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Product liability warning

06 May 2008

Faulty company products will now be caught by the new offence of Corporate Manslaughter, introduced by the Corporate Manslaughter and Culpable Homicide Act 2007.

Ron Reid, partner and national head of Health and Safety department at Shoosmiths said: “It is important to understand that a defective product which causes death can leave a company open to prosecution under the Act, in addition to any breaches of the General Product Safety Regulations or Food Safety Legislation.”

As well as all corporations, the Act, which came into effect on 6 April 2008, applies to unincorporated bodies including charities, partnerships and the public sector.

For an organisation to be guilty of an offence, it will need to be shown that it was the way in which its activities were organised and managed by senior management that caused the death and that by acting in such a way the organisation was guilty of a gross breach of a relevant duty of care.

 “Senior Management” can mean those actually managing an activity as well as those holding a formal title. In some organisations, that run 24/7, the actual managing, at night for example, might not be carried out by those traditionally thought of as “senior management”

There is no maximum fine for this offence, and there are three sanctions available to a Court passing sentence.

The Crown Court can impose an unlimited fine for an offence of Corporate Manslaughter.  The Sentencing Advisory Panel has suggested that the fine imposed for the new offence should be based upon annual turnover which they see as the most appropriate measure for determining an organisations’ ability to pay a fine. The penalty would not be related to the ability to pay.  It therefore suggests that for a prosecution following a fatality committed by a first time offender pleading not guilty, the starting point for sentencing should be:

A new sanction of a Publicity Order is available to the Court to impose alongside a fine. The Panel’s view is that a Publicity Order should be imposed on every offender convicted of Corporate Manslaughter, requiring it to publicise the fact its conviction, the particulars of the offence, the amount it was fined and the terms of any Remedial Order. How and where this publicity is given is a matter for the Court, but the guidance suggests an announcement in trade press, writing to all shareholders, customers and suppliers as a minimum. In practice announcements in national press, radio and TV are likely.

The final sanction is a Remedial Order, though this is only likely to be imposed after consultation with the relevant regulatory body, for example the Health and Safety Executive. The Order would specify the things to be corrected which constituted the failing, along with the time and steps for compliance. There would be an unlimited fine for failure to comply with such an Order. However, such Orders are likely to be very rare, as most organisations will have put their house in order long before being sentenced, as to have done so is likely to be a mitigating factor.

However, there is a further substantial financial penalty in the form of legal costs.  Prosecution costs are payable by the defendant in addition to fines, and in fatal cases often exceed £100k. Defence costs are usually similarly high, and not always covered by insurance.

So a senior management failing leading to a death and a successful prosecution under the new legislation could cost an organisation a considerable and potentially damaging fine, plus a damaged reputation and brand due to attendant publicity.

Management must understand the implications of the new legislation and the real threat it poses to the very existence of their organisation. The Court of Appeal has stated that it will not reduce substantial fines simply because companies may be put out of business by the financial burden. It believes companies committing serious offences do not necessarily deserve to remain in business.

A combination of financial penalty and negative publicity could be a blow from which even very large companies never recover.

For further information please contact:
Name: Ron Reid
Phone: 08700 863317
Email: ron.reid@shoosmiths.co.uk