Appellant: Bain, Q.C., A.D.; Crown Agent

First Respondent: Anderson; Thorntons Law, Dundee

Second Respondent: Duff; Simpson & Marwick, Dundee

25 May 2010

The offences
[1] The first respondent is a company incorporated under the Companies Act, which carries on business as a building contractor. The second respondent is a director of that company.

[2] In May 2008 the first respondent was in the course of constructing dwellinghouses at Lilybank Mews, Dundee. One of its employees was Andrezej Freitag. On 29 May Mr Freitag fell from the third to the second storey of a block under construction, down a smoke extraction shaft adjacent to a stairway, and as a result sustained injuries from which he subsequently died. The first respondent was charged on indictment in Dundee Sheriff Court with contravention of sections 2(1) and 33(1)(a) of the Health and Safety at Work etc. Act 1974. The second respondent was charged under section 37(1) of that Act with, as a director of the first respondent, having consented to or connived in that offence or it having been attributable to his neglect. Each of the respondents pled guilty to the relative charge subject to restrictions. The charge as restricted was that, on 29 May 2008 at the premises referred to, the first respondent did:

"fail to ensure, so far as was reasonably practicable, the health, safety and welfare at work of your employees in respect that you failed ... to provide a guard-rail, barrier, or similar collective means of protection which was of sufficient dimensions, strength and rigidity and so placed, secured and used as to prevent anyone falling down the smoke extraction shaft adjacent to said stairway and in consequence thereof your employee Andrezej Freitag ... fell down said smoke extraction shaft and sustained injuries from which he died in Ninewells Hospital, Dundee on 30 May 2008."

[3] The deceased was a Polish National aged 55 years. He had been employed as a bricklayer by the first respondent and earlier for a related company, Discovery Homes Limited, for in total about four or five years. His widow and children lived in Poland. He was one of about fourteen employees of the first respondent working at the time on the site. A number of sub-contractors also worked there.

[4] The second respondent was employed by the first respondent as site manager and was the sole full-time safety representative of the first respondent engaged there. Between 1997 and October 2005 he had been employed as a recruitment consultant in the construction industry. Thereafter he had first been employed as a site agent by Discovery Homes Limited. He held a qualification in construction management and health and safety at work, having attended a five day course in those subjects in 2005. The first respondent also engaged an outside contractor to advise on health and safety issues but its representative visited the site only about once a month.

[5] At about the time of the accident, about 8am on 29 May, the deceased was engaged with fellow employees in the transfer and laying of concrete to make stairs and landings. He fell from an unprotected edge, a distance of 2.9 metres on to a hard surface. His fall was not observed. Some time later fellow employees found him in an injured state at a point some distance from where he had fallen. He had sustained a number of fractured ribs on the right side and fractures of the vertebrae. He also sustained multiple skull fractures resulting in bruising to the brain and free blood around its surface. There was a large collection of blood behind the heart. He had sustained unsurvivable brain injury and it was judged that surgical intervention would not help his condition. Life was pronounced extinct at 1.08pm on Friday 30 May.

Subsequent events
[6] In the immediate aftermath of the accident the first respondent had secured the erection of a blockwork barrier at the edge, which the health and safety inspector later found to be satisfactory. Scaffolding was erected within the smoke extractor shaft and boarded at the top. This created a continuous level and removed the edge from which the deceased had fallen.

[7] During a police interview the second respondent admitted that he had been aware that a suitable barrier ought to have been in place to prevent workmen falling down the shaft.

[8] The respondents were very regretful at the death of the deceased, who had worked as a member of a small unit for and with them for some time. The deceased's family was brought to Scotland at the first respondent's expense. It also met the cost of the deceased's funeral (at over £2,000). At no stage has either respondent disputed responsibility for the accident and consequent death. At the hearing before the sheriff the procurator fiscal accepted that the pleas had been tendered at the earliest opportunity. In each case the sheriff discounted the fines he had selected by one-third to reflect the plea and related matters. No challenge to that approach was made by the Crown in this appeal. The issues before the court are whether the starting points selected by the sheriff before discount were such that the fines imposed (£5,000 in the case of the first respondent and £4,000 in the case of the second) were unduly lenient.

The first respondent's means
[9] The first respondent was incorporated in April 2006. Its object was the specific purpose of constructing the dwellinghouses at Lilybank Mews. It had two shareholders, the second respondent and his sister Mrs Linda White, each holding 50% of the shares. These shareholders were the only directors. The second respondent's principal responsibility was for work on site, Mrs White's for sale of completed dwellinghouses. At the outset of the project each of them invested £275,000 in the enterprise, apparently funded at least in part by loans from other family members. The total funding costs were estimated at £9.2 million. An overdraft facility was obtained from the Clydesdale Bank for the balance of those costs. The drawing down of funds to meet costs as they arose was supervised by the bank, which when asked made it plain that additional funding would not be made available by it to meet a fine imposed in criminal proceedings. It was, however, within the powers of the directors, consistently with the company's obligations to the bank, to pay to each of the directors annually, by way of dividends and/or director's remuneration (dependent on which was the more tax sufficient), a sum of £50,000. That power was and continues to be so exercised. The turnover of the first respondent in the year to September 2008 was approximately £2.9 million (April 2006 to September 2007 - approximately £3.9 million). As at September 2008 the accumulated profit of the first respondent was approximately £283,000. The directors and shareholders did not have access to that profit unless and until the enterprise was successful and the bank's loan repaid. The 2008 draft accounts disclosed that, as at 30 September 2008, amongst its current assets, the first respondent had £70,317 of cash at bank and in hand. At the hearing (on 8 June 2009) counsel informed the sheriff that the cash held as at that date was £9,900. The difference in these sums appears simply to reflect the extent, at these particular dates, to which drawn-down sums had not been expended by the company.

[10] On the morning of 8 June 2009 the first respondent tendered to the sheriff a report by its accountants, accompanied by the draft accounts for the period ended 30 September 2008 (which included figures for the earlier period). Also tendered was a letter from the Clydesdale Bank confirming that the overdraft facility was not available to accommodate any fine associated with the criminal proceedings. Neither of these documents had been intimated to the Crown in advance. Indeed, it appears that the procurator fiscal was not provided with copies at the hearing, though, so far as appears, he did not ask for them nor seek an adjournment to consider them. The report summarised the financial position of the company as follows:

"... should a significant fine be levied on the company, on the basis that the company does not have any means to pay such a fine, any action to collect such a fine could involve the company entering into an insolvency proceeding; administration, receivership or liquidation. Whilst the company had net assets of £283,068 at 30 September 2008 per its draft accounts, should the company have to enter into an insolvency proceeding, it is highly likely, assuming that a buyer could be found for its main asset, the development site ..., that any proceeds of sale will be significantly less than the book value.

In such a scenario it is highly unlikely that there will be sufficient funds to meet all the obligations of the company ...".

[11] In the course of his submissions to the sheriff counsel for the first respondent drew attention to the circumstance that the company paid £50,000 annually to each of its directors/shareholders by way of dividend or remuneration, thus perhaps hinting that a restriction on that disbursement might allow a fine to be paid, possibly over an extended period. But the point was made indirectly. The sheriff appears to have been left with the impression that the only liquid assets available to the first respondent to pay a fine were the £9,900 standing as at that date to the credit of its bank account - though strictly that was money drawn down from the overdraft facility and so, in terms of the contractual arrangements, not available for any other purpose.

The sheriff's disposal
[12] The sheriff took time to consider the accounts and having reconvened, fined the first respondent £5,000 (discounted from £7,500) and the second respondent £4,000 (discounted from £6,000). As appears from his report to this court, he regarded the offence as very serious: aggravated by the death, by the fact that the second respondent was "woefully under-qualified" to supervise a large building project and by the nature of the hazard presented, albeit mitigated by other factors. He said:

"In normal course, I would have imposed upon the first respondents a very substantial fine indeed, in full recognition of the gravity of the offence and its consequences, particularly in light of your Lordships' observations in [HM Advocate v Munro & Sons (Highland) Ltd 2009 SLT 233; 2009 SCCR 265]".

The difficulty in doing so, he perceived, was the first respondent's financial worth. He was under the impression that "a substantial fine would almost inevitably result in the first respondents falling into administration or liquidation". He considered that he had a stark choice - "either to impose a fine which reflected the funds available for payment or to impose a fine which would inevitably result in insolvency and either administration or liquidation".

[13] He considered whether the offence was so serious that the first respondent should not be in business but, for understandable reasons, rejected the course which he thought would have that result.

[14] The Lord Advocate has appealed against the fines imposed on the respondents, contending that in each case it was unduly lenient. A great deal of additional documentation was placed before us in the course of the appeal. That included two reports by accountants instructed by the Crown after the sheriff's disposal, two further reports by the first respondent's accountants, records from the Land Register, accounts of companies in which Mrs White has an interest and a tax return in respect of the second respondent. Additional cases were referred to, together with the Definitive Guideline issued in February 2010 by the (English) Sentencing Guidelines Council entitled "Corporate Manslaughter & Health and Safety Offences Causing Death".

Discussion
[15] In Munro this court held that, in respect of offences under the Health and Safety at Work etc. Act 1974, the principles enunciated in R v Balfour Beatty Rail Infrastructure Services Ltd [2007] ICR 354 should be followed in Scotland (para [26]). At para [30] it added:

"The information provided to the sentencing judge, and to us, is less than might have been hoped for. Where a company has been convicted of an offence such as the present, or indeed any other offence in respect of which its financial position would be relevant in determining the level of fine, it is for the company to place before the court sufficiently detailed information about its financial position to enable the court to see the complete picture without having to resort to speculation. In addition to the lodging of all relevant documents, it may in some cases be thought appropriate to lead the evidence of an accountant."

[16] Where a company intends to place financial material before a sentencing judge, sheriff or other judicial office holder in the context of sentencing, it should do so in a way which allows that material adequately to be tested and explored before the sentencing court, both as to its completeness and as to its implications. That is best done if the material to be presented is intimated to the Crown sufficiently well in advance to allow it to consider it and, if appropriate, to make informed representations about it, including in some cases introducing additional material itself. Ordinarily, intimation of copies of the material to the Crown at least 14 days before the sentencing diet will be adequate, though in some cases more time will be requisite. The company should also intimate to the Crown on the same timescale whether it intends to lead evidence from an accountant or any other person at the sentencing diet.

[17] Contravention of health and safety provisions which result in death will always be serious and, in ordinary course, will attract substantial fines. The Advocate depute drew our attention to the Definitive Guideline issued by the (English) Sentencing Guidelines Council. At para 25 that Guideline states:

"... where the [health and safety] offence is shown to have caused death, the appropriate fine will seldom be less than £100,000 and may be measured in hundreds of thousands of pounds or more."

That Guideline has statutory effect only for England and Wales but it will, no doubt, in the future be noticed for the purposes of sentencing on like offences in Scotland. However, the practice to be followed in deciding whether a sentence is excessive (or unduly lenient) is that in use at the time when it was imposed (Kelly v HM Advocate [2010] HCJAC 20; Locke v HM Advocate 2008 SCCR 236; HM Advocate v Boyle & Others [2009] HCJAC 89) - in this case 8 June 2009, prior to the operative date of the Definitive Guideline. We therefore disregard the Guideline for the purposes of the disposal of this appeal. The precursors to the Guideline were the Consultation Paper on Sentencing for Corporate Manslaughter issued in November 2007 (which also addressed death resulting from health and safety contraventions and was noticed by this court in Munro) and the Advice to the Sentencing Guidelines Council (issued in 2009). Both of these documents proceeded upon the basis of a determination of fines based on annual turnover, not an approach advocated by either party in this appeal. We accordingly find no assistance there. We note, however, that even as at June 2009 the level of fines for health and safety contraventions resulting in deaths in Scotland had materially increased from those ordinarily imposed not many years ago. LH Access Technology Ltd v HM Advocate 2009 SCCR 280 (where fines each of £240,000 were sustained on appeal) is illustrative of that movement.

[18] The sheriff rightly took the view that this was a serious offence which in ordinary circumstances would be expected to attract a very substantial fine. We would not be surprised if he had in mind a sum in six figures. However, he took the view that the circumstances were not such as to warrant a course which would inevitably put the first respondent out of business. That was a view he was entitled to take. What he did not, however, appreciate was that, on the face of the accounts, there was a mechanism by which the first respondent could, over time, meet a much more substantial fine than £7,500 (prior to discount) without inevitably being forced into administration or liquidation. The first respondent during its relatively short time of operation had built up substantial profits. These allowed it to pay to its two directors/shareholders, sums of £50,000 per annum each in the form of director's remuneration or dividend. The making of such payments out of profits was consistent with the first respondent's contractual arrangements with its lender, the Clydesdale Bank. What the first respondent could have done, and could yet do, was to divert a proportion of these payments towards the payment of a fine. This would no doubt be to the disadvantage (and perhaps some hardship) to these directors/shareholders but we see this as no impediment to the company (and through it its shareholders) being appropriately punished for this offence. Nor are we persuaded that it would be impossible for the first respondent to raise some monies from other sources. The sheriff appears to have regarded the £9,900 standing at credit in the bank as available, and it was not suggested to him that it was not, albeit that these were funds ultimately drawn down from the bank lending. The first respondent found monies to pay for the deceased's funeral and for the travel of his family to Scotland. Although the use of the funds under the loan facility may in contractual terms have been strictly limited, it is unlikely that a slight departure from these arrangements would cause the bank to take steps which might result in the first respondent going into administration or liquidation with the risk attendant on the lender disposing of an incomplete building development. We note that the accountant's report tendered to the sheriff stated that a significant fine "could" (not would) involve the company entering into an insolvency proceeding, a choice of words emphasised by the accountants in a subsequent report.

Disposal in respect of the first respondent
[19] In all the circumstances we are satisfied that the fine imposed by the sheriff on the first respondent was unduly lenient. It is accordingly open to us to review it. In our view an appropriate starting point in all the circumstances would have been £60,000. Allowing the same percentage discount as the sheriff, we shall allow the Crown appeal and substitute for the fine imposed by him the sum of £40,000. We shall in due course entertain any application for time to pay.

The second respondent
[20] The Lord Advocate also challenged the fine imposed on the second respondent as being unduly lenient. We are not persuaded that that is so. His monthly income after tax was in the order of £3,000-£3,500. This appears to have been by way of reward (in a combination of director's remuneration and dividend) from the first respondent. As at 8 June 2009 he had shares (valued as at that time at about £30,000) which the sheriff described as "locked away" to provide for his children's higher education. Although that was the intended destination of these funds, it does not appear that they were fenced by any trust or other limitation on the second respondent using them for other purposes. However, if the second respondent's source of income from the first respondent is to be restricted in order to allow the latter to meet the fine now imposed on it, the second respondent may require to have at least temporary access to these funds in order to meet his other commitments. If the sheriff had adopted the approach to the first respondent's fine which we regard as appropriate, he would also have had to consider the implications of it for the second respondent. While the fine on the second respondent might be regarded as lenient, it was not, in our view, unduly lenient in all the circumstances. The Crown's appeal in respect of the second respondent is accordingly refused.