In last week’s case R v Thames Water Utilities Ltd  EWCA Crim 960 the Court of Appeal examined what should be done when a corporate offender’s turnover was so large that it fell outside the scale set down in the sentencing guidelines. This was the first environmental case of its kind to come to the Court of Appeal’s attention since publication of the Definitive Guideline for Environmental Offences by the Sentencing Council on 1 July 2014.
Thames Water had pleaded guilty to polluting a National Trust site at North Wessex Downs with untreated sewage. The facts of the offending were that an alarm system, which served to warn operatives that the sewage was not being pumped from a pumping station but was instead backing up into the waterway, was ignored.
The sentencing Recorder had properly identified that Thames Water was such a large organisation that it fell outside the scale of indicative fines set out in the Sentencing Council’s Guideline. In this scale, organisations are ranked by turnover and a large organisation is identified as an organisation with a turnover of £50 million or more. Thames Water’s turnover 2013-2014 was £1.9 billion and so could be considered a very large organisation, for which the Guideline provides no proposed penalty scale but states:
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.
The approach the Recorder then adopted was to take the starting point for the level of offending for a large company, which was £60,000, and multiply it by five. Thereafter, the Recorder followed the Guideline to identify aggravating and mitigating features and concluded that the appropriate fine was £250,000. The Court of Appeal found that the sentencing court is not bound to follow or use as a starting point the range of fines suggested by the Sentencing Council. The sentencer should instead focus on the objectives of sentencing proscribed in the statutory provisions of the Criminal Justice Act 2003, which the Court of Appeal had set out and explained in R v Sellafield. The first three of these statutory objectives are the punishment of offenders, the reduction of crime (including its reduction by deterrence), and the reform and rehabilitation of offenders. The Court went on to say that, when dealing with a very large organisation, the penalty should not only be proportionate and just, but bring home to the management and shareholders the need to protect the environment.
In light of these findings the Court did not, as the appellants hoped, reduce the fine but instead indicated that they would not have interfered with a fine which was much higher. It is useful to consider the factors outlined in the judgement which will mitigate against a huge fine; prompt and effective measures to rectify the harm, frankness and cooperation with the authorities and the prompt payment of full compensation to those harmed by the offence. It is also clear that the Court will be persuaded by an indication that this mitigating behaviour is taken from the very top of the organisation, the Chief Executive or Chairman.
Practitioners advising on corporate offending will note the predominant message from the Court of Appeal that the sentencing court should not shy away from huge fines. In the worst cases of environmental harm the Court advocated considering a fine in the magnitude of 100% of the company’s pre-tax net profit for the year in question, “even where this results in fines in excess of £100 million”. The Court justified this approach by emphasising that the fine must be of sufficient magnitude to send a message to shareholders and directors.
In identifying pre-tax profits as a potential benchmark the Court is out of step with the approach generally developed by the Sentencing Council. The Guideline for Environmental Offences is the first of three sets of guidelines dealing with corporate offending which have recently been or which will be issued by the Sentencing Council: guidelines were published for Fraud, Bribery and Money Laundering offences on 1 October 2014 and guidelines will be published later this year for Health and Safety, Corporate Manslaughter, Food Safety and Hygiene offences. None have used overall pre-tax profit as a benchmark. By way of example, the approach in the Environmental Offences Guidelines and the draft Health and Safety Guidelines is to set out a specific band of fine by reference to the business’s overall turnover, whereas the Fraud and Bribery Guidelines use the profit from the specific conduct (in the case of bribery) or turnover from the harmful activity. Whichever arithmetic benchmark is preferred, there should be consistency across different types of corporate offending.
In any event, as noted in the Sellafield case (which incidentally, as in the Thames Water case also included on the panel Justice Mitting and the Lord Chief Justice), in determining the correct level of fine, the Court should look beyond the level of profit to the use to which profits were put. In the case of Sellafield, it was owned by a consortium of multinationals who received the profit by way of dividends. In the conjoined appeal concerning Network Rail dividends were not paid and the profits were ploughed back into the rail network. The Court of Appeal determined that, while the offending in Network Rail was vastly more harmful than that which had occurred in Sellafield, a proportionately smaller fine was appropriate because profits were invested back into public services.