R v Thames Water Utilities [2015] EWCA Crim 960 – Sentencing for Environmental Crime: High Penalties for Environmental Offences and the new Sentencing Guidelines

The Court of Appeal’s decision in R v Thames Water Utilities [2015] EWCA Crim 960 is notable for two reasons. Firstly, the Court of Appeal clearly warns those responsible for potentially harmful materials that sentences for environmental crime will be high and that extra care is therefore both warranted and advised. Secondly, and more importantly, the decision reveals the judicial attitude to the new sentencing guidelines from the Sentencing Council. These guidelines were noticeable for their treatment of environmental damage and it is pleasing to note that the Court of Appeal is applying those guidelines clearly and with the strength which was intended.

The case involved repeated discharges of sewage material into an Area of Outstanding Natural Beauty managed by the National Trust. The discharge was caused by the blockage of pumps within the sewage system. The offenders, Thames Water, had been warned of the blockage by their alarm systems, but had repeatedly failed to act to remedy the problem with sufficient speed. They admitted the regulation 38 offence of deposit of controlled waste without a permit (Environmental Permitting (England and Wales) Regulations 2010, SI 2010/675).

The appeal was purely as to sentencing. The first part of the case concerned whether or not Thames Water were able to adduce fresh evidence relevant to sentencing. The Court refused to consider this evidence. The more important aspect of the decision concerns Mitting J’s consideration of the Sentencing Guidelines (issued by the Sentencing Council and effective from 1 July 2014). More specifically, the question concerned whether the Recorder was entitled to take the approach she did to very large companies. To assess this, some consideration must be made of the Sentencing Guidelines. The Guidelines give assistance to the courts in assessing the level of fine appropriate for different sizes of corporate offender, from micro to large. For very large companies, it is suggested that  a different approach may need to be taken in order to ensure that the penalty is, “proportionate” to turnover and profit (p. 12). To achieve this proportionality, and considering the very high turnover (£1.9 billion) and profit (£346 million) of Thames Water, the Recorder had multiplied the “range” of appropriate fine for large companies by three. The argument for counsel was that this produced a category of “very large company” for which the statute and guidelines made no provision. In brief, it was suggested that the approach was too mechanistic and too rigidly tied to the range of fine appropriate to a large company.

Instead, the Court of Appeal held, the Recorder should have taken approach which reflected more fully the goal of sentencing as explained in R v Sellafield Limited [2014] EWCA Crim 49. Thus, she must first consider the seriousness of the offence by taking account of Steps 3 and 4 in the Sentencing Guidelines. When considering steps 5-11, the Court should also take account of the financial circumstances of the offender (section 164 Criminal Justice Act 2003). In so-doing, the court should not feel tied to the fines indicated as appropriate for large companies in the guidelines. Instead, as the Court goes onto highlight, the fine should be sufficiently high to deter future breaches.

The citation demonstrates the full and clear explanation given by the Court of the approach that ought to be taken in such cases. 

The object of the sentence is to bring home the appropriate message to the directors and shareholders of the company: Sellafield paragraph 6 and step 6 of the Guideline. Sentences imposed hitherto in a large number of cases have not been adequate to achieve that object. This Court has on two occasions observed that it would not have interfered with fines “very substantially greater” or “significantly greater” than six figure fines imposed for environmental offences…

Previous convictions will always be relevant aggravating features and in the case of some, seriously aggravating features. Relatively limited weight may be given to offences committed with low or no culpability (in the Sentencing Council’s definition in step 3); but offences which result from negligence or worse should count as significantly more serious. Repeated operational failures – suggestive of a lack of appropriate management attention to environmental obligations – fall into this category. For example, to 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.

The court should therefore: 

i) In the worst cases, when great harm exemplified by Category 1 harm has been caused by deliberate action or inaction, the need to impose a just and proportionate penalty will necessitate a focus on the whole of the financial circumstances of the company. We have already outlined the approach by reference to the guideline – starting with turnover, but having regard to all the financial circumstances, including profitability. In such a case, 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) must be achieved by the level of penalty imposed. This may well result in a fine equal to a substantial percentage, up to 100%, of the company’s pre-tax net profit for the year in question (or an average if there is more than one year involved), 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. In a Category 1 harm case, the imposition of such a fine is a necessary and proper consequence of the importance to be attached to environmental protection.
ii) In the case of a Category 1 case resulting from recklessness, similar considerations will apply, albeit that the court will need to recognise that recklessness is a lower level of culpability than deliberate action or inaction. 

iii) Where the harm caused falls below Category 1, lesser, but nevertheless suitably proportionate, penalties which have regard to the financial circumstances of the organisation should be imposed. In an appropriate case, a court may well consider, having regard to the financial circumstances of the organisation, that to achieve the objectives in s.143 of the CJA 2003, the fine imposed must be measured in millions of pounds, as we have already indicated. 

iv) In the case of such an organisation, there must not be a mechanistic extrapolation from the levels of fine suggested at step 4 of the guideline for large companies. This is made clear by (1) the fact that by definition a very large commercial organisation’s turnover very greatly exceeds the threshold for a large company, and (2) the requirement at step 6 of the guideline to examine the financial circumstances of the organisation in the round. 

It is axiomatic that all relevant mitigating features must be taken into account. In environmental pollution cases these will include prompt and effective measures to rectify the harm caused by the offence and to prevent its recurrence, frankness and co- operation with the authorities, the prompt payment of full compensation to those harmed by the offence, and a prompt plea of guilty. In addition, significant expense voluntarily incurred – so-called “reparation” – in recognition of the public harm done should be taken into account in the manner explained in R v. Thames Water Utilities Limited [2010] EWCA Crim 202 at paragraph 53. Clear and accepted evidence from the Chief Executive or Chairman of the main board that the main board was taking effective steps to secure substantial overall improvement in the company’s fulfillment of its environmental duties would be a significant mitigating factor
— R v Thames Water, [38-41].

It was suggested very strongly by the Court that a fine in the millions may well be an appropriate one. The most striking thing about the judgment here is the reference by Mitting J to stripping a corporation of 100% of its profits for a year in order to impose a sufficiently clear sanction to encourage management to prevent negligent or reckless action in the future. In the instant case, the offender was clearly reprimanded for having received repeated fines for similar environmental offences without sufficient precautionary measures being implements. This suggests a strict judicial attitude to environmental crime and highlights increasing recognition of the importance of environmental protection. It also highlights the importance of step 6 of the Sentencing Guidelines – proportionality between fine and the means of the offender. This is not just a “downwards” proportionality assessment, but, in the case of very large corporate offenders, it may also be an upwards assessment, ensuring that the deterrent effect of a very high fine is firmly in place. This is clear from the Sentencing Guidelines, (p. 12), but the relative lack of experience of sentencing for environmental offences may well have encouraged a timid approach. It is heartening to see that the Court of Appeal is clearly willing to be bold with its approach to sentencing for environmental crime. 

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