Faltec Europe Ltd v Health and Safety Executive [2019] EWCA Crim 520

Faltec Europe Limited v Health and Safety Executive [2019] EWCA Crim 520 concerns an appeal by Faltec Europe Limited against the fines totalling £1.6 million imposed for three Health and Safety offences, two relating to legionella outbreaks and one to an explosion in a flocking machine. The Court of Appeal allowed the appeal in part, reducing the total fine to £1.18 million.

Following guilty pleas entered before Magistrates, Faltec was committed for sentence under section 3 of the Powers of Criminal Courts (Sentencing) Act 2000. On 17 May 2018 Mr Recorder Wood QC sentenced Faltec to £800,000 on Count 3 (the explosion) and £800,000 on Count 1 (legionella exposure to non-employees), consecutive to Count 3 but concurrent with Count 2 (legionella exposure to employees). Faltec was entitled to full credit of one-third for its early guilty pleas.

Faltec is a wholly owned subsidiary of a Japanese holding company and manufactures car parts for Nissan and other manufacturers. It has a turnover of between £33 million and £39 million per annum. Despite reporting a profit in 2015, the company had been trading at a loss in 2016 and 2017, sustained by loans and share capital from the holding company, which itself has a worldwide turnover of £550 million to £600 million per annum and annual profits of £10 million to £20 million. Faltec operates from five factory units on the Boldon Business Park near Newcastle, within a well-populated urban area including housing estates, shopping facilities and other businesses, and employs approximately 550 people.

Counts 1 and 2 concerned exposure to legionella bacteria and outbreaks of Legionnaires’ disease between 1 October 2014 and 6 June 2015. Legionella is a bacterium that develops within water systems and spreads through vapour, capable of causing Legionnaires’ disease, a serious and potentially fatal form of pneumonia. Statistical evidence indicated that between zero and 0.04 per cent (up to 4 in 10,000) of those exposed to outbreaks from cooling towers would be expected to sustain fatal injuries, and that 10 to 15 per cent of those who contracted Legionnaires’ disease itself would die. Faltec’s water system was large, comprising four cooling towers and 22 kilometres of pipework. One cooling tower became contaminated with legionella bacteria. In its basis of plea Faltec admitted a failure of oversight of its specialist water contractor, Guardian Water Treatment, which had failed to maintain an effective biocide dosing treatment regime that would have neutralised the bacteria. There were dead legs (capped-off lengths of pipe) in the system which allowed bacteria to develop. Over the relevant period, five people were infected with Legionnaires’ disease. Four had worked for Faltec (two as agency staff) and the fifth lived nearby. One victim spent ten days in intensive care in an induced coma. There were two separate outbreaks, one in or around October 2014 and the other in April or May 2015. Many people in the locality were put in fear by the outbreaks.

The dangers of legionella were well known and had been the subject of regulations and an Approved Code of Practice (ACOP) since 1991. The fourth edition of ACOP, published in 2013, was applicable at the material time and emphasised the fundamental requirement to control legionella in water systems and the specific danger from dead legs. The Health and Safety Executive had given warnings to Faltec in 2012 and 2013 concerning the state of its pipework and the effectiveness of biocide dosing. A survey by Guardian Water Treatment was conducted in 2013, but the Recorder found that remedial work on pipework had not been carried out with the necessary care, attention to detail, supervision or understanding of the dangers presented by dead legs. No system was put in place to ensure that new dead legs were not added to the system. The Recorder concluded that the efforts made after the 2013 survey and enforcement notices were wholly inadequate. The two employees primarily responsible for the work did not attend a five-day City and Guilds course until 2014. As to dosing, Faltec outsourced this work to Guardian Water Treatment. The Recorder found that Faltec was seeking to outsource its regulatory responsibilities without having an adequate system for reviewing the actions of its subcontractor. There was no written documentation of standards and systems of review, and the two people charged with receiving the subcontractor’s reports had limited experience and training. A written scheme setting out safe operating parameters and actions to be taken by the responsible person was not in place, and those charged with responsibility did not have the necessary training or experience to act without such guidance.

Count 3 related to an explosion in a flocking machine (machine B14) on 16 October 2015 which injured an apprentice, Mr Haswell. A flocker machine attaches flock (a polymide with a flashpoint of 400 degrees Celsius and an ignition temperature of approximately 450 degrees Celsius) to chrome strips used in car door parts and other vehicle components. Flock is a dangerous substance for the purposes of the Dangerous Substance and Explosive Atmospheres Regulations 2002. Flock particles are applied by a high voltage electric field, creating an electrically charged and highly flammable flock cloud liable to explosion if exposed to an ignition source such as a spark from an electrically charged grid. Machine B14’s access points were not fixed in position or interlocked, meaning the machine could be opened and accessed whilst in operation. At the time of the incident a plastic mesh grid was installed before the electrostatic grid in an attempt to prevent parts contacting the electrostatic grid. On 16 October 2015, at approximately 05.30, Mr Haswell, aged eight months into his apprenticeship, saw that a part had fallen off the rollers. He lifted the polycarbonate guard, which did not stop the machine or cut power to electrically charged elements, and attempted to retrieve the part using both hands. The part may have touched the live electrostatic grid. An explosion followed, and Mr Haswell suffered first-degree burns to his face, right arm and left elbow as well as back pain. He was taken to hospital and placed in an induced coma until 17 October and discharged on 18 October. He was off work initially for four months and later for a further two months suffering from anxiety and depression. In its basis of plea Faltec admitted that machine B14 did not meet required safety standards, that risk assessments had failed to identify necessary control measures and that Mr Haswell had not been sufficiently trained.

Machine B14 had been acquired by Faltec from the holding company in about March 2014 for some £90,000 less than the price offered by a third party supplier. Mr McDonald, Faltec’s senior Manager Design, Engineering and Project, said that no assessment of fire and explosive risks had been carried out, that the Japanese representatives of the holding company took the lead in installing the machine, that he did not think the machine had any CE marking, that no DSEAR assessment had been carried out, that there had been no agreement on specification before the machine was shipped and that there had been an informal process of checking safety but nothing formalised against the standard. The Recorder concluded that Faltec, by agreeing the lesser price, knew it was taking on a heavy burden in ensuring the machine was safe, knowing it had no one in place to certify or ensure compliance, and then failed to take adequate steps to ensure it was safe before commencing use. The machine began operation in October 2014. Between December 2014 and April 2015 there were various incidents involving fires affecting machines B11 and B14, with a further incident involving B11 in July 2015. The joint experts agreed that operators working at the glue unit, air-blast unit or loading the hopper were at significant risk of injury should an explosion occur, that interlocked guarding was required to prevent access via the front doors and top cover, that Mr Haswell had received no proper training and that his injuries were of the nature to be expected. The Recorder concluded that there was a very real risk of injury greater than that sustained by Mr Haswell.

The Recorder applied the Health and Safety Offences, Corporate Manslaughter and Food Safety and Hygiene Offences Definitive Guideline, effective from 1 February 2016. He rejected Faltec’s submission that culpability for the legionella offences should be categorised as low and instead accepted the respondent’s submission that it was medium, though at the very top end of that category. He was persuaded by the engagement of an apparently reputable subcontractor but observed that subcontracting out Health and Safety obligations cannot provide an answer to failures properly to monitor and oversee that contractor’s work, which were significant and substantial. The parties agreed that the level of risk created fell into Level A, namely death or physical or mental impairment resulting in lifelong dependency on third party care or significantly reduced life expectancy. As to the likelihood of harm, the Recorder rejected Faltec’s case for low likelihood. In the light of the statistical evidence he concluded to the criminal standard that the risk of harm was high, and he considered it more as a result of good fortune that when five people had succumbed to Legionnaires’ disease there were no fatalities, given a statistical likelihood that between 10 and 15 per cent of those infected would die. Had the likelihood of harm been medium rather than high, the Recorder said he would have raised the harm category from category 2 to category 1 because of the large numbers of people potentially affected by the outbreak. Faltec was agreed to be a medium-level company with a turnover of under £50 million per annum. The guideline grid for medium culpability and harm category 1 produced a range of £300,000 to £1.3 million. The Recorder treated Faltec’s two previous Health and Safety convictions (one in 2006 relating to an incident in which an employee died, the other in 2012 relating to an incident in which an employee was gravely injured) as significantly aggravating the matter. He took the Health and Safety Executive enforcement notices as akin to court orders and also treated Faltec’s overall poor safety record as aggravating. As to mitigation, he noted that steps had been taken, though these were regularly prompted by intervention by the authorities, appeared lethargic and reluctant and were inadequately implemented. Balancing these factors, he took a starting point towards the top end of the range of £1.2 million. At the next stage the Recorder acknowledged that Faltec was trading at a loss but noted that that was not the position of the holding company. Having regard to statements in Faltec’s 2015, 2016 and 2017 accounts that it enjoyed the full support of the holding company and was a going concern, the Recorder concluded that some limited regard was to be had to the holding company. He referred to the provision ultimately of some £1.6 million in the 2016 accounts in respect of these very incidents and, while he paid no regard to this when considering the level of fine, he treated it as relevant to the financial health of Faltec and the consequences for others of the fine he had in mind. Reducing his provisional figure of £1.2 million by the full one-third credit for the guilty plea, the Recorder arrived at a fine of £800,000 for the legionella outbreaks, which could be expressed as concurrent on each of Counts 1 and 2 or attached to one with no separate penalty on the other.

As to Count 3, the Recorder found that there was a case for categorising culpability as very high on the ground that failure in regulatory compliance was deliberate and constituted a flagrant disregard of law, but he rejected that option and also rejected the Faltec submission of medium culpability. He held that this was a case of high culpability. All the features for high culpability were present. Faltec fell far short of the appropriate standard, failed to put in place well-recognised standards, allowed itself to be sold a machine by its holding company which it knew was not certified to industry standards and failed to deal with Health and Safety Executive warnings concerning its systems. After machine B14 was introduced it was subject to fire and incidents described with marked similarity to that which befell Mr Haswell. The Recorder believed the situation was allowed to develop through incompetence, lack of training and lack of resources in Health and Safety. As to harm, the Recorder was sure that there was a high likelihood of harm but was uncertain whether the harm fitted into Level B or Level C. He was satisfied that if he had assessed the case as one of Level C harm, because the offence was a significant cause of actual harm he could and would have increased the harm category. Whether this incident was regarded as one of Level B or Level C harm, the relevant category was harm category 2. The upshot was a sentencing range of £220,000 to £1.2 million. As the case verged on very high culpability, it fell at the highest end of this bracket. It was aggravated by previous convictions. The Recorder had regard to what he termed cost-cutting in terms of the purchase of the machine for £90,000 more cheaply than a regulatory compliant one, which was at the expense of safety. The Recorder made no finding as to the motive for the cheap purchase from the holding company but observed that it had the effect of leaving Faltec with a significant health and safety exercise which it failed to undertake appropriately. The Recorder regarded breaches of enforcement notices as an aggravating factor and remarked that it took the accident for Faltec to do what it should have done before operating machine B14. Faltec’s poor Health and Safety record was also aggravating. There was no real mitigation. The Recorder chose a starting point at the very top end of the category range, namely £1.2 million. Having regard to the role of the holding company in the supply of the defective machine, the Recorder held that he was entitled exceptionally to have regard to their resources in determining whether the penalty to be imposed was proportionate, commenting that it must be exceptional that a holding company be so intimately involved in the events which gave rise to the breaches. Even without regard to the holding company, the Recorder could have regard to the size of the provision for a possible fine made in the Faltec accounts and the state of its finance generally. He was satisfied that the penalty was proportionate and would bring home to Faltec the need for all machinery to be compliant with both European and UK standards when imported. Allowing a full one-third discount for the guilty plea, the Recorder fixed the fine for Count 3 at £800,000. Reviewing the totality of the sentence, the Recorder was satisfied that the total fine of £1.6 million would bring home to the directors and shareholders of Faltec the appropriate message. No downwards adjustment was called for.

Lord Justice Gross, giving the judgment of the Court of Appeal, first considered the culpability for the legionella offences. He agreed with the respondent that the Recorder’s categorisation of culpability as medium and right at the top end of medium was amply justified. The dangers of Legionnaires’ disease were

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