Analysis of recent fines suggests that environmental prosecutions are resulting in more substantial fines, especially for ‘very large organisations’ (see definition below).
The environment is now more subject to legislative control. In the majority of cases, the Environment Agency (EA), in the UK, is responsible for enforcement. After the passing of the Environment Act 2021 through parliament and the international attention given to climate change during COP26, there is no doubt that environmental concerns are becoming more important in government policies and private organizations. We will examine sentencing trends for large corporations convicted of environmental offenses.
Guidelines for fines and sentencing
There is no limit on the size of a fine for an environmental offence, but the Sentencing Council’s Environmental Offences Definitive Guideline (the ‘Guideline’), which has been in effect since July 2014 (and which has recently been amended), can help make a reasonable estimate of the likely parameters of any penalty. The starting point for consideration of the level of the fine is determined by the defendant’s turnover, following an assessment of the harm and culpability associated with the offence.
Flagrant disregard for law or deliberate breaches of the law will result in the highest fines. Environmental offences that have caused or are at risk of major adverse effects in the environment will result in severe penalties. Minor damage will not be penalized and will result in a lower fine.
Once the culpability has been established, the turnover of the company can be used to determine the starting point for the penalty. The turnover thresholds are:
- micro – turnover or equivalent is not more than £2 million.
- small – turnover or equivalent is between £2 million and £10 million.
- medium – turnover or equivalent is between £10 million and £50 million.
- large – turnover or equivalent of £50 million or over.
The Guideline suggests a maximum fine of £3,000,000 for a large organisation committing a deliberate offence, whereas the starting point for a small organisation committing a negligent breach with no actual environmental harm is a fine of just £3,000.
However, the Guideline is not as helpful if the defendant organisation’s turnover ‘very greatly’ exceeds £50 million. Organisations such as these are classified as ‘very large organisations’ (VLOs), and the Guideline states that to achieve a proportionate sentence it may be necessary to move outside the suggested range, possibly significantly so; this is known as the ‘VLO uplift’.
VLO Uplift
In 2015, Thames Water was fined for an environmental violation. This precedent set the stage for the VLO Uplift. The water company had committed a negligent offence causing category 3 harm, which has a starting point of £60,000 for a large organisation. Thames Water is, however, a VLO. After considering all possible mitigation factors, the court increased the fine by a factor 5 in the first instance to reflect this. The Court of Appeal upheld this fine. It stated that an uplift should not only be used to balance the fine, but also in a mechanistic manner. The Court of Appeal agreed with the decision that the starting points and ranges should be multiplied by 5. However, it also stated that it would not hesitate to uphold a significantly higher fine.
Thames Water was again charged by the EA in March 2017. This time, it was for 6 offences related untreated sewage discharge or pollution to land. The court imposed a total fine of £19.75 million, £17 million of which was in respect of just two of the six offences. The basis of the calculations is not known but, given that the range within the Guideline provides for a maximum fine of £3 million for a large organisation, it can be assumed that a significant VLO uplift was applied.
Thames Water was charged by the EA in February 2021 for two separate incidents. One involved a leakage of untreated sewage into watercourses. The fine imposed was £2.3 million, even though it fell within a category for which the maximum fine according to the Guideline is £350,000. It is difficult to quantify the VLO increase without knowing the exact starting point. However, it can be assumed that it was substantial.
VLO uplifts are not just for environmental offences. They also apply to safety, health, corporate manslaughter, food safety and hygiene offenses. Fines greater than £1 million are now commonplace when a VLO is sentenced for a health and safety offence.
In July 2021, Southern Water Services (SWS), was hit with the most severe fines in an EA prosecution. The water company was fined £90 million for 51 counts of discharging untreated sewage into controlled coastal waters over a 6 year period at 17 separate sites.
The court was satisfied that 50 acts SWS pleaded guilty for were intentional. These offences had a significant environmental impact, which put them in category 1 under the Guideline. The starting point for the fine was therefore £1,000,000, with a range up to £3,000,000. The court noted that the organisation had an annual turnover of £880 million, which is higher than the £50 million threshold for a large company by a factor of 17.6. To achieve a proportionate sentence, the sums suggested in the Guideline were increased by a factor of 2.5, meaning that each individual offence had a starting point fine of £2.5 million with a range up to £7.5 million.
SWS pleaded guilty to both aggravating and mitigating circumstances. In the end 16 counts were fined at £5.5 million each, and another count added a further £2 million, resulting in the total fine of £90 million. The penalties for the other charges were not separate.
It is important to note that many water companies have a long history of environmental convictions. This can be a significant factor in the final sentence.
Trends and Conclusion
All organisations that are, or might be, affected by environmental legislation should be aware of the possible huge fines for not complying. Although the Guideline can be used to estimate the likely amount of any penalty, it cannot be used to determine the potential liability of a VLO defendant. It is unknown how the VLO question will in each case. It’s best to be educated guesswork.
The courts have the discretion to increase a fine to ensure that it has an economic impact. This should remind shareholders and management of the importance of regulatory compliance. Although it is difficult to predict the exact amount of a VLO increase, because it is discretionary rather than mechanical, it is evident that fines are often significantly increased for VLOs. In one instance, the fine was multiplied by 5, which was considered somewhat lenient.
Courts that sentence regulatory offenses are generally imposing greater fines. It is important for organisations to be aware that in extreme cases, a fine for environmental offences could be so severe as to threaten their continued viability.
