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Corporate Manslaughter &
Management Liability

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Insight

D&O/Management Risks

    Nearly 10 years after the introduction of The Corporate Manslaughter and Corporate Homicide Act 2007 (the “Act”) was introduced on 6 April 2008, it’s possible to reflect and measure the impact on the management liability landscape.

    The law was introduced to make it easier for the authorities to prosecute organisations where a corporate management failing has caused a fatality. It replaced the old law of corporate manslaughter (manslaughter by gross negligence) and the position of individuals didn’t change (individuals continued to be prosecuted under the old law of gross negligence manslaughter). Importantly, it did not create a bar to parallel proceedings by the HSE, who continue to bring safety related prosecutions under The Health and Safety at Work Act, as well as under the new Act.

    HSE figures show that in the year to 31 March 2016, 46 company directors and senior managers were prosecuted for health and safety offences. That’s a 300%+ increase on the previous year, which sounds like a lot, but the risk is still fairly low, given there were 3,593,602 companies on the effective register at Companies House at the end of December 2016. The chance of conviction is high, at 74%, albeit this is slightly lower than is generally the level for health and safety cases (at around 95%). This is doubtless a reflection of the fact both that individuals prosecuted for health and safety offences are more likely to defend them (whereas the majority of companies plead guilty) and that juries are likely to be less inclined to convict an individual than a company.

    There’s no doubt that prosecutions under the Act have not been as widespread as may have been anticipated. It has led to some interesting developments though, including the case Lion Steel Equipment Limited (“Lion Steel”), where a worker fell to his death through a fragile roof panel. That case demonstrated the willingness of the CPS to bring charges against individual directors, which may in turn put pressure on the corporate entity to plead guilty. A conundrum for directors lies in one of the potential consequences of this, in that a director could be in breach of a duty to the company if they are acting in their own best interests, not those of the company. If liquidation of the company followed a fine that was imposed, this could have other consequences for the directors. The prospect of a possible custodial sentence (gross negligence manslaughter has a maximum tariff of life imprisonment) could make a director feel vulnerable enough to prioritise personal interests over those of the company. In the case of Lion Steel, one of the directors charged was the Finance Director, so the scope for prosecution goes beyond those immediately connected to the work which caused the breach. Depending on your perspective, this might be considered to be unfair, or it might focus the attention of all management on the importance of appropriate health and safety protocols.

    In 70% of prosecutions, parallel proceedings were also brought for Gross Negligence Manslaughter and/or Health and Safety offences.

    Figures from the CPS to February 2016 (PDF), following a Freedom of Information request, show some interesting results.

    In 70% of prosecutions, parallel proceedings were also brought for Gross Negligence Manslaughter and/or Health and Safety offences. There’s also possibly something of a paradox here. Fewer prosecutions might mean there are fewer deaths, which might lead to the conclusion that the imposition of the Act has had the intended consequences. There is no doubt that the law raised the profile of the offence and of failure to comply and new sentencing guidelines for fines introduced in February 2016 continue to emphasise the punishing consequences for organisations of Health and Safety breaches. These guidelines were designed to ensure a more consistent approach to the sentencing of individuals and organisations convicted of relevant offences by courts in England and Wales. Courts are required to first assess the seriousness of the offence based on the offender’s culpability and the risk of serious harm, regardless of whether any harm was in fact caused. The guideline then sets a starting point and a range of possible fines based on the seriousness of the offence, which vary depending on the size of the organisation based on turnover. The case of Monavon Construction in June 2016 gives some indication of the courts approach to fines. The judge fined the company £250,000 for each of the corporate manslaughter offences (2 scuffling pedestrians fell in a 3.7m well on a construction project), plus an additional £50,000 for the Health and Safety at Work Act breach. The judge also imposed a publicity order on the company, and awarded costs of around £23,000 against it. The level of the fine was based on the fact that Monavon was a “micro organisation” with a turnover of much less than £2 million.

    From a Management Liability perspective, the landscape hasn’t fundamentally changed. The statistical risk remains low, but the consequences are worsening for offenders. Court proceedings are long and expensive. An accident can expose directors to a long period of anxiety and hefty fines (which insurance is not allowed to pay), and a directors and officers policy or Management Risks Insurance policy can at least provide some shelter from the costs of defending the accusations. Affirmative cover now exists in policies and it is typical to provide up to a £1 million defence costs cover for claims against the entity for corporate manslaughter. This is in addition to defence costs cover for claims against individuals as a result of criminal proceedings for manslaughter. The policies also provide cover for costs associated with Health and Safety investigations against the organisation.

    Neil McCarthy

    Written by

    Neil McCarthy

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