02/07/2015
The recent case of R v Thames Water Utilities Ltd [2015] EWCA Crim 960 saw the very first appeal against the Sentencing Council's Guidelines for sentencing environmental offences (the "Guidelines"), since the Guidelines came into force in July 2014.
The case was significant, not only due to it being the first appeal following sentence under the Guidelines, but also because of the Court of Appeal's stance in relation to determining the appropriate level of fines for "very large" organisations.
Prior to the Guidelines coming into force, courts often found it difficult to determine the appropriate sentence for corporate offenders or organisations committing environmental, health and safety or food safety offences. This was, in part due to a lack of guidance, and their often limited experience of having to deal with these types of cases.
The aim of the Guidelines was therefore to simplify sentencing by using a step-by-step approach to calculating a fine based on a number of factors including the severity of the offence, culpability of the offender and the size of the organisation (assessed by turnover). The Guidelines set out starting points and ranges of fines for small (£2-10 million), medium (£10-50 million) and large organisations (£50 million plus). However, no specific guidance is given for 'very large' organisations, other than to say "where an organisations' turnover greatly exceeds the threshold for large companies, it may be necessary to move outside the suggested range to achieve a proportionate sentence".
The Guidelines further go on to say "it will be necessary to examine the financial circumstances of the organisation in the round. If an organisation has a small profit margin relative to its turnover, downward adjustment may be needed. If it has a large profit margin, upward adjustment may be needed."
The courts recognise that cases should be assessed on a case by case basis, as to whether they fall into the 'very large' organisation bracket. However, in the case of Thames Water, with a turnover of £1.9 billion and profits for the year ending 2014 of £346 million, it was obvious that this would be a prime candidate for the very large organisation banding.
Thames Water was appealing a fine of £250,000 handed down by the Crown Court for sewerage pollution offences. Following consideration of mitigating factors (localised harm, not a category 1 offence and an early guilty plea), the court, in interpreting the Guidelines, opted to multiply the starting point for a negligent category 3 case (£60,000 for a large company) by five (to £300,000), along with the range (£35,000-£150,000 to £175,000 to £750,000). After consideration of mitigation, the final fine amount was £250,000. Without the early guilty plea and mitigation, it is likely the fine would have been in excess of £500,000.
The appeal was ultimately dismissed. The Crown, in their written submissions, stated that the fine imposed was "lenient" and that they would have had "no hesitation in upholding a very substantially higher fine" (since 1991 Thames Water had been convicted on 106 occasions of 162 environmental offences).
The Court of Appeal noted that there was no requirement to start
within the range of fines suggested by the Sentencing Council, and
that the court should look at the financial circumstances of the
offending organisation in order to ensure that the fine is large
enough to 'hit home'.
.
The Court of Appeal went on to controversially state that in
certain cases (category 1 offences caused by deliberate action or
inaction) fines could amount to up to 100 per cent of a company's
pre-tax profits for the year in question, even if this results in
fines in excess of £100 million. It was noted that fines of
this magnitude were on a par to those imposed for breaches of
financial services regulation.
It is therefore clear that organisations found guilty of environmental offences and falling into the "very large" category now face greater uncertainty when it comes to sentencing. Organisations are going to need to demonstrate prompt and effective measures were taken to rectify the harm caused and to prevent reoccurrence; frankness and cooperation with authorities; prompt payment of full compensation to those harmed along with a prompt guilty plea.
What was also significant from this appeal was the importance placed on evidence provided by an offenders Chief Executive or Chairman of the main board i.e. that the main board was taking effective steps to secure substantial overall improvements in the company's fulfilment of its environmental duties.
The Court of Appeal stated that, even if a company has an unblemished record "the fine must be large enough to bring the appropriate message home to the directors and shareholders and to punish them". For those that have a history of offending, "the fine should be far higher and should rise to the level necessary to ensure that the directors and shareholders of the organisation take effective measures properly to reform themselves and ensure that they fulfil their environmental obligations".
Naturally, the outcome of this appeal will raise concerns amongst those who fall into the "very large" organisation bracket, and only time will tell as to how far courts are willing to run with their new found fining powers.
It will also be very interesting to see the impact of the Sentencing Guidelines for health and safety, corporate manslaughter and food safety and hygiene offences, which are all due to be released later this year. Indication from the Sentencing Council is that these guidelines will mirror the environmental guidelines by issuing proportionate sentences by linking starting points for fines to the size of the organisation involved.
"Very large" organisations should take notice and be
prepared!
