The recent case of R v NPS London Ltd  EWCA Crim 229 provides useful clarification on the approach adopted by the courts when considering linked organisations in the application of the Sentencing Guideline.
NPS London Ltd (“NPS”) was fined £370,000 after pleading guilty to an offence contrary to s.3(1) of the Health and Safety at Work Act 1974, for failing to recognise deficiencies in an asbestos survey it had commissioned, which exposed workers to long-term risk to health from dust containing asbestos.
NPS was a JV, 80% owned by NPS Property Consultants Ltd and 20% by the London Borough of Waltham Forest.
At first instance, the judge assessed culpability as high and the harm as category level 2. The annual turnover of NPS was £5-6m, making it a small organisation. On this basis, the starting point of any fine should have been £100,000 with a range from £50,000 - £450,000.
NPS was, however, loss making and its director’s report stated that the parent company would provide financial support for a period of at least 12 months. The judge determined that NPS should therefore be treated as a large organisation, because the parent company had a turnover of £125m. This led to an increase in the starting point to £1.1m, with a category range of £500,000 - £2.9m.
The Court of Appeal concluded the judge was wrong to treat NPS as a large organisation for sentencing purposes. Only the defendant’s turnover, and not that of any linked organisation, should be used at step 2 of the guideline to identify the relevant starting point and range of any fine.
There are only limited circumstances in which it is appropriate to lift the corporate veil at step 2 (for example, where a subsidiary had been used to carry out work with a deliberate intention of avoiding or reducing liability for non-compliance with health and safety obligations).
The resources of the linked organisation can, however, be considered at step 3 of the guideline, to ensure the fine is proportionate to the financial circumstances of the defendant. It was not appropriate to reduce the fine at step 3 in this case, as although NPS was operating at a loss, it had the financial support of the parent company that could provide the necessary funds.
The appeal judge substituted the fine, after taking all factors into account, for a fine of £50,000.
The NPS judgment provides much needed clarification following the decision in R v Tata Steel UK Ltd  EWCA Crim 704, that in appropriate circumstances, the court may take into account the resources of a linked organisation in deciding not to reduce a fine because of a defendant’s non-profitability.
The defendant organisation must be treated as separate when considering turnover at step 2. Only in exceptional circumstances can the corporate veil be lifted at this step to look beyond the defendant organisation. That a defendant is a wholly owned subsidiary of a larger corporation is not a reason in itself to depart from established principles or to treat the turnover of the linked organisation as if it were the defendant organisation’s turnover for the purposes of allocating the sentencing table at step 2.
The resources of a linked organisation are, however, relevant at step 3 in deciding whether the fine is proportionate, but again this should only be in exceptional circumstances. In NPS and Tata Steel, the exceptional circumstances arose from statements contained in the directors’ reports, which confirmed financial support from a parent company.
Co-authored by Kerry Nolan.