Environmental sentencing: Trends for very large organisations in environment prosecutions

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 increasingly subject to legislative control, and in most cases in the UK the Environment Agency (EA) is responsible for enforcement. Following the Environment Act 2021 passing through parliament, and the global attention on climate change during COP26, it is clear that concerns about the environment are playing an increasingly important role in government policies and for private organisations. In this article, we explore sentencing trends where very large organisations are convicted of environmental offences.

Sentencing guidelines for fines

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.

In terms of culpability, deliberate breaches or flagrant disregard for the law will obviously attract the highest fines. Environmental offences which caused, or risked, major adverse effects are considered category 1 harm and will be fined heavily, while minor damage will be classified as category 3 or 4 harm and will lead to lower fines.

Having established the culpability and harm risked the turnover of the organisation is then used to assess the starting point for the fine. The turnover thresholds for organisations 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’.

Application of the VLO uplift

In 2015, a fine imposed on Thames Water for an environmental offence set a precedent for the use of 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, however, is without doubt a VLO. After mitigating factors were considered, the court at first instance multiplied the fine by a factor of 5 to reflect this. The Court of Appeal, upholding the fine, determined that an uplift should not be considered in a mechanistic way, but used to ensure that the fine is proportionate. The Court not only agreed with the decision to multiply the range and starting points by 5, but went further, commenting that it would have had no hesitation in upholding a substantially higher fine.

In March 2017, Thames Water was again prosecuted by the EA, this time for 6 offences relating to untreated sewage discharge and 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.

In February 2021, Thames Water was prosecuted by the EA for two separate incidents, one of which related to a leak of untreated sewage into a watercourse. 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. Without the exact starting point, it is hard to quantify the VLO uplift, but again it can be assumed to have been substantial.

The concept of a VLO uplift in sentencing is not exclusive to environmental offences, but also applies to health and safety, corporate manslaughter and food safety and hygiene offences. Fines greater than £1 million are now commonplace when a VLO is sentenced for a health and safety offence.

The most eye-watering of fines following an EA prosecution was imposed on Southern Water Services (SWS) in July 2021. 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 of the acts SWS pleaded guilty to were committed deliberately. The offences had a major environmental impact which placed them in category 1 of 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.

Aggravating and mitigating factors were then taken into account, as was the fact that SWS entered guilty pleas. 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 other counts incurred no separate penalty.

It should be noted that many water companies have a fairly lengthy history of previous convictions for environmental offences which is an additional aggravating feature to be taken into account when sentencing such offences and can have a major impact on the ultimate fine.

Trends and Conclusion

All organisations that are or might be impacted by environmental legislation should take notice of the potentially enormous fines for non-compliance. The Guideline can be used as a starting point to gauge the likely size of any penalty but cannot provide any reliable assessment of potential liability when the defendant is a VLO. How the VLO question will be approached in any given case is the great unknown. At best it becomes educated guesswork.

Courts have a discretion to uplift a fine in order to ensure it has a real economic impact, which should bring home to both management and shareholders the need to ensure regulatory compliance. Though the actual size of a VLO uplift is difficult to predict, as it is intended to be discretionary rather than mechanistic, it is clear that fines are commonly significantly increased for VLOs, and in one case multiplying the fine by 5 has been considered as somewhat lenient.

In general, courts sentencing regulatory offences are imposing more substantial fines. Organisations should be aware of the risk that, in the most serious cases, a fine imposed for an environmental offence might be so substantial as to threaten the continuing viability of the organisation.