Inside Infrastructure: Managing Investor Risk and Response in a Crisis

Infrastructure sites often carry a degree of operational risk and, unfortunately, operational incidents, in particular health and safety accidents, do occur. These incidents can quickly escalate into crisis situations. Organisations responsible for the operation of an infrastructure asset need to plan and execute an appropriate response, while investors need to consider their position and ensure they respond appropriately.

This week’s blog offers high level thoughts for investors on how to navigate the initial aftermath of a crisis and practical steps for effective risk management. 

The Legal Landscape

The law offers multiple touchpoints for liability when incidents occur at infrastructure sites. In particular, for projects in UK:

• The Health and Safety at Work Act 1974 is the keystone of the UK’s health and safety regime, imposing duties on companies to take “reasonably practicable” steps to ensure the health, safety and welfare of employees. It also creates strict liability offences for failing to do so (with specific liability regimes for company directors and managers) and provides the legislative framework for further more specific health and safety regulations, e.g. relating to asbestos, PPE and fire safety.
• The Corporate Manslaughter and Corporate Homicide Act 2007 creates a specific corporate offence of manslaughter that applies to organisations when serious management failings result in a fatality. 

There are a range of incidents that can give rise to crises. While health and safety incidents arising from the use of machinery can be the most common for infrastructure assets, issues can equally arise from environmental incidents or one-off events such as weather events. Incidents of these nature can also engage other specific regulatory regimes, such as the Environmental Protection Act 1990 and the Environmental Permitting Regulations 2016, in the case of environmental incidents. In addition to regulatory enforcement, other legal liabilities may arise as well as potentially material commercial and reputational damage.

Crisis Response: operating company considerations 

When a crisis occurs, the operating company is immediately in the spotlight and its response will require it to balance a range of (often competing) issues, including:

• Regulatory investigations: Authorities such as the Health and Safety Executive (HSE) and police may investigate, with powers to enter premises, question individuals and in some circumstances, seize documents and stop unsafe operations.
• Legal proceedings: Alongside criminal investigations brought by the police or HSE, injured parties may pursue civil claims against the company.
• Media and reputational risks: Major site incidents can also attract media attention and may impact relationships with customers, suppliers, and other stakeholders. 

The operating company needs to have an effective crisis response programme that can be triggered promptly, covering issues such as:

• Timely notifications to the relevant authorities, insurers and other stakeholders;
• Establishment of internal governance and investigation teams;
• Strict controls on the creation and preservation of documents;
• Managing privilege issues when sharing and handling documents; and
• Considering the appropriate public communications strategy.

Any crisis response programme also needs to be sufficiently flexible to take account of the specific nature and complexity of the incident in question.

Crisis Response: the investor 

So what needs to be on the mind of an investor?:

• In most scenarios, although certain criminal law provisions can, in theory, apply to third parties with a level of control over operations (which in fact specific scenarios could potentially extend to investors), the legal and regulatory obligations will typically sit primarily with the operating company in question. While there can be a temptation on the part of any investor to intervene in the operating company’s response to the crisis, that can, in certain circumstances, increase the legal and / or reputational risk for an investor.
• Given that, investors should be mindful of the division of responsibility between it, its co-investors and the operating company in question.
• When requesting documents from the operating company, or creating its own documents, any investor should also be mindful of legal privilege. In England and Wales, documents will only be covered by privilege if they are confidential and created for the dominant purpose of litigation that is reasonably in contemplation, or for the dominant purpose of giving or receiving legal advice. Care also needs to be taken to ensure privilege is not lost when, for example, requesting documents from the operating company, making public statements regarding the incident, or communicating with third parties.
• Finally, investors should also be mindful that directors of operating companies can be held concurrently liable for breaches of the Health and Safety at Work Act 1974 by the operating entity, if an offence was committed by the relevant entity with their consent or connivance, or was attributable to their neglect. This needs to be given thought at an early stage by investors and, in particular, when appointing nominee directors and the roles they take on.

Minimising the impact on future divestment

The key part of managing a crisis effectively is focused on handling the immediate fallout from the event. However, investors can expect questions on the crisis and the company’s response in any divestment process. In particular, an investors’ position will be strengthened if there is an appropriate document trail that can be provided, and the relevant health and safety staff can provide a robust and credible explanation of the incident and the company’s response. A well-managed crisis response reassures buyers and investors that processes are sound and that risks are contained. Conversely, a crisis that is not well-managed can lead to broader, challenging questions on the operating company’s policies and governance structures. 

And finally, Real Asset or Fake News?

Well done to those of you who spotted that the PPP “fact” in our last quiz had veered off the rails. This week we are considering some exciting developments in the UK. Which of these “facts” is actually fiction?

1. Floating solar farms in UK ports: Some UK port authorities have installed floating solar panel arrays in their dock basins, using otherwise unused water surfaces to generate renewable energy for port operations.
2. Airport honeybee colonies: A UK airport manages hives of honeybees on its perimeter, monitoring their health as an indicator of local air quality and biodiversity, while also producing branded airport honey.
3. Drone-Assisted bridge inspections: Infrastructure authorities increasingly use drones equipped with cameras and sensors to inspect hard-to-reach parts of bridges and viaducts, reducing time, cost, and risk to workers.
4. Energy-generating footbridges: Several new UK footbridges are now equipped with pressure-sensitive panels that generate electricity as pedestrians walk over them, powering streetlights and CCTV on the bridge.
5. Smart street lighting systems: Some UK cities and towns have introduced smart lampposts which can adjust brightness automatically based on pedestrian movement and traffic flow, helping to save energy and reduce operation costs. 

As usual, the answer will be revealed in our next blog.