Newsletters Criminal Regulatory 8th Nov 2016

Setting Fines in Uncertain Times: The Corporate Identity Crisis

When imposing a fine, the court must take into account the means of the offender (see s. 164(3) CJA 2003).

However, if the defendant is a company within a wider group, in practice, the court might take into account the resources of the whole group, rather than just the defendant company (e.g.  R v Keltbray Ltd. [2001] 1 Cr. App. R. (S.) 39).

The exact circumstances in which this might happen are unclear.   Indeed, neither the Sentencing Council, nor the Court of Appeal, have provided helpful guidance.

The Sentencing Council has issued guidelines on sentencing organisations in respect of Environmental Offences (effective from July 2014), as well as Health and Safety, Corporate Manslaughter and Food Safety Offences (effective from February 2016).   Both sets of guidelines, with one minor variation, contain the following paragraph:

Normally, only information relating to the organisation before the court will be relevant, unless it is demonstrated to the court that the resources of a linked organisation are available and can properly be taken into account.

The minor variation referred to is in the Health and Safety Offences Guideline.  The word “exceptionally” has been inserted between “unless” and “it”.  There appears to be no good reason for this.  The corporate identity principles to be applied when sentencing a corporate body for a health and safety breach should be no different to those to be applied when sentencing for corporate manslaughter and food safety.   The slight difference in wording is unexplained, and might have been a drafting error.

The more notable point about the above paragraph from the Guidelines is that it is not particularly helpful.   The financial position of a linked organisation may be taken into account where its resources are “available” and can “properly” be taken into account.   In practice, a prosecutor would not bother asking the court to proceed down this route unless resources are “available”; and a judge would not think to do anything if not done “properly” (surely).   Therefore, the guidance does not assist in identifying the real circumstances in which resources of a legal entity other than the defendant may be taken into account at sentence.

The vagueness of this paragraph can be explained in two ways.   First, its precise wording was not the subject of consultation.   During the consultation period for the Environmental Offences Guideline, respondents queried whether the resources of a parent company should be taken into account when sentencing a subsidiary; the draft guideline had been silent on this point.   The above paragraph was then inserted, and was repeated (with the minor variation referred to above) in the Health and Safety, Corporate Manslaughter and Food Safety Offences Guideline.  On neither occasion did the Sentencing Council invite stakeholders to answer questions about it.

Secondly, the Council may have been concerned about being too prescriptive.   The Courts had not specified the circumstances in which the resources of linked organisations could be taken into account at sentence.   Case-law could develop.   There would have been a risk of encroaching into the courts’ territory.

In the event, the Courts have not confronted the issue head on.   Earlier this year, the Court of Appeal considered a case in which the sentencing judge had taken into account the resources of the wider corporate group, at the stage when he might otherwise have made a downward adjustment for losses incurred by the defendant company (R v. Ineos Chlorvinyls Ltd [2016] EWCA Crim 607).    Unfortunately, the Court did not say much about this point, other than to observe that under the relevant Sentencing Guideline, the judge was entitled to take into account the resources of any linked organisation.   The case provides an example of the Guideline in operation, but not guidance as to the circumstances in which resources of a linked organisation may be taken into account when imposing a fine.

Lastly, it is worth addressing the question of whether the test for piercing the corporate veil needs to be met before the resources of a linked organisation may be taken into account.  In summary, it is arguable, but unlikely.   The test for piercing the corporate veil, as set out by Lord Sumption JSC in the family-law case of Prest v. Petrodel Resources [2013] 2 AC 415 at paragraph 35, is met when a company is interposed deliberately in order to evade an existing legal liability or obligation, or to frustrate its enforcement.   In confiscation cases, the Court of Appeal, whilst confirming the applicability of Prest to criminal proceedings, has nevertheless carried through (with modifications) elements from pre-existing case-law, when deciding whether a defendant (as opposed to a company he is connected with) has obtained benefit from criminal conduct (see e.g. R v. Boyle Transport (Northern Ireland Ltd.) [2016] 2 Cr. App. R. (S.) 11).  In the sentencing context, the Courts may similarly find ways to allow a degree of flexibility.

We remain in uncertain times.


Julia Faure Walker

9th November 2016

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