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24 Jan 2014

Determining fines for corporate offenders – a case study

Last week the Court of Appeal handed down a decision which serves as a useful reminder that the process for determining the level of fine for corporate offenders is more nuanced then a blunt calculation based on seriousness factored against profit and loss.

The appellants in the linked appeals R v Sellafield Ltd and R v Network Rail Infrastructure Ltd [2014] EWCA Crim 49 both complained that their sentences were too harsh. Sellafield was fined £700,000 in respect of seven offences of contravening regulations concerning the disposal of radioactive substances and Network Rail was fined £500,000 in respect of failing to discharge its duty under s. 3(1) of the Health and Safety at Work Act 1974 by not properly addressing the risk presented by a level crossing.

Mr Justice Mitting explained the provisions of the Criminal Justice Act 2003 in so far as they set out the duty of the Court when sentencing offenders both individual and corporate. As a first step, section 4(3) stipulates that in considering the seriousness of the offence the Court must have regard to (i) the culpability of the offender, and (ii) the harm caused, or which might reasonably be caused.

In assessing the seriousness of Sellafield’s offending, the Court held that the offences had caused no actual harm or a very small risk of harm, and the level of culpability was medium. In contrast the harm in Network Rail was very serious, involving catastrophic injury to a child, and the level of culpability was serious and persistent, albeit at a lower operational level.

Where a Court decides that the appropriate sanction is the imposition of a fine, it must then consider the statutory criteria in s. 164, including, amongst other things, the financial circumstances of the offender as far as they are known or appear to the Court.

What then were the financial circumstances of these two respective companies? Sellafield had a turnover of £1.6 billion per annum and a profit of £560,000 per week. Network Rail had an annual turnover of £6.2 billion and a weekly profit of £14.4 million. However, in order to evaluate the correct level of fine, the Court looked beyond the level of profit to the use to which profits were put. In the case of Sellafield, it was owned by a consortium of multinationals who received the profit by way of dividends.  National Rail’s parent company did not pay dividends and the profits were ploughed back into the rail network.

In respect of Sellafield, Mr Justice Mitting expected that a fine of £700,000, little more than a week’s profit, would bring home to the directors and shareholders the seriousness of the offence committed and provide a real incentive to remedy the failures. In contrast, despite Network Rail’s higher level of profits and more serious offence, it was held that a significant fine would not impose direct punishment on anyone, indeed it might be said that it would harm the public because the company’s profits are invested in the rail infrastructure for the public benefit.

So in deciding these two cases both involving hugely profitable companies which fell at different ends of the spectrum in respect of harm and culpability, the Court provided useful guidance demonstrating that, when evaluating the appropriate sentence for corporate offenders, one has to look beyond the bottom line.

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