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Commercial Question

From Boardroom to Courtroom

updated on 19 February 2008

Question

What are the implications of the Corporate Manslaughter and Corporate Homicide Act 2007?

Answer

After over a decade of anticipation, debate and concession, the Corporate Manslaughter and Corporate Homicide Act 2007 comes into force on 6 April 2008. The test for corporate manslaughter (corporate homicide being the Scottish equivalent) is that if the way in which the organisation's activities are managed or organised, by senior management, causes a person's death and is a gross breach of a relevant duty of care owed by the organisation to the deceased, then the organisation will be guilty.

Why is it needed?

Corporate manslaughter exists in common law (at least until it is repealed by the new act). However, the way in which the test is framed has made it difficult to convict all but the smallest of organisations. This is because it requires the 'controlling mind of the organisation' to have been grossly negligent. Events such as the Zeebrugge ferry disaster, which saw 192 lives lost after the doors to the car deck of a ferry were left open, have led to public outcry. More recently we have seen the failure of a prosecution in the Southall rail crash. In fact, between 1992 and 2005 there have been only 34 charges for work-related manslaughter and, of those, only six resulted in conviction and all of those were against small companies.

How will the act affect industry?

The penalty levied at those convicted will be a fine. This is where the shareholders will sit up and pay attention. The Sentencing Guidelines Panel is consulting on its recommendation that the guideline be a fine of 5% of average annual turnover for three years prior to sentencing. It suggests this should be increased to up to 10% where there are particularly aggravating circumstances. To put this in context, the largest fine to date was that levied in Scotland against Transco and was £15 million, being 5% of after-tax profits - and only 1% of annual turnover! The guidelines will not limit the court, which will be able to award an unlimited fine.

Crucially, the actions of those who play significant roles in making decisions or actually managing activities will be examined under the new test. Inappropriate delegation will not provide an excuse. The jury will be invited to consider the organisation's attitudes, policies, systems and accepted practices. The first action industry needs to take is to take stock of its approach to health and safety. Are their policies sufficient and, just as importantly, are they adequately communicated and implemented?

As part of this exercise, organisations should be heeding any warnings they have previously been given. This should include those given by enforcing bodies and those by employees or members of the public (eg, any near misses). The motivation behind this should be to ensure that a safe environment is created for workers and members of the public. Should this not be motivation enough, then the failure to act upon such advice is going to see the potential for a fine nearer the 10% of turnover mark on prosecution. Furthermore, the organisation is going to face real difficulty in court if the failure to act was motivated by financial gain.

The financial repercussions of a fine are clearly identifiable. The damage to reputation is not as easily quantifiable but should be of significant concern. The court will have the power to order that the conviction be publicised. This can include specified particulars of the offence and details of the fine.

It is hoped that an organisation would remedy the failing that led to the death without prompting. Should they not, the court will also have power to order a remedial order requiring the organisation to take specific steps to remedy its breach.

Has it gone far enough?

Critics argue that this is a missed opportunity. The ultimate penalty is no different from that under existing health and safety legislation - an unlimited fine. It is also important to note that there is no personal liability under the act. However, that does not mean directors and managers can breathe a sigh of relief. There remains the potential for them to face a charge for gross negligence, manslaughter or offences in their personal capacity under the Health and Safety at Work etc Act 1974. The government itself predicts only 10 to 13 extra prosecutions will be brought per year and, as such, only time will tell what the impact of the new act will be on British industry.

Laura Hale is a newly qualified solicitor in Weightmans' Regulatory Services Unit.