On 9 July 2021 Southern Water Services Ltd (SWS) was fined £90 million, to be paid out of company operating profits, in what was the largest fine ever imposed on a water company.
In March 2020 SWS had pleaded guilty to 51 offences of breaching its environmental permits under the Environmental Permitting (England and Wales) Regulations 2010 (SI 2010/675) (‘the Regulations’) between 2010 and 2015. SWS admitted to causing 6,971 illegal discharges of waste water over the offending period across 17 sites in Hampshire, Kent and West Sussex. These discharges, which lasted a total of 61,704 hours, were made into numerous conservation sites and protected areas, causing major environmental harm. Discharges into designated shellfish waters also adversely affected businesses which harvest the shellfish for human consumption, since the pollution caused the deterioration of shellfish quality.
This latest enforcement action follows further recent penalties imposed on Thames Water for similar offences which saw the company fined £4 million in May 2021, £2.3 million in March 2021, £2 million in July 2019, and £20 million in March 2017, then the largest water pollution case brought by the Environment Agency. SWS itself has 168 previous convictions or cautions under environmental legislation.
The maximum fine for the relevant offences under the Regulations is unlimited. The court will determine the level of fine with reference to the sentencing guidelines (‘the Guidelines’). These are discussed below with reference to how they appear to have been applied in the current case.
The Guidelines provide that the court must first assess the culpability of the company as either deliberate, reckless, negligent or of low/no culpability.
Reports on this case indicate that SWS’s conduct was determined by the court to have been deliberate.
The severity of harm caused by the offence is determined with reference to four categories, ranging from major, significant, minor and indicating only a risk of harm.
Reporting on the present case indicates that the various offences by SWS in the relevant period were found to have caused major harm, Category 1 in the Guidelines. This requires there to have been major damage to water quality and pollution that was widespread and pervasive with long lasting effects on human health or quality of life, animal health or flora.
SIZE OF COMPANY, STARTING POINT AND RANGE OF FINE
The size of the defendant determines the starting point and range of any fine, with larger companies susceptible to receiving larger fines. Under the Guidelines a ‘large’ company, meaning one with a turnover or equivalent of £50 million and over, where their culpability has been assessed as ‘Deliberate’ and the harm level as ‘Category 1’ has a fine starting point of £1,000,000 with a range of £450,000 to £3,000,000. However, the Guidelines also provide that for ‘very large organisations’, where the defendant company’s turnover very greatly exceeds the threshold for ‘large’ companies, it is possible to move outside the suggested range to achieve a proportionate sentence. Given that SWS reported a turnover of £878 million in 2019-20 it appears evident that the court, in determining sentence, felt it appropriate to fine SWS on this basis.
AGGRAVATING AND MITIGATING FACTORS
Aggravating factors include having previous convictions, a history of non-compliance and warnings by the regulator, and the deliberate concealment of illegal activity. In delivering the sentence, Mr Justice Johnson stated that SWS’s offences were “aggravated by its previous persistent pollution of the environment over very many years”. The court was also told that SWS had deliberately presented a misleading picture of compliance to the Environment Agency. Indeed, SWS was fined £37.7 million in 2019 by Ofwat, the water sector regulator, for deliberately misreporting on the performance of its waste water treatment works.
In mitigation, SWS apologised and said it is committed to transparency, transformation and cultural change.
OTHER FACTORS INDICATING A REDUCTION IN SENTENCE AND GUILTY PLEA
The court should consider whether there should be any reduction in sentence for assistance provided to the prosecution. Similarly, the court should take into account any potential reduction in sentence for a guilty plea. In the present case, SWS pleaded guilty to the offences.
Given the court’s overall assessment of the offending, it is perhaps of little surprise that such a large fine was imposed. Whilst the fine imposed marks a significant increase from the previous record fine given to a water company, this case marks the continuation of a trend seeing an increasingly punitive approach taken by the courts towards water companies guilty of pollution offences.