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OSH Tracker

Mobile Refrigeration Specialists Ltd v Department of Labour (HC, 29/03/10)

Sentencing Tracker

Offender:
Mobile Refrigeration Specialists Ltd
Principal Offences:
Failing to take all practicable steps to ensure that no act or inaction of an employee, while at work, harmed any other person (s 15 Health and Safety in Employment Act 1992)
Failing to take all practicable steps in relation to the design of pressure equipment (r 18 Health and Safety in Employment Regulations 1995)
Plea:
Guilty
Non-Custodial Sentences:
Fine of $56,200 and order to pay reparation of $175,000
Appeal:
Non-Custodial Sentence Upheld
Offender:
Waikato Coldstorage Ltd
Principal Offences:
Failing to take all practicable steps to ensure
safety of employees (s 6 Health and Safety in Employment Act 1992)
Two charges of failing to take all practicable steps to ensure no hazard in premises harmed any person (s 16 Health and Safety in Employment Act 1992)
Plea:
Guilty
Non-Custodial Sentences:
Fine of $37,200 and order to pay reparation of $95,000
Appeal:
Non-Custodial Sentence Upheld

OSH Tracker

Defendant:
Mobile Refrigeration Specialists Ltd
Failure to seek “truly independent” advice on hydrocarbon-based refrigeration, coupled with an installer acting beyond his expertise, underpin the charges laid against the companies involved with the Tamahere coolstore fire tragedy. 
Industry:
Manufacturing
Sub-Industry:
Food, Beverage and Tobacco
Risk:
Burns/explosion
Harm:
Injury
Death
Penalty Amount:
$231200.00
Reparation Amount:
$175000.00
Appeared in Safeguard issue 124

Judgment Text

JUDGMENT OF HEATH J 
Heath J
Introduction 
[1]
On Saturday 5 April 2008, emergency services were called to a coolstore at Tamahere, south of Hamilton. A smoke detector, in a plant room, had been activated. On arrival at the scene, some firemen entered the coolstore and cut their way into the plant room. One of them noticed what appeared to be a gas leak. Before they could exit the store, there was a major explosion. One fire-fighter suffered fatal injuries. Others were seriously injured. 
[2]
The coolstore was owned by Icepak Coolstores Ltd, now known as Waikato Coldstorage Ltd (Icepak, for the purposes of this judgment). Refrigeration equipment, from which the explosion emanated, had been installed and was maintained by Mobile Registration Specialists Ltd (MRS). 
[3]
After an investigation, the Department of Labour charged Icepak, one of its directors (Mr Grattan) and MRS with offences against the Health and Safety in Employment Act 1992 (the Act). Ultimately, guilty pleas were entered to the charges. 
[4]
Sentencing took place in the District Court at Hamilton, on 15 December 2009.1
| X |Footnote: 1
See Department of Labour v Icepak Coolstores Ltd (DC Hamilton CRI 2009-019-11343, 15 December 2009)
Icepak was fined $37,200 and ordered to pay reparation in a total sum of $95,000. Mr Grattan was fined $30,000. MRS was fined $56,200 and ordered to pay reparation totalling $175,000. 
[5]
Icepak and MRS each appeal against the sentences imposed. While the amounts of the fines are challenged, no appeal has been brought against the reparation orders. The appeals turn on a narrow point: when calculating the fines to be imposed, did the Judge take adequate account of the financial capacity of each company to pay? 
Background facts 
[6]
Although the grounds of appeal are narrow, it is necessary to understand the circumstances in which the fines came to be imposed. My summary of background facts is adapted from Judge Spear's careful, clear and humane sentencing remarks, to which I pay tribute. 
[7]
On activation of the smoke alarm, the coolstore site manager was contacted by a security firm. Soon afterwards, emergency services were summoned. When the first firemen arrived at 4.28pm, authority had been given to enter the site. However, no information had been provided about the nature of relatively new refrigeration equipment in the plant room. The refrigerant was hydrocarbon-based, consisting of about 95% propane and 5% ethane. 
[8]
On entry, the firemen saw what was described as a “mist or vapour with an almond-lemony smell” coming from the area around the plant room. On entering the plant room, they noticed that the vapour was coming from a connection in the piping. One of the fire fighters left the plant room to obtain a tool, to effect a temporary repair. 
[9]
There was a substantial explosion. An adjacent blast freezer and plant rooms were demolished. Nearby coolrooms were damaged. Windows to neighbouring houses were shattered. Fire broke out in some coolrooms and on other sides of the site. With two minor exceptions, the buildings on the coolstore site were completely destroyed. 
[10]
Tragically, one of the firemen, Mr Lovell, was killed in the explosion. Others were seriously injured. Mr T Sutcliffe, Barrister, Hamilton, was appointed as amicus curiae for the purpose of representing the victims on reparation issues. He divided the victims into four categories: 
a)
The widow and other family members of Mr Lovell. 
b)
Mr Neil, who was recognised by others as having suffered more serious injuries than they. Mr Neil received burns to 71% of his body and was in an induced coma for some 10 weeks. In total, he was hospitalised for almost six months and suffered permanent loss of some sight. 
c)
Mr Halford and Mr Beanland, both of whom received severe injuries to their head and face. Mr Halford required 600 internal stitches and cannot recall a period of some six to eight months from the time of the accident; Mr Beanland also had a finger amputated some nine weeks after the blast. 
d)
Messrs Grylls, Walker, Wells and Brown, all of whom suffered significant injuries but had been able to recover to an extent beyond those of other victims. 
At the sentencing hearing, Mr Sutcliffe advised the Court that the victims wished Mr Neil to be placed in the most serious category of those affected. 
Sentencing in the District Court 
[11]
Icepak faced one charge of failing to take all practicable steps to ensure the safety of its employees2
| X |Footnote: 2
Health and Safety in Employment Act 1992, s 6. 
and two of failing to take all practicable steps to ensure no hazard in the premises harmed any person.3
| X |Footnote: 3
Ibid, s 16. 
The first of those charges was the lead for sentencing purposes, carrying a maximum available fine of $250,000.4
| X |Footnote: 4
Ibid, s 50(1)(b). 
As a director of Icepak, Mr Grattan was charged with acquiescing in the failure of the company to ensure the safety of its employees.5
| X |Footnote: 5
Ibid, s 6. 
 
[12]
MRS was charged with failing to take all practicable steps to ensure that no act or inaction of its employee (Mr Cook), while at work,6
| X |Footnote: 6
Ibid, s 15. 
harmed any other person, an offence that also carries a maximum fine of $250,000.7
| X |Footnote: 7
Ibid, s 50(1)(b). 
MRS also faced a charge of failing to take all practicable steps in relation to the design of pressure equipment.8
| X |Footnote: 8
Health and Safety in Employment Regulations 1995, reg 18. 
 
[13]
The case against MRS was that it, through its shareholder and director (Mr Cook), was responsible for installing a hydrocarbon-based refrigerant that failed to meet relevant standards.9
| X |Footnote: 9
AS/NZS1677, relating to the classification of refrigerants according to their physical properties. 
The refrigerant installed was described, by the sentencing Judge, as “highly inflammable, indeed explosive, in the right circumstances”.10
| X |Footnote: 10
Department of Labour v Icepak Coolstores Ltd (DC Hamilton CRI 2009-019-11343 15 December 2009) at [20]. 
 
[14]
This was not a case in which anyone acted maliciously or recklessly. Rather, as Judge Spear remarked, this was a case in which good people made mistakes that had tragic consequences.11
| X |Footnote: 11
Ibid, at [36] and [37]. 
 
[15]
In determining the appropriate sentence, the Judge applied Department of Labour v Hanham & Philp Contractors Ltd,12
| X |Footnote: 12
(2009) 9 NZELC 93,095; (2008) 6 NZELR 79
a recent decision of a Full Court of this Court. The District Court Judge assessed Icepak's culpability (on the lead charge) at the “low-medium level”, while regarding MRS's culpability as high.13
| X |Footnote: 13
Ibid, at [80](6). 
Mr Grattan was regarded as having the same culpability as Icepak. Reparation and fines were considered the appropriate sentences to impose. 
[16]
As required by Hanham & Philp, Judge Spear addressed the question of reparation first. At sentencing, counsel had submitted, based on financial information provided,14
| X |Footnote: 14
See s 33 of the Sentencing Act 2002. A retired District Court Judge was appointed under s 33(1), to prepare the reparation report. The Court also appointed amicus curiae to act in the interests of the victims and to participate in discussions relating to the reparation report. 
that neither Icepak nor MRS could pay reparation from their own resources. Icepak's reparation payment came from three of its directors (including Mr Grattan), who contributed a sum of $95,000 from personal finances.15
| X |Footnote: 15
Department of Labour v Icepack Coolstores Ltd (DC Hamilton CRI 2009-019-11343, 15 December 2009) at [54]. 
On the other hand, MRS was insured to meet reparation. That insurance also covered its legal fees. 
[17]
Icepack was ordered to pay $95,000 as reparation, on the basis that funds to do so would be sourced from the directors. As Mr Grattan was contributing personally to Icepak's reparation payment, no reparation order was made against him. Having regard to the legal costs incurred, Judge Spear ordered MRS to pay $175,000 from the insurance monies. The reparation ordered was divided among Mr Lovell's widow and the seven injured firemen, in proportions fixed by the Judge. 
[18]
Having fixed reparation, the Judge considered what fines were necessary to denounce the conduct of each company and Mr Grattan, to deter others from committing similar offences. 
[19]
Dealing with Icepak, Judge Spear said: 
“[64]
I am in no doubt, at all, that this case will have certainly sent a very strong message out to the community as to the need to ensure that there are safe workplaces and that this will, to a significant degree, achieve the desired general deterrence. Given the absence of any future for this company there of course is no need for a specific deterrent. So, adopting a starting point of $50,000 for the fine, recognising as a mitigating factor the co-operation shown and a guilty plea entered at what I consider to be an early occasion given the circumstances of this case, I consider that an eventual fine of $30,000 is appropriate. That gives a credit of 10 percent for mitigating factors and 30 percent for the guilty plea. 
 
[66]
There are then the two s 16 charges that carry the lower maximum penalty of $10,000. They relate to [the coolstore site manager's] advice to the fire service effectively and the absence of any warning that they were about to enter premises that had a hydrocarbon-based refrigeration system. I accept here that the criminality involved is substantial; it is high, and in that respect I adopt a starting point for each offence of $8,000. I allow a mitigation of 10 percent for the co-operation shown with the informant, 15 percent for the reparation that is to be paid through the directors and, again, 30 percent for the guilty pleas. That brings me to a fine in each respect of $3,600. ”
(my emphasis)
[20]
In relation to MRS, the Judge recorded: 
“[73]
I accept here that the culpability was high. I do not accept it was extremely high. That is really the difference between a situation where there was callous disregard for safety features, or recklessness, and what might be categorised instead as being careless, sloppy or inadequate work, particularly for a company that presented itself as refrigeration specialists. I am unable to avoid the conclusion that Mr Cook must have realised at some stage that his expertise in this field was being tested to the limits and that he should clearly have sought professional assistance from a specialist engineer in respect of the work he was undertaking for Icepak. That notwithstanding, I consider that a starting point of $140,000 is sufficient to achieve the sentencing objects here of deterrence and denunciation. For the cooperation, I allow 10 percent. For the payment of reparation in the substantial sum of $175,000 I allow $28,000 or 20 percent. And for the guilty plea $42,000 or 30 percent. Again Mr Corlett has explained to me that he received disclosure of some eight Eastlight folders of documents. They were sent for expert appraisal but they had to be returned and they had to engage in other specialists for various reasons hence the delay in notifying the informant of the intention eventually to plead guilty. However, I was informed some months ago, as was the case with Icepak, that there would be pleas of guilty. That brings me to a fine for Mobile Refrigeration Specialists of $56,000. ”
(my emphasis)
[21]
After dealing with both Icepak and MRS, the Judge added: “That reparation and those penalties are appropriate”
Competing submissions 
[22]
The submissions made by Mr Menzies (for Icepak) and Mr Elliott (for MRS) converged. The question is whether the District Court Judge, in determining the fines to be imposed, took adequate account of the financial capacity of Icepak and MRS to pay a fine from their own resources. They argued that the Judge, while referring to financial capacity in relation to reparation, failed to take that factor into account when assessing the fines. Further, each contended that I would be engaging in illegitimate speculation if I were to attempt to infer the Judge's reasons for not reducing the fines. 
[23]
Counsel also contended that each company must be treated as a stand-alone entity for the purpose of fixing a fine. On the basis of the financial information provided to the District Court on sentence, Mr Menzies and Mr Elliott submit that the fines were manifestly excessive. 
[24]
Mr Chisnall, for the Department of Labour, focussed on the need for the Court to assess the overall penalty imposed, as opposed to compartmentalisation of the discrete sentences of reparation and fines. He contended that it was inappropriate for the Court to view the fines in isolation from the reparation order made. He submitted that the Court's obligation was to evaluate whether the combination of reparation and fines resulted in a clearly excessive sentence, overall. 
[25]
Mr Chisnall submitted that the Judge had taken account of financial capacity, when assessing fines. While acknowledging there was no express reference to that in the Judge's sentencing remarks, Mr Chisnall submitted it was inconceivable that the Judge could have had financial capacity in mind when determining reparation, but not when assessing fines. 
[26]
Mr Chisnall submitted that the Judge was entitled to impose fines in excess of that which the companies were able to pay, if he considered that was the most appropriate response to the offending. Mr Chisnall pointed out that s 40(1) of the Sentencing Act only requires the Court to “take into account” the “financial capacity of the offender”; it does not positively require the Court to tailor a fine to the financial circumstances of a particular offender. 
Analysis 
[27]
Because both Icepak and MRS are corporate entities, there was little room for flexibility in the sentencing approach. The two available sentences were reparation16
| X |Footnote: 16
Sentencing Act 2002, ss 12 and 32. 
and a fine.17
| X |Footnote: 17
Ibid, ss 13 and 39. 
Sentences of community work, supervision, intensive supervision, community detention, home detention and imprisonment are not appropriate for corporate offenders.18
| X |Footnote: 18
See the hierarchy of sentences set out in s 10A(2) of the Sentencing Act 2002. 
 
[28]
The approach to fixing amounts for reparation and fines in prosecutions under the Act was reconsidered in Department of Labour v Hanham & Philp Contractors Ltd.19
| X |Footnote: 19
(2009) 9 NZELC 93,095; (2008) 6 NZELR 79
In that case, Randerson and Panckhurst JJ considered the purposes of the Act and its relationship to the Sentencing Act 2002.20
| X |Footnote: 20
Sentencing criteria for offences under the Act incorporate the principles and purposes of sentences, as they appear in the Sentencing Act 2002; see s 51A of the Act. 
They developed a framework for sentencing Judges to follow, in determining what sum should be ordered, by way of reparation or fine, in respect of a corporate defendant charged with offences under the Act. 
[29]
The starting point is the purpose of each sentence. Reparation is compensatory in nature and is designed to recompense an individual or family for loss, harm or damage resulting from the offending. On the other hand, a fine is punitive in nature, designed to serve the sentencing goals of denunciation, deterrence and accountability.21
| X |Footnote: 21
Ibid at [33]. 
 
[30]
The Full Court identified three steps to be taken as part of the sentencing process: 
a)
Step one — fixing the amount of reparation22
| X |Footnote: 22
Ibid, at [41]-[46]. 
 
b)
Step two — fixing the amount of the fine23
| X |Footnote: 23
Ibid, at [47]-[77]. 
 
c)
Step three — an overall assessment of the appropriate penalty to be imposed.24
| X |Footnote: 24
Ibid, at [78] and [79]. 
 
[31]
The Court summarised its approach as follows:25
| X |Footnote: 25
Ibid, at [80]. Cross-references to earlier parts of the judgment (where particular issues are discussed) have been omitted from the extract. 
 
“(1)
Both s 51A [of the Act] and the Sentencing Act are relevant to the sentencing process …  
(2)
The sentencing process involves three main steps: 
assessing the amount of reparation; 
fixing the amount of the fine; 
making an overall assessment of the proportionality and appropriateness of the total imposition of reparation and the fine. 
(3)
Reparation and fines serve discrete statutory purposes and both should ordinarily be imposed. But where lack of financial capacity does not permit both the payment of appropriate reparation and a fine, the former is to receive priority …  
(4)
The first main step is to fix reparation. It involves a consideration of the statutory framework … , taking into account any offer of amends and the financial capacity of the offender …  
(5)
The second main step is to fix the amount of the fine. This should follow the methodology established by the Court of Appeal in Taueki,26
| X |Footnote: 26
[2005] 3 NZLR 372 (CA). 
namely fixing a starting point on the basis of the culpability for the offending and then adjusting the starting point upwards or downwards for aggravating or mitigating circumstances relating to the offender …  
(6)
The assessment of a starting point for the fine involves an assessment of the culpability for the offending … Starting points should generally be fixed according to the following scale: 
Low culpability: a fine of up to $50,000 
Medium culpability: a fine of between $50,000 and $100,000 
High culpability: a fine of between $100,000 and $175,000. 
(7)
The starting point for the fine is then to be adjusted for any relevant aggravating and mitigating factors relating to the offender …  
(8)
Reparation is then to be taken into account in fixing the fine …  
(9)
Financial capacity to pay a fine is also to be considered in fixing the fine …  
(10)
The third main step is to assess whether overall burden of the reparation and fine is proportionate and appropriate …  ”
[32]
Unless a sentencing court is satisfied that a sentence of reparation would result “in undue hardship for the offender or the dependents of the offender”, a sentence of reparation must be imposed, in the absence of “any other special circumstances [that] would make it inappropriate”.27
| X |Footnote: 27
Sentencing Act 2002, s 12(1). 
 
[33]
While a fine will generally be appropriate for cases involving offences against the Act,28
| X |Footnote: 28
Ibid, s 13(1). See also Department of Labour v Hanham & Philp Contractors Ltd (2009) 9 NZELC 93,095; (2008) 6 NZELR 79Has partially negative history or cases citing, but has not been reversed or overruled[Yellow] 
the court retains a discretion not to impose a fine, if satisfied the offender does not or will not have the means to pay.29
| X |Footnote: 29
Ibid, s 14(1). 
If an offender has or will have the means to pay a fine or make reparation (but not both), the sentencing court is required to sentence the offender to make reparation.30
| X |Footnote: 30
Ibid, s 14(2). 
An inability to pay reparation in full may result in an order for a lower sum being ordered or payments by instalments, or both.31
| X |Footnote: 31
Ibid, s 35(1). 
Payments are first applied against the reparation order, in priority to the fine.32
| X |Footnote: 32
Ibid, s 35(2). 
 
[34]
In order to determine whether reparation is appropriate, the court can obtain a report under s 33(1) of the Sentencing Act. Among other things, that report can address the financial capacity of the offender, the maximum amount that the offender is likely to be able to pay under a sentence of reparation and the frequency and magnitude of any payments that should be required under a sentence of reparation, if provision for payment by instalments is thought desirable.33
| X |Footnote: 33
Ibid, s 33(1)(d), (e) and (f). In this case, the sentencing Judge appointed a retired District Court Judge to prepare the report. 
 
[35]
If a court sentences an offender to make reparation, it must determine the total amount to be paid by the offender, whether the amount is to be paid in a lump sum or in instalments and whether it should be paid immediately or at some specified future date.34
| X |Footnote: 34
Ibid, s 36(1). 
A condition requiring reparation to be paid immediately must not be made unless the Court is satisfied that the offender has sufficient means to pay immediately.35
| X |Footnote: 35
Ibid, s 36(2). 
 
[36]
In determining whether to impose a fine, financial capacity may also be taken into account. Section 41 of the Sentencing Act provides: 
“41 Financial capacity of offender 
(1)
If the court considers that a fine of less than $100 may be an appropriate sentence, it may assume that the offender has the means to pay the fine unless evidence is presented to the contrary. 
(2)
If the court considers that a fine of $100 or more may be an appropriate sentence, but it is uncertain about the offender's ability to pay the fine, the court may direct the offender to make a declaration as to his or her financial capacity in accordance with section 42. 
(3)
The court may decline to give a direction under subsection (2) and impose a fine without further inquiry if— 
(a)
the type of information referred to in a declaration is available through other means (including, without limitation, a reparation report under section 33); or 
(b)
in all the circumstances the court considers that a declaration is unnecessary. ”
[37]
The declaration as to financial capacity must contain information on “all sources of income, assets, liabilities, and outgoings”.36
| X |Footnote: 36
Ibid, s 42. The extent of the information required is clarified by reference to a non-exhaustive list: (a) salary and wages: (b) benefits and pensions: (c) commissions: (d) interest and dividends: (e) income from rental property: (f) ownership of real estate: (g) vehicle ownership: (h) ownership of other property: (i) income and realisable assets that the offender does not currently have but which it is anticipated that the offender will receive during the 12 months following the date of giving the declaration: (j) debts: (k) essential outgoings of the offender and his or her dependants. 
 
[38]
The amount of reparation ordered is taken into account in fixing the fine. The relevance of reparation is to the totality principle: the total amount ordered to be paid by the offender, by way of reparation and fine, must be proportionate to the circumstances of the offending and the offender.37
| X |Footnote: 37
Department of Labour v Hanham & Philp Contractors Ltd (2009) 9 NZELC 93,095; (2008) 6 NZELR 79Has partially negative history or cases citing, but has not been reversed or overruled[Yellow]  at [78]. See also s 85 of the Sentencing Act 2002. 
That principle reflects the fact that there are two discrete components of the ultimate sentence imposed. 
[39]
In relation to multiple offenders, Hanham & Philp, says: 
“[79]
Where more than one person is convicted in relation to the events at issue, it will be necessary to consider whether and if so how to apportion the payment of reparation and fines between the defendants. The court would need to have regard to factors such as relative culpability, financial capacity and the extent to which the burden would fall on the various defendants (for example, where a fine or reparation would fall both on a small company and its individual proprietor). ”
[40]
There is no challenge to the amount of the fines imposed. They are accepted as being appropriate to mark the offending. Acceptance that the fines were pitched at an appropriate level to mark the offending was a proper concession. In sentencing under the Act, it was necessary for the Judge to denounce the conduct involved, to hold the companies accountable for their offending, to provide general deterrence and to reflect the fact that workplace accidents are a cost to and a burden on the community. In addition, as Duffy J observed in Department of Labour v Street Smart Ltd:38
| X |Footnote: 38
(2008) 5 NZELR 603 at [59]. 
 
“There are good policy reasons, which accord with the purpose and scheme of the Health and Safety in Employment Act, for ensuring that where employers infringe, penalties must bite, and not be at a ‘licence fee’ level. ”
[41]
For the purposes of these appeals, my starting point is that the amounts fixed for both reparation and fines are appropriate to meet the relevant sentencing goals. 
[42]
In determining whether the Judge was correct not to adjust the fines downward, based on financial incapacity to pay, I am faced with the difficulty that Judge Spear did not explain, in express terms, why he decided not to make any deduction to the (otherwise) appropriate fines. Having said that, I have no doubt that the sentencing Judge was well aware of financial constraints on each company. 
[43]
In relation to Icepak, after referring to the need for reparation to be paid from moneys promised by its directors, the Judge observed that was “all that is available for reparation from that company today and in the foreseeable future”.39
| X |Footnote: 39
Department of Labour v Icepak Coolstores Ltd (District Court, Hamilton, CRI 2009-019-11343, 15 December 2009) at [54]. 
That observation was echoed later: “Icepak can afford $95,000 and only through the commitment made by their three directors from their personal resources”.40
| X |Footnote: 40
Ibid, at [59]. 
The Judge also referred to the absence of any need for a specific deterrent because of “the absence of any future for [Icepak]”.41
| X |Footnote: 41
Ibid, at [64]. 
 

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