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More Demands Placed On Company Directors

1st June 2009

Cotswold Geotechnical Holdings Ltd, a company specialising in geological surveys, has become the first company in the UK to be charged under the Corporate Manslaughter and Homicide Act 2007 following the death of an employee in September 2008.

Alexander Wright, a junior geologist, was killed when a pit excavated as part of a site survey collapsed on him whilst he was taking soil samples.

The company's director, Peter Eaton, has also been charged with the common law offence of gross negligence manslaughter and, if convicted, faces in theory a maximum sentence of lifetime imprisonment.

The Company and Mr Eaton also face numerous charges for breach of health and safety legislation.

The New Offence
The Corporate Manslaughter and Homicide Act 2007, which came into force in April 2008, sets out clear definitions of the offences faced by organisations and what is required from them in order to fulfil their duty of care.

Under the Act an organisation is guilty of an offence if the way in which its activities are organised or managed by its senior management cause a person's death and this failure on its part amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased.

A ‘gross breach' is defined as conduct that falls far below what can reasonably be expected of the organisation in the circumstances.

The Act sets out certain factors which must be taken into account when considering whether an organisation is guilty of such an offence, including:

  • whether it is in breach of Health and Safety legislation
  • how serious the management failure was
  • how much of a risk there was of death occurring.

The Act applies to all organisations operating in the UK, including companies, partnerships, trade unions and certain government departments and public bodies.

Penalties on Conviction
An organisation may incur significant penalties if convicted, namely:

  • Unlimited fines.
    The Sentencing Advisory Panel has launched a consultation on penalties for the new offence with a view to agreeing the methods for calculating a fine but it is unclear when sentencing guidelines will be published. Current thinking is that the fine is likely to fall somewhere between 2.5 to 10% of the offending organisation's average turnover.
  • Damage to reputation. The courts can force a company to publicise the conviction. Failure to comply with a court order is a criminal offence also punishable by an unlimited fine. This is of course to say nothing of the inevitable publicity in the media that will flow from a public prosecution in the courts.

Directors' Individual Liability Although the 2007 Act does not apply to individuals, directors of a company or senior managers of organisations remain at risk of prosecution for the common law offence of manslaughter and numerous offences under the Health and Safety legislation. If found guilty a director could in theory face life imprisonment.

Insurance
If a criminal prosecution for corporate manslaughter is successful insurance cover will not be available for any fine or costs order against the organisation. If a defence is successful there may be cover for the legal costs incurred. This should not prevent a company from being covered under its employers' or public liability policies in relation to civil claims arising from death.

Directors' and officers' insurance may be available to individuals for the defence costs in the event of a defence being successful (as above). Directors must also be aware that any indemnities given by a company will not cover any criminal fines or costs incurred by them in the defence of criminal proceedings where a director is found guilty.

The prosecution of Cotswold Geotechnical Holdings Ltd is likely to be the first of many to come under the new law. With workplace deaths having increased in the past few years (particularly in the construction and engineering sectors) directors need to be aware of the provisions of the Act and take steps to ensure their organisation complies with all relevant legislation.

Practical steps
In particular it would be advisable to:

  • review the guidance on Corporate and Manslaughter and Homicide published by the Institute of Directors and Health and Safety Commission with a view to ensuring that the current health and safety leadership within the organisation meets those standards. The advice can be found at http://www.hse.gov.uk/pubns/indg417.pdf
  • review all safety management systems and consider whether an external audit of such systems and general Health and Safety compliance is required; and
  • review current liability insurance to ensure that any recoverable legal costs incurred under the current legislation are covered.

If you would like to discuss any of the issues raised in this update please contact our D&O team on 0161 833 2100.

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