Environmental Law Quarterly Update – Q2 2023

This quarterly law update provides a summary of selected environmental law news stories from the period April – June 2023.
 

APRIL

Polluting water companies to face unlimited penalties

The UK government is taking a strong stance against companies that pollute the country's waters by announcing it will impose unlimited civil financial penalties on them, according to Environment Secretary Thérèse Coffey.

In announcements made on 1 and 4 April 2023, Coffey emphasised that the government recognises the significant harm caused by water pollution and wants to hold responsible parties accountable. The government’s new Plan for Water is a  “comprehensive and integrated plan to deliver clean and plentiful supply of water for people, businesses and for nature.”The Plan includes a measure to remove the upper limit on variable monetary penalties (VMPs) on water companies, which is currently capped at £250,000. The government says that this aims to ensure that businesses prioritise environmental responsibility and take necessary precautions to prevent pollution. With unlimited penalties the government considers it can impose proportionate punishments that accurately reflect the severity of the pollution, the culpability of the company involved and create a sufficient deterrent for poor performance The penalties would still be assessed in the accordance with the Sentencing Council’s Guidelines.

On 4 April, DEFRA opened its consultation on the proposed changes, with responses due by 15 May 2023. The consultation also proposes to introduce VMPs into Environmental Permitting (England and Wales) Regulations 2016 (which currently does not allow for them).

In addition to unlimited civil penalties, the government plans to bolster its enforcement capabilities by investing in new technologies and increasing the number of officers responsible for monitoring and preventing water pollution incidents. It also makes clear that the most serious cases would “still be taken through criminal proceedings”.

 

Landowner sentenced for destruction of a river in Herefordshire

On 20 April 2023, John Price was sentenced to 12 months’ imprisonment and ordered to pay prosecution costs of £600,000 by Kidderminster Magistrates’ Court.

As reported in our Q1 and Q2 2022 updates (here and here), this case followed a joint investigation by Natural England and the Environment Agency into the destruction of 1.5km of the River Lugg in Herefordshire, a designated Site of Special Scientific Interest (SSSI), in 2020 and 2021. The investigation found that Mr Price had used heavy machinery to dredge and reshape a section of the river, resulting in the destruction of the riverbed and banks which included habitats of otters, kingfishers, trout and salmon. He was issued a Stop Notice but continued the unauthorised works.

Mr Price’s activities violated multiple regulations, including the Farming Rules for Water (the Reduction and Prevention of Agricultural Diffuse Pollution (England) Regulations 2018). This was the first prosecution under those rules.

As well as the financial penalties imposed, Mr Price was disqualified from serving as a director of a limited company for three years and made subject to a Restoration Order under the Wildlife and Countryside Act 1981 which requires him to undertake specific actions to restore the river.

According to Natural England and the Environment Agency, the River Lugg is designated as an SSSI due to its exceptional biodiversity, hosting 121 species of river plants that provide habitats for invertebrates, fish, and birds. The damage caused by Mr Price eradicated the habitats of numerous species as well as mature trees which are essential for stability, ground cover and shade. The gradual return of fish, plants, native crayfish and birds is likely to take years.

 

Essex company and directors fined thousands for illegal waste site

On 17 April 2023, Renew Recycling (London) Limited and its directors were issued with fines exceeding £20,000 following the illegal storage of large quantities of waste.

The Essex-based waste company violated its exemptions by depositing significant amounts of wood and carpet waste at Straits Mill in Braintree, Essex. The offences took place between December 2017 and March 2019, during which officers from the Environment Agency made 24 visits to the site and discovered waste being stored in breach of exemptions, posing an environmental risk.

The Environment Agency repeatedly requested the clearance of non-compliant waste from the site, and in February 2018 officers from Essex County Fire and Rescue raised concerns about the fire hazard posed by the stored wood, as internal temperatures reached 65°C. The proximity of the waste site to protected woodland heightened these concerns. Compliance was achieved in March 2018 but only for a duration of six weeks before further breaches occurred, leaving substantial amounts of waste on the premises. Fires subsequently occurred at the site in 2021 and 2022. Investigations also revealed that the company failed to maintain sufficient records regarding the destination of its waste.

On 4 April 2023, the company and its directors, Simon Levy and David Johnson, were sentenced at Chelmsford Crown Court. In total, the company and its directors pleaded guily to eight counts of non-compliance with exemptions and inadequate documentation of waste removal from the site.

Renew Recycling (London) Limited was fined £10,500, Simon Levy was sentenced to a fine of £7,150, and David Johnson was fined £3,900. The company and its directors were each ordered to pay £12,000 in costs.

 

MAY

ClientEarth refused permission for derivative claim against Shell on directors' approach to energy transition and climate risk (High Court)

On 12 May 2023, the High Court dismissed ClientEarth's application for permission to proceed with a derivative action against the directors of Shell under s.260(1) of the Companies Act 2006 (“CA 2006”). The court dismissed ClientEarth's case on the basis it did not demonstrate a prima facie case for permission to bring such a clam (as required under s.261(1) CA 2006). ClientEarth has requested an oral hearing for judicial reconsideration.

When the environmental NGO issued what it described as a “world first” claim in February 2023, we described how this heralded “a new era for ESG and climate change litigation”.

ClientEarth's complaint primarily revolves around Shell's directors' alleged acts and omissions regarding the implementation of the company's climate change risk management strategy, particularly the adoption of an allegedly deficient energy transition plan. The alleged failures include a lack of addressing the value decline of Shell's fossil fuel business and an unreasonable reliance on carbon capture and storage and nature-based solutions offsetting, which ClientEarth argues are ineffective.

The claim brought by ClientEarth is a derivative action under Chapter 1 of Part 11 of the Companies Act 2006. This provision allows shareholders to bring claims related to acts or omissions by directors involving negligence, default, breach of duty, or breach of trust. However, permission from the Court is required to initiate a derivative claim.

The judgment is perhaps unsurprising as it aligns with the established principle that the Court does not readily interfere with directors' decision-making processes when they weigh multiple considerations and make decisions in good faith. As Trower J noted, “the reason the legislation imposes an obligation on a shareholder to obtain permission to bring a derivative claim is that such a claim is an exception to one of the most basic principles of company law: it is a matter for a company, acting through its proper constitutional organs, not any one or more of its shareholders, to determine whether or not to pursue a cause of action that may be available to it”.

The Court concluded that ClientEarth had failed to establish a prima facie case and declined to impose additional duties on the directors (including a requirement to adopt and implement a strategy to manage climate risk) beyond those specified in the Companies Act 2006, as doing so would undermine the directors' general duty to consider multiple factors when promoting the company's success. The Court did, however, note that Shell's operations have an impact on the community and the environment and that this a matter that directors must consider.

In addition to finding no prima facie case for breach of duties by the directors, the Court determined that ClientEarth had not established a prima facie case for the relief sought. The court examined discretionary considerations that would be taken into account during a substantive hearing for permission. It questioned ClientEarth's good faith and inferred that the organisation had an ulterior motive to advance its policy agenda rather than acting in the best interest of the company. The court also considered the overwhelming shareholder support for Shell's climate strategy as a factor against granting permission.

If an oral hearing is granted and the Court were to change its decision, determining that a prima facie case for permission did exist, Shell and its directors would be made respondents to the claim and a substantive hearing would be scheduled.

See our longer article on this judgment here.

 

Ivory Act to be extended to cover five new species

On 23 May 2023, the UK government announced its commitment to providing increased legal protections for five endangered species listed under the Convention on International Trade in Endangered Species (CITES), by way of the Ivory Act 2018. This development fulfils an animal welfare pledge outlined in the Conservative government's manifesto and, according to Biodiversity Minister Trudy Harrison, is an example of the UK’s global leadership in this area.

The species that will benefit from these enhanced protections are hippopotamus, walrus, narwhal, killer whale (orca) and sperm whale. While elephants remain the most vulnerable species due to the ivory trade, hippos face significant risks. They, along with walruses and sperm whales are also listed as vulnerable on the International Union for the Conservation of Nature red list. Climate change poses threats to these species, and the ongoing trade in their ivory further exacerbates these challenges, jeopardising their long-term survival.

The government's announcement appears to affirm its intention to extend the Ivory Act 2018 (which came into force on 6 June 2022) to encompass a ban on all ivory trade involving these five species, including imports and exports.

The Ivory Act is renowned worldwide for its stringent measures against elephant ivory sales, boasting robust enforcement mechanisms. Offenders who breach its provisions can face severe penalties, including unlimited fines or up to five years’ imprisonment (see s.12 Ivory Act 2018).

 

JUNE

Illegal scallop fishing results in court action

A fishing business and its vessel master have been fined a total of £15,000 for illegally dredging for king scallops in a closed area of Dogger Bank. The Marine Management Organisation (MMO) conducted an investigation using aerial surveillance, Vessel Monitoring System (VMS) records, and analysis of electronic logbook and sales note information. The owner of the vessel, Vistgate Ltd, and the vessel's master, Mark Bull, admitted to a total of seven charges under the Fisheries Act 1981.

The vessel was photographed fishing for scallops in the closed area during a routine surveillance flight. VMS monitoring confirmed that the vessel had been in restricted parts of Dogger Bank on two occasions when a temporary suspension of scallop fishing was in effect. Mr Bull admitted to dredging for king scallops during his police interview.

Further analysis of electronic logbook data demonstrated that inaccurate information had been submitted outside the legal time limits. Vistgate Ltd also pleaded guilty to breaches under the Registration of Fish Buyers and Sellers and Designation of Fish Auction Sites regulations.

Vistgate Ltd was fined £6,452 and Mr Bull was fined £8,452. The penalties were primarily based on the breach of the fishing license condition that prohibited scallop dredging in the relevant area. In mitigation, it was stated that the temporary closure of scallop dredging had been announced only 36 hours before the illegal fishing occurred. Additionally, it was revealed that Mr Bull had no previous experience with electronic logbooks and had not received any training on the associated regulations. However, the court deemed that Bull should have been aware of the requirements due to his share of the vessel's profits.

 

Four receive sentences for running illegal Lincolnshire waste site

Four individuals involved in operating a waste site in Skegness have been sentenced, with three facing additional Proceeds of Crime Act 2002 proceedings.

Leeds Crown Court heard that between June 2015 and April 2017, Thomas Todd, Jamie Todd, Bryan Walker, and Michael Todd were involved in managing businesses operating from the former Bowman's site near the A52 in Lincolnshire.

After the site's environmental permit, which allowed for the processing of mixed waste to extract recyclable materials, was transferred to East Coast Recycling Properties Ltd. (run by Michael Todd's sons, Jamie and Thomas Todd), the Environment Agency conducted inspections and discovered several failures. The site lacked a fire-prevention plan, which was crucial due to its proximity to arable land and residential premises. Additionally waste was stacked excessively high and closely together, posing a fire and health risk due to an influx of mice and flies. The Environment Agency suspended the site's permit, preventing the introduction of new materials from December 2015 to February 2016.

Further site visits revealed a lack of compliance and the permit for the site was revoked in March 2017. Nevertheless, waste continued to be brought onto and off the site.

The four men were sentenced at two separate hearings at Leeds Crown Court in May 2023. 

At the later hearing, Michael Todd was sentenced to a 12-month community order with 15 rehabilitation activity requirement days and 100 hours of unpaid work. He was also disqualified from acting a company director for 5 years after pleading guilty to charges under section 33(1)(a) of the Environmental Protection Act 1999 and section 157 of the Environmental Protection Act 1990.

 

Company penalised £500,000 for mass destruction of fish

As a consequence of one of the largest environmental incidents recorded in Lincolnshire, OMEX Agriculture Ltd has been ordered to pay £510,190 by the Environment Agency.

The company caused a major pollution incident in the River Witham when a faulty overground pipe at Bardney Airfield leaked liquid ammonium nitrate concentrate fertiliser into the river, resulting in the death of more than 135,000 fish and impacting nearby rivers and woodland in March 2018. The pollution extended to The Wash at Boston, a distance of 46 kilometres.

This had devastating effects on the river's ecosystem, wiping out all invertebrates in its tributaries for more than 23 kilometres downstream of the spill of approximately 3 million litres of fertiliser. The Environment Agency took immediate action to mitigate the damage, restocking the river with 1.5 million fish larvae and 70,000 roach and bream.

Investigations revealed that the company failed to establish a suitable maintenance and inspection regime to prevent a large pollution event. The faulty pipework had not been checked since it was installed over 20 years before and there was no routine maintenance of electrical systems.

OMEX Agriculture Ltd pleaded guilty to the major category 1 pollution incident at its facility. It was fined £160,000 and ordered to pay costs of £350,000. The district judge emphasised that the incident could have been avoided with proper checks and highlighted the clear negligence in not having appropriate checks in place.

Under the Environmental Damage (Prevention and Remediation) Regulations 2015, OMEX was ordered in July 2020 to carry out river recovery measures including installation of fish refuges and the creation of backwaters along the river to support fish breeding and shelter. The company will be responsible for monitoring and maintaining these improvements for at least the next decade.

 

European authorities issue progress reports on greenwashing

On 1 June 2023, the European Supervisory Authorities (ESAs) published progress reports on greenwashing in the financial services sector. These reports aim to address the practice of greenwashing, where sustainability-related claims and actions do not accurately reflect the underlying sustainability profile of entities or financial products.

The ESAs (the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA)) have also set out an agreed definition of greenwashing as: “a practice where sustainability-related statements, declarations, actions or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product or financial services. This practice may be misleading to consumers, investors or other market participants.”

The progress reports identify high-risk areas within the authorities’ respective sectors that are prone to greenwashing and propose preliminary remediation actions. The intention is to assist firms in preventing and mitigating greenwashing while supporting national competent authorities in prioritising supervisory actions and regulatory intervention. The ESAs are working together in a coordinated manner to address these issues and achieve a number of outcomes: consumer protection, market integrity, and a trusted environment for sustainable finance.

Although the ESAs have not specified preferred legal forms or timeframes for potential changes to the EU regulatory framework, they are expected to publish final greenwashing reports in May 2024. These reports will include their final recommendations.

The progress reports build upon the feedback received in response to a November 2022 call for evidence on greenwashing from the ESAs. They also respond to a request from the European Commission in May 2022 for input on greenwashing risks and the supervision of sustainable finance policies.

Overall, these reports reflect the ongoing efforts to tackle greenwashing in the financial services sector and promote transparency and accuracy in sustainability-related claims and actions.

 

Further Information

For further information on the issues raised in this blog post, please contact Sophie Wood or Úna Campbell.

ABOUT THE AUTHORS

Sophie Wood is a Legal DIrector in the Criminal Litigation team with extensive experience in advising corporate and individual clients involved in a wide range of internal, criminal and regulatory investigations. Sophie has acted for individuals and companies involved in investigations brought by the Environment Agency, Health and Safety Executive and local authorities, and is a member of the firm’s cross-practice Health, Safety and Environment Group.

Úna Campbell is a legal apprentice in the Criminal Litigation team at Kingsley Napley. Úna was the inaugural winner of The Legal Apprentice in 2019, a competition run by Kingsley Napley in association with The Times in which 902 teams from 308 schools and colleges across the UK competed against each other through a series of heats testing pupils’ drafting, negotiation and interpersonal skills.