A judgment which has just been issued by the Court of Appeal highlights the potential consequences for large corporate defendants in cases where significant environmental harm has been caused, and confirms the trend for increasingly high sentences in environmental cases.

Thames Water Utilities was fined £250,000 after pleading guilty to a breach of the Environmental Permitting (England and Wales) Regulations 2010 in relation to the discharge of untreated sewage from a sewage pumping station into the Chase Brook, which flows through a nature reserve in an area of outstanding natural beauty. The discharge followed the failure of pumps, leading to sewage being discharged directly into the brook rather than pumped to the downstream pumping station. An alarm system was in place to alert Thames Water to the failure of the pumps, but Thames Water did not respond to these alarms, and the pumps were not unblocked until the discharge was discovered by a member of the public walking in the Chase. Soon after the newer pumps were installed which were less likely to become blocked.

Thames Water appealed the level of the fine. The main substance of their appeal was that the Recorder at the Crown Court was wrong to conclude that Thames Water had been negligent, and that this negligence lay in failing to replace the pumps earlier. The Court of Appeal rejected Thames Water’s attempt to bring new evidence before the Court of Appeal relating to whether the pumps should have been replaced earlier, and went on to consider the approach the Recorder had taken to sentencing.

This was the first case to be sentenced under the Environmental Offences Definitive Guideline (the “Guideline”).  The Guideline gives a step-by-step approach to calculating fines for environmental offences, based on the degree of culpability, the harm caused by the offence and the size of the organisation, by reference to its turnover.

Under the Guideline, organisations are categorised as large if they have a turnover or equivalent of more than £50 million. However, the Guideline acknowledges that for very large organisations (such as Thames Water), it may be necessary to move outside the suggested range of fines to achieve a proportionate sentence. The Recorder’s approach to this was to multiply the starting point and the range by five, extrapolating the incremental increases between micro, small, medium and large companies set out in the Guideline.

The Court of Appeal disagreed with this approach and gave the following guidance:

  • in the worst cases, where great harm has been caused by deliberate action or inaction (category 1 in the Guideline), the Court should focus on the whole of the financial circumstances of the organisation. This could lead to a fine of up to 100% of the company’s pre-tax net profit, even if this results in a fine of more than £100 million. The Court of Appeal makes an interesting comparison on this point to fines in the financial services market for breach of financial regulations
  • where a case involves the lower level of culpability of recklessness under category 1, similar considerations will apply
  • where the harm caused is below category 1, lesser penalties should be imposed, but these should still have regard to the financial circumstances of the organisation, and in some cases this will mean measuring the fine in the millions of pounds; and
  • for very large organisations, there must not be a mechanistic extrapolation from the levels of fine suggested at step 4 of the guideline for large companies.

Critically, the Court went on to affirm that it would have had no hesitation in upholding a very substantially higher fine.

This judgment is significant as it is the first opportunity which the Court of Appeal has had to consider the Guideline, and affirms that large corporate bodies should except substantial fines, potentially into the hundreds of millions of pounds for environmental offences.

The judgment is a clear indication that organisations need to take their environmental responsibilities very seriously and have in place appropriate environmental management policies and processes. Furthermore, if the proposals contained within the Sentencing Council’s consultation, which concluded in February of this year are adopted, as is generally expected, then we can expect a similar approach in the future to sentencing of organisations in health and safety prosecutions.