Applying the July 2014 Environmental Offences Definitive Guideline – Warning to Commercial Organisations

R v Thames Water Utilities Ltd [2015]: Applying the July 2014 Environmental Offences Definitive Guideline – Warning to Commercial Organisations

The tough July 2014 environmental sentencing guidelines and the even tougher approach adopted by the courts when applying the guidelines in the case of R v Thames Water Utilities Ltd [2015] EWCA Crim 960 sends a powerful message both to organisations (in particular, very large commercial organisations) and to individuals that environmental regulatory compliance will not be dealt with leniently by the courts. Environmental breaches may now result in extremely significant penalties, far exceeding fines previously imposed.

R v Thames Water is the first case where the court applied the July 2014 environmental sentencing guidelines when deciding upon the appropriate fine to impose upon a company for an environmental permitting offence. It offers an insight into the new tougher judicial approach against organisations who are not taking their legal obligations to protect the environment seriously.

Environmental

Offences Definitive Guideline, July 2014

The Sentencing Council’s “Environmental Offences Definitive Guideline” (the Sentencing Guideline) is now in force and applies to all sentences given to both organisations and individuals on or after 1 July 2014. The Sentencing Guideline introduces a 12-step framework for the courts to follow when deciding upon sentences for environmental crime (such as offences under the Environmental Permitting (England and Wales) Regulations 2010) with the aim of harmonising existing approaches and achieving greater consistency. The Sentencing Guideline is to be followed by the courts in all relevant cases unless it would be contrary to the interests of justice to do so.

The Sentencing Guideline provides “starting points” for the calculation of fines based on the degree of culpability of the defendant (ie whether the offence was committed deliberately, recklessly, negligently or whether there was low or no culpability), the category of harm caused by the offence (offences are split into Category 1-4 based on harm) and the size of the offending organisation (organisations are split into micro, small, medium and large based on turnover). In the case of “very large” organisations (ie where a company’s turnover greatly exceeds the £50 million+ threshold for “large” organisations) the Guideline states that “it may be necessary to move outside of the suggested range to achieve a proportionate sentence”.

Once the court has arrived at a starting point and an appropriate range for a fine, the courts may then reduce or increase the fine with reference to various aggravating and mitigating features in order to achieve a sentence which fairly meets the objectives of “punishment, deterrence and removal of gain derived from the commission of the offence”. The Sentencing Guideline makes clear that features such as the defendant receiving economic benefit from the offence or having relevant previous convictions are likely to increase a fine.

On the other hand, the defendant providing assistance to the prosecution and making a guilty plea may potentially reduce the fine imposed. Public or charitable bodies are also more likely to have their fine reduced compared with private organisations.

Central to the new approach established in the Sentencing Guideline is that a fine imposed must be proportionate to the defendant’s financial means and their ability to pay the fine. Indeed, it is stated in the Sentencing Guideline that a fine imposed on an organisation must be “sufficiently substantial to have a real economic impact which will bring home to both management and shareholders the need to improve regulatory compliance”. The Guideline envisages that, in very serious cases, putting the offender out of business may be an “acceptable consequence”.

R v Thames Water Utilities Ltd [2015] EWC Crim 960

The facts of R v Thames Water are that two pumps at one of Thames Water’s pumping stations failed due to becoming clogged with discarded items.

This meant that between 29 August 2012 and 4 September 2012, untreated sewage, rather than being pumped to the downstream pumping station, was discharged directly into a brook which flows through National Trust land in an Area of Outstanding Natural Beauty. The company failed to respond to various alarms warning them of a pump failure. The escaped sewage only came to light after a report was made to the National Trust by a member of the public. A significant clean-up operation was needed.

Thames Water pleaded guilty before the Magistrates’ Court to an offence under Regulations 38(1)(a) and 39(1) of the Environmental Permitting (England and Wales) Regulations 2010. The case was then committed to the Crown Court for sentencing.

In a decision where the July 2014 Sentencing Guideline was to be applied for the first time, the Crown Court Recorder firstly decided that this was a “Negligent Category 3” case. The Recorder concluded that the company had negligently failed to replace the pumps before September 2012 (on hearing evidence that there had been over 16 occasions of the pumps becoming blocked between April 2012 to September 2012, which gave a clear warning to the company that parts were not operating as they should be) and failed to respond quickly or at all to the pump alarms.

The Recorder then made an upward adjustment (applying a multiplier of five to the figure) based on the fact the company was a “very large” organisation and therefore outside of the suggested ranges in the Sentencing Guideline. Indeed, Thames Water had a turnover of £1.9 billion and had made a profit of £346 million in the year ending 2014. Following these steps, the starting point reached by the Recorder was £175,000 – £750,000.

In terms of the aggravating and mitigating features which were then applied in order to reach the final amount, Thames Water’s previous record for environmental crime was highly relevant as the company had accumulated 106 convictions in relation to environmental offences since 1991, of which the Court of Appeal deemed 16 of these offences to be “serious”, leaving room for “substantial improvement” in how the company regarded its environmental obligations. Although Mr Justice Mitting acknowledged that in the case of large statutory undertakers such as Thames Water no amount of management effort can fully ensure that an environmental breach will never occur, he said that Thames Water’s record of previous convictions relating to negligence (as opposed to no fault offences) was evidence that “the appropriate message has not fully struck home”. However, the defendant’s guilty plea at the earliest opportunity was a mitigating factor as well as the fact Thames Water offered £90,000 voluntary compensation to the National Trust.

Thames Water was sentenced in the Crown Court on 29 August 2014 to a fine of £250,000 and was ordered to pay nearly £7,000 in costs. Thames Water, although having pleaded guilty, then appealed against the size of this fine.

The Court of Appeal was unsympathetic to Thames Water’s appeal and, on 3 June 2015, the appeal was dismissed and Thames Water remained liable to pay the original fine. In fact, the Court of Appeal concluded that the fine imposed on Thames Water by the Crown Court was “lenient” based on the mitigating factors that had been taken into account and, in his Court of Appeal judgement, Mr Justice Mitting said “we would have had no hesitation in upholding a very substantially higher fine”.

Significance

of the new, tougher approach to sentencing The case of R v Thames Water is particularly significant as the Court of Appeal, as well as upholding the decision of the Crown Court, offered insight into how the courts are likely to approach the calculation of fines for environmental offences going forward (following the Sentencing Guideline) and revealed that the courts will be more than willing to impose even more substantial fines in other cases.

Mr Justice Mitting said that in the worst cases (ie Category 1 harm which is deliberate or reckless), regard will be had to all of the financial circumstances of the company, including profitability, and an appropriate fine reached may be up to 100% of the company’s pre-tax profits for the year in question, even if this results in a fine in excess of £100 million. Moreover, he said that even where the harm caused falls below Category 1, a suitably proportionate penalty, having regard to the financial circumstances of the organisation, may be measured in millions of pounds. Mr Justice Mitting referred to the fact that fines of such magnitude are imposed in the context of regulatory breaches in the financial services market.

The July 2014 Sentencing Guideline, together with the approach taken in R v Thames Water and these comments by the Court of Appeal, will have a powerful deterrent effect on all organisations, particularly those organisations who have a high potential to cause pollution, as they send a clear warning that the courts will be prepared to hand out extremely high fines where damage to the environment has occurred as a result of a failure to take care.

In particular:

• Large, commercial organisations with high turnoversshould be particularly vigilant against committing environmental offences as aresult of negligence or otherwise. Indeed, Mr Justice Mitting in his Court of Appeal judgment placed particular emphasis on the position with “very large commercial organisations run forprofit” and the need to ensure in these cases that penalties imposed are “proportionate and just” and “bring home to the management andshareholders the need to protect the environment”;
• Companies with one or more previous convictionsrelating to negligent environmental offences should also be particularly awareof the risks of re-offending. Mr Justice Mitting said that a record of “repeated operational failures” as aresult of negligence or worse is “suggestiveof a lack of appropriate management attention to environmental obligations “and therefore such previous convictions will be “seriously aggravating features” where it will be appropriate forthere to be a “substantial increase”in the level of fines imposed. He said that for repeat offenders, “the fine should be far higher and should rise to the level necessary to ensurethat the directors and shareholders of the organisation take effective measures properly to reform themselves”;
• All organisations would be advised to assesswhether it is worth bearing the cost now of implementing or installing newequipment or taking other measures to help prevent environmental breaches rather than potentially facing substantial fines in the future if a breachoccurred. It is clear from R v Thames Water that cutting corners or holding a less than rigorous approach toenvironmental management can cost a company greatly;If faced with an environmental breach, organisationswill want to avoid any allegation that an offence has been committeddeliberately or recklessly (and having rigorous systems in place can help to minimise this risk);
• Organisations at high risk of committing offences maywish seek advice on how to avoid being placed in the “large” or “very large”category of organisation, as envisaged by the Sentencing Guideline, through potential re-structuring as these are the categories which will attract the mostsubstantial fines; and / or
• It may be increasingly attractive for organisationswho have committed breaches to offer an “Enforcement Undertaking” to theregulator (where appropriate) as an alternative to facing sentencing from a criminal court. This is also more likely to be an attractive option now that the previous caps on the maximum fines in the Magistrates’ Court have beenremoved. See the Spring Edition 2015 of the Freeths LLP Environment Bulletin for articles on Enforcement Undertakings and the expansion of the Magistrates’ sentencing powers.

Time will tell as new cases come through the courts whether the bold approach in R v Thames Water will be followed closely. Moreover, it may be that as new cases are decided, more certainty will be placed around the “very large” organisation category where at present there is still disagreement as to how a starting point should be reached here, with Mr Justice Mitting stating in R v Thames Water that a “mechanistic” approach should be avoided.

Individual offenders

High net worth individuals should also be wary of the changes to sentencing for environmental crime. Indeed, as well as applying to organisations, the Sentencing Guideline applies to all individuals over the age of 18 (although with a different series of steps for determining a sentence). In the case of Natural England v Day [2014] EWCA Crim 2683, despite being heard at a time before R v Thames Water and, indeed, despite the individual being sentenced before the Sentencing Guideline came into force, the approach taken was consistent with the approach taken in R v Thames Water.

The case concerned an appeal against the sentence of a very wealthy businessman who had been fined £450,000 for carrying out unauthorised works to an SSSI in gross negligence. The Court of Appeal dismissed the appeal, stating that that the fine was “entirely proportionate to the culpability and the harm caused”. The Court of Appeal went on to say: “A fine in seven figures should not therefore be regarded as inappropriate in cases where such a fine was necessary: (1) to bring home to a man of enormous wealth the seriousness of his criminality in cases such as this where there was gross negligence in pursuit of commercial gain; (2) to protect the public interest in SSSIs; and (3) to deter others”.

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.