Taking into account group assets to calculate a fine: a chink of light?
It is a well-established principle of company law that a company is a legal person and separate from its directors and shareholders. However to what extent are group assets relevant to calculating a fine?
The Sentencing Council Guidelines state: ‘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.’
However, the Court of Appeal has recently given further guidance on the approach sentencing judges should follow in this complex area in R v NPS London Limited (2019) EWCA Crim 228.
NPS London was a joint venture company 80% owned by NPS Property Consultants Ltd (the parent company) and 20% owned by the LB of Waltham Forest. The NPS parent company was controlled by Norfolk County Council (NCC) and profits were shared between Waltham Forest and NCC. The accounts for NPS London indicated a turnover in the order of £5m over the last 3 years but loss making (i.e. considered a small organisation for the purposes of the HSE Sentencing Council Guidelines) but the annual turnover of the parent company was £125m (ie a large organisation for the purposes of the guidelines). In the NPS London accounts under the heading ‘going concern’ the directors report stated that if finance was required it would be provided by the parent company.
For the asbestos offence before the court in the NPS case, the starting point for a small organisation was £100,000 fine with a category fine range of £50,000 to £450,000. For a large organisation the starting point was £1.1m and a category range of £550,000 to £2.9m. The judge started at £550,000 and after credit for its early plea and other mitigation he arrived at a figure of £370,000. NPS appealed claiming it should be treated as a small organisation.>
Under the heading ‘obtaining financial information’ the Court of Appeal was asked to consider whether the judge was entitled to consider the NPS parent company as a ‘linked organisation’ and take its very substantial annual turnover into account when sentencing NPS London.
The Court of Appeal found that the judge was wrong to conclude that he was entitled to find NPS London was a large organisation. The Court should look at the offending organisation’s turnover. The court did however, make it clear that there are circumstances where a sentencing court can ‘lift the corporate veil’ and sentence a defendant company as part of a larger organisation. Thus, where a subsidiary is used with the intention of limiting or reducing liability for health and safety matters the court will follow a different sentencing path.
This case should be read in conjunction with the decision in R v Tata Steel UK Ltd (2017) EWCA Crim 704 where the Court of Appeal decided that Tata Steel UK Ltd was part of the Tata Steel Group (TSL) and took into account a statement in the annual return that Tata Steel UK Ltd was a ‘going concern’ because TSL would provide any fincial support needed. On the basis of that statement in the accounts the Court of Appeal in Tata Steel UK Ltd found that to be an exceptional case and the judge was entitled to take the resources and turnover of TSL into account when sentencing.
In NPS the Court of Appeal concluded that the judge was entitled to draw a similar conclusion to that of the judge in Tata Steel, but that the judge had gone wrong in how he followed the steps in the Sentencing Council Guidelines.
How the court will sentence a defendant company which is part of a larger trading group remains a tricky and complex issue about which clients will need expert advice. Directors’ wording in annual accounts will be taken into account (and should thus be carefully considered) as will any perceived attempts to avoid health and safety liability.
Paul Spencer, Barrister
Serjeants Inn Chambers
Read Paul’s profile: www.serjeantsinn.com/barrister/paul-spencer/
Andrew Parsons, Solicitor
Read Andrew’s profile: www.rlb-law.com/andrew-parsons/
This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.