The first case involving a very large organisation to come before the Court of Appeal since the implementation of new environmental sentencing guidelines, has confirmed that such offenders can now expect fines to run into several millions of pounds.
The sentencing guidelines propose approaching the calculation of a fine by looking at the degree of culpability and harm caused while taking into account the size of the offending organisation. Company size is categorised by reference to turnover: micro, small, medium and large, with large being identified as having a turnover of £50 million or over. No specific reference is made to what constitutes a very large organisation, but, where a company greatly exceeds turnover for a large company, it may be necessary to move outside the range to achieve a proportionate sentence. The intention of the sentence is to ensure that the financial penalty is “sufficiently substantial to have a real economic impact which will bring home to both management and shareholders the need to improve regulatory compliance”.
The case before the Court in February this year involved Thames Water Utilities Limited. The company operated a pumping station which discharged untreated sewage into a brook flowing through a nature reserve owned by the National Trust in the North Wessex Downs Area of Outstanding natural Beauty. In the five months preceding this event, there had been 16 instances of the failure of one or both of the pumps. Alarms signalling the failure of the pumps were triggered 12 times on 29 August and again on 4 September 2012, to which none of the staff responded.
Thames Water pleaded guilty at first appearance and the Recorder fined the company £250,000, having identified category 3 harm and found the company negligent in failing to replace the pumps sooner than it had, given previous warnings and the proximity of the pumps to the nature reserve. There were a number of mitigating factors, which the Recorder took into account in sentencing.
With a turnover of £1.9 billion and year end profits of £346 million, the Recorder identified Thames Water as a very large company. Thames Water said that the Recorder had established a new category of penalties not sanctioned by the Sentencing Council and appealed against the fine. The Court of Appeal disagreed and proceeded to set out the approach that should be adopted when sentencing very large organisations run for profit. The Court took cases of category 1 harm – the most serious – as its example. It said there should be a focus on the financial circumstances of the company as a whole and the penalty must reflect the intention of punishment, deterrence and the removal of financial gain from the company, even if this means imposing a fine equal to 100% of the company’s pre-tax net profit for the year in question. The Court acknowledged that this could lead to fines in excess of £100 million and made a direct comparison with fines imposed in the financial services market. In cases where harm caused fell below category 1, penalties should still take into account the financial circumstances of the organisation in the round and sentence accordingly, which could still result in fines of millions of pounds. In the case of Thames Water, the Court acknowledged the difficulty facing the Recorder in sentencing, but concluded, even with significant mitigation, that it would not hesitate in upholding a very substantially higher figure.
In concluding, the Court observed that sentencing very large organisations was a complex business and must be tried either by a High Court Judge or by another judge only where either the Presiding Judge has released the case or the Resident judge has allocated the case to that judge.
It is worth noting that the Court was reluctant to determine turnover for very large companies, saying it would be obvious which category an organisation fell into, but it is now very clear that, with regard to imposing financial penalties, the bar has been set very high for offending companies.