Sentencing environmental offences: Reflections on the Thames Water £2.3m fine

This article was first published by LexisNexis UK on 23 March 2020

26 March 2021

Jonathan Grimes, Partner, and Sophie Wood, Senior Associate, in our Criminal Litigation team answer questions from LexisNexis regarding the recent £2.3m fine imposed on Thames Water. In doing so, they also address what factors the criminal courts take into account when assessing the level of fine to impose for breaches of environmental legislation. See their initial blog on this case here

 

"Thames Water has received another large fine for environmental offences. What was the background to this new prosecution?"

On 26 February 2021, Thames Water was sentenced to a fine of £2.3m and ordered to pay costs of £87,944. The sentence followed a guilty plea and related to an incident occurring between 21–24 April 2016, when untreated sewage leaked into a stream that led to the River Thames at Henley. The high ammonia content in the sewage caused over 1,100 fish from 13 different species to die and it took the stream a year to recover.

This is Thames Water’s second multi-million pound fine in as many years, having been sentenced to a fine of £2m in 2019 for a sewage pollution incident in the Cotswolds. This followed the company’s 2017 record breaking fine of £20m, when it was found liable for spilling 1.9 billion litres of untreated sewage into the Thames. This was the largest water pollution case brought by the EA since it was established over 20 years ago.

"The fine imposed this time was £2.3m. What factors lead the criminal courts to impose such high fines for criminal breaches, particularly in relation to environmental offences?"

Since the law changed in 2015 to permit courts to impose unlimited fines for environmental (and other) offences, there has been an increase in multi-million pound fines resulting from EA prosecutions. For example, in June 2017, Tesco Stores Ltd was ordered to pay over £3m when approximately 23,500 litres of petrol escaped from a filling tank at a petrol station in Haslingden between 2–3 July 2014. The company was also fined an additional £5m for health and safety breaches.

Of course, while a court may have the power to impose unlimited fines, a fine will only be appropriate, and therefore lawful, if it reflects the seriousness of the offence. Courts assess this with reference to sentencing guidelines.

Culpability

First, the court will look at an offender’s culpability. The court will decide whether the actions were either ‘deliberate’, ‘reckless’, ‘negligent’ or with ‘low/no culpability’.

Harm

Next, the court will assess the harm caused:
• ‘Category 1’ is for the most serious cases, including those where there has been, among other consequences, a major adverse effect or damage to air or water quality, amenity value, or property
• ‘Category 2’ will apply to incidences where the effect has been ‘significant’ but not major
• ‘Category 3’ will apply where there has been only minor adverse impacts, and
• ‘Category 4’ cases will be those where there has only been a risk of, rather than actual, Category 3 harm

Starting point

Defining the culpability and harm allows the court to set its starting point for a fine. When dealing with corporate offenders, these starting points will vary according to the organisation’s turnover (or equivalent). There are four main categories:

• large—turnover of £50m and over
• medium—turnover of £10m–£50m
• small—turnover of £2m–£10m
• micro—turnover of not more than £2m

For example, a large organisation which has committed a breach of the Environmental Permitting (England and Wales) Regulations 2010, SI 2010/675, reg 12 ‘deliberately’, resulting in Category 1 harm, will face a starting point fine of £1m (see guideline here). If an organisation’s turnover greatly exceeds £50m, it will be considered a ‘Very Large Organisation’ and a court may move outside of the suggested range in order to achieve a proportionate sentence.

Aggravating and mitigating factors

Having established a starting point, the court will adjust the fine according to the number of aggravating and mitigating factors. If a company (like Thames Water) has a relevant previous conviction, this will increase the fine. Other, non-exhaustive, aggravating factors will include:

• history of non-compliance with warnings by regulator
• location of the offence, for example, near housing, schools, livestock or
environmentally sensitive sites
• repeated incidents of offending or offending over an extended period of time, where not charged separately
• deliberate concealment of illegal nature of activity
• ignoring risks identified by employees or others
• established evidence of wider/community impact, and
• offence committed for financial gain

Mitigating factors include, but are not limited to, the following:

• evidence of steps taken to remedy problem
• remorse
• compensation paid voluntarily to remedy harm caused
• one-off event not commercially motivated
• little or no financial gain
• effective compliance and ethics programme, and
• self-reporting, co-operation and acceptance of responsibility

Overall assessment

Taking these additional factors into account, the sentencing court will look at the penalty and review whether it meets, in a fair way, the objectives of punishment, deterrence and removal of gain derived through the commission of the offence. If an offender has pleaded guilty, an appropriate reduction will be applied.

"The EA appears to bring fewer criminal prosecutions nowadays, seemingly preferring to impose civil sanctions for environmental offences. What factors might influence the EA’s decision whether to prosecute or impose civil sanctions and which route is the most advantageous to (a) the EA and (b) organisations and individuals in breach?"

The Thames Water case is indeed noteworthy not only because of the level of fine imposed, but also because the EA uses criminal prosecutions as a means of enforcement relatively rarely. Instead, the EA will frequently use undertakings, an enforceable promise to do certain things, as an effective alternative means of enforcement. In deciding which route to take, the EA will look to its enforcement policy and its response options for each offence.

While these undertakings may represent a better outcome for offending companies than a prosecution, organisations should be aware that they frequently require significant remedial action and an agreement to make reparations that may amount to hundreds of thousands of pounds. For example, a recent EA report shows that £225,000 was paid by Wessex Water and £300,000 by Yorkshire Water as terms of undertakings agreed by them.

"How can lawyers advising those subject to investigation predict whether civil or criminal enforcement action will be taken by the EA?"

The type of enforcement action taken by the EA will be determined in part by the response to the incident. While there will always be cases which are so egregious that the EA will pursue a criminal prosecution regardless of remedial action taken by an offender, a more lenient form of enforcement is more likely if there has been a prompt and responsible response. This could include:

• immediately controlling and stopping the illegal activity
• engaging with the EA early—either through a self-report or co-operating with an ongoing investigation
• recognising the need to put right environmental harm or damage caused by voluntarily offering appropriate restoration, compensation or remedial actions, and
• implementing new measures to control future non-compliance risks

Such responses will allow businesses or individuals to seek to persuade the EA that a prosecution is not required, or, even if that is not successful, provide significant and helpful mitigation during the sentencing exercise.

This article was first published by LexisNexis UK on 23 March 2021.

Further information

For further information on the issues raised in this blog post, please contact a member of our criminal litigation team.

 

About the authors

Jonathan Grimes is a Partner in the criminal litigation team who specialises in serious and complex criminal cases. He represents individuals and organisations in all areas of financial services and business crime as well as health and safety and related areas. He leads the firm’s cross practice Health Safety and Environment Group. He has acted in numerous cases involving allegations of financial wrongdoing and has experience of investigations by HSE, SFO, FCA, HMRC, CMA, NCA and the police as well as a number of foreign investigative authorities.

Sophie Wood is a Senior Associate 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.

 

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