Introduced in July 2014, the Sentencing Guideline for Specified Environmental Offences in England and Wales (the “Guideline”) introduced a tariff based system for sentencing of certain environment law offences. The tariff is based on the level of harm caused, the level of culpability and the turnover of the organisation. Depending on these 3 factors fines can reach £millions. The application of the Guideline is resulting in a notable increase in fines.  

One aspect of sentencing which has raised queries is how the Guideline applies to “very large” organisations. “Large” organisations are those with a turnover or equivalent of £50 million and over. There is no definition of “very large organisations”. The Guideline states in respect of “Very large” organisations “where a defendant company’s turnover or equivalent very greatly exceeds the threshold for large companies, it may be necessary to move outside the suggested range to achieve a proportionate sentence”.

In some, but not all, recent decisions applying the Guideline to very large organisations, the courts have applied a “multiplier”, i.e. take the starting point in fine range for large companies and multiply it roughly in accordance with the financial turnover of the very large company as compared with large companies. This multiplier approach has been criticised by corporate defendants. It was the subject of a recent Court of Appeal decision which clarifies the legal position.

The Appeal

In R v Thames Water Utilities Limited (“TWU”) [2015] EWCA Crim 960 the Court of Appeal handed down a clear message for all those who breach environment laws to which the Guideline apply. The case followed a conviction of TWU on a guilty plea, in 2014, in the Crown Court for breach of environmental permitting offences following the discharge of untreated sewage into a brook. The Crown Court classified the breach as negligent and as a category 3 offence i.e. minor localised adverse effect to water quality. TWU is an organisation which at that time had a turnover of £1.9 billion and profit for the year ending 2014 was £346 million. It was fined £250,000 and appealed only against the quantum of the fine.  The starting point on the tariff for a large organisation would have been £60,000 and the range of fine £35,000 to £150,000. On account of the fact that TWU is a very large organisation, the Crown Court applied a multiplier of 5 creating a starting point of £300,000 and a range of £175,000 to £750,000. The fine of £250,000 was then imposed after taking into account mitigating and aggravating features.

The Decision

The Court of Appeal:-

  1. Rejected the prosecution attempt to suggest that the courts should define any organisation with a turnover of £150m (on a 3 yearly average) as a “very large” organisation. The Court of Appeal saw no need for this. It held that it will be obvious when an organisation is very large and any doubtful cases should be assessed on a case by case basis.
  2. Held that there must not be a mechanistic extrapolation from the Guideline so as to arrive at the level of fines for very large organisations.
  3. Commented that offences which result from negligence or worse (say deliberateness or recklessness) should count as significantly more serious. Repeated operational failures fall into this category.
  4. Stated “To bring the message home to the directors and shareholders of organisations which have offended negligently once or more than once before, a substantial increase in the level of fines, sufficient to have a material impact on the finances of the company as a whole, will ordinarily be appropriate. This may therefore result in fines measured in millions of pounds”
  5. Identified that in worst cases where a category 1 harm has been caused by deliberate action or inaction a proportionate penalty will necessitate a focus on the whole of the financial circumstances of the company. The Court commented “This may well result in a fine equal to a substantial percentage, up to 100%, of the company’s pre-tax net profit.”... “Even if this results in fines in excess of £100 million”. In making this observation it was noted that “Fines of such magnitude are imposed in the financial services market for breach of regulations.”
  6. Confirmed that where the harm falls below category 1, lesser but suitably proportionate penalties which have regard to the financial circumstances of the organisation should be imposed. In an appropriate case, in order to achieve the deterrent objectives the fine imposed must be measured in millions of pounds.
  7. Mentioned that clear and accepted evidence from the Chief Executive or Chairman that the main board was taking effective steps to secure substantial overall improvement in fulfilment of environmental duties would be a significant mitigating factor.     

Implications

Whilst some will be relieved that the Court of Appeal rejected the concept of applying a simple multiplier in the case of very large organisations, this is not the prime importance of this decision. What is more important is that the Court of Appeal endorsed the view that fines in respect of environment offences are currently too lenient. The express cross reference to the levels of fines for wrong doing in the finance sector is significant.  In this particular case the prosecutor did not appeal the level of the fine but nonetheless the Court of Appeal asked itself, was the fine too lenient? It responded to that question in unequivocal terms “We would have had no hesitation in upholding a very substantially higher fine”.  

Other references were made to the fact that any attempt to provide a proper explanation of the circumstances of offending must be made at first instance and not on appeal.  

Clearly this judgment will need to be considered carefully by organisations which may currently be facing prosecution for environment related offences, those currently being investigated and those who have a record of offending.  

To view the judgment courtesy of Bailii, please click here.