The Thames Water appeal case judgment means fines for all environmental offences are likely to rise, says Simon Colvin
The Court of Appeal judgment in R v Thames Water Utilities Ltd [2015] is the latest chapter in the saga of environmental sentencing. The court was considering an appeal by Thames Water against a fine of £250,000 in relation to a water pollution incident. In rejecting the appeal, the judges clarified the approach they expect the courts to take when applying the Sentencing Council guidelines for environmental offences, which came into effect last year.
On the up
Since the guideline was introduced there has been a marked increase in the level of fines for environmental offences. However, the Thames Water judgment is a more prominent line in the sand that will lead to significantly higher fines for environmental offences. The judges said they would have imposed a higher fine on Thames and noted that £100 million penalty might be appropriate for the most significant environmental offences by the largest companies.
In calculating the fine, the chief justice, Lord Thomas, and justices Mitting and Lewis advised: “In the worst cases … the objectives of punishment, deterrence and the removal of gain – for example by the decision of the management not to expend sufficient resources in modernisation and improvement – must be achieved by the level of penalty imposed. This may well result in a fine equal to a substantial percentage, up to 100%, of the company’s pre-tax net profit for the year in question (or an average if there is more than one year involved), even if this results in fines in excess of £100 million. Fines of such magnitude are imposed in the financial services market for breach of regulations.”
The judges also said that, but for the mitigating factors and prompt guilty plea by Thames Water, the fine would have been not less than £500,000.
The future possibilities
The effect of the judgment will mean courts at all levels making full use of the extended sentencing powers made possible by the guidelines. We will see an increase in the level of fines for all companies. Although this case concerned a very large organisation, there are many important themes and messages that are relevant to companies and operators of all sizes. Particularly important are those that relate to the steps companies can take to protect their interests there is an environmental incident. They include:
- Do not ignore signs of failing equipment or concerns raised by employees. The courts will take a dim view of any inaction that results in an environmental incident.
- Where operations are close to sensitive sites, such as one of special scientific interest, firms will need to ensure they take additional steps to prevent environmental harm.
- Do an immediate assessment of an incident. Having your own evidence of the level of harm could be key in reaching agreement with the regulator concerning the correct categorisation of harm. Under the guideline there are four categories of harm, with 1 being the most significant and 4 the least damaging. Culpability is also assessed using four categories: deliberate, reckless, negligent and low/no.
- Organisations with a turnover well in excess of £50 million, need to ensure they have systems in place that enable the board of directors and shareholders to be engaged in ensuring environmental compliance.
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Do not make the same mistake twice – companies should undertake a thorough debrief after an incident
to prevent a repeat elsewhere. A failure to do so will often be punished by the courts. -
Companies that have previously committed environmental offences must ensure they have very
accurate records of the incidents and all the connected mitigating facts and circumstances, particularly relating to any steps taken to prevent
a recurrence. - Be aware that the courts and the regulators will undertake a detailed analysis of financial accounts (and groups in some cases). Companies need to ensure they have access to accurate, up-to-date financial data.
- The Thames Water judgment suggests that larger companies will be expected to meet a “high” standard of environmental performance and compliance.
The judgment sends a clear message to companies whose operations pose a risk of environmental harm: get it wrong and you could face fines of tens if not hundreds of millions of pounds.
Companies should analyse the key points in the judgment. This will enable them to identify changes and improvements they can make to their environmental management and compliance systems, as well as their incident response protocols.
‘Proportionate’ financial penalties
The guideline introduced a tariff system for England and Wales, where the level of fine is decided in relation to the level of harm caused, the culpability of the offender – whether the offence was committed negligently, recklessly or deliberately – and the size of the organisation. It came after a review of sentencing practices for environmental offences by the Sentencing Council had concluded that some fines were “too low and did not reflect the seriousness of the offence”. The changes were aimed at ensuring courts impose fines that are “proportionate” with the means of the company.
