The buck stops here

It may well seem like we have been here before, but this time it is for real. After 10 years of vacillations and recriminations, the new Corporate Manslaughter and Corporate Homicide Act 2007 will finally come into force across the UK on 6 April 2008.

It may have been a long time coming - after all, this legislation was first mooted in Labour's manifesto for the 1997 general election - but has it been worth the wait? Will it really be much different from existing health and safety legislation?

In some respects the new Act will certainly be different, especially regarding its sanctions. "The key point is it's aimed at companies rather than individuals," says Peter James, a partner at law firm Plexus Law, adding that the crucial change will be the stigma attached to companies that are convicted of corporate manslaughter, especially with regard to the new publicity orders.

"Potentially, this could be the most damaging part of a sentence for any company," he says. "The Act envisages that judges will take soundings from regulators, prosecuting counsel and defending counsel and then decide how to publish it. The suggestions are for publicity orders for large companies to appear in national newspapers and on national television; for smaller companies the publicity order might appear in local papers. They will also probably be published in annual reports sent out to shareholders, and the order could go as far as making a company write to its customers."

Rodney Wilson, a partner at law firm Berrymans Lace Mawer, agrees: "Any prosecution under the new Act will attract significant publicity anyway. What these publicity orders do is add to that. For example, if, God forbid, another rail disaster were to happen, evidence of gross negligence found and a conviction secured, then you could see a full-page spread in the daily newspapers but also something on the back of tickets or on the side of trains. But it's unknown territory, and until we actually see a prosecution it's difficult to predict how the courts will act."

All change

Although some commentators have argued the Act brings no real change in terms of liabilities, Judith Seddon, a partner at law firm Russell Jones and Walker, says it is highly likely that publicity orders will be far-reaching: "And companies are going to be more reluctant to be branded a corporate killer. As well as the direct costs involved with the prosecution, this would also mean considerable indirect costs are incurred in terms of loss of market share, which will be difficult to estimate."

She also expects fines to be substantially higher under the new regime and, looking at the sentencing guidelines already unveiled by the sentencing advisory panel, this is probably correct. According to the guidelines, fines are too low and inconsistent at present, so the new system will see a fine of around 5% of a company's average turnover over three years. And that 5% is a starting point, based on a company pleading not guilty at the first occasion.

Therefore, if there are aggravating features, it could be higher. Given that the largest fine to date was against Transco, when it was fined £15m - equating to less than 1% of its turnover - it is easy to see just how much of an impact the new Act could have on a company's bottom line. As Andrew Stokes, a partner at law firm Beachcroft, comments: "I have no doubt that fines will reflect society's disapproval, for the first time linking them to a company's turnover and in doing so driving home the point of the case law."

But are companies actually more likely to be found guilty under the new Act? After all, the main criticism of the existing legislation has focused on how difficult it has been, in practice, to secure convictions - particularly against large companies. David Walton, head of crime and regulatory at law firm Keoghs, provides some uncomfortable thoughts for businesses: "It is going to be easier as a result of this Act to secure a conviction for corporate manslaughter, and that's going to be bad news for a lot of organisations. At the moment, securing a conviction for corporate manslaughter depends on finding a 'controlling mind' but that has only happened successfully in around 14 cases. I've handled cases in the past where they've failed, but the outcome would have been different had this legislation been in place at the time."

Reasonable safeguards

According to Mike Noonan, head of strategic claims at insurer QBE, if a company has 'reasonable safeguards' in place, then the chances are they will not be found wanting. "We see the departure from good internal standards as something that might found a corporate manslaughter charge," he says, "but if you have the right systems in place, and something does go wrong, then you should be OK. We have a team of risk managers available to go out and help insureds understand their duties, best practice, documentation and other key issues."

It is not just companies that need to be on their guard in future, according to Mr Wilson. He explains that the idea of companies being protected from liability if they take 'reasonable safeguards' comes from explanatory notes to the Act, which state: "There is no question of liability where the management of an activity includes reasonable safeguards and a death nonetheless occurs."

But Mr Wilson warns: "An individual is still liable at common law for gross negligence manslaughter. What this Act does is to get away from the 'controlling mind' test, but if you've got an individual who is grossly negligent, they are not off the hook because there is an increasing tendency for the Health and Safety Executive to prosecute under section 37 of the Health and Safety at Work Act.

"This means that if a company is prosecuted then any individual within that company can be prosecuted as well. Just look at the recent case of ANA Building Supplies, where a dumper truck overturned and the driver was killed. In that case, one of the directors was prosecuted and fined £15,000. So the situation has not changed as far as an individual is concerned. What this Act does is make it easier for a charge to stick."

He adds that, on a company level, pinpointing 'senior management' will be an interesting area. "Although the term is defined in the legislation it will be difficult to define in a prosecution those who have 'significant' responsibility for decisions," he comments. "Does a local supermarket manager have a strategic role in the management of the overall business, for instance? The main issue in prosecutions will be establishing exactly who is a member of senior management - especially for large, diffuse companies."

So what should companies, large and small, actually do in the immediate aftermath of a fatal accident? "For smaller employers, when the worst-case scenario happens, some bad decisions tend to get made," says Mr Noonan. "So it's all about quality control and having defence expertise. Corporate disaster plans are important. If there is a civil liability, that needs to be recognised and responded to. Remember that having systems is good, but you also have to document those systems and ensure they are alive and being operated."

Mr Walton, however, takes a more pessimistic view. "I think many companies are not in a good shape and really should review and audit their health and safety systems," he says. "You can't delegate down; if you do delegate unsuccessfully then you've fallen at the first fence."

As he points out, the first 72 hours after a fatality are absolutely vital: "It is important when an accident occurs that almost immediate contact is made with a company's legal advisers because things will be done in those first 72 hours that can't be repeated at a later date, such as getting experts viewing the accident site. And the legal aspect is also very important within this timeframe, otherwise people will be giving interviews with inadequate legal advice."

Mr Walton adds that one issue companies should look at immediately is checking their insurance policies to determine that the cover they believe they have actually exists. As he explains, this is new legislation and may not actually be specified in existing policies - something that could land a company in very expensive trouble. "You can't be blase about this; when the first few cases come along they will fairly expensive."

Mr Stokes agrees, explaining companies must make sure their indemnity cover is sufficient, as legal costs are likely to be higher than for HSE prosecutions. He adds that, with regard to risk management, companies would be wise to regard recent guidance put out by the Institute of Directors on directors' responsibilities in relation to this issue - and follow it closely because this is likely to be used as a benchmark by the Crown Prosecution Service and the HSE.

Covering costs

"We're advising all our clients to make sure they have cover for legal defence costs in place as part of good housekeeping," says David Huxley, managing consultant in the human capital risk management team at broker Marsh. He says that most employers' liability policies will include cover for such costs, but that it is nonetheless important to check the state of policies and, where necessary, update them to ensure they refer specifically to the new Act.

Perhaps we should not be overly concerned about the state of health and safety in UK business. Granted, accidents will happen but the feeling from the insurance industry is that the situation is markedly better than it has been. Substantial improvements in attitude have even been noted in the last few months. "I was out for dinner with a senior underwriter from a large insurer last night," comments Mr Huxley, "and he said that the past six to nine months have seen a real improvement in health and safety at board level." If nothing else, the new Act is certainly focusing minds.