158. Memorandum submitted by Serco-NedRailways
On behalf of ATOC members, the ATOC Safety Coordination
Group has prepared a common submission, a copy of which has been
provided to you by David Weir, ATOC Director of Industry Projects
and I confirm that the following TOC(s) ME 2002 and Northern Rail
Limited.
(a) Have been consulted on its preparation and
content;
(b) Are in support of the submission made and
are listed in Appendix 1 of the submission.
Both companies are owned by Serco-NedRailways,
a joint venture between Serco, a leading global public service
company, and NedRailways, a subsidiary of Dutch Railways (NS),
the major passenger operator in the Netherlands.
To avoid you receiving multiple copies of the
ATOC Members' submission, I would ask you to refer to the copy
provided by David Weir, but request that having made that reference
you log this letter as a separate submission.
In addition to the ATOC Members' submission
we make the following points:
PARENT/SUBSIDIARY
ISSUES
1. We comment specifically upon the issue
raised in paragraph 37 of the Home Office consultation document
relating to parent company liability.
2. We recognise that the purpose of the
offence should not be defeated by a small minority of companies
who might, in theory, abuse group structures in order to circumvent
accountability. Equally, proper group structures are an essential
part of effective business. We would be concerned if the recognised
need to address "sham" subsidiaries was interpreted
in a way that undermines the way in which legitimate and sensible
group structures operate.
3 We therefore support, and emphasise, the
point made in the ATOC Members' response (at paragraphs 2.23 to
2.25). A measured and sensible approach is needed. It is essential
that balance is achieved in both the formulation of the offence
and also, crucially, in the way in which the offences are applied
in practice by investigating authorities, prosecuting authorities
and the courts.
4. If that is not done then the economic
and corporate implications would be both significant and unhelpful.
GOVERNANCE
5. In properly managed governance structures
there is a clear distinction between the role of a parent (whether
an intermediate or ultimate parent company) and that of an operating
subsidiary company. In effectively managed group structures the
subsidiaries are not, nor should they be seen as, agents or artificial
entities. They have distinct responsibilities for which their
Board of Directors are responsible. The role of parent/holding
companies is to manage the affairs of the group as a whole and
not to micro-manage the affairs of the subsidiary.
6. If this distinction is not recognised
in the formulation of the offence or in practice in the way in
which investigation and prosecuting authorities approach the new
offence the result may be to:
(a) Duplicate effort between different companies
and groups;
(b) Target investigations and prosecutions
in the area of highest profile;
(c) Pass to juries for decision the legal
issue of corporate duties of care.
7. We understand that there is no established
principle in English law that a parent company does in fact owe
the relevant duty of care necessary as a component to the offence.
This of itself introduces uncertainty.
SUGGESTED ISSUES
FOR REVIEW
8. We submit therefore that this is an area
which should receive close and forensic scrutiny during the passage
of the Bill with a full assessment of implications. We suggest
in particular that:
(a) It should be made clear in the guidance
notes to the new offence, when published, that the investigation
and prosecution of parent companies is intended to address only
limited circumstances, namely to prevent parent companies from
evading liability to the establishment of subsidiaries or to counter
concerns relating to insufficient assets to pay a level of fine
appropriate the gravity of the facts.
(b) Consideration should be given therefore
to sequential investigations. Only when an investigation of the
relevant operating subsidiary demonstrates that one of the two
areas of concern is made out should a prosecution or a detailed
investigation of the parent ensue.
(c) In addition it would be important that
decisions of law on when (and if) a duty of care arises is a matter
for the trial judge rather than for the jury. In contrast the
issue of breach - if a duty exists in law- would of course be
a jury question.
9. If those steps are not taken, our concern
is that legitimate group structures will be significantly undermined.
The consequences of this will extend beyond the scope of the current
offence. In particular it would impact on the wider corporate
governance debate and on the effective management of companies
and businesses which make up the economy.
10. If governance arrangements are undermined
investment in higher profile activities may also be adversely
changed. This might be in terms of either the amount of investment
available [or the risk premium placed upon that investment].
We hope that these further submissions on this
issue are constructive.
17 June 2005
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