QUEENS BENCH DIVISION
London, WC2A 2LL
B e f o r e :
| Greene King Plc
|- and -
|Harlow District Council
Mr. I. Macdonald (instructed by Harlow Council Legal Department) for the Respondent
AS APPROVED BY THE COURT
CROWN COPYRIGHT ©
Crown Copyright ©
Mr Justice Goldring :
1. This is an appeal by way of case stated from the decision of the Crown Court at Chelmsford when it dismissed the Appellant's appeal from the Epping Magistrates Court. The issue it raises is this. Was the Appellant company "the proprietor of a food business" for the purposes of unchallenged breaches of Regulation 4(1) of the Food Safety (General Food Hygiene) Regulations 1995 ("the Regulations")? It is the Appellant's case it was not: the Respondents have prosecuted the wrong company. Both the Crown Court and the Magistrates were wrong when they found to the contrary.
The facts and the convictions
2. On 5 July 2001 officers from the Environmental Health Department of Harlow Council inspected a public house in Epping called the Moorhen. What was discovered was summarised in the careful judgment given by Mr. Recorder Turner QC and his colleagues on the appeal: overflowing refuse bins, an infestation of flies, poor cleanliness and repair of premises and storage of raw materials in a manner which was unlikely to prevent their deterioration. Five informations were preferred against the Appellants. They alleged respectively a failure to ensure that food premises were kept clean contrary to Regulation 4(2)(a), a failure to ensure that the layout, design, construction and size of the food premises permitted good food hygiene practices, allowing the premises to become contaminated with pests, namely flies contrary to Regulation 4(2)(a), a failure to ensure that food waste and other refuse was deposited in appropriate containers contrary to Regulation 4(2)(d), a failure to provide for adequate removal and storage of food waste and other refuse, thereby allowing pests access to the waste contrary to Regulation 4(2)(d) and a failure to ensure that raw materials and ingredients were stored in appropriate conditions contrary to Regulation 4(2)(d).
3. Whether the Appellant company was the correct defendant was heard by the Crown Court, as it had been by the Magistrates Court, as a preliminary issue. On the decision by the Crown Court in favour of the Respondents on that issue, the Appellants intimated that they did not wish to contest the substance of the appeal.
The relevant statutory framework
4. Regulation 4(1) provides that
"A proprietor of a food business shall ensure that in any of the following operations, namely preparation, processing, manufacturing, packaging, storing, transportation, distribution, handling and offering for sale or supply, of food are carried out in a hygienic way."
5. Regulation 4(2)(a) provides that
"A proprietor of a food business shall ensure that…the requirements set out in Chapter 1 Schedule 1 are complied with as respects any food premises used for the purposes of that business."
6. Regulation 4(2)(d) provides that
"[A proprietor of a food business shall ensure] the requirements set out in Chapters IV to X of Schedule 1 are complied with as respects that business."
7. It is not necessary for present purposes to set out the content of the Chapters referred to.
8. The Regulations were made under the Food Safety Act 1990. Section 53(1) of that Act defines proprietor in the following terms,
""proprietor", in relation to a food business, means the person by whom that business is carried on."
9. Regulation 2 defines "food business." It states that,
""food business" means any undertaking whether carried out for profit or not…carrying out any or all of the following operations, namely, preparation, processing, manufacturing, packaging, storing, transportation, distribution, handling or offering for sale or supply, of food."
10. There is no doubt that the Moorhen was a "food business." The issue is, was the appellant its proprietor?
The Crown Court's findings of fact
11. The Court heard evidence regarding the corporate structure of Greene King and the position of the Moorhen in that structure. Its findings of fact are set out in paragraph 3 of the Case.
"(a) The Appellants were first incorporated under the name Greene King Plc in September 1990. Its predecessors had carried on the business since about 1799. The Appellants were described as a holding company for 28 other companies some of which are dormant, some employment companies and some operating companies. The Appellants have some 8,300 shareholders and the company is itself a 100% shareholder in all of the subsidiary companies. The Appellants have no employees. The company Secretary is employed by a service company referred to at (d) below.
(b) One of the two main operating companies is Greene King Brewing and Retailing Limited ("Retailing"). The activities of Retailing are the brewing of beer, wholesaling and distribution of beer, wine, spirits and soft drinks, and the ownership and operation of managed, tenanted and leased public houses. It became incorporated under the name Retailing on 4th March 1997. Retailing uses three trading names, Greene King Pub Company in respect of managed houses (of which the instant managed house, the Moorhen, is one), Greene King Pub Partners in respect of tenanted public houses and Greene King Brewing and Brands in respect of the brewery and beer production themselves. All of these businesses operate from the same address; namely, The West Gate Brewery is Bury St. Edmunds. Mr Bellhouse is the Company Secretary of the Appellants and all the other companies including Retailing. Each company in the Group is a separate legal entity with its own Board of Directors and the capacity to make decisions.
(c) By a Business Sale Agreement dated 2nd May 1997, the Appellants transferred its entire business and assets to Retailing. By a further Agreement dated 20th October 2000 the Appellants transferred the freehold of the Moorhen public house to Retailing.
(d) The premises and the business of the Moorhen public house are owned, in law, by Retailing. The staff are employed by two sister companies of Retailing (i.e. they are also subsidiaries of the Appellants). The weekly paid staff are employed by Greene King Retail Services Limited and the monthly paid staff are employed by Greene King Services Limited. The latter company is Mr. Bellhouse's employer. These two employment companies plainly provide services for the Appellants. A number of Contractual or service agreements to which Retailing were a party were in existence at the material time and these covered subjects such as waste management, staff clothing and textiles and pest control services in respect of the licensed premises operated by Retailing including the Moorhen. The menu cards in the Moorhen referred to the Customer Services Team of the Greene King Pub Company; i.e. one of the trade names of Retailing. The induction records of new staff employed at the Moorhen were headed with the name of Retailing. The name given in the notice under Section 5 of the Business Names Act 1985 was Retailing. There was a rubber stamp to use to endorse the name of the payee for customers' cheques in the name of Retailing. All day to day routine business transactions were in the name of Retailing.
(e) The Appellants were neither the owners nor the employers of staff at the Moorhen.
(f) When the Environmental Health Officer attended the premises to carry out an inspection of 5th July 2001, the Manageress of the Moorhen said that the Appellants were the proprietor. The Respondents served improvement notices under Section 10 of the Food Safety Act 1990 following that inspection. These referred to "Your food business: The Moorhen" and were served on and evidently complied with by them. All correspondence in the matter has been carried out on notepaper headed with the Appellant's name. Much of that correspondence had been with Mr. Mike Gore with the title Group Health and Safety Manager who evidently believed himself to be employed by the Appellants. That misunderstanding was shared by other staff. After the issue of correct defendant to the criminal proceedings had been raised, the Environmental Health Officer enquired of all other local authorities in the country as to whether the Appellants were named in official notices relating to the very substantial Greene King business. The result was that there were eight statutory notifications of accidents in 2000 and 2002 in respect of public houses, seven being in respect of the Moorhen, using the name of the Appellants (the other was in Herefordshire). On such forms the type of work or industry code was indicated as "Brewers/Retailers".
(g) A number of licence transfer documents and forms of application for registration of food premises in the period 2001 to 2002 relating to premises other than the Moorhen had the name of the Appellants on them. A licence transfer (for premises in Norfolk) had the Appellants named as the address for the Area Manager. The application for registration of food premises in the case of the Moorhen named the Greene King Pub Company (i.e. a trade name of Retailing) as the proprietor. The annual returns for the Appellants from 1998 to 2002 all refer (by word or code number) to the principal business activities of the Appellants as "operating managed and tenanted public houses, brewing and wholesaling beers, wines and soft drinks". This was an error on the part of the Company Secretary as the information had unintentionally been carried forward in computer generated information from the time when the Appellants did indeed carry on the business of the public houses. The Certificate of Employers' Liability insurance relating to the Moorhen for May to October 2002 showed the policy as "Greene King Plc and subsidiary companies".
(h) When the matter which led to the laying of the informations was being investigated, the Environmental Health Officers of the Respondent carried out a formal interview with Mr. Gore on 8th August 2001. One of the officers asked Mr. Gore how many food businesses the Appellants ran and he replied "none". He was asked about the Moorhen and replied "No, we own the building but we do not own the operational area". He was wrong about the ownership of the building because, as set out above, the freehold vested in Retailing. He was asked who owned the operational area and replied "Greene King Brewery and Retail Limited" or possibly "Green King Brewing and Retailing Limited". We were unable to determine from the tape recording what exactly was said.
(i) The officer did a search of the Companies House website and found no company with the name Greene King Brewery and Retail Limited and therefore that tended to confirm her view that the Appellants were the appropriate Defendant. She could have served a notice under the Local Government (Miscellaneous Provisions) Act 1976 Section 16 to obtain particulars of the true occupier or she could have acted under the Food Safety Act 1990 Section 33 to require information but she did not. The notice under the Business Names Act 1985 may have been on display at the premises in July 2001 but she did not seek to read it if it was there.
(j) The annual report of the Appellants for 2000 to 2001 states, in the Directors' Report that the Appellants are "the holding company for a group whose principal activities are operating, managed, tenanted and leased public houses, brewing beer and wholesaling beers, wines and soft drinks". The corporate governance provisions indicate that the Board of the Appellants is "ultimately responsible for the company's system of internal control". In respect of internal audit, it is said "The controls over the Group's managed houses are enhanced by an internal audit team and the availability of comprehensive information from EPOS (electronic point of sale) till system. On behalf of the Board, the audit committee regularly monitors the procedures and scope of internal audit within the group, including seeking the views of the external auditors". In addition it states "All directors have access to the advice and services of the Company Secretary and are provided with full and timely access to all relevant information, plus the opportunity to question the management as required".
(k) The Report refers to business plans and budgets and states "Business plans and detailed annual budgets covering all financial aspect of the Group's business are evaluated and approved by the Board. The actual results are compared against these plans and budgets on a four-weekly basis and variances analysed in order that any appropriate action can be taken".
(l) The Report under the heading "Environmental Policy" states "The overall responsibility for environmental policy rests with the Board, but specific responsibility for ensuring that adequate arrangements are made to implement that policy effectively throughout the Group is delegated to the managing director of the Brewing and Brands business unit".
(m) The Annual Report also deals with senior staff and refers to four executive directors – the Chief Executive, the Finance Director and the Managing Directors of the Pub Partners and Pub Company Divisions. The remuneration report states " A significant proportion of each Executive Director's potential remuneration package is performance-related". Bonus payments are said to be "based upon the achievement of financial performance targets for the year".
(n) The Annual Report also contains a Group profit and loss account and other financial information as well as a great deal of narrative detail about the Group's productivity, strategy, record and highlights. The Chief Executive in his review summarises the position as "Our current structure, which is based on empowered and accountable business units operating in support of the corporate strategy, is an important component of this success … our business comprises a number of complementary strands, which are focussed on serving the same end consumer and which together allow us to achieve significant scale benefits and share skills within one corporate brand identity".
(o) The Annual Report was a Group document, which was a consolidated report, which would have become difficult to read if an attempt had been made accurately to delineate in it the specific functions of the individual companies in the Group. The internal control and governance provisions were formal requirements of the Stock Exchange Code.
(p) Each of the subsidiary companies in the Group were separate entities but none could tell the other what to do so that, for example, only the immediate employer could compel, for example, staff training. Any corporate restructuring would require the involvement of the Appellants and the Board of the Appellants monitored, as parent company, what went on in the subsidiaries. The regular Health, Safety and Food Hygiene audits prepared by Mr. Gore were reports not only to Retailing but also they were seen, and notice was taken of them, by the Board of the Appellants.
The submissions to the Crown Court
12. The Appellant's submissions were to the following effect. A wholly owned subsidiary is in law a different legal entity from its parent. There would be very significant consequences if a holding company were held to be carrying on the activities of its subsidiaries. The crucial issue was whether the Appellants were "a proprietor of a food business" when they did not carry out any of the activities within the definition of such a business. They had no employees. They did not handle food or offer it for sale. The fact there was confusion as to the proprietor's identity could not change who the proprietor was. Everything pointed to Retailing being the exclusive proprietor. It purchased the food. Its sister company employed the staff who handled the food. It owned the premises and the equipment where the food was prepared. The proceeds of the sale of the food went into its bank account.
13. The Respondent submitted that a person could be the proprietor of a food business without handling or preparing food. More than one corporate entity could be proprietor. The corporate structure, as in the present case, might be such that one company employs the staff, another owns the property, another has responsibility for health and safety policy. Each would then be carrying on a food business.
The Crown Court's Opinion
14. The Crown Court's Opinion is set out in paragraph 7 of the Case. It stated,
"(a) The facts painted a picture of considerable uncertainty or confusion even up to quite a senior level in the business about who was exactly responsible for what and for whom in this Group.
(b) The Respondents did not need to prove that the Appellants were doing everything which was done by the subsidiaries. It only needed to prove that the Appellants were a proprietor and to our minds they did so and did so convincingly.
(c) As a matter of common sense the Appellants were carrying on a food business. They established a structure, set the vision and determined the direction. They dealt budgets, policies and business plans. They monitored performance and acted on non-performance or poor performance. The corporate governance arrangements extended to internal audits at a high level of regularity. There was an overlap of staff and directors. The performance related remuneration of directors of the Appellants can only logically point to their remuneration flowing from the activities of some or all of the profit producing subsidiary companies.
(d) Looked at overall, the activities of the Appellants go a great deal further into the realms of control and involvement than the mere shareholder role.
(e) We therefore find the Appellants were proprietors of the food business in question."
The question posed by the Crown Court
15. The question is in the following terms.
"Were we correct in law in finding that the Defendant, Greene King Plc, was a food proprietor, within the meaning of the Food Safety Act 1990, section 53(1), in respect of the Moorhen public house?"
The argument before me
16. In the course of argument, it became clear that Mr. Philpott on behalf of the Appellants and Mr. Macdonald on behalf of the Respondents agree about a number of matters. The Appellant company is a holding company. It is a separate legal entity from its subsidiary companies. It cannot be criminally liable unless it is more than a mere shareholder. It must itself fall within the Regulation. If the wrong company has been charged, the prosecution must fail.
Mr. Philpott's submissions
17. Mr. Philpott's first and fundamental submission is this. For the Appellant Company to be criminally liable it has to be carrying on a food business. Food business is defined in Regulation 2. What is required is that the Appellant Company was carrying out one or more of those things specified in Regulation 2. Retailing, an independent corporate entity, was "carrying out" those things specified in the Regulation. Total control of Retailing by the Appellants would not be enough to bring them into the net. The well known case of Salomon v Salomon  AC 22 makes that clear. For there, total control of the corporate entity by Mr. Salomon was not enough to make him personally liable.
18. Mr. Philpot accepts that there could be factual situations in which the holding company's conduct could bring it within the statutory framework. Agency might be one. However, he submits, this case was not. Mere supervision was not enough.
19. He emphasises some of the Crown Court's findings. The Appellant had one board of directors. Retailing had another. Each entity had the capacity to make decisions. Retailing owned the premises. One entity could not tell another entity what to do. All day to day routine business was done in Retailing's name. Any cheques were paid to Retailing. The takings were banked into its account. The menu was in Retailing's trade name. Staff were employed by service companies. Retailing dealt with their clothing. The Appellants employed no staff.
20. As to the reliance by the Crown Court on the Appellant's Annual Report, he submits that nothing in that can lead to the conclusion that the parent Appellant company was carrying on the business of its subsidiary, Retailing. The fact that the Appellants have remuneration from Retailing is irrelevant, he submits. It is no more than an inevitable consequence of the fact that Retailing pays its dividends to the Appellants. What the Appellants were doing was no more than exercising proper corporate governance as befitted a publicly quoted parent company when it dealt with its subsidiaries.
21. As to the findings of fact, he submits that mistakes as to which entity was the food proprietor do not matter. They cannot make the Appellants a proprietor if in fact it was not. Mr. Macdonald agrees about that.
22. Mr. Philpott emphasises this is a criminal statute and must therefore be construed narrowly and in favour of the subject.
Mr. Macdonald's submissions
23. Mr. Macdonald's submissions can be summarised shortly.
24. First, he submits that the statutory provisions mean that as a matter of law there can be more than one proprietor. That is not limited to such situations as partners. Corporate entities may so structure themselves as to result in more than one entity would being a proprietor. That is the case here. Retailing was a proprietor on the facts. So were the Appellants. Both were "carrying on the business" for the purposes of section 53.
25. In support of that proposition he relies upon the observations of Kennedy LJ in Ahmed v Nicholls, CO/4462/99. I shall come to them shortly.
26. He emphasises that if there is a corporate structure which divides responsibilities (as here), it is inevitable that there will be more than one proprietor for the purposes of some of the obligations under the Regulations. For example, there is an obligation on the proprietor to ensure that food handlers engaged in the food business are supervised and instructed and/or trained in food hygiene matters. The handlers in this case are employees of another subsidiary of the Appellants. That obligation would fall on that entity, as their employer. For it would be a person by whom a food business would be carried on. At the same time, an obligation would also fall on Retailing.
27. Moreover, submits Mr. Macdonald, the fact there may on given facts be more than one proprietor is consistent with the scheme of legislation such as this. This is legislation to protect the consumer. It needs to be flexible. (Although he did not put it quite in this way) Parliament must have intended it to be sufficiently flexible to cover what can be a complex corporate structure, such as the present.
28. Mr. Macdonald submits that no injustice would arise from the approach he advocates. In any given case the entity prosecuted can advance the defence of due diligence: see section 21 of the Food Safety Act 1990.
29. Second, and fundamentally, he submits that Mr. Philpott's interpretation of the provisions is too narrow. Regulation 2 sets out those businesses to which the Regulation applies. If a business does one or more of the things set out, it is a food business. The Regulation does not give an exhaustive definition of what it means to be "the person by whom that business is carried on."
30. Third, on the facts found by the Crown Court, it was entitled to conclude that the Appellant company was "the person" (albeit not the sole person) "by whom that business [was] carried on."
31. In Ahmed (see above) the issue was whether the appellant was correctly described as proprietor. He was a partner in a food business. He did not work there. Kennedy LJ, in paragraph 14 of Ahmed first cited part of Ognall J's judgment in Kol Curri v Westminster City Council 25 May 1999 in which Ognall J said this,
"The researches of counsel have not yielded any material which assists in the proper construction of the essentially simple words "carrying on the business." One is therefore required…to give those words their ordinary and natural meaning. It is necessary, in seeking so to do, to bear in mind that their application carries with it penal consequences…I remind myself that the word used in the Regulations is "proprietor". That of itself plainly means ownership. But I recognise that Parliament may have intended to widen the net of criminal responsibility…so as to prevent unscrupulous evasion of liability by placing the business, for example, in the name of another, whilst in reality conducting it for oneself…carrying on business in the context of the case before us…countenances, and must be taken to connote, an entrepreneurial role…"
32. Of that part of Ognall J's judgment, Kennedy LJ said this in paragraph 15,
"In my judgment it is right, save with respect, I, for my part would not agree to the interpretations of the concept of ownership. I entirely agree that in normal circumstances a proprietor is an owner, but the definition in section 53 does appear, on the face of it, not be inclusive. It says precisely what proprietor means for the purposes of the statute, it means the person by whom that business is carried on whether owner or not. But the person by whom the business is carried on need not, in my judgment…be involved in the day to day running of the business."
33. Proprietor for the purposes of section 53 is therefore a term of art. The proprietor does not have to be the owner of the business, although it may be. It does not have to be involved in its day to day running. Provided it can be said that on the evidence it is the person by whom the business is carried on, it is the proprietor. Such a person may of course be an individual or a limited company.
34. It follows that on the basis of such a definition, there may be more than one proprietor. It will all depend upon the facts of the particular case.
35. Moreover, it seems to me that Mr. Macdonald is right in his approach to these provisions. It is not necessary for the proprietor to carry out any, let alone all, of the functions which appear in the definition of "food business" in Regulation 2. Once it is established that the business in question is a food business, the only remaining issue is whether the defendant is the proprietor, having regard to the statutory definition in section 53. If on the evidence the court is sure it is and is sure (here) of a breach Regulation 4, the case is made out.
36. The issue therefore comes to this. Was the Crown Court, on the evidence adduced before it, entitled to be sure that the Appellants were carrying on that business? If it was, the appeal fails. If not, it succeeds.
37. In deciding whether the evidence disclosed that the Appellants were carrying on a business, the court was in my view entitled to make a realistic assessment of the actual role of the Appellants in the group. It was entitled to bear in mind that there may be much involved in carrying on a food business which falls outside the purely physical processes listed in Regulation 2. That is what the Crown Court did. It carried out a careful analysis of the evidence before it. It placed considerable weight on what was said in the Appellants' Annual Report. It was entitled to. It came to the conclusion that the Appellants did much more than act simply as a shareholder. The company took an independent and active role in the management of the company. In short, it seems to me that given the Court's findings of fact, it was entitled to come to the views expressed in paragraphs 7(b) and 7(c) of the case.
38. I should add three final observations. First, there seems to me substance in Mr. Macdonald's observations that Parliament intended this legislation to be as flexible as possible when it sought to protect the public. There may in any given case be complicated corporate structures which would make it difficult to identify the proprietor given the restricted interpretation advanced by Mr. Philpott. I say that bearing in mind the powers the prosecutor has in seeking to identify the appropriate defendant. Second, a party in the Appellant's position always has available the statutory defence if the facts justify it.
39. Finally, I should add this. There is not the slightest suggestion here that the complex corporate structure was in any way designed to try and avoid responsibility under this legislation. I have no doubt there were other corporate and economic motives.
40. I would therefore answer the question in the affirmative and dismiss the appeal.