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Faltec Europe: Interpreting the Sentencing Guidelines

30 May 2019
This recent Court of Appeal judgment makes a number of useful and interesting observations in relation to the interpretation of the Definitive Guideline on Health & Safety Offences.

The Facts

Faltec is a car part manufacturer for Nissan and others. It is a wholly owned subsidiary of a Japanese holding company. Its annual turnover was around £36 million. It made a loss in 2016 and 2017 subsisting thanks to its holding company which has a £600 million turnover and makes an annual profit of up to £20 million.

Faltec pleaded guilty to three offences: two arising from a Legionnaire's disease breakout and a third from an injury caused by an explosion relating to the use of a flocker machine.

Between October 2014 and June 2015 five people (four employees and one local resident) were infected and diagnosed with Legionnaire's disease as a result of the contamination of one of Faltec's four cooling towers. The reason for the contamination was an oversight by Faltec's specialist water contractor in failing to maintain an effective dosing treatment regime. Faltec called expert evidence (which was not disputed) that of those exposed to the outbreak the proportion who would be expected to sustain fatal injuries would be less than 4 in 10,000.

Two charges arose from the outbreak (one under section 2 and one under section 3) for which Faltec received an £800,000 fine and no separate penalty. A third count under section 2 arose out of a separate incident in which an employee was injured by an explosion caused by a flocker machine. Faltec admitted that the machine did not meet required safety standards, that risk assessments had failed to identify the control measures necessary and that the injured party had not been sufficiently trained. It had purchased the machine cheaply from its parent company. The judge imposed a further consecutive £800,000 fine.

Issues dealt with by the Court of Appeal

Faltec's appeal was a root and branch attack on the Judge's conclusions. Some of their points were accepted and some rejected by Lord Justice Gross. The principal issues dealt with were as follows:

(1) Expert evidence and the likelihood of harm

The court's evaluation of the likelihood of harm cannot ignore the scientific evidence of likelihood. In this case the Judge's characterisation of "high" likelihood could not be sustained in the light of the statistical evidence. 

(2) Moving up a harm category (or moving up within a category range)

LJ Gross made is clear that the Guideline "enjoins a Judge to consider moving up a harm category or within the category range; the Judge is not obliged to make an upwards adjustment. The Guidelines is permissive rather than obligatory."

The court is not entitled to move up a harm category if actual harm was caused but to a lesser degree than the harm that was risked. That applies if either of the factors are present (either exposure of number of people or the offence was a significant cause of harm). In the present case the sentencing judge ruled (wrongly) that it only applied to the second limb (significant cause of harm).

(3) Holding company's finances at step 3

At step 3 the Judge has to ensure that the fine is proportionate. Normally only information in relation to the defendant organisation is relevant unless "exceptionally it is demonstrated to the court that the resources of a linked organisation are available and can properly be taken into account".

The Court must consider the "economic realities of the organisation". That will depend on a fact specific inquiry in each case. Normal parent / subsidiary relationships will not satisfy the test, it must be exceptional. Here, it was exceptional. The accounts specifically stated that the defendant company was dependent on continuing financial support from its parent and the parent undertook to provide funds to it if required to enable it to meet its liabilities.

In those circumstances it would be wrong to ignore the resources of the holding company.

(4) Contingency Reserve in accounts for the fine

Faltec had made a prudent reserve in its accounts for £1.6 million. The CA held that the Judge was wrong to take the reserve into account when concluding that Faltec would remain solvent after making such provision. The size of the reserve should not have formed part of the proportionality assessment. The danger is that it discourages prudent reserving. The CA recommended that such reserves are left out of the accounts.

(5) Statutory aggravating factor – "cost cutting at the expense of safety"

Such cost-cutting cannot be established merely because a cheaper machine was purchased and it transpires that the more expensive machine had safety advantages. The Judge must make a finding as to the motive for the cheap purchase and didn't do so in Faltec. The motive for the purchase of the machine required consideration. However, the CA went on to say that although it couldn't be a statutory aggravating factor, the Judge was still entitled to take the history of the purchase and operation of the machine into account. It therefore makes no practical difference to the level of the fine.

As a result of the CA's rulings on the likelihood of harm (down from high to medium) and that the Judge was not entitled to move up a harm category (so harm category 2 rather than harm category 1) the fine in relation to Legionnaire's was reduced from £800,000 to £380,000. The fine for the flocker machine remained the same and so the total fine was £1,180,000.

Further Reading