Dispute Resolution

Fines For Companies In OSH Prosecutions

Recent cases have looked at levels of fines in Health & Safety in Employment Act prosecutions, commonly known as OSH prosecutions.

In a recent case Department of Labour v Hanham & Philip Contractors Limited, the High Court set a standard assessment for determining the starting point of fines in such prosecutions. This was set on an assessment of culpability to the offending by the Court. The starting points were determined to be as follows:

  • Low culpability – a fine of up to $50,000
  • Medium culpability – a fine of between $50,000 and $100,000
  • High culpability – a fin of between $100,000 and $175,000

Hanham brought uniformity in the levels of fines ordered by the Courts in these prosecutions. The starting points, once determined, are then adjusted for any relevant aggravating or mitigating factors.

Section 41 of the Sentencing Act 2002 requires the Courts to consider the financial circumstances of the offender when fixing the level of fines.

Most OSH prosecutions that we deal with involve defendants who are insured. However, the Health & Safety in Employment Act prohibits the insuring against fines. Therefore all defendants in New Zealand are liable to pay any fines imposed by the Courts. The insurance covers certain other costs and financial consequences of a prosecution.

In order to seek a reduction in fines based on financial incapacity, a defendant is required to make a declaration as to financial capacity containing information on all sources of income, assets, liabilities and outgoings.

In a very recent case of Mobile Refrigeration Specialists Limited & Waikato Coolstorage Limited v Department of Labour, the High Court dealt with an appeal against the fines imposed by the District Court. Mobile Refrigeration had been fined $56,200 and Waikato Coolstorage was fined $37,200. The appellants argued that when calculating the fines to be imposed, the Judge did not take adequate account of the financial capacity of each Company to pay.

The High Court dismissed both appeals. Heath J in his judgment stated:

[54] There are dangers in interpreting the Sentencing Act in a manner that allows corporate offenders to readily escape financial penalties on grounds of alleged impecuniosity. For example, a company may be incorporated with no working capital of its own, to undertake a particular venture. If that venture were to go wrong and harm was caused to its employees, the absence of liquid funds might tell against a fine. Yet, if that same company had been funded during its trading life through the provision of shareholder advances, it would not be unjust to put the shareholder to the choice of providing funds to pay the fine or leaving the company to go into liquidation. Similarly, if a parent company stood to gain significant taxation advantages form losses incurred by a subsidiary, it would seem wrong in principle for those benefits to be retained by the parent to the exclusion of the company’s obligation to pay the fine. Again, the parent company could make a decision whether to advance moneys to pay the fine or to place the company into liquidation.

The Court went on further to state that in the case of a Company, it should provide clear evidence of financial incapacity, supported by appropriate disclosure of all material facts including any benefits accruing to a parent company through the insolvency of a subsidiary.

The Court also affirmed an English case of R v F Howe & Son (Engineers) Ltd where the Court of Appeal expressed the view that “there may be cases where the offences are so serious that the defendant ought not to be in business”.

This judgment demonstrates the trend of higher fines in such prosecutions and the raising of the bar for defendants to plead financial impecuniosity when it comes to having fines reduced. A simple profit and loss statement showing a large loss for a company will no longer suffice as proof of financial incapacity.

Companies will have to be prepared to make full disclosure of their affairs and business structures in order to prove financial incapacity. However, what seems to have been added to the requirements now is an enquiry into the willingness of shareholders to continue providing funds to run the company if a fine is not affordable to the company. This removes the corporate veil protection and does not only assess the Company as a separate entity but a creature of its masters who should be prepared to bear the losses if they have been reaping the gains.