £12 billion turnover, with profits of £485 million, required to be taken into account. As a result the starting point for a fine was increased from £2.25 million to £4.5 million.

The judge then gave the full one-third credit for a guilty plea, to reach an ultimate fine of £3million.

BNHL appealed, arguing that

• in considering harm and culpability in reaching the starting point of £2.25 the judge engaged in double counting;

• the judge wrongly adjusted the fine on the basis of the turnover of BUPA Limited.

The Court of Appeal rejected the first argument.

In particular, it disagreed that it was inappropriate to move up the starting point with reference to culpability, harm and turnover. The Court of Appeal noted that the Whirlpool decision was authority for the fact that the Guideline was intended to be flexible 'in order to meet the broad range of circumstances which may fall to be considered in relation to" such offences.

In accepting the second ground of appeal, however, the appeal court confirmed that the Guideline has to be applied in a way which does not infringe long-established principles of company law. The mere fact that a company is a wholly owned subsidiary of a larger parent does not mean that the resources of the parent can be treated as either available to the subsidiary or as part of the subsidiary's turnover. To do otherwise required exceptional circumstances.

The Court of Appeal concluded there was no such 'special factor' in the BUPA case. Nor was there any suggestion that BNH would be unable to pay the fine and require instead the parent to pay it, or that it would not be a going concern, absent the financial support of its parent. 

The Court of Appeal therefore concluded that the sentencing court had been wrong to increase the fine from £2,250,000 to £4,500,000, on the basis of BUPA Limited's turnover. The fine before discount for plea should have been £2,250,000. Applying a one third discount for the guilty plea gave rise to a figure of £1,500,000 down from £3 million, on appeal.

The Court of Appeal decision is a welcome judgment for entities (with large parents) sentenced under the Guideline. It is a strong reassertion of the principle that the corporate veil should not be pierced when sentencing a corporate offender.

Moreover, the judgment was further confirmation, that courts should not adopt a constrained or mechanistic approach to sentencing, which can often have a disproportionate effect on the sentences of large and very large organisations operating in high risk environments.

Given the diverse nature of offences and contexts of potential offences that fall to be sentenced under the Guideline, courts should approach each case flexibly, in order to utilise the 'shades of grey' between the various culpability and harm category assessments.

Kevin Bridges is partner and head of health and safety at Pinsent Masons. For more information, visit www.pinsentmasons.com