The Court of Appeal has handed down its first ruling since the coming into force of the Environmental Sentencing Guideline on the sentencing of very large organisations. Chris Gillespie considers the impact.
The Court of Appeal has held that in the worst cases of environmental crime (Category 1 harm caused by deliberate action or inaction) involving very large organisations (those with a turnover of £50,000,000 or more), the sentencing court may well be justified in imposing a fine of up to 100% of the defendant 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 £100m: R v Thames Water Utilities  EWCA 960. The Court explicitly drew a comparison with fines in the financial services markets.
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.
Where Category 1 harm results from recklessness, the court will of course need to recognise that recklessness is a lower level of culpability than deliberate action or inaction. However, similar sentencing considerations in such cases will still apply, so that in non-Category 1 harm cases it will be appropriate to impose lesser, but nevertheless suitably proportionate penalties, which have regard to the financial circumstances of the organisation. This may lead to a fine or fines measured in millions of pounds.
The sentencing court should avoid a mechanistic extrapolation from the levels of fine suggested at step 4 of the guideline for large companies because a very large commercial organisation's turnover very greatly exceeds the threshold for a large company and, further, there is the requirement at step 6 of the guideline to examine the financial circumstances of the organisation in the round.
The Court of Appeal accepted that in the case of a large statutory undertaker, it is impossible for management to ensure that no unauthorised discharge can ever occur. Where no harm is caused as a result of an offence committed without fault on the part of the undertaker, it would be difficult to justify a significant difference in the level of fine imposed on two very large organisations, merely because the infrastructure and turnover of one was twice as large as that of the other.
However, the size of an organisation becomes much more important when some harm is caused by negligence or greater fault. The Court reiterated previous dicta in cases such as Sellafield that even in the case of a large organisation with an impeccable record the fine must be large enough both to bring the appropriate message home to the directors and shareholders and to punish them. In the case of repeat offenders, 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.
Mitigating features 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 or "reparation" in recognition of the public harm done should be taken into account. Another significant mitigating factor would be 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 fulfilment of its environmental duties.
In the instant case the appellant company had pleaded guilty at the first opportunity to an offence involving the discharge of untreated sewage into Chase Brook, which flows through a Natural Trust nature reserve. The offence took place over the course of approximately a week. The cause of the discharge was clogging of the pumps, which should have taken the sewage to a downstream pumping station.
The company was fined £250,000 on the basis that the company had been negligent and should have replaced the pumps earlier. The harm was localised. The company’s turnover was £1.9 bn with profits of £346,000,000.
The Court noted that the appellant’s record, 106 convictions involving 162 offences, many of which were dealt with the magistrates’ court, over a 24-year period, did not suggest routine disregard of environmental obligations by the appellant, but did nevertheless leave room for substantial improvement.
The Court stated that it would have upheld a very much more substantial fine given the facts of the case and the appellant’s record. But for the evidence adduced at the sentencing hearing, which showed that the appellant was taking its environmental responsibilities seriously, the Court would have taken a starting point significantly into seven figures.
Sentencing very large organisations is a complex process and such hearing should be conducted by a High Court judge or by another judge only in circumstances where the Presiding Judge has released the case or the Resident judge has allocated the case to a particular judge.
This is the first case in which the Court of Appeal has considered sentencing for very large organisations since the coming into force of the Environmental Sentencing Guideline. Given that the approach set out in the Environmental Guideline is mirrored in the Draft Guideline for Health and Safety Offences and Corporate Manslaughter this decision is of crucial importance to all criminal regulatory lawyers.
In environmental cases in particular great care needs to be taken in the accurate presentation of financial information. Many organisations working under environmental permits collect taxes on behalf of the government, which they then pass on. These taxes appear in the company accounts as turnover but plainly do not amount to profit. It is crucial that this distinction is brought home to sentencing judges so that the organisation is not erroneously sentenced on the basis of its turnover alone.
In criminal regulatory cases generally it is now abundantly clear that the landscape of sentencing has changed utterly. The Court of Appeal referred to fines of £100,000,000 or more. Lawyers must be prepared to break some very bad news to their clients.