Court of Appeal confirms correct health and safety sentencing approach

Earlier this summer, Bupa Care Homes Limited (BCHL) was fined £3 million following conviction for health and safety failings related to legionella training and water temperatures within one of its care homes. A resident died of Legionnaire’s Disease, though the courts found there was no causal link between Bupa’s failings and the resident’s death.

The Court of Appeal has now halved that fine, after finding that the sentencing judge had incorrectly taken the financial position of BCHL's parent company, Bupa Ltd, into account.

A basic principle of company law is that a corporation is to be treated as a separate legal person with separate assets from its shareholder(s). Underlining this principle, the appeal court held that only in exceptional circumstances will it be necessary to adjust a fine based on the 'economic realities' of a parent company.

The original fine

Having regard to the Sentencing Council's Definitive Guideline for Health and Safety etc. offences (the guideline), the sentencing judge had concluded that BCHL case was one of high culpability, harm category 2.

BCHL's turnover in 2016 of £89m put it into the guideline's 'large company' category, despite the fact it had made losses in that financial year. This gave rise to a starting point for the fine of £1.1m with a range of £550,000 to £2.9m. In deciding where within that range the starting point should sit, the judge was at pains to confirm that this assessment did not depend on a rigid or mechanistic application of a set formula but instead involved consideration of the particular facts, including those going towards harm and culpability. 

In all the circumstances and taking into account aggravating and mitigating factors, the sentencing judge reached a starting point of £2.25m.

Having reached this figure, the guideline then required the sentencing judge to consider whether other factors should be taken into account to ensure that the proposed fine was proportionate. Here the sentencing judge looked at previous cases involving Tata Steel and Whirlpool, concluding that they confirmed the 'economic realities' of the situation were such that the nature and financial position of the parent company, Bupa Ltd, had to be taken into account. Bupa had a £12billion turnover, with profits of £485m.  As a result the starting point for a fine was increased from £2.25m to £4.5m. 

The judge then gave the full one-third credit for a guilty plea, to reach an ultimate fine of £3m.

The appeal

BNHL appealed, arguing that:

• in elevating the starting point at Step Two from £1.1m to £2.25m, the judge engaged in double counting because in the course of so doing she said this was done to reflect "where this sits in terms of harm and culpability within the range together with a consideration of the turnover of Bupa Care Homes Ltd".  It was submitted that harm and culpability had already been taken account of at Step One; and
• the judge wrongly adjusted the fine on the basis of the turnover of Bupa Ltd, and that this was contrary to the approach in the Tata Steel and Whirlpool cases.

The Court of Appeal rejected the first argument. 

In particular it disagreed that it was inappropriate to move up the starting point with reference to culpability, harm and turnover. The Court of Appeal noted that the Whirlpool decision was authority for the fact that the guideline was intended to be flexible "in order to meet the broad range of circumstances which may fall to be considered in relation to" such offences.

In accepting the second ground of appeal, however, the appeal court confirmed that the guideline has to be applied in a way which does not infringe long-established principles of company law. The mere fact that a company is a wholly owned subsidiary of a larger parent does not mean that the resources of the parent can be treated as either available to the subsidiary or as part of the subsidiary's turnover.

Both Tata Steel and another case involving NPS London were cases where the parent's turnover was taken into account not because it should be treated as belonging to the subsidiary company, but because the economic reality was that the subsidiary would not have been a going concern without it, and so it could not properly be ignored as part of that reality. In those cases, fines were not reduced for loss making subsidiaries given the economic realities of the parent. They were not cases where fines were simply increased by virtue of a parent's turnover or financial standing, as the sentencing judge had sought to do here.  

The Court of Appeal concluded there was no such "special factor" in the Bupa case.  Nor was there any suggestion that BCHL would be unable to pay the fine and require instead the parent to pay it, or that it would not be a going concern without the financial support of its parent.

The Court of Appeal therefore concluded that the sentencing court had been wrong to increase the fine from £2.25m to £4.5m on the basis of Bupa Ltd's turnover. The fine before discount for plea should have been £2.25m. Applying a one third discount for the guilty plea gave rise to a figure of £1.5m, down from £3m on appeal.

The Court of Appeal decision is a welcome judgment for entities with large parent companies who are sentenced under the guideline. It is a strong reassertion of the principle that the corporate veil should not be pierced when sentencing a corporate offender.

Moreover, the judgment was further confirmation, following the Whirlpool case, that courts should not adopt a constrained or mechanistic approach to sentencing, which can often have a disproportionate effect on the sentences of large and very large organisations operating in high risk environments.

Given the diverse nature of offences and contexts of potential offences that fall to be sentenced under the guideline, courts should approach each case flexibly in order to utilise the 'shades of grey' between the various culpability and harm category assessments.

Simon Tingle is a health and safety law expert at Pinsent Masons, the law firm behind Out-Law.

Editor’s note 12.11.19: The story has been amended to clarify that the health and safety failings admitted by BUPA were not found by the court to be the cause of death at the care home.