The Relevance of Linked Organisations in Sentencing Corporate Defendents
Chris Gillespie examines the recent welcome decision of the Court of Appeal in R v NPS London Ltd [2019] EWCA Crim 228
The Court of Appeal has restated the important principle that the mere fact that a corporate defendant is a wholly owned subsidiary of a larger corporation or that a parent company or other “linked” organisation is likely to make funds available to enable the defendant to pay a fine is not a reason to depart from established principles of company law or to treat the turnover of the linked organisation as if it were the offending organisation’s turnover: R v NPS London Ltd [2019] EWCA Crim 228.
The appellant had been fined £370,000 after pleading guilty to an offence contrary to section 3(1) of the Health and Safety at Work Act 1974 in that it had failed to recognise the deficiencies in an asbestos survey it had commissioned thereby exposing others to dust containing asbestos with a consequent long-term risk to health.
The appellant’s corporate structure was as follows: it was a joint venture company, 80% owned by another company, which was itself ultimately controlled by Norfolk County Council, and 20% by the London Borough of Waltham Forest. It was set up to outsource professional services previously performed by employees of the Borough. 80% of its turnover derived from services provided to the Borough with any profits being shared equally between the Borough and the Council.
For the purposes of the Sentencing Guideline there was no dispute that culpability was high and the harm category level 2. The appellant’s accounts showed a turnover of £5 – 6m making it a small organisation. On this basis the starting point of any fine should have been £100,000 with a range from £50,000 to £450,000. The appellant was loss-making with negative equity of £4.5m. The parent company was prepared to support it for 12 months.
The Learned Judge purported to apply the relevant Sentencing Guideline and in particular took into account the following passages when considering step 3, the “step back provision”:
“The court should examine the financial circumstances of the offender in the round to assess the economic realities of the organisation and the most efficacious way of giving effect to the purposes of sentencing.”
“Normally, only information relating to the organisation before the court will be 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.”
In his view the appellant fell to be treated as a large organisation because the parent company had a turnover of £125m. This led to an increase in the starting point to £1.1m and the category range to £550,000 to £2.9m.
The Court of Appeal concluded that the judge was wrong to read the guideline as entitling him to treat the appellant as a large organisation for the purpose of sentencing. It is the offending organisation’s turnover, and not that of any linked organisation, which at step 2 of the guideline should be used to identify the relevant table. This was not a case where it would have been permissible to pierce the corporate veil, such as for example where a subsidiary had been used to carry out work with the deliberate intention of avoiding or reducing liability for non-compliance with health and safety obligations.
Where the resources of a linked organisation can be taken into account is at step 3 when the financial circumstances of the offender are examined in the round. It may certainly be relevant at that stage that the offender will not be dependent on its own financial resources to pay the fine but can rely on a linked organisation to provide the necessary funds.
Therefore the Sentencing Judge had been wrong to treat the relevant table for sentencing purposes as that applicable to large organisations. However, even though the appellant was an enterprise with low profitability and no resources from which to pay a fine this was not a reason to reduce the amount, because in these circumstances it was proper to regard the parent as a linked organisation which could be counted on to provide the money.
Taking into account all the relevant factors the starting point should have been £75,000 and the fine reduced to £50,000 to give full credit for the guilty plea. It will be noted that the practical effect of this interpretation of the Guideline was a saving to the appellant of £320,000.
What this case underlines, following the Supreme Court’s restatement of basic company law principles in Prest v Petrodel Resources Ltd [2013] 2 AC 415 and the more directly relevant Court of Appeal authority of R v Tata Steel [2017] EWCA Crim 704, is that it is the resources of the defendant company that are relevant for sentencing purposes. Normally, those resources will be those of the defendant company itself. However, in an appropriate case a sentencing court may take into account the resources of a linked organisation in deciding not to discount a fine by reason of the defendant’s apparent non-profitability.
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