Managing regulatory risks  – costs in criminal  proceedings 

Recent changes regarding the  recovery of costs in criminal  proceedings will have major  implications for companies charged  with criminal offences (including  health and safety and environmental  prosecutions) as they will no longer  be able to claim costs incurred in  defending the prosecution if found  not guilty. 

The new practice direction on costs  in criminal proceedings came into  force on 7 October 2013 affecting  criminal cases in Magistrates’  Courts, the Crown Court, the High  Court and Court of Appeal. The  practice direction seriously hinders  the ability of companies to recover  costs of defending criminal  proceedings and largely reflects the  changes introduced on 1 October  2012 by the Legal Aid, Sentencing  and Punishment of Offenders Act  2012 (the “Act”).

Previously, the Magistrates’ Court  and Crown Court could make a  Defendants Costs Order (“DCO”) in  favour of a corporate defendant  where proceedings were  discontinued or the company was  acquitted.  These typically allowed  defendants to recover the costs of  defending a prosecution (including  advocacy costs, litigation services or  experts fees).  Following the  changes, it is no longer possible for a  DCO to be issued in favour of a  company.  This means that even if a  company successfully defends a  criminal prosecution, it will not be  able to recover costs incurred in  defending the proceedings.

The changes to recovery for costs for  individuals are slightly less onerous but  still significant. Where proceedings  commenced on or after 1 October  2012, individual defendants may  recover some defence costs but these  will generally be restricted to Legal Aid  rates. Where a defendant is acquitted,  costs can be recovered in the  Magistrates’ Court and on subsequent  appeals to the high courts. Legal  costs are not allowed in respect of  proceedings on indictment. This  means that where a case is heard in  the Crown Court, defendants will be  required to pay privately for  representation unless they are able to  qualify for Legal Aid. These changes  will affect company directors who, for  example, are charged with offences  under the Health and Safety at Work  Act 1974 or the Environmental  Protection Act 1990. 

The Act also included provisions to  remove the maximum cap for  offences sentenced in the  Magistrates’ Courts where there is a  stated maximum financial penalty of  £5,000 or more. These provisions,  which will allow magistrates to  impose much higher fines, have not  yet been brought into force and we  await further guidance regarding how  and when these reforms will be  implemented.  

The changes are principally driven by  the Government’s desire to make  cost savings and coincided with the  introduction of the HSE’s fee-forintervention (FFI) Scheme - a cost  recovery scheme which has resulted  in increased costs for businesses  where the HSE identifies a “material  breach” of the law during a health  and safety inspection. 

Despite the escalating financial  pressures it is likely that many  companies will continue to defend  prosecutions in order to prevent  reputational damage which is one of  the greatest risks associated with  criminal prosecutions. However, many  companies will now have to effectively  pay for the privilege of being found not  guilty of an offence, and it will be some  time before the true impact of these  changes can be assessed.

The publication of the new practice  direction serves as a timely reminder  that companies should focus  resources on compliance solutions to  avoid facing prosecution from  regulatory authorities where possible.  Robust procedures and policies  should be put in place and  appropriate legal advice sought to  aid regulatory compliance and avoids  breaches which may lead to  prosecution. Companies should also  review their insurance arrangements  to check whether cover is in place  for legal expenses/costs arising from  criminal proceedings. 

Scope of Aarhus  Convention tested in  private nuisance action

A recent High Court judgment has  failed to clarify whether claimants in  private nuisance actions can rely on  the requirements of the Aarhus  Convention that proceedings should  not be “prohibitively expensive.”  Therefore the litigation costs for an  individual bringing such a claim are  likely to be very significant following  recent reforms on costs which mean  that previous routes such as a  Conditional Fee Agreement (CFA)  plus After the Event (ATE) insurance  are unlikely to be available.  

The scope of the Aarhus Convention  was tested in Alyson Austin v Miller  Argent (South Wales) Limited when a  resident living close to an opencast  mining and a reclamation site  brought a private nuisance claim for  noise and dust pollution. 

By way of background, the UK is  under international obligation under  the Aarhus Convention to guarantee  rights of access to information,  public participation in decisionmaking and access to justice with  respect to environmental matters.  The impact of the new cost rules in  an environmental context will depend  on whether a court is satisfied that  an Aarhus Convention claim exists.  The Civil Procedure Rules (“CPR”)  defines an Aarhus Convention Claim  as a “claim for judicial review of a  decision, act or omission” subject to  the UNECE Convention. 

The Jackson reforms on costs  integrate Convention rights into  domestic law through codifying  Protective Costs Orders (“PCOs”) in  environmental claims. The rationale  behind fixing costs in civil litigation is  to ensure that any system for  challenging decisions in  environmental matters is open to  members of the public and is not  prohibitively expensive.

In the current case Mrs Austin  sought an injunction to restrain the  operation, and also claimed  damages in respect of past  nuisance. In the process, the  claimant applied for a PCO so she  should pay no costs to Miller Argent  if she loses the claim, but that she  should receive all her costs if she  wins. A central argument in her case  was that the nuisance arose because  of a potential breach by Miller Argent  of its planning permission, as  required under the EIA Directive  2011/92/EU.

Referring directly to the treaty (rather  than the CPR), Mrs Austin argued  that the Aarhus Convention does not  differentiate between private and  public proceedings, and that as the  claim would raise issues of public  interest due to application of the EIA  Directive, cost capping should apply.  

The court held that the direct  applicability of the Aarhus  Convention is limited to those  incorporated in the EIA Directive.  Interestingly, the court did not directly  deal with the question of the Aarhus  Convention and private nuisance.  Instead, it was decided that the EIA  Directive was not engaged in this  case, as the Directive only deals with  the process leading to the grant of  planning decision – not breach of  planning conditions thereafter.

Had the EIA Directive been engaged,  the court would have been bound to  grant a PCO. In questioning the  extent to which an injunction would  have benefited the wider public, the  court refused to make a PCO in  favour of Mrs Austin.  This issue is  likely to continue to exercise the  courts in 2014. Permission has been  granted to the Court of Appeal to  decide further on this matter and the  issue will also be considered by the  Aarhus Committee.