Increasing fines for environmental offenders

What happened?

In March 2017, Thames Water Utilities Ltd pleaded guilty to six charges under the Environmental Permitting (England and Wales) Regulations 2010, relating to pollution at five of their sewage facilities in the middle and lower Thames Valley during 2013 and 2014, which had a serious impact on residents, farmers and wildlife.

Thames was fined £20 million, having previously been fined £1 million only two months earlier for pollution in Hertfordshire and £380,000 in March 2016 following a pollution incident in Buckinghamshire.

The Environment Agency claimed that the volume of untreated sewage discharge in this instance (£1.4 billion litres) and the length of time over which the discharges occurred were unprecedented. Evidence provided to the court stated that a priority alarm, which should have been responded to immediately by Thames Water, had not been dealt with for almost six hours. Another alarm, which required a response within two hours, had taken 37 hours. The Environment Agency said that this was the biggest freshwater pollution case it had ever dealt with.

Setting an example

This case provides another firm indicator that courts are set on imposing penalties on businesses which will send the message home to senior management and shareholders that non-compliance with environmental regulation will result in very large penalties.

The judge described the breaches as ‘wicked’ highlighted a ‘history of non-compliance’ and a ‘continual failure to report incidents’. One aggravating feature in the Court’s eyes on sentencing related to an internal ‘do’s and don’ts’ document at Thames Water’s Little Marlow site in Buckinghamshire, which stated. “Don’t give any agreement that Thames Water will provide any information, statement or any interview to the Environment Agency”.

The court described this as a ‘deplorable document’. The judge noted that the scale of the problem at Thames was such that there must have been knowledge of the illegal practices higher up the chain of command, and it was important to send the message to shareholders that pollution on this scale was not permitted.

The impact of the decision

As set out in our previous Business Crime Update, fines for certain environmental offences are calculated with reference to culpability, harm and turnover, along similar guidelines to those that exist for health and safety offences.

The case highlights the willingness of the courts to levy increasingly substantial fines, sending the clear message that corporate offenders can expect to face significant financial penalties for environmental breaches and therefore need to act quickly and meaningfully to mitigate the damage.

Since sentencing guidelines were introduced in relation to health and safety offences in February 2016, the highest fine imposed has been the £5 million fine on Merlin Entertainments following the Alton Towers crash. The Thames Water case however encourages courts to look outside the guidelines for those companies deemed to be ‘very large’ (i.e. turnover greatly exceeding £50 million) and to issue penalties which have the impact desired by the court to send a message home to the boards and shareholders.

What should you do?

Now is the time to ensure your business is aware of the consequences of non-compliance and has the tools to ensure effective compliance. Regulators will be looking for a culture of compliance, driven from the top down, but there are a number of specific actions that can assist, including:

• Ensuring clear channels of communication to the wider business on the potential importance of compliance and the potential criminal sanctions to businesses and individuals in the event of non-compliance with the areas of regulation that apply to your business – environmental and health and safety being just two;
• Regularly reviewing and stress-testing your compliance systems;
• Putting in place good management information and reporting procedures, and ensuring that compliance remains a board-level issue;
• Prepare for an incident, including having in place lawyers who can support you from crisis response through to any criminal or regulatory investigation and support you to limit liability exposure.