SKINT = LOWER FINES

If a company’s negligence leads to loss of life, can it be given a lenient fine if a larger one would ruin it? Here’s what the Court of Appeal said about a recent case in Scotland

The low level of fines was set by the first instance judge because he became concerned that a significant fine could drive discovery homes into insolvency

“The fine imposed on the building company was unduly lenient”. So said the Court of Appeal when Andrezej Freitag, one of that company’s bricklayers, fell 10 feet down a smoke extraction shaft, smashed his skull and died. Discovery Homes (Scotland) was, like Mr Freitag’s family, devastated by the event.

The project he was working on was a housing development in Dundee. There were about 14 employees on site when the accident occurred. The site manage was Discovery’s safety representative. He has a qualification in construction management and health and safety at work. He had been on a five-day course a few years ago. The accident happened when the men were pouring concrete to make stairs and landings. Regrettably there was an unprotected edge. Mr Freitag fell from there. All too late Discovery Homes erected a barrier.

You might guess what happened next. The company and the site manager personally were prosecuted. They admitted guilt. The fines were £5,000 and £4,000 respectively.

That’s somewhat low, so the Lord Advocate brought the result to the Court of Appeal.

The low level of fines was set by the first instance judge because he examined the financial wherewithal of Discovery Homes and became concerned that a significant fine “could” drive it into insolvency. Its turnover was about £3m, its accumulated profit was £283,000 and its cash in the bank was £10k at the date of trial. Its two directors were paid £50k a year by way of remuneration. Some thought was given to a restriction on those disbursements. The judge said the seriousness of the offence and the fact that the site manager was “woefully under-qualified” to supervise a large project would in the normal course require the company to pay a substantial fine. The worth of the company provided a stark choice – but that would result in insolvency.

Now then, the Sentencing Guidelines Council in England and Wales has statutory powers, and these will soon apply in Scotland. The guidelines say, “where the health and safety offence is shown to have caused death, the appropriate fine will be seldom less than £100,000”. This accident happened in June 2009, so it was prior to the guidance. So the court was correct to determine fines based on turnover. Another unconnected case last year resulted in a £240,000 fine!

The Court of Appeal decided that the first judge “failed to appreciate that there was a mechanism by which Discovery could meet a much more substantial fine”. That was the two £50k dividend payments. And if this caused hardships to the directors personally, the court said that was “no impediment to the company through its shareholders being appropriately punished”. “Nor are we persuaded that it would be impossible for Discovery Homes to raise some monies from other sources”. So the fine went up to £60k, discounted for the guilty pleas to £40k.

Do you see how the system is targeted at people and their assets, and see too how it is all linked to the turnover of the company?

As for the site manager, the court looked at his personal financial position. His monthly income was modest; he had shares valued at £30k locked away for his children’s education. Some thought was given to unlocking that, but in the end it was decided that his fine, while lenient, was not “unduly lenient” and was left unchanged.

Do you see how the system is targeted at people and their personal assets, and see too how it is all linked to the turnover of the company? Mr Freitag was the breadwinner for his wife and two children. Even though he was an experienced worker, the court paid no attention to that or that he could have refused to work. The reason is that there is a chance that an employer might be silently bullying its workers – although that’s not suggested here at all.

It’s public policy. “Mr Freitag is not taken to have contributed to his awful misfortune. The company had failed to provide a guard rail, barrier or means of protection so as to stop anyone falling down the shaft. That’s that. As to his dependants, well there are two parts to these incidents. The first is the prosecution and the fines. The second is a civil action by his wife and children. No doubt that is all being taken care of by insurers. The fines are another matter.

This article first appeared in Building Magazine on 11th June 2010
With full credit to Mr Tony Bingham

BDAS specialise in: providing contract advice, resolving construction disputes, managing construction claims & adjudications and will give you competitive, independent advice tailored to your specific construction problems. If you could benefit from this please call Jon now on 07795 231 231 or email:Jon@BDASweb.com