English judge: persistent environmental offenders should expect ‘substantial’ fines

Out-Law News | 12 Jun 2015 | 4:20 pm | 2 min. read

Companies that persistently breach environmental regulations should expect a “substantial increase” in fines levied for their second and subsequent offences, judges in the Court of Appeal have warned.

Rejecting Thames Water’s appeal against a £250,000 fine issued for a pollution offence, the court said that fines levied against large companies in particular had to “bring home the appropriate message to the directors and shareholders of the company” while reflecting the seriousness of the offence.

“Previous convictions will always be relevant aggravating features and in the case of some, seriously aggravating features,” said Mr Justice Mitting on behalf of the three judges.

“[T]o bring the message home to the directors and shareholders of organisations which have offended negligently once or more than once before, a substantial increase in the level of fines, sufficient to have a material impact on the finances of the company as a whole, will ordinarily be appropriate. This may therefore result in fines measured in millions of pounds,” he said.

The judge said that fines equal to “up to 100%” of a company’s pre-tax net profit would be appropriate in the very worst cases, “even if this results in fines in excess of £100 million”.

“Fines of such magnitude are imposed in the financial services market for breach of regulations … We would have had no hesitation in upholding a very substantially higher fine,” he said.

The fine had been the first issued since the first dedicated sentencing guideline for environmental offences came into force last year. The guideline sets a range of appropriate fines based on the size of the business and the seriousness of the offence, and allows courts to consider a wider range of relevant factors including an offender’s financial circumstances when setting the final level of a fine.

Thames Water had pleaded guilty to negligence in Reading Crown Court in 2014 after two pumps located next to an 'area of outstanding natural beauty’ became clogged, causing untreated sewage to leak into a brook. One or both of the pumps had failed at least 16 times in the five months before the incident, and the company did not act to fix the leak until it was reported by a member of the public despite “repeated alarms”, according to the court.

The company’s turnover was £1.9 billion at the time of the offence, and it had made a £346m profit in 2014, according to the judgment. This meant that it was classed as a “very large organisation” for the purposes of setting a fine. The court heard that the company had been convicted of 162 environmental offences on 106 occasions since 1991, and that the original prosecutor had taken its quick guilty plea and recent action to reduce environmental risks into account when setting the £250,000 fine.

“It is reasonable to suppose, that but for the mitigating factors and prompt plea of guilty, the fine which she would have imposed would have been not less than £500,000,” the court said.

“This is the first time the Court of Appeal has applied the new definitive environmental sentencing guidelines that came into force in July last year," said environmental law expert Eluned Watson of Pinsent Masons, the law firm behind Out-Law.com. "The decision is significant and opens the gates for much larger fines, in excess of £100 million, being imposed on very large companies who commit environmental offences and cause serious environmental damage”.

“The decision highlights the shift towards much higher levels of fines going forward for what we have seen in the past for environmental offences. It is now more important than ever for companies to have robust environmental compliance and management systems in place together with an up to date incident response protocol," she said.