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On 22 March 2017, Thames Water was ordered to pay fines and costs amounting to over £20m for six separate water pollution incidents on the River Thames and its tributaries.
The Environment Agency press release sets out the details of the offences at each site. They vary in degree, but all involve pollution of waters with sewage. The harm caused across the sites included loss of and long-term impact upon animal life, detrimental effects upon businesses (one crayfish fisherman lost £25,000 in a year) and the requirement for extensive clean-up operations by the Environment Agency. In one of the most serious cases, effluent was not properly treated and then diverted improperly into a river; in the other, the problems were said to be the result of inadequate investment and poor management.
The fines for the individual incidents ranged from £150,000 up to one of £8m and another of £9m. These fines represent a significant increase from the previous highest fines for water companies committing such offences. Southern Water was fined £2m in December 2016, Yorkshire Water received a £1.1m fine in April 2016 and Thames Water itself has previously been fined £1m, in January 2016.
Fines for environmental offences are determined with reference to the Sentencing Council’s Environmental Offences Definitive Guideline (“the guideline”), which were introduced in July 2014. The guideline was issued in part to address the very low-level at which fines had been issued before that time.
The judgment in this latest case is not yet available so it is not clear exactly how the guideline was applied. However, the courts must follow the process set out in the guideline. We work through this below using the examples of the two largest fines in this case.
First, the court must take into account the culpability of the company. There are four levels of culpability, ranging from accidental, to negligent, reckless and deliberate. Culpability can arise from specific acts and omissions, but importantly it can also arise from failures to put in place systems to avoid the commission of an offence. This places emphasis on the importance of taking steps to prevent such incidents in the first place.
The reporting indicates that in the two most serious cases, Thames Water’s conduct was considered to be reckless.
The level of harm caused by the offending behaviour is also assessed against four categories numbered 1 (the highest level of harm) to 4. The harm level is determined by reference to factors including the extent of any effects on water quality, animal health, interference with lawful activities (which could include the running of a business) and costs incurred through clean-up, among others.
The most serious offences in this case were found to have caused category 2 harm – i.e. Thames Water’s offending had a “significant” adverse effect on some or all of the factors above.
The next step in the sentencing process is to consider the size of the company in question. As a company with a turnover of around £2bn, Thames Water would certainly have been considered a “very large” company for the purposes of the guideline. In fact, it was treated as such in a 2015 Court of Appeal case, which followed another conviction for pollution. In the same case Mitting J, on behalf of the Court, gave a judgment which said that in order to meet the objectives of “punishment, deterrence and the removal of gain (for example by the decision of the management not to expend sufficient resources in modernisation and improvement)” fines may equal “up to 100%” of a company’s pre-tax net profit for the year in question - even if that resulted in a fine exceeding £100m.
Thames Water’s history of offending behaviour would likely have proved an aggravating factor capable of increasing the sentencing starting point. However, the company has asserted that it has been reviewing its operations, made changes and increased investment, all of which may have been relied upon in mitigation.
Finally, the court would consider whether there were any other factors that would suggest a reduction in sentence – such as the defendant offering significant assistance to the prosecution – and any reduction for a guilty plea. Thames Water pleaded guilty in this case.
Sentences have increased steeply for environmental offences in recent years, and the sentencing remarks that explain them often indicate that the courts are keen to ensure that the penalties for such behaviour carry a deterrent effect. With the judge in this case commenting that "it should not be cheaper to offend than to take appropriate precautions”, and a record-busting fine being issued, this is another clear message that companies should be taking significant steps to ensure the environment is not adversely affected by their activities, or pay an increasingly large price.
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