Guidance from the Court of Appeal on the sentencing guideline and linked organisations
R v NPS London Ltd [26.02.19]
The Court of Appeal has affirmed the position of how an offending organisation’s finances should be assessed when being sentenced for a health and safety offence, where the offending organisation is partly or wholly owned by a parent company.
NPS London Ltd (NPS London) managed a refurbishment project of a school on behalf of the London Borough of Waltham Forest. As part of the project, NPS London was required to carry out an asbestos survey. It transpired that the asbestos survey it obtained was deficient and that it failed to put in place other reasonably practicable steps to prevent the exposure of workers to dust containing asbestos when carrying out the refurbishment works.
NPS London is a joint venture company that is 80% owned by its parent company, NPS Property Consultants Limited (NPS Property Consultants). NPS London had a turnover of between £5-6 million, making it a “small company” for the purposes of the Definitive Sentencing Guideline for Health and Safety Offences (the Guideline) compared to its parent company’s turnover of £125 million, which is a “large company” for the purposes of the Guideline.
NPS London pleaded guilty to a breach of Section 3(1) of the Health and Safety at Work Act 1974 for failing to ensure the safety of its workers and contractors as far as was reasonably practicable. In applying the Guideline when passing sentence, step two requires the sentencing judge to categorise the offending company based on its turnover to ascertain an appropriate starting point and range for the fine.
In this instance, when considering step two, the sentencing judge looked to the resources of the parent company, placing reliance on a later passage in the Guideline permitting the judge to have regard to the resources of a linked organisation where they are available and can properly be taken into account. On this basis, the sentencing judge took account of NPS Property Consultants’ turnover and assessed the fine as if the offender was a “large” organisation. This gave the sentencing judge a starting point of £1.1 million which, after reduction for a guilty plea and mitigation, led to a fine of £370,000.
NPS London appealed the decision to the Court of Appeal on the basis that it was wrong of the sentencing judge to have treated it as a large company simply because of the available resources of its parent company.
The Court of Appeal found that the sentencing judge had incorrectly applied the Guideline and confirmed that it is the offending organisation’s turnover that should be used when assessing where in the Guideline to assess the starting point of the fine.
The Court of Appeal found that it would only be appropriate to “lift the corporate veil” and look to a linked organisation’s resources at step two where a subsidiary company had been used in a manner to deliberately avoid responsibility for non-compliance. The ability of the linked organisation to pay any fine imposed on its subsidiary, was held not to be a sufficient reason to use the parent company’s turnover when assessing the starting point of the fine.
However, this did not prevent a sentencing judge from looking at the parent’s turnover at step three in the Guideline when taking into account the economic reality of how the offending company operates in relation to its parent.
In the case of NPS London, the Court of Appeal found that the sentencing judge had erroneously looked at the wrong company’s turnover when assessing the starting point for the fine. In the circumstances, having regard to the relationship between NPS London and its parent company, the sentencing judge should have used the turnover of the “offending organisation” to establish the correct size of the company for step two.
On reassessment by the Court of Appeal, NPS London was assessed as being a small company, the starting point for the fine was reduced from £1.1 million (large company) to £100,000 (small company) and its fine was significantly reduced from £370,000 to £50,000 (taking into account NPS London’s guilty plea).
Where a company being sentenced under the Guideline is part of a group of companies it is clear that it is the offending company’s turnover that should be assessed for the purposes of establishing the starting point of a fine.
However, this does not prevent a sentencing judge looking at a linked company’s resources and adjusting the fine further into the sentencing process when determining whether the fine is proportionate to the overall means of the offending organisation. This would be applicable and appropriate, for example, where the linked company provides significant capital and resource to the operation of the offending company.