Legal brief: Tougher sentencing

26th February 2014


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  • Business & Industry ,
  • Corporate fine ,
  • Prosecution ,
  • Environment agencies

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IEMA

Simon Colvin examines revolutionary new guidance on sentencing environment offences which introduce fines of up to £3 million

The Sentencing Council has today (26 February) published its new guideline on the levels of fine appropriate for environment offences, and there have been some very significant changes to the document that was consulted on nearly 12 months ago.

The new guideline will completely change the face of environmental regulation introducing fines of up to £3 million per offence in the most extreme cases involving big companies.

The new guidance will have two key impacts. First, it will mean a greater focus on environmental compliance at boardroom level because the consequences of getting it wrong are so significant. This is a positive outcome as the approach will be more about prevention than cure.

However, the new guideline will also result in more prolonged and hard fought cases as the penalty of being found guilty, and the scope of the offences, are so much more significant. For example, if a defendant can reduce the number of charges it faces and/or reduce the categorisation of the offence – there are four categories of offence relating to the level of harm caused, the greater the harm, the higher the category and the larger the fine – this can have a significant benefit in terms of the starting point for a fine. If a firm with a turnover of £50 million, for example, was found to have deliberately caused a category 1 offence – which had “major adverse effects” on the environment – the starting point for its fine is £1 million. If it caused a category 2 offence – where the adverse impact on the environment was “significant” – the starting point would be £500,000.

The new world of environmental compliance will begin on 1 July 2014 when the new guideline comes into effect. Everyone will be holding their breath to see who is unlucky enough to be first before the courts.

Major changes:

In Step 3 of the guideline, which details how courts should determine which category an environment offence falls into, there has been a clarification of the culpability labels in relation to organisations that fail to put in place and enforce systems that could reasonably be expected to avoid the offence. This is a positive step in that it means companies can take action to protect against allegations of acting deliberately, recklessly or negligently, however, it is hugely subjective. Who decides whether systems could “reasonably” have been expected? And, how will this apply to permitted facilities that meet the best available technique requirements?

The use of the four categories of offence (1–4) and the related terms of “major”, “significant”, and “minor” related to the level of harm, will be an area of concern for organisations. These categorisations are determined by the Environment Agency, but with very little transparency as to how they are decided. This could potentially be very contentious.

In Step 4, which details the starting point and rang of fines, further clarification has also been given. There is a restatement of the general sentencing principles of “seriousness” in terms of the level of fine must reflect an offender’s culpability and the level of harm caused, alongside the financial circumstances of the offender.

It appears that the guideline has not been tweaked to reflect the recent Sellafield Limited case, in which the court of appeal made it clear that offenders should be required to disclose their accounts and other financial information. The new guideline does not go that far, and reiterates the existing position: that the courts can assume a company can pay any level of fine in the absence of evidence to the contrary.

During the consultation on the guideline, I queried whether a court would look only at the offending company, in terms of turnover, or the wider group, if the company is part of a group. The issue has been fudged in the guideline which states that normally the court will only look at the individual company unless there is good reason to look more widely. If a business is in the lower category ranges due to its turnover, I would expect the Environment Agency to argue that the court should take account of the group turnover so that it should sit in the higher category ranges. The Sentencing Council could have been more prescriptive here.

The new guideline does, however, take account of the failed Sellafield Ltd appeal to a limited extent. There is a text box referring to very large organisations whereby the turnover “very greatly exceeds” the threshold for large companies (£50 million per annum). It states that for such firms: “It may be necessary to move outside the suggested range to achieve a proportionate sentence.”

However, a question remains as to what level of turnover would constitute as “very greatly” exceeding the threshold. Applying the guideline to the Sellafield Ltd case, without taking into consideration of the new text referring to very large organisations, results in fines way below the £750,000 ultimately approved by the court of appeal (£200,000–£400,000 depending on which category the offences fell within). This is a massive grey area, and it seems the inclusion as though the additional text has been a quick fix to account for the Sellafield case and is very unhelpful.

Changes have been made to step 6, however, to address concerns raised in the consultation with regards companies with a large turnover, but low profits. The courts can now take account of this when determining the final level of fine.

Amendments have also been made to the category ranges, and there are now four groups – large, medium, small and micro. In addition, the starting points and ranges for fines have increased across the board from those consulted on. For large companies the starting point for the worst offences is up from £750,000 to £1 million, and the range now starts at £450,000 and goes up to an eye-watering £3 million per offence, as opposed to £270,000–£2 million in the consultation draft.

Meanwhile, the list of aggravating and mitigating factors has been shortened. The council has included the voluntary payment of compensation to those affected, which was something that respondents called for during the consultation process. Worryingly for businesses in heavily-regulated sectors, such as utilities companies, the guideline makes it clear that relevant recent convictions and a history of non-compliance will be significant aggravating factors. This will be concerning for water companies in particular.

One of the explanatory notes in the consultation draft made reference to concerns about the repeat offences committed by utility companies. This would seem to suggest that the guideline is targeting them specifically.

Step 5 of the new guideline includes a requirement to remove any financial gain – including avoided costs and operating savings – resulting from the offence. It suggests that court can be guided by the regulators as to the relevant amounts. Again this is a subjective issue and one that could potentially be very contentious where there haven’t been confiscation proceedings. This could, for example, result in technical arguments about what represents a best available technique (BAT).

The application of the “totality principle” in step 11 will also be interesting in certain cases. The principle states that: “If sentencing an offender for more than one offence, or where the offender is already serving a sentence, consider whether the total sentence is just and proportionate to the offending behaviour.” This raises the question of what will happen if there is an environmental incident, as is often the case, and multiple charges are brought against a company. Under the guideline, if the impact of the incident was serious, resulting in a high categorisation, it may mean a multi-million pound fine – that is a fundamental departure from the current approach and it will be interesting to see how the courts will approach the issue.


Simon Colvin is hosting an IEMA webinar on the new sentencing guideline on 11 March, 12.30pm-1.30pm. To register for the webinar click here.

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