Tata Steel UK Ltd, R v

The issue on this appeal concerns the appropriate level of fine for a very large organisation in respect of two health and safety offences in which two of its employees suffered serious and lasting injury. The matter calls for the application of the principles articulated in R v Thames Water [2015] EWCA Crim 960; [2015] 1 WLR 4411 and of the Sentencing Council, Health and Safety Offences, Corporate Manslaughter and Food Safety and Hygiene Offences, Definitive Guideline, effective from 1^st February, 2016 (“the Guideline”). The questions on the appeal are whether the Judge: (1) erred in his application of the Guideline; (2) imposed fines that were manifestly excessive and/or wrong in principle.

On 16^th February, 2016, the Appellant (“Tata”) admitted two offences comprising breaches of s.2(1) of the Health & Safety at Work Act 1974 (“the 1974 Act”), contrary to s. 33(1)(A) thereof and was committed to the Crown Court for sentence, pursuant to s.3 of the Powers of the Criminal Courts (Sentencing) Act 2000. On the 26^th July, 2016, in the Crown Court at Northampton, Tata was sentenced by HHJ Mayo as follows: in respect of the first offence (“offence 1”), a fine of £185,000; in respect of the second offence (“offence 2”), a fine of £1,800,000; the sentences were consecutive so that the total sentence was a fine of £1,985,000 in all. Tata appeals against sentence by leave of the Single Judge.

Both offences took place at the steel manufacturing site at Weldon Road, Corby, Northamptonshire (“the site”). Tata itself is a wholly-owned subsidiary within the Tata Steel Europe Limited Group; its ultimate parent is Tata Steel Limited (“TSL”) and its activities were managed as an integral part of its parent’s operations. The two offences arose from separate incidents, five months apart, occurring in different locations at the site. As the Judge put it in his careful written sentencing observations:

Offence 1 (12^th September, 2014): Mr Kitchen, who sustained the injury, was working at a paint bay where cylindrical lengths of steel, weighing 50-200 kg entered an enclosed painting area via an inlet table and transfer conveyor. The tubes exited the painting process from the transfer table where they were “kicked off” and then packed. The kicker was contained within a caged part of the line. It was not unusual for blockages to occur on the inlet side of the machine. Tubes became backed up on the transfer conveyor. When that happened, a practice had developed whereby a green tunnel guarding the tube conveyor was removed and the lengths of pipe manipulated by hand. That guard ought not to have been removed without the power line being isolated. Unfortunately, Mr Kitchen was using his hand to move pipes when one of the other workers powered up the line from a control panel out of sight of Mr Kitchen. That caused the pipes suddenly to move trapping and crushing Mr Kitchen’s middle and ring fingers of his left hand. He has been left with residual hypersensitivity but was able to return to work for Tata.

It is to be noted that the particular line had operated for approximately 13,000 hours without incident. The area had been identified as a risk and training had been provided to Mr Kitchen.

The Improvement Notice of 18^th December, 2014 (“The Improvement Notice”): As a result of the incident giving rise to Offence 1, the Health and Safety Executive (“HSE”) served the Improvement Notice, requiring Tata to check all their production lines at the site, to ensure that all identified preventative and protective devices were in place and effective.

As the Judge observed when sentencing, the prosecution case was that if Tata had taken sufficient steps to comply with the Improvement Notice, the incident giving rise to offence 2 would not have occurred.

Offence 2 (19^th February, 2015): On this day, Mr Ferns was being re-trained on a WD23 Roll Lathe – a large machine whose function was to cut and smooth roll stands. It had three rollers which worked on the roll-stands and those rollers had to be cleaned and properly aligned. Access was therefore required on the far side of the roll stand but not while the rolls were operating. The lathe was generally operated by one man on his own from a lathe control panel adjacent to the roll stand.

Regrettably, the guarding of the roll stand was not sufficient to prevent a person coming into contact with potentially dangerous parts of the lathe. The prosecution case was that it was entirely foreseeable that employees would enter the obvious danger zone, separated from the control panel location by a yellow steel mesh gate. In the event, Mr Ferns’ glove became caught in the rotating parts of the lathe and his hand was pulled in, resulting in the amputation of two thirds of the little finger of his left hand.

In about 2000, another employee was injured while removing swarf from the rollers. A sliding gate was added and a risk assessment carried out in 2012. It identified the risk of entanglement and Tata prescribed safe working practices for the lathe. The machine had worked in over 50,000 roll stands over a period of 150,000 man hours without incident.

Before summarising the Judge’s sentencing observations, it is convenient to set out the terms of the Guideline, which are detailed and comprise a number of Steps.

Step One requires determining the offence category, using only the culpability and harm factors in the tables. Starting with culpability, it is divided into different categories; where factors in the individual case fall within more than one category, the Court is exhorted to balance those factors to reach a fair assessment of the offender’s culpability. The categories are as follows:

failing to put in place measures that are recognised standards in the industry

…..

failing to make appropriate changes following prior incident(s) exposing risks to health and safety

Turning to harm, the Guideline underlines that the offence is in creating a risk of harm; it is not necessary to prove actual harm. As to the seriousness of harm risked, Level A involves death or physical or mental impairment resulting in lifelong dependency on third party care for basic needs or significantly reduced life expectancy. Level B includes physical impairment, not amounting to Level A, which has a substantial and long-term effect on the sufferer’s ability to carry out normal day-to-day activities or on their ability to return to work.

Next, the likelihood of harm must be considered in combination with the seriousness of harm risked. A combination of a “high likelihood” of harm and the risk of Level B harm, results in “harm category 2”, whereas a combination of a “medium likelihood of harm” and the risk of Level B harm, results in “harm category 3”.

Before assigning the final harm category, the Court must consider if the following factors apply. The first is whether the offence exposed a number of workers or members of the public to the risk of harm; the greater the number of people, the greater the risk of harm. The second is whether the offence was a significant cause of actual harm. In this regard, offenders are required to protect workers or others “who may be neglectful of their own safety in a way which is reasonably foreseeable”. If one or both these factors apply, the Court must consider either moving up a harm category or substantially moving up within the category range at Step Two.

Step Two deals with the starting point and category range, in accordance with the tables provided for different sized organisations. At Step Two, the Court is required to focus on the organisation’s annual turnover or equivalent to reach a starting point for a fine. The Court should then consider further adjustment within the category range for aggravating and mitigating features. At Step Three, the Court may be required to refer to other financial factors to ensure that the proposed fine is proportionate. In that regard, the Guideline says this:

In the box of text at the top of p.7, the Guideline provides as follows:

For large organisations in respect of Medium culpability, Harm category 3 provides a starting point of £300,000 and a Category range of £130,000 - £750,000. It may be noted that Harm category 2 has a starting point of £600,000.

Aggravating factors include previous convictions. Mitigating factors include evidence of steps taken voluntarily to remedy the problem and a high level of co-operation with the investigation, “beyond that which will always be expected”.

Steps Three and Four require the Court to “step back”, review and, if necessary, adjust the initial fine based on turnover to “ensure that it fulfils the objectives of sentencing” for these offences. The Court may adjust the fine upwards or downwards, including outside the range.

Step Three involves the Court checking whether the proposed fine based on turnover is proportionate to the overall means of the offender. The Guideline goes on to state the “general principles” to follow in setting a fine as follows:

At this point, the Court should step back and review the initial fine at Step Two based on turnover to ensure that it fulfils these general principles. The fine may be adjusted upwards or downwards, including outside the range. The Court is enjoined to “…examine the financial circumstances of the offender in the round to assess the economic realities of the organisation…” and the most efficacious way of giving effect to the purposes of sentencing. In finalising the sentence, the Court should have regard to a number of factors, including:

Step Four requires the Court to consider other factors that may warrant adjustment of the proposed fine, such as the impact of the fine on employment of staff, customers and the local economy (but not shareholders or directors).

Step Six provides for a reduction for guilty pleas, as in any other criminal case. Step Eight contains the Totality principle. Step Nine imposes a duty to give reasons for the sentence.

Overview: Standing back from the detail, the following broad picture emerges of the Guideline as a whole, insofar as relevant for present purposes:

First, the Guideline begins by considering the level of culpability. It then looks at the seriousness of the harm risked, followed by the likelihood of that harm materialising. In combination, the seriousness of the harm risked together with the likelihood of it materialising, yield various harm categories.

Secondly, the level of culpability, considered together with the relevant harm category are then applied to tables, depending on and reflecting the size of the organisation’s turnover. This exercise produces a starting point for the fine. It can be adjusted upwards or downwards for aggravating and mitigating factors.

Thirdly and likewise, the starting point may warrant adjustment to reflect the true size of the organisation. In particular, an upwards adjustment may be called for in the case of a very large organisation so as to produce a proportionate fine, bringing home the message to management and shareholders of the need to comply with health and safety legislation. In this manner, the Guideline reflects the objective, clearly set out by Mitting J, giving the judgment of the Court in Thames Water (supra), at [38]:

Fourthly and in accordance with s.164 of the Criminal Justice Act 2003, the financial circumstances of the offender must be taken into account. A downwards adjustment may be called for where an organisation has a small profit margin relative to its turnover; by implication, a downwards adjustment may equally be appropriate where the business is loss-making. So too, any wider impact of the fine on those who are not shareholders or directors, should be considered and may warrant adjustment.

Fifthly and as with any other sentencing exercise, there is a discount for an early guilty plea and totality must be taken into account.

The Judge remarked that he had been greatly assisted by the Prosecution Case Summary and “Friskies Schedule”, together with a Basis of Plea and other mitigation documents provided by Tata. We echo those observations.

The Judge viewed the matter as involving two separate and avoidable incidents, with the Improvement Notice in-between. The Judge would apply Step 8 of the Guideline which meant considering whether the total sentence was just and proportionate to the offending behaviour. This was not one offence as the defence had argued. When assessing Culpability at Step 1 of the Guideline, one of the factors suggesting High Culpability was a failure “to put in place measures that are recognised standards in the industry” and “failing to make appropriate changes following prior incident(s) exposing risks to health and safety”. Accordingly, the Judge would consider the appropriate sentence for offence 2 first and then apply an appropriate discount to the sentence he would otherwise have decided upon for offence 1.

As to offence 2, the Judge noted the work done by the WD23 Roll Lathe without incident. He also accepted that there had been a concerted effort to respond to the Improvement Notice; there were over 330 areas where improvement had been identified and many positive steps had been taken to update and improve safety provisions. However, the lack of adequate precaution against injury led directly to the injuries sustained by Mr Ferns; had Tata taken sufficient steps to comply with the Improvement Notice, the incident giving rise to offence 2 would not have occurred.

Culpability was High in respect of offence 2. The Improvement Notice had been served and access to the moving parts of the lathe had caused injury before (the 2000 incident). As the Judge observed, the “measures which would have avoided the commission of this offence were alarmingly simple: an interlock on the gate was all that was needed.” It was agreed that the level of Harm was B. Access was needed but not when the cutting parts could rotate. In the Judge’s view, there was a High likelihood of harm in respect of offence 2.

Tata had previous convictions but the Judge would avoid double-counting, having regard to the fact that Culpability was High because of Tata’s failure to respond to previous incidents – i.e., the incident in 2000 and the Improvement Notice”.

Tata was a “very large organisation”, with a turnover of some £4 billion, compared with the Guideline reference of £50 million for a “large organisation”. At Step Two of the Guideline, the Judge considered it right to move outside the suggested range to achieve a proportionate sentence. Accordingly, instead of taking a starting point of £1.1 million, with a range of £550,000 - £2.9 million, the Judge took a starting point of £2.4 million, achieved by moving up to Harm Category 1 because of the extent of Tata’s turnover.

The Court was required to set a fine so that it had a “real economic impact” bringing home to management and shareholders the need to comply with health and safety legislation. The Judge concluded that the overall attitude of senior management was inadequately focused on day to day safety:

As to Tata’s financial position, its 2015 Report and Accounts stated that the directors had a reasonable expectation that Tata had adequate resources “…(including the support of ….[TSL]…) to continue in operational existence for the foreseeable future.” However, despite a very sizeable turnover of £4.17 billion in the year ended March 2015 (£4.49 billion for 2014), Tata recorded a loss after taxation of £851 million. During that accounting year, restructuring and impairment costs were £314 million. In the event, the Judge declined to make any downwards adjustment to reflect the losses borne by TSL (Tata’s parent company). The Judge had regard to counsel’s acceptance that a fine of £1 million would not cause Tata to stop trading, though it was “not going to help the business survive”.

The resultant fine was out of proportion to penalties imposed in the past but the Guideline had “marked a new dawn”. The calculation of the fine was heavily dependent upon turnover and organisations potentially affected by the Guideline “had better wake up to this fact”.

As Tata’s guilty plea to offence 2 had been entered at the earliest possible opportunity, the Judge reduced the fine by one third; the fine accordingly imposed was £1.8 million.

As to offence 1, culpability was Medium and Harm was Level B, Category 3. The starting point was £300,000 – an assessment entailing a Medium rather than a High likelihood of harm - but because Tata was very large organisation, the Court moved up the harm category, giving a starting point of £600,000 and a range of £300,000 - £1.5 million. The likelihood of harm was described by the Judge as “obvious” and a dangerous practice had been allowed to exist with operatives accessing a part of the Paint Line where heavy pipes were being manoeuvred, the machine was active and the substantial guard had been removed. The initial fine was therefore £700,000, reduced by £235,000 to reflect an early guilty plea. The resultant fine was £465,000. Taking totality into account, that figure was reduced by 65%, producing a final figure of £185,000.

The total fine was therefore £1,985,000. In addition, prosecution costs were agreed at £22,516.88.

We were most grateful to Mr Morton QC, for Tata and Mr Mills, for the quality of their assistance.

In outline, Mr Morton’s submissions proceeded as follows. He accepted that Tata was a very large organisation. As to offence 2, Mr Morton accepted high culpability and that the level of harm risked was Level B. However and with reference to Step One, he submitted, on the facts, that the Judge’s categorisation of the offence as carrying a high likelihood of the harm arising was unsustainable. Moreover, it was disproportionate to categorise offence 2 as “high likelihood” when offence 1 had been categorised, correctly, as “medium likelihood”. Next, the Judge had erred at Step Two in moving up a category range, so equating offence 2 with a Level A risk of harm. The Judge was further wrong and engaged in double counting in adjusting the starting point upwards from £2.4 to £2.75 million. At Step Three, the Judge had failed to take mitigating factors into account; in particular, he had failed to make a necessary downwards adjustment in the light of the losses sustained by Tata’s business. This was not a case for penalising TSL for enabling Tata to continue trading. If not before, then the Judge should have made a downwards adjustment at Step Four.

As to offence 1, Mr Morton accepted the Judge’s conclusions as to culpability, Level B risk of harm, medium likelihood of harm arising and this being a category 3 case. Thereafter, the Judge’s errors were essentially the same as those in respect of offence 1.

Mr Mills’ submissions were attractively concise. At the outset, he emphasised that Tata was a very large organisation and the fine had to be at a level which brought the message home; a turnover of £50 million was very different from a turnover of £4 billion. As to offence 2, Mr Mills underlined the chronology and submitted that the Judge was entitled to take the view he did, that this was a high likelihood case. That decision was within the ambit of permissible outcomes and this Court should not interfere. There had been no double counting; the Judge had to go outside the range to pass a proportionate sentence, given Tata’s size. The Judge was further entitled to rely on the finding that senior management was inadequately focused on day to day safety. Still further, the Judge was entitled to take the support provided by TSL into account – Tata was only a going concern because of that support; indeed it would be inaccurate if TSL’s resources had been left out of account. This was not a case where the fine risked putting Tata out of business; the fine amounted to no more than 0.6% of annual losses. The Judge had taken the mitigating factors into account. As to offence 1, Mr Mills effectively repeated the same submissions, mutatis mutandis.

As can be seen, the principal Issues on this appeal fall under the following headings:

Did the Judge err in categorising offence 2 as involving a high likelihood of harm? (“Issue I: High likelihood”)

Was the Judge entitled to move outside the range? (“Issue II: Moving outside the range”)

Should the Judge have made a downwards adjustment, given the losses sustained by Tata in its business? How should the Judge have approached the support provided to Tata by its parent TSL? (“Issue III: A loss-making business and parent company support”)

What amount should Tata have been fined? (“Issue IV: Conclusions on Offence 2”)

Was the Judge’s approach to offence 1 in error? (“Issue V: Offence 1”)

As already observed, in respect of offence 2, neither high culpability nor that the seriousness of harm risked was Level B, was in dispute. The dispute here goes to the Judge’s characterisation of offence 2 as one of “high likelihood” rather than “medium likelihood”. The impact of this characterisation in the present case is to place offence 2 within Harm category 2 of the tables, rather than Harm category 3. As already noted from the Guideline, the difference between these two Harm categories is significant in financial terms, even before any questions arise as to moving up a harm category or moving up within the category range.

In our judgment, the point here is a short one and, with respect, we do not think that the Judge’s characterisation can stand. That there had been a prior incident is indeed a matter of seriousness and amply supports the conclusion of high culpability; however, when assessing the degree of likelihood (of the harm materialising), it is fair to note that the prior incident was in 2000, some 15 years earlier. To this feature there must be added the fact that, as the Judge himself recorded, the lathe in question had been operated for some 150,000 man hours without incident. By itself, the period of operation without incident is a powerfully persuasive pointer against the offence being one of high likelihood. Moreover, matters do not end there. The circumstances of the incident were unusual, insofar as Mr Ferns, as part of his re-training, was observing the machine operator, who would normally have worked alone – and was not injured. None of this detracts from the admitted high culpability for the incident – which could have been prevented by simple precautions – but it does tell against the high likelihood characterisation. For these reasons, we are persuaded that the Judge fell into error and are unable to accept Mr Mills’ submission that his conclusion was within the ambit of permissible outcomes. We conclude accordingly that offence 2 was to be characterised as one of medium likelihood. We return to the impact of this conclusion presently.

To recap and as already set out, the Judge, in applying Step Two of the Guideline, took a starting point of £2.4 million instead of £1.1 million, by moving up a harm category to harm category 1, reflecting the fact that Tata’s turnover meant it was a very large (rather than large) organisation. Harm category 1 is generally applicable to offences with a high likelihood of harm and a Level A seriousness of harm risked (explained above). The Judge further increased the starting point from £2.4 million to £2.75 million, so that it would have a real impact on management and shareholders and in the light of his criticism that senior management was inadequately focused on day to day safety.

We are not persuaded by the criticisms of the Judge’s approach advanced by Mr Morton under this heading.

First, it is common ground that the Guideline is not to be applied mechanistically or construed as a statute. Even assuming (without in any way deciding) that there is some force in Mr Morton’s written submissions that various conclusions reached by the Judge fell under the wrong headings of the Guideline, it matters not – and we would not be minded to interfere - unless it led to double counting or an otherwise flawed overall approach.

Secondly, the Judge was, at the least, amply entitled to move up a harm category to reflect that Tata, judged by turnover, was a very large rather than a large organisation and so to impose a proportionate fine. Indeed, at Step Two, the box of text at the top of p.7 of the Guideline (set out above) expressly so provides. Subject to the need to factor in the consequences of our decision on Issue I, no proper criticism can therefore be made of the Judge taking an initial starting point of £2.4 million.

Thirdly, at Step Three of the Guideline, the Judge is specifically urged to pass a fine, sufficiently substantial, so as to bring home to management and shareholders the need to comply with health and safety legislation. With this objective in mind and putting to one side the impact of our conclusion on Issue I, we cannot detect any error on the part of the Judge in further increasing the starting point to £2.75 million – having regard to his conclusion that senior management had been inadequately focused on day to day safety. Mr Morton submitted that there had been double counting; with respect, we disagree.

Fourthly (and deferring for the moment the matters dealt with under Issue III), the Judge plainly had regard to mitigating factors in this part of his sentencing observations, in particular the “concerted effort” to respond to the Improvement Notice and the many steps taken to improve safety provisions. That said and as he observed, the steps taken had been “patently insufficient” to prevent the incident giving rise to offence 2. In the circumstances, though some Judges might have adjusted the £2.75 million starting point downwards to allow for these mitigating factors, we are not minded to interfere; the decision not to make any such downward adjustment was within the proper ambit of the Judge’s sentencing discretion. As always in sentencing appeals, we are acutely aware of the dangers of “tinkering” and the need to have regard to the sentence as a whole.

Accordingly and subject only to the impact on the figures of our decision on Issue I, we dismiss the criticism of the Judge moving outside the range in the manner described under Issue II.

The essence of the debate under this Issue concerned the financial circumstances of Tata, to be dealt with principally under Steps Three and Four of the Guideline.

As already foreshadowed, Mr Morton submitted that the Judge erred in not adjusting the fine downwards in the light of Tata’s loss-making business. The Judge should not have taken the support provided by TSL into account; it was “irrational” to penalise TSL for managing its own affairs so as to enable a “large loss making business of national importance to continue trading and maintain the employment of many people”. This was not a case where the offending warranted putting Tata out of business and the fine imposed was manifestly excessive and disproportionate.

We can go some way with Mr Morton’s submissions but ultimately cannot agree that the Judge erred in not making a downwards adjustment on the facts of this case. Our reasons follow.

First, we accept that the financial circumstances of the offender are to be taken into account, as the Guideline recognises, in terms, under Step Three and that a small profit margin relative to turnover, or a loss-making business, may warrant a downwards adjustment.

Secondly, as will be recollected, the financial circumstances of the offender are to be examined “in the round to assess the economic realities of the organisation”. In this regard, Step Two provides that “normally” only information relating to the “organisation before the court” will be relevant, unless “exceptionally” it is demonstrated that the resources of a “linked organisation” are available and “can properly be taken into account”. We therefore keep well in mind the separate corporate personalities of Tata and TSL in our approach to the matter.

Thirdly, however, it is at the next step that we begin to part company with Mr Morton. Tata’s Report & Accounts 2015 includes, in the section headed “Strategic Report” the following paragraph:

Fourthly and in all the circumstances including a consideration of TSL’s resources, we cannot fault the decision of the Judge not to make a downwards adjustment by reason of Tata’s financial circumstances. The losses in the steel industry are of course public knowledge and the Judge clearly had them in mind. He took into account, as we have held he was (at the least) entitled to do, the fact that Tata’s losses were borne by TSL. Plainly, this was not a case where a fine at the level imposed risked putting Tata out of business; there was certainly no evidence that it would.

Accordingly, in our judgment, the Judge’s decision not to make a downwards adjustment in the light of Tata’s financial circumstances, was one he was entitled to reach. We dismiss the ground/s of appeal advanced under Issue III.

We can briefly express our conclusions on offence 2, in the light of the decisions reached on Issues I, II and III.

By reason of our revised categorisation of the incident as one of “medium likelihood” under Issue I, the raised starting point of £2.75 million cannot stand; it is either wrong in principle or manifestly excessive. The correct figure should instead be £2 million. That amount is arrived at by starting in harm category 3; then moving up a category to harm category 2 and thereafter moving up the range for the same reasons as the Judge expressed and which we upheld under Issue II.

From that figure of £2 million, a full 1/3 discount must be allowed for Tata’s early guilty plea. The resultant figure, with a little leeway allowed to Tata, is £1,315,000. We quash the fine of £1,800,000 imposed in respect of offence 2 and substitute a fine of £1,315,000. To such extent, the appeal on offence 2 is allowed.

We can deal with offence 1 summarily. What matters is whether the fine imposed - £185,000 – was manifestly excessive. If it was not manifestly excessive, then the precise route by which the Judge arrived at that figure is neither here nor there. Considered in isolation, there can be no doubt that the fine for offence 1 would have been greatly in excess of £185,000. In arriving at his conclusion, the Judge, very generously, reduced the figure of £465,000 by 65%, to allow for totality. The upshot is a fine of £185,000 which cannot realistically be characterised as manifestly excessive - even had there been (which we do not accept) errors in the Judge’s reasoning in arriving at a starting figure of £700,000, reduced to £465,000 for the early guilty plea. In our judgment and making every allowance for totality, no proper criticism can be made of the Judge’s decision to impose a fine of £185,000 for offence 1. We accordingly dismiss the appeal on offence 1.

For the reasons given:

We allow the appeal on offence 2 and substitute a fine of £1.315 million;

We dismiss the appeal on offence 1, so that the fine imposed of £185,000 stands;

The sentences remain consecutive but the total fine is therefore reduced from £1,985,000 to £1,500,000.