what's in the news

On 15th March Network Rail was fined £1m after admitting health and safety breaches over the deaths of two girls at an Essex level crossing.

Friends Olivia Bazlinton, 14, and Charlotte Thompson, 13, were hit by a train in December 2005 as they crossed the railway line at Elsenham station and died instantly.

The company pleaded guilty to three offences at Chelmsford Crown Court.

Judge David Turner QC also ordered Network Rail to pay £60,000 costs.

A series of risk assessments had been carried out at the site, which highlighted the dangers of the crossing. A Network Rail report from 2002 had recommended new gates that locked automatically as trains approached but they had not been fitted.

Judge Turner accused Network Rail of “corporate blindness”. Network Rail, in part by itself and in part through its predecessor Railtrack, failed to ensure that the risks were properly assessed, controlled or managed.

In January, Network Rail, the authority responsible for the UK’s railway network, admitted breaching health and safety laws at the level crossing.

Prosecutor Mr Ashley-Norman told the court the lateness of the prosecution came as a result of “serious flaws in the disclosure process” from Network Rail.Key risk assessment documents did not come to light until the bereaved families pursued civil action against the authority, he said.

Pitmans Partner Alan Davies, who specialises in the defence of Health and Safety prosecutions said “The high level of the fine in this most tragic case reflects the seriousness of the health and safety breaches and the consequences of those breaches. The case highlights the importance for all businesses to carefully review the adequacy and implementation of their Health and Safety Polices and Procedures.”

Alan Davies
Partner, Defendant Insurance
T: 0118 957 0300
E: alandavies@pitmans.com

The Office of Rail Regulation (ORR) is the independent safety and economic regulator for Britain’s railways and has prosecuting powers and prosecuted Network Rail for breaches of health and safety law which led to the deaths of Olivia Bazlinton and Charlotte Thompson at Elsenham station footpath crossing in December 2005 had its first hearing today at Basildon Magistrates’ Court.

Network Rail pleaded guilty to two charges under The Management of Health and Safety at Work Regulations 1999, and guilty to one charge under the Health and Safety at Work etc. Act 1974. The court has committed Network Rail to Chelmsford Crown Court where a sentencing hearing will take place on 15 March 2012 and an update will follow when sentence is passed.

For further information, please contact:

Alan Davies
Partner, Defendant Insurance
T: +44 (0) 118 957 0300
E: alandavies@pitmans.com

Jonathan Durrant
Director, Dispute Resolution

Once again ‘the season to be merry’ is almost upon us and it’s time to plan the party!

However whether you are a business simply planning to entertain clients and contacts or, for example, an organisation planning a music festival or major event for the public next year the principle is the same – don’t forget to check your insurance cover!

The laws that impose duties upon organisers of events, especially from a liability perspective, are surprisingly wide. However, fortunately there is a wide range of insurance cover available and there needs to be as the implications if things go wrong can have a devastating effect upon businesses and those who run them. The critical consideration is to ensure that all potential risks are covered as far as possible.

By way of illustration if a member of the public attending your event were suffer serious injury or die in an accident caused by a failure of your employees or agents to safely erect temporary steps then the consequences could be far reaching. The same would apply if one of your employees suffered serious injury or died due to inadequate supervision or safety precautions taken during their work.

Following a serious accident the law enforcement agencies, which includes not only the Police but The Health & Safety Executive and the Environmental Health Officers of the local Authorities, would immediately commence investigations and could issue a prohibition notice closing the event if they suspected there was a likelihood of reoccurrence.

Further, if they suspected that there were breaches of Health & Safety law then criminal prosecutions could follow against the organisers of the event and/or against the directors or senior officers if their gross negligence caused the incident.

Successful prosecutions could lead to unlimited fines for the business and imprisonment for the individuals concerned together with very bad publicity which could have a devastating effect on the business.

In the event of a death then there would also have to be an Inquest at which the business may have to explain their actions.

In either event there would no doubt be a civil claim for damages either by the injured individual or, following a fatality, by the Estate on behalf of any dependents. 

In addition to needing insurance cover for liability risks there are a multitude of other prospective risks and related insurance coverage that should be considered by organisers and it is appropriate now to review some of the more common:

Property: cover for premises against damage, office contents, musical instruments, hired-in equipment, marquees, audio & visual equipment and plant, merchandise stock, CDs, and promotional materials.

Business Interruption: should there be fire, flood, power or a telecommunications failure, then BI insurance offers protection from income streams during physical and technological disruptions.

Employers’, Public and Product Liabilities: Employers liability insurance is of course compulsory and it should cover not only your own full time employees but part time contractors, volunteers and freelancers. Audiences will be covered by public liability insurance and food/drink and merchandise by product liability cover.

Financial: misappropriation, loss of cash, box office receipts, fees, subsistence expenses and merchandise.

Legal Expenses: provides cover for legal advice and representations of your company in health & safety issues, employment disputes, contract disputes and can provides an advisory service. This is often included in a ‘combined risk’ policy.

Professional Indemnity: provides cover against claims of negligence, breach of duty or mismanagement.

Cancellation Insurance
Cancellation cover replaces lost revenue and reimburses expenditure incurred from an event which is necessarily and unavoidably postponed, abandoned, cancelled, curtailed or relocated in circumstances beyond your control. For artist managers, it can also protect commission income streams for high-earning performers.

Cyber Liability Insurance
Your current insurance coverage may not protect against the special risks that accompany your activities into the online space. Cyber Liability cover can provide protection against the new risks that come with this continually developing technology. 

Directors liability
Increasing regulation is placing greater pressure on company directors & officers to perform meticulously. If a shareholder, employee or any other 3rd party thinks a director or officer has failed to exercise ‘due care’ in the running of a business claims can be made against them personally.

Safety planning for an event is outside the scope of this article but don’t forget:

Risk assessments for members of the public attending the event and employees working on it should always be carried out by a person deemed ‘competent’ under the requisite Regulations.

Being able to point to the existence of a risk management plan can be invaluable in the event of an unexpected incident. The plan may be a simple  document incorporating a communication plan should an incident occur.

Conclusion

Don’t forget that your risk exposure starts as soon as you sign a contract with the venue to host the event. Consider all of your risks when in the planning stage and the contractual liabilities that you will be liable for if things don’t go according to plan.
Accordingly, it is critical to regularly check the adequacy of your insurance coverage with your brokers. Ensure full descriptions of your actual and intended business everything are recorded in writing to your brokers and passed to your insurers so they can assess the risks and charge an appropriate premium that reflect the risks.

You should ensure you understand the nature and extent of the policy coverage, the policy exclusions and limitations such as whether legal advice cover is included for any enforcement authority investigation and /or prosecution before agreeing terms and paying the policy premium.

This article is only intended to provide a brief summary of some of the main insurances that organisers of an event should consider and discuss with their brokers.

If you would like any specific advice on the legal implications of holding an event, please contact Alan Davies, Defendant Insurance Partner and member of the Hospitality Sector or Nicola Kirk, Dispute Resolution Partner and Head of the Hospitality Sector.

Alan Davies
T: +44 (0)118 957 0300
E: alandavies@pitmans.com

Nicola Kirk
T: +44 (0)118 957 0226
E: nkirk@pitmans.com

For further information, please see:

Pitmans’ Hospitality Sector Services

Pitmans’ Dispute Resolution legal services

Pitmans’ Defendant Insurance legal services

When the long awaited Bribery Act finally came into force on 1 July 2011 most people expected the first prosecution would not commence for many months, if not a year or more and would probably involve a huge bribe.

However, this did not prove to be the case as a humble Magistrates Court Clerk, Mr Munir Patel aged 22, proved to be the first person to be charged and found guilty under the Act for taking £500 to avoid putting details of a traffic summons on a court database. The Judge said the indictment involved at least 53 cases in which he had manipulated the process in order to save the offenders from the consequences of their offending.

Mr Patel was sentenced to three years for bribery and six years for misconduct at Southwark Crown Court.

The severity of the penalty reflects the fact that Mr Patel was in a public office and sends a powerful message to all that no matter how modest the amount of a bribe is the consequences can be very severe.

Alan Davies
Partner
T: +44 (0) 118 957 0300
E: alandavies@pitmans.com

Following the recent announcement of the first prosecution under The Bribery Act 2010, that came into force on 1st July 2011, Alan Davies and Joanne Eden of Pitmans Defendant Insurance Department spoke to Reading Insurance Institute on the Implications of The Bribery Act.

The offence of bribery is not new. There were common law prosecutions from Victorian times and legislation particularly concerning those in public office. However, the Bribery Act brings a new emphasis on business.  A KPMG survey in June 2011 suggested that one third of UK companies had not conducted an anti-bribery and corruption risk assessment and as we will see that is clearly something that needs to be done if not done already.

Current Status

Although the Act was passed in April 2010, it did not come into force until 1st July this year. This follows two delays and a certain amount of criticism of government for apparently dragging their feet.  But at least now we have certainty, and also we have the guidance that the Ministry of Justice had said they would provide at the time of announcing the date the Act would come into force. The guidance focuses on procedures that organisations can put in place to prevent “persons associated with them” from bribing.

So, it is now important for organisations to consider what the Bribery Act means for them, and what they are going to do about it.  This really is an important piece of legislation, but at the same time perhaps not so drastic in its effects as some of the more sensationalist commentaries might have suggested so far as commercial organisations are concerned.  However, so far as individuals are concerned the bar has been set very low by the CPS who announced the prosecution of a 21 year old Magistrates Court Clerk who sought a £500 bribe.

In terms of the detail of the Act, we have to start with what it provides in terms of offences.

In brief, here are the 5 main offences in the Act:

• Bribing another person
• Being bribed
• Bribing a foreign official
• Organisations failing to prevent bribery
• Body corporates and senior officers involved in bribery.

Section 1 – Bribing another person

We all know what a basic bribe is.  The wording “Financial or other advantage” confirms that it doesn’t have to be just cash.  And it doesn’t actually have to be giving: it could be just offering or promising to give a financial or other advantage.

But note also that it has to be coupled with an intention that the recipient will perform a “relevant function” improperly as a result of the “bribe” (case 1) OR that the payer knows or believes that acceptance itself amounts to improper performance (case 2).

The concept of “relevant function” goes throughout the Act in relation to the recipient’s role.  This is very wide.

It includes functions of a public nature, but also activity in connection with a business, employment, or functions performed on behalf of a body of persons, provided that in each case it involves any one of:

• an expectation of good faith;
• an expectation of impartiality; or
• a position of trust.

Section 2 – Being bribed

Again, a fairly obvious statement of the wrong-doing involved in being the recipient of a bribe. It includes requesting as well as actually accepting or receiving.

As with the Section 1 offence, Section 2 breaks into a number of specific “cases” where either:

• the intention of the Recipient is that they will perform their function improperly; or

• where the mere request for/acceptance of the bribe itself amounts to improper performance; or

• where the advantage requested, received, agreed or accepted is as a reward for past improper performance; or

• in anticipation of/consequence of the advantage, the Recipient performs their function improperly.

Section 6 – Bribing a foreign official

The wording in this section is different from that in section 1 in some respects, but covers similar ground.  It is a separate statement that it is unlawful for a person to whom the Act applies to bribe a foreign official. 

Difference is that there is no need to show that there was intention to induce “improper performance” by the official, because of the difficulty of showing what “proper performance” might be in some circumstances/jurisdictions.

OECD Convention on Bribery of Foreign Public Officials in International Business Transactions of 1999 was what gave rise to the sense that this needed a separate section.  Also the language of this section reflects this Convention.  It allows the UK to amend this section if the Convention is amended. 

It is perfectly possible for the same activity to be caught by section 1 and section 6.

Section 7 – Organisations failing to prevent bribery

This is at the heart of much controversy surrounding the Act.

Section 7 creates a strict liability offence (meaning no “intention” is required on the part of the organisation: so if you fall within the section, unless the main defence applies, you are guilty). Accordingly, a commercial organisation (broadly defined as a body corporate or partnership) is guilty of an offence where an “associated” person bribes a third party, intending to obtain an advantage.  A person associated with a commercial organisation is defined as a person who ‘performs services’ for or on behalf of the organisation.  Whether or not someone performs services is determined by reference to all the prevailing circumstances.

• So, a company could clearly be liable for the acts of its employees or officers under this section.

• But also for acts of its subsidiaries, consultants, agents, joint venture partners.

• The offence applies to UK “formed” organisations, but also overseas entities which carry on business or part of their business in the UK.  It is clear that there will need to be some significant degree of association with the UK for a charge to be brought –the Guidance states that it is not expected it will apply to a company just because it is listed in the UK as it should also have some physical operations.

• The actual briber does not have to be prosecuted but the offence must have occurred – it must be established beyond reasonable doubt. So the criminal standard is applied not the civil standard of balance of probability.

• The bribery can obviously be in the UK or elsewhere.

• The only specific defence is that an organisation has in place “adequate procedures” to prevent bribery.  So this is a crucial area which will be addressed further in a later slide.

[BUT NOTE that even if it can be properly said that an agent, subsidiary, or another person acting for a member of a joint venture, was performing services for the organisation, an offence will be committed under s.7 only if that agent, subsidiary or person intended to obtain or retain business for the main organisation.  Without proof of the required intention by the briber, liability will not arise through simple corporate ownership or investment. 

This is so even though the parent company or subsidiaries may benefit indirectly from the bribe. On the other hand, liability for a parent company could arise where a subsidiary is the ‘person’ which pays a bribe which it intends will result in the parent company obtaining or retaining business.]

Section 14 – a corporate personality committing one of the offences in sections 1, 2 or 6

A corporate personality can commit the offences under sections 1, 2 or 6 (bribing, being bribed, or bribing a foreign official). This can occur if it is shown to have had sufficient awareness on the part of a “directing mind” of sufficient seniority of the offence.

Then the senior officer who ‘consents and connive’s to that offence can be prosecuted as well as the company, under this section. i.e. the officer under this section, the company under section 1, 2 or 6 as applicable.

A senior officer means a director, manager, secretary or similar officers.

[There is a territorial connection required: the senior officer must have a close connection with the UK to be within this section: essentially being British, or ordinarily resident here.]

Scope, sanctions and defences

As we have seen, these various Bribery Act offences are very wide in their terms and their application.  There is also a range of significant penalties applying to the individual or company found guilty, which on conviction on indictment could include unlimited fines and prison sentences of up to 10 years for individuals. In respect of offences committed by organisations there could be unlimited fines in the most serious offences.  Other sanctions include orders for confiscation and recovery of the proceeds of crime, to debarment from public procurement related contract bids (under the EU regime, for example).

These could all be immensely serious for any individual or organisation.  The debarment rules could drive a company out of business at worst.

No de mimimis exemptions this is unlike the USA Foreign Corrupt Practices Act where there is the facilitation payment carve out.

The section 7 defence of “adequate procedures” to prevent bribery, only applies in relation to that corporate offence by an organisation. In essence it will amount to a defence if the organisation can prove “ it had in place adequate procedures designed to prevent persons associated with it from undertaking such conduct.”

View of the authorities

There is no doubt that since they took power, the Coalition Government has taken a look at the Bribery Act, in the context of the economic situation, and the need for an export-led recovery.  Although they consistently said they were committed to its implementation, they would also like to help industry with the way the Act is implemented so that the UK is not at a competitive disadvantage. But, their ability to do so has been pretty limited.

• The Guidance, provided by the MOJ is worth reading, particularly on the “adequate procedures” defence and really does try to be as practical as possible – but it has its limitations.  It remains a faintly unsurprising list of things that an organisation might do if contemplating bribery risks, applied in a number of example circumstances. 

• There is one passage of the Guidance which is I think worth quoting in full in this context, to illustrate the approach that Government is trying to take:
“The objective of the Act is not to bring the full force of the criminal law to bear upon well run commercial organisations that experience an isolated incident of bribery on their behalf.  So in order to achieve an appropriate balance, section 7 provides a full defence.  This is in recognition of the fact that no bribery prevention regime will be capable of preventing bribery at all times.  However the defence is also included in order to encourage commercial organisations to put procedures in place to prevent bribery by persons associated with them”. 

• In reality, there is a limited capacity for investigation and pursuit, therefore the number of prosecutions (which have to be personally approved by the DPP or Director of Serious Fraud Office) is going to be limited.

• The intention as far as commercial organisations are concerned is that they are not going to go for small stuff.

• There is going to be continued desire to avoid knocking out of action any really significant parts of the UK BUSINESSES.  So plea bargaining is quite likely to feature in any prosecution.

• But there may well be a desire to get some prosecutions up and running to put down markers.  So even small to medium sized organisations really do have to be prepared and get their houses in order.

• The CPS has already decided to bring the first prosecution under the Act against a court employee. Munir Yakub Patel faces a charge under section 2 of the Act for requesting and receiving a bribe intending to improperly perform his functions.  It is alleged that he promised an individual summonsed for a motoring offences that he could influence the course of criminal proceedings in exchange for £500. Mr Patel will face the charge in the Crown Court on 14 October. The DPP has consented to the charge. The maximum sentence is 10 years imprisonment. This case brought by the CPS will put pressure on the Serious Fraud Office to act sooner rather than later.

What to do now (1)

Companies really ought to have started creating the right culture and procedures already. Hopefully they will be building on their existing systems – after all bribery has been an offence under English statute law for over 120 years and in common law for much longer.  But there is obviously a renewed emphasis given the need to show a defence for this section 7 offence for corporates of failing to prevent bribery. The following considerations could be a basis for showing you have “adequate procedures to prevent bribery” as per that defence.

The Government considers that procedures put in place by commercial organisations should be informed by six principles.  These principles are not prescriptive.  They are intended to be flexible and outcome focussed as small organisations will face different challenges to those faced by large multi-national enterprises. 

(i) Proportionate procedures. This is proportionate to the risk of bribery and the nature of the organisation. Procedures include clear, practical and accessible policies for staff and business partners under your effective control, covering all such things as political/charitable contributions, gifts, “expenses”, promotional costs, how to respond to demands for facilitation payments or what to do when an allegation of bribery comes to light.  Other procedures may be financial controls such as book keeping, auditing and approval of expenditure, as well as ensuring transactions are transparent and avoiding conflicts of interest. These policies and procedures must be properly communicated and implemented.

(ii) Top level commitment: so clear messages from the top internally and externally, creating the right culture, and ensuring that business partners and management are committed to a zero-tolerance approach to bribery. A formal statement appropriately communicated can be effective in advising that bribery is against company culture. In large organisations the board should be responsible for setting policies, tasking management to design, operate and monitor procedures and reviewing the policies.

(iii) Risk assessment: This should be the first step taken to identify the risks for your organisation. For example, do you have any foreign official contact?  Deal with particularly risky jurisdictions? Use others to carry out services on your behalf? Or make charitable or political contributions? Factors to look at internally are deficiencies in employees training, skills and knowledge, bonus cultures that reward excessive risk taking and lack of clarity in policies on hospitality and promotional expenditure. Risk assessment procedures should include appropriate resourcing and the need to prioritise relevant risks, as well as keeping documentation of the risk assessment and its conclusions.  The risk assessment should be reviewed as the organisation evolves.  The risk assessment will then lead to appropriate codes of conduct and policies being drawn up.

(iv) Due diligence: This requires you to consider who you do business with, funds destinations or origin, and look at your business relationships in detail.  Due diligence may include conducting direct interrogative enquiries, indirect investigations, or general research on proposed associated persons.  Again the requirement for and extent of due diligence undertaken should be proportionate to the risk. An organisation selecting an intermediary to establish business in foreign markets will require a higher level of due diligence than an organisation contracting for IT services.

(v) Communication and training: Effective implementation requires actually embedding in training and with procedures and controls (IT based or otherwise) to ensure so far as possible that everyone knows what is expected, and that will pick up problems before they persist or are repeated. Internal and external communication of policies through a statement or code of conduct is suggested. You may need to consider including contractual terms on bribery prevention measures in an agreement with another company for a joint venture or request details of companies’ anti-bribery policies in a tender. Internally you may need to consider appropriate disciplinary procedures.

(vi) Monitoring and review: Regular auditing of compliance and monitoring of what is happening on the ground has to be a part of the system: otherwise how do you know what is happening?  But some of this may be capable of being IT based (links to expenses claims, or payment systems, keyword alerting or email traffic etc).

(vii)  In addition (and this partly comes from the Foreign Corrupt Practices Act recommendations): be prepared to deal with whistle blowing.  Companies need generally, and specifically, to have in place appropriate procedures to deal correctly with someone on the ground alerting the organisation to a bribery problem.  This has implications in employment law as well as in the Bribery Act context.  Treating the whistle blower unfairly is the worst direction to go.

What to do now (2)

As well as companies going through processes of getting written internal policies and procedures updated, training staff, doing due diligence and the like, there are a number of consultancies in the market which offer help to companies in establishing procedures to combat bribery risk.

Some of these will offer an IT based solution.  It may well be that these are worth considering particularly in large organisations.  Some have the ability to link expenses claims above a threshold to a red alert to management that something may need investigation.  

The MoJ guidance does go out of its way to say though that there is no need for any organisation to consult external advisers in order to be able to say that it has adequate procedures in place to prevent bribery. 

Often this will come down to taking a hard look at your organisation in the context of its vulnerabilities to corrupt practices.  As the MoJ guidance emphasises, there will be no need for many organisations to seek external help where they can readily make sensible decisions about their approach.  And the overall watchwords coming out of the Guidance are that a common sense approach, and proportionality, are the key thoughts that organisations need to have in mind when considering what to do in the face of the Bribery Act.

What to do now (3)

So, some topical questions organisations should be asking themselves:

• How far do you go with corporate hospitality (giving or receiving)?  Do you need to consider limits on individual hospitality spending?  When do you think, for your organisation, that such hospitality might stray onto the wrong side of the line? Common sense is the watchword and proportionality.

• Does your organisation carry out promotional activity which includes rewarding customers or potential customers?  Such as stays in resorts for potential customers?  And do you think this is sustainable?

The Government does not intend that genuine hospitality that is reasonable and proportionate be caught by the Act so you can continue to provide and receive bona fide hospitality and promotional business expenditure such as tickets to sporting events, taking clients to dinner, offering gifts as a reflection of good relations or paying for reasonable travelling expenses. However the authorities would look more closely where it was thought that the hospitality was really a cover for bribing someone and would take into account the level of hospitality offered, the way it was provided, openly or secretly, and the level of influence the person receiving it has on the business decision.

• What’s your corporate response to being faced with requirements to pay “facilitation payments”?  Facilitation payments are payments to induce officials to perform routine functions they are otherwise obliged to perform. There are no exemptions for these payments under the Act. However, you can continue to pay for administration fees or fast track services.

• How far do you currently go in diligencing agents, counterparties, other “associates”?  You only have to think about doing due diligence on persons who will actually perform services for you or on your behalf. It is unlikely you will have to carry out due diligence on persons further down the supply chain. If you have assessed the risk as low you may only need to satisfy yourself that the person performing services for you is genuine and someone you can trust by making enquiries with business contacts, local chambers of commerce or the internet.

This is not a “one size fits all” situation and the steps you will need to take depend on your organisation.

Conclusion

In conclusion we have an Act which came into force on 1 July 2011, which will take UK businesses into a new world in terms of bribery and corruption risk.

Although Government and the prosecuting authorities do not want to put UK businesses at a disadvantage in world terms, there will be a level of offence (in financial terms) which they will want to prosecute actively.

And even for those which don’t get pursued, the risk to reputation of attention from the press or pressure groups is potentially still very significant.  This is an essential area not to lose sight of: the fact that even without a prosecution, enormous damage can be done merely by being involved in something which the press get hold of and run with. 

And in fact having a robust, well run system in place for dealing with these issues can enhance corporate reputation: for example see the contrast between BP’s Gulf spill crisis, and Rolls Royce’s response to its Airbus jet engine problems.  You could apply these lessons to a Bribery Act context with similar results. 

So, there may be reasons to look positively at the spur that the Bribery Act may represent, even if it is a challenge.

If you have any enquiries or require advice please contact:

Alan Davies
T: 0118 957 0300
E: alandavies@pitmans.com

Joanne Eden
T: 0118 957 0207
E: jeden@pitmans.com

A retailer, manufacturer or producer of a potentially defective product could face both civil and criminal liability if appropriate action is not taken. It is critical to take immediate expert advice upon acquiring knowledge of a potentially defective product because the consequences of a failure to do so can be severe.

Below is a summary of the main issues and guidelines to consider:

A. Legislation

The relevant Legislation makes regular references to obligations being imposed upon ‘producers’ under The Consumer Protection Act 1987 “CPA”. Producers can include retailers, suppliers and manufacturers and for the purposes of this article I adopt the collective term unless stated otherwise.

1. General Product Safety Regulations 2005 (the GPSR): general notes

a. Introduction to GPSR 2005: the UK General Product Safety Regulations 2005 implemented the revised General Product Safety Directive (2001/95/EC) (GPSD). The GPSD has increased the regulation of product safety in the UK and therefore businesses must  review their product safety systems to ensure compliance with the regime. The GSPD covers all products intended for use by consumers or likely to be used by consumers.

b. GPSR 2005, regulation 5: General safety requirement

Under regulation 5, there is a “general safety requirement” that producers will only place a product on the market if it is a “safe product”. A “safe product” is one which presents no risk or the minimum risk compatible with its use and which provides a high level of protection for consumers. If an unsafe product is placed on the market the manufacturer must notify the relevant enforcement authority (see regulation 9(3) on notification).

c. GPSR 2005, regulation 10(1): Enforcement

Under regulation 10(4), the relevant enforcement authorities in England are the local authorities, which are the county councils, district councils, London Borough Councils, the Common Council of the City of London and the Council of the Isles of Scilly.

2. Notification

a. GPSR 2005, regulation 9: Obligations of producers and distributors.

Where a product does not comply with the general safety requirement, both the producer and the distributor have a duty to notify the relevant enforcement authority (as defined in regulation 10(1)) of

i. information which will enable the product or batch in question to be identified;
ii. the risks that the product poses to consumers;
iii. details of action taken to prevent risk to the consumer.

b. This means that producers should monitor their products for potential risks. Such monitoring would give producers advance warning of product safety risks, so that they can take action before the authorities take the step of ordering a product recall. In addition, the GPSR 2005 require producers to keep a record of consumer complaints about the safety of their products (see regulation 7(4)(b)(ii)), and to notify the safety regulators if they find that the product is unsafe (see regulation 9 on notification).

c. This obligation to notify the relevant enforcement authority creates two questions for producers:

i. Issue 1: whether to notify. Producers must quickly assess the seriousness of the risk in order to decide whether the product is unsafe. The European Commission’s “Guidelines for the notification of dangerous consumer products to the competent authorities of the Member states by producers and distributors in accordance with article 5(3) of Directive 2001/95/EC” states that producers and distributors should take into account the severity of the possible damage and the factors which affect the level of the risk, such as the type of user and obviousness of the hazard, in deciding whether a product is unsafe and should be notified.¹

ii. Issue 2: when to notify. If the product is unsafe, then the European Commission’s Guidelines state that a company must inform the authorities: “without delay, as soon as the relevant information has become available, and in any case within 10 days since it has reportable information, even while investigations are continuing, indicating the existence of a dangerous product. When there is a serious risk, companies are required to inform the authority and in no case later than 3 days after they have obtained notifiable information. In an emergency situation, such as when immediate action is taken by a company, the company should inform the authorities immediately and by the fastest means”.

d. Once notified, the regulator will decide whether to send the information onto the European Commission and the other member states through the RAPEX system (the rapid alert system for non-food consumer products).

3. Recall

a. The GPSR 2005 place a positive duty on producers to recall dangerous products in certain circumstances.

i. Before the GPSR 2005 there was common law authority for a duty to recall unsafe products.

ii. Under GPSR 2005 producers now have a legal obligation to withdraw unsafe products from the distribution chain and/or recall them from consumers.

b. The GPSR 2005 regulation 15 gives national authorities the power to issue product recall notices. The authority can order the producer or distributor to take steps to protect consumers, including ordering a product recall.

i. Under regulation 10(5), while voluntary action on the part of producers and distributors is to be encouraged, an enforcement authority has the power take action “urgently and without first encouraging and promoting voluntary action if a product poses a serious risk”. The enforcement authorities must act proportionately to the seriousness of harm and take account of the precautionary principle. Acting on a precautionary basis means that regulators must take action even when they lack conclusive scientific evidence of the existence of the risk, as long as there is a likelihood of real harm.²

ii. Under regulation 15(4), an enforcement authority may only issue an recall notice if:

• other action which the authority may require would not suffice to prevent the risks

• the action being undertaken by the producer or distributor is unsatisfactory or insufficient; and

• the authority has given no less than seven days’ notice of intention to serve the recall notice and, where the person served has required the authority to seek advice from a person appointed by the Chartered Institute of Arbitrators (CIArb) to determine whether the product is dangerous or whether a recall notice is proportional to the seriousness of the risk, the authority has in fact sought and taken account of such advice.

Under regulation 15(5), the second and third requirements of regulation 15(4) do not apply for products which pose a serious risk and which require urgent action.

iii. Note that there is a right of appeal against recall notices. Under regulation 19(2)(d), a recall notice will be set aside if the product is not dangerous, or if the enforcement authority has not used recall as a last resort and the other requirements of regulation 15(4) have not been met.

4. Taking corrective action: when producers should make a recall.
“Product Safety in Europe: A Guide to Corrective Action Including Recalls”

The Guide aims to give producers and distributors of consumer products general advice about what they should do if they have evidence that one of their products may be unsafe.

a. Plan ahead: preparing your collective action strategy before you have a problem

i. Establish a policy and procedure for corrective action. Details of such policies may vary, but should include a statement by the company management of its aims and commitment to speedy corrective action to restore product safety, and to inform consumers fully of the corrective action being taken.

ii. Set up a corrective action team. The team should have knowledge of design, production, product safety/ risk management, quality assurance, distribution, public and corporate relations, legal, and accounts.

iii. Monitor information about the safety of your products. You need to have systems to collect and analyse information on report of accidents involving your products, customer complaints, warranty claims, insurance claims, any evidence of consumer abuse or misuse of the product.

iv. Keep good records to help trace products and identify customers and end users.

v. Assemble documents about the product’s design and safety

b. Decide whether to take action: assess the risk

i. Identify the hazard and its cause
ii. Estimate how many products are affected
iii. Identify who might be affected
iv. Consider what severity of injury could result
v. Assess the likelihood of such an injury
vi. Evaluate acceptability of overall risk

c. Taking corrective action: deciding what action to take

i. Decide whether corrective action needs to involve:

• Products in the supply chain and possibly
• Products in the hands of consumers

ii. Decide what corrective action needs to be carried out

If the overall risk is judged to be serious, the producer should take immediate action to:

• Inform the market surveillance authorities
• Isolate affected products
• Set up a communications programme to contact consumers

If the overall level of risk is judged to be moderate, the corrective action may be limited to products in the distribution chain, and it may be enough to withdraw those and give the authorities details of what is begin done

If the overall level of risk is judged to be low, corrective action may be limited to consideration of changes affecting products in design and production.

iii. Possible corrective action:

• Changing the design of products
• Withdrawing products from distribution
• Modifying products at consumers’ premises
• Return of products by consumers for modification
• Recalling products from consumers for replacement or refund

iv. Agree responsibilities and actions with distributors

v. Inform the market surveillance authorities

5. The European Commission published its revised Guidelines for the operation of “RAPEX” in January 2010.

a. “RAPEX” is a European rapid alert system for dangerous consumer products. It allows information about dangerous products to be given to other national authorities and the European Commission, in order to prevent the sale of these products. All the EU countries participate in the system. Under Article 12 of the GPSD, national authorities have a duty to notify the Commission, via the RAPEX system, of action taken to prevent the marketing and use of dangerous consumer products.

b. Manufacturers of consumer products marketed in Europe should be aware of the importance of the new RAPEX Guidelines, which give guidance on how the risk posed by consumer products should be assessed. This risk assessment process is relevant when a manufacturer has marketed an unsafe product. Regulators will follow this risk assessment process to decide whether the producer or distributor needs to notify regulators about the problem; what corrective action, up to and including recall, needs to be taken; and whether the issue will be communicated across Europe. The Guidelines and the new risk assessment process are expected to significantly change the way in which national authorities handle product recalls, and therefore the producer needs to understand the process.

c. Preparing  risk assessment under the new 2010 Guidelines:

i. Describe the product and its hazard.
ii. Identify the type of customer to be included in the injury scenario.
iii. Describe the injury scenario in which the hazard might affect the consumer.
iv. Determine the severity of the possible injury to the consumer.
v. Determine the probability of the injury arising.
vi. Determine the risk level.
vii. Check whether the risk level is plausible.
viii. Repeat in order to identify other injury scenarios and the risk posed by the product. Classify the risk as “low”, “medium”, “high” or “serious”.

6. Advice on crisis management

a. The new GPSR regime means that producers must respond much more quickly to a product crisis. Producers should prepare a crisis plan beforehand in order to manage a potential product crisis. The producer should decide on an internal recall team, external advisors to deal with the risk assessment process, and detail procedures for employees.

b. There are differences between how the General Product Safety regime has been implemented in different member states, and how each member state approaches risk management. Producers should be aware of these differences and address both national and international issues in their crisis management plans.

c. Manufacturing companies may consider extending their existing product liability insurance to include product recall insurance which will cover some of the costs of a product recall.

B. The potential consequences of selling, producing or manufacturing a defective product that caused injury and/or damage to property

1. Criminal Proceedings by a prosecuting authority

Health & Safety at Work Act 1974

a. Action against the company

i. Section 3 of HSWA imposes a duty on an employer to ensure, so far as is reasonably practicable, the health safety and welfare of persons not in its employment (i.e. the public).

ii. A company is guilty of an offence if it fails to comply with the duty imposed by section 3.

iii. A company would be liable to an unlimited fine in the event of conviction.

b. Action against Individuals

i. Section 37 of HSWA states that where an offence has been committed by a company (see section 3 HSWA above) is proved to have been committed with the consent, connivance or neglect of an individual director, manager, secretary or other similar officer who was purporting to act in such capacity he too shall be guilty of an offence.

ii. Therefore in order for a director or other similar officer to be guilty of this offence:

a. The company must be guilty of an offence
b. That director must have consented to that offence or wilfully ignored it or negligently allowed it to occur.

iii. A director guilty of such an offence faces up to 2 years in prison and an unlimited fine.

General Product Safety Regulations 2005

a. Action against a company or individual

i. Regulation 20(1) of GPSR creates an offence for a person to place an unsafe product on the market.  A company faces a maximum fine of £20,000.  An individual prosecuted for this offence can be imprisoned for up to 12 months and a fine.

ii. Regulation 20(2) of GPSR creates an offence if a person fails to notify an enforcing authority that a product it has placed on the market is not safe.  A company faces a maximum fine of £5,000.  An individual prosecuted for this offence can be imprisoned for up to 3 months and a fine. 

iii. Regulation 20(3) of GPSR creates an offence if a producer does not give notice to an enforcing authority that its product is unsafe and it is proved that the producer ought to have known that the product was unsafe.  A company faces a maximum fine is £5,000.  An individual prosecuted for this offence can be imprisoned for up to 3 months and a fine.

iv. Regulation 24 creates offences where a person obstructs an officer of an enforcing authority.  A company or person faces a maximum fine is £5,000.

2. Civil Proceedings by the Claimant

a. If a defective product has caused injury to a consumer or third party the injured persons will have a cause of action enabling them to bring a claim for damages against the retailers, producers or manufacturers. It will be easier for a consumer to establish liability against the retailer as that is the legal entity with whom the contract was made and as such the consumer will have the benefit of a breach of contract claim which would not be available if the consumer sued the producer or manufacturer of the product. In practice the claim is normally persued against the retailer and pleaded alternatively in negligence and possibly under the CPA. There would normally be a claim for damages for damages for pain, suffering and loss of amenity suffered, any loss of earnings, out of pocket expenses sustained by the individual and family sustained as a result of the injury and a claim for care and assistance provided by the family.  Upon receipt of any claim (or knowledge of any circumstance which may give rise to a claim under their insurance policy) the retailer must immediately notify their insurers.

b. Further, if the product caused damage to property then the purchasers of the product, the Claimants, can claim damages either directly or more usually by way of a recovery action by their insurers, for the physical damage to property sustained and if a business then potentially of loss of net profits sustained.

C. The potential consequences of selling, producing or manufacturing a defective product that caused death.

1. Coroner’s Inquest. In the even of a fatality arising there is an additional type of legal proceeding that will ensue, namely the Coroner’s Inquest.

a. The Coroner must investigate any unnatural death.

b. The Coroner’s inquiry is limited in nature and is designed to answer the following questions:

i. Who was the deceased?
ii. When and where did he die?
iii. How did he die?

c. The final question is a narrow question which means “by what means did he die”?

d. The inquest must not appear to determine any question of criminal or civil liability.

e. The coroner will reach a “verdict”. There are various possible verdicts, the most common of which are: accidental death, unlawful killing and an open (i.e. inconclusive) verdict.

f. The inquest will happen: it cannot be settled.

2. Criminal proceedings. In addition to the consequences outlined under B,  further serious criminal proceedings may ensue by virtue of the Corporate Manslaughter & Homicide Act 2007 (CMHA).

a. A company is guilty of an offence if the way in which its activities are managed or organised

i. causes a person’s death and
ii. amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased.

b. The relevant duty includes a duty owed in connection with the supply of goods.

c. The company’s conduct must fall far below what can reasonably be expected of the organisation in the circumstances.

d. Only a company can be prosecuted for corporate manslaughter. On the basis of the present information, a prosecution under the CMHA appears unlikely, but cannot be ruled out.

e. If prosecuted and convicted of such an offence, a company faces an unlimited fine and might be subject to a remedial order (requiring the problem to be remedied in a particular manner) or a publicity order (requiring the company to publicise the fact of the conviction to the media).

3. Civil Proceedings on Behalf of the Estate

a. A claim for damages may be made on behalf of the Estate of a deceased
person, the extent of which may be extensive as it may include a loss of dependency by the deceased’s family.  The extent of the claim falls outside the scope of this brief article. 

D. The powers of the Trading Standards officers

1. Trading Standards Officers: general information

a. Trading standards officers exist to enforce consumer protection legislation in order to create a safe trading environment. They carry out inspections on business premises to establish whether Trading Standards legislation has been complied with.

b. An inspection may take place as part of a routine inspection programme, or because the officer suspects that an offence has been committed.

2. Trading Standards Officers: powers

a. Power to enter premises and inspect goods: an officer may at all reasonable times enter any business premises and inspect any goods

b. Power to request or require books, documents or records: an officer can require the production of documents relating to the business and may make copies.

c. Powers of seizure: if an officer has reasonable cause to believe an offence has been committed, he may seize and detain any goods in order to ascertain whether an offence has been committed.

3. Trading Standards Officers: if there is a breach of Trading Standards legislation

a. If the Officer finds a contravention of safety legislation, he may issue a suspension notice prohibiting the movement of specified goods for a period of six months.

b. If the Officer finds more serious contraventions of safety legislation, he may consider legal proceedings.

These Guidelines are not intended to be fully comprehensive and each case depends on it’s own facts. For further information please visit Pitmans Defendant Insurance Service, or contact:

Alan Davies
Partner
T: +44 (0)118 9570 300
E: alandavies@pitmans.com

¹ http://ec.europa.eu/consumers/cons_safe/prod_safe/gpsd/notification_dang_en.pdf

² Department of Trade and Industry Guidance Notes, paragraph 78

A challenge by a Belgian consumer group Test-Achats to the exemption from EU equality law for the insurance industry when calculating insurance premiums has today been successful in the European Court of Justice.  The ECJ ruled that gender can no longer be taken into account as a risk factor in insurance because it constitutes discrimination.

Women have statistically been regarded as ‘safer’ drivers in comparison to men, particularly young women compared to young men. Women’s premiums have therefore been cheaper as they are considered to be less of a risk. Now, insurance premiums for women are likely to rise as a discount cannot be given based on gender.  

The ruling not only affects car insurance but also pension annuities.  Women historically received a smaller pension from the same amount of money than a man because they statically live longer. Annuity rates for men may therefore be reduced in line with those of women.

The requirement to take gender out of the equation will not come into force until 21 December 2012 to allow insurers time to adjust their systems. It is too early to say what the real effect will be. Insurers may look at alternative methods of assessing risk based on other information captured as part of the initial quotation. Some insurers have also been investigating telematics which is a system whereby information on driving styles, time and distance is captured and fed back by a ‘black box’ fitted into the car.  Insurers will need to be careful to avoid indirect discrimination in any new system that they use.

This ruling also means that other factors used by insurers to calculate premiums which are subject to discrimination legislation, such as age and disability may be successfully challenged in the courts.  Insurers may wish to take this into account when devising their new systems.

For further information please visit Pitmans Defendant Insurance website, or contact:

Joanne Eden
Solicitor – Defendant Insurance
T: +44 (0)118 957 0207
E: jeden@pitmans.com

On 15^th February 2011 Cotswold Geotechnical (Holdings) Limited ‘Cotswold’, a geotechnical survey company based in Gloucestershire became the first company to be convicted of an offence under The Corporate Manslaughter Act 2007 (which came into force in April 2008). On 17^th February the company was fined £385,000 which represents 115% of the company’s turnover in the year of the accident. The conviction and sentence continues the trend of harsher penalties being imposed for serious offences and Heath and Safety continues to be a topic that should feature high on the agenda of all businesses and organisations.

Cotswold was charged with the criminal offence of corporate manslaughter following the death of a 27 year old employee, a junior geologist Alexander Wright, who was killed in September 2008 when the sides of the trench in which he had been collecting soil samples collapsed and crushed him. Peter Eaton, the director of Cotswold, was also personally charged with gross negligence manslaughter and other health and safety offences but was too ill to stand trial. Cotswold was a small company that employed eight people in 2008 and Mr Eaton was in overall control of the way the company managed its affairs.

The CPS told the court that Mr Wright was left working alone in the 3.5 metre-deep trench to ‘finish-up’ when the company director left for the day. The two people who owned the development plot decided to stay at the site as they knew Mr Wright was working alone in the trench. About 15 minutes later they heard a muffled noise and then a shout for help despite the plot owners best efforts Mr Wright died of traumatic asphyxiation.

The CPS case was that Mr Wright was left to work in a dangerous trench some 3.5 metres deep because the company’s systems had failed to take all reasonably practicable steps to protect him from working in that way. In convicting the company, the jury found that their system of work in digging trial pits was wholly and unnecessarily dangerous. The company ignored well-recognised industry guidance that prohibited entry into unsupported excavations more than 1.2 metres deep.

There was no person in the dock at Winchester Crown Court during the three-week trial as it is the company, rather than an individual, which is charged with corporate manslaughter. The case was investigated by Gloucestershire Constabulary and supported by the Health and Safety Executive and the company denied corporate manslaughter.  The CPS is currently considering a number of other files of evidence in relation to further possible prosecutions for the offence.

The size of the fine was less than the starting point of £500,00 recommended by the Sentencing Guidelines Council only because of the small size of the business (now with 4 employees) and because of it’s fragile financial position it was given 10 years to pay the fine.

All businesses should take notice not only of the conviction but also the court’s powers in setting the fine, which can be based upon the level of the company’s turnover.

It is likely that many more prosecutions will be made in the future.  Businesses should take this opportunity to review their internal procedures to avoid suffering the same consequences as Cotswold.  This is particularly important for those organisations that are in sectors such as construction and engineering which are at a higher risk of experiencing accidents and deaths.

Under the Act individuals, including Directors or Managers cannot be prosecuted and therefore there are no prison sentences prescribed.  However, if there is evidence that a fatality has been caused by gross negligence of individuals they can still be prosecuted and jailed for manslaughter under common law.  In recent years there have been many instances of employers and directors having had sentences passed of between 1 year to 14 years imprisonment.

For further information and advice on how to best protect your business from investigations and successful prosecutions by the HSE and other prosecuting authorities please contact Alan Davies who specialises in the defence of Health & Safety Prosecutions and Investigations, employer’s liability claims and product liability claims on behalf of insurers and business clients.

Alan Davies
Director – Defendant Insurance Department
alandavies@pitmans.com
+44 (0) 118 957 0300