Sentencing for Environmental Offenders - Corporate Fines Set to Vault Upwards

August 2, 2015

 Corporate sentencing for environmental offences, following the implementation of the Sentencing Council’s new Guidelines, is no longer a predictable expense to be routinely included in the annual budget. The Guidelines, implemented recently in the Court of Appeal, contemplate a calculation of a fine which is designed to ‘bring home the appropriate message to the directors and shareholders’.  

 

‘Gardez L’eau!’ was a familiar cry in the back streets of Edinburgh, back in the 17th Century, as the contents of a chamber pot came flying out of the window, drenching unsuspecting passersby with untreated sewage.  Admittedly, this was before the water closet became widely available, two hundred years later, with such sewage thereafter being disposed of by/through other means.   

But these days, companies will wish to beware of what such a careless, or even reckless approach might begin to cost, following their Lordships’ recent ruling, in R v Thames Water Utilities Ltd [2015] EWCA Crim 960. 

 

Over the years since the body of statutory criminal environmental offences were created, and the Environment Agency began to prosecute, environmental offending at a corporate level has generally merited something of a slapped financial wrist, following successful prosecutions or early guilty pleas.  There has been no clearly structured relationship, or certainty, as to what the offending company might expect or indeed fear from the courts.  Some would argue that both water and waste management companies have been fined relatively modestly over the years, and required to take equally modest steps towards remediation, by unblocking the pumps, re-stocking the river with brown trout to placate the local Anglers Association, cleaning up the spill, repairing the faulty valve, saying sorry within the limits of counsel’s powers of mitigation, and naturally vowing, through counsel, never to get into that position again.  There has been no consistently clear structure or linkage in the relationship between the damage done by the commission of the offence, and the turnover and profits of the company.  Coupled with this lack of structure, the limited fining powers given to the magistrates provided no particular cause for concern to the corporate environmental offender.    

 

Thames Water Utilities may have winced, as the tide turned conclusively against this approach, this June, in the Court of Appeal - but they might also have given a small sigh of relief on this occasion.  The Court was asked by Thames Water to consider, and reduce the substantial fine (£250,000) imposed upon the company by Recorder Arbuthnot, at Reading Crown Court.  The fine had been imposed, following an early guilty plea by Thames Water for its commission of an offence under the Environmental Permitting (England and Wales) Regulations 2010.  The facts were that over a long period of time, the pumps at Broadlayings Sewage Pumping Station were allowed by Thames Water to fail, repeatedly, with the result that untreated sewage flowed into Chase Brook, and thence into Alder Carr, a patch of marshland which was a sensitive site, all within an Area of Outstanding Natural Beauty.  A great deal of damage to the biodiversity of the area was caused. 

 

Not only was the fine imposed on Thames Water upheld.  Their Lordships, in the words of Mr Justice Mitting, said that ‘the Court of Appeal would have had no hesitation in upholding a very substantially higher fine’.  Thames Water had sought to adduce further evidence, in mitigation, but failed in that endeavour.  The Council’s new Guidelines were analysed, and in an uncompromising judgment given by Mr Justice Mitting, the Court set out the step by step, logical approach which is now to be used by the courts in the calculation of a corporate fine, drawing together the degree of culpability of the offender, the harm caused by the offence, and the size of the offending organisation, by reference to its turn over and profit.  

 

Very large commercial organisations, (run for profit), committing offences which result from ‘negligence or worse’, including repeated operational failures, are now likely to be punished very severely.  The court will now contemplate fines measured in millions of pounds, reducing profitability, even up to 100% of the company’s pre-tax net profit for the year in question.  ….’the imposition of a fine is a necessary and proper consequence of the importance to be attached to environmental protection’, if the objectives set out in s143 CJA 2003 are to be met’. 

 

The Court of Appeal’s acknowledgement that sentences previously imposed have failed to make the right impression upon corporate offenders is indicative of a seismic shift in the courts approach to sentencing for corporate environmental offences. 

 

The shift may be said to have begun in late 2013, when the Court of Appeal considered the level of fines imposed in R v Sellafield [2014] EWCA Crim 49, together with the principles set out in sections 142 and 143 CJA 2003.  The judge at Carlisle Crown Court found that the management in Sellafield, a highly productive commercial company, with large multinational corporate shareholders, a revenue of 1.6bn in 2012, and a profit of 29m in the same year, had been lax and complacent to the extent that there was clear managerial negligence. 

Some interesting and dynamic consequences might follow from this change of approach: 

  • shareholders are likely to take a robust view of very large company management where management is explicitly described by the court as lax or complacent to the point of negligence, resulting in the imposition of a very significant fine.  Where such a fine is directly calculated to reduce profitability, this is hardly likely to find endear the Board to its shareholders.

  • where criminal environmental negligence is reflected in a very substantial fine, the reputational risk to the company carries a wide range of potential impacts across its dealings with others.   Insurance, employment, lender liability, and other concerns are likely to emerge, over time.

It is very likely that the risk of prosecution will now travel well up the risk assessment charts of many of the large environmentally focussed companies who will have read Mr Justice Mittings judgment with a powerful sense of schadenfreude

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