Court of Appeal Upholds the Corporate Veil Principle in BNHL Ruling
In 2018, the courts handed down a fine of £3 million to BUPA Care Homes (BNH) Limited, a subsidiary of BUPA, in respect of health and safety failings in the death of an employee contracting Legionnaires Disease; in October 2019 the fine was reduced to £1.5 million on appeal.
The original fine took into account the £12 billion turnover of the parent company BUPA, and the ‘economic realities’ of the group as a whole. On appeal it was argued this conflicted with a basic principle of company law, that a corporation is to be treated as a separate legal person with separate assets from its shareholder.
In accepting the grounds of appeal, the court confirmed that the mere fact that a company is a wholly owned subsidiary of a larger parent does not mean that the resources of the parent can be treated as either available to the subsidiary or as part of the subsidiary's turnover.
Only in exceptional circumstances will it be necessary to adjust a fine based on the 'economic realities' of a parent company. For example, in the 2018 Tata Steel case, the parent company turnover was taken into account because the economic reality was that the subsidiary would not have been a going concern without it. The Court of Appeal reviewed and approved this application of an exceptional circumstance but concluded there was no such "special factor" in the BUPA case nor was there any suggestion that BCHL would be unable to pay the fine and require instead the parent to pay it, or that it would not be a going concern without the financial support of its parent.
Large corporate entities will welcome this decision reasserting the principle that the corporate veil should not be pierced when sentencing a corporate offender. Going forward, only time will tell how the courts will interpret this ‘special factor’ and how exposed corporate giants are to eye-watering fines for health and safety failings.