“What’s the worst that can happen?” A question lawyers are often asked by clients when it comes to environmental issues, writes Helen Bowdren.
The advice I give now is that “the worst” has just got worse. If a company breaks the law and damages the environment, the most serious cases are dealt with as criminal matters by the magistrates or crown courts.
These criminal courts now have extensive powers to hand down large fines for environmental offences – and multi-million pound fines have become commonplace. Fines are expressly linked to turnover – and so the larger the company, the larger the fine.
A prosecution can have extensive negative effects on a business, including criminal fines, company directors’ sanctions or disqualification, remediation costs, reputational damage, reduced company valuation and regulatory restrictions imposed on licences or permits.
Tougher guidelines on sentencing
Since July 2014, English courts have used new sentencing guidelines to decide on a suitable sentence for corporate entities which have broken environmental law. The guidelines apply to several common offences such as water pollution, operating without an environmental permit and unlawful deposit of waste, including fly-tipping. The guidelines are not binding in Scotland but the Scottish courts are treating them as “persuasive”.
The court uses the company’s turnover to set the fine starting point and range. For companies with an annual turnover over £50m, the range goes as high as £3m. For “very large companies”, the court has the power to go above this range, so there really is no limit on the fines that can be imposed.
Water pollution
Water pollution is one of the most common – and most serious – environmental offences.
Thames Water has been involved in two cases involving the guidelines. In the first, R v Thames Water Utilities Ltd [2015] EWCA Crim 960, it was fined £250,000 for allowing discharges of untreated sewage into a nature reserve. The Court of Appeal dismissed its appeal, stressing that sentences should bring home the right message to the directors and shareholders of the offenders, with fines over £100m being potentially justified. The decision paves the way for extremely high fines, higher than we have typically seen in the UK.
The second case led to an even more significant fine. In March 2017, Aylesbury Crown Court fined Thames Water more than £20m for a series of pollution incidents along the river Thames. The Environment Agency had uncovered a catalogue of failures by the company’s management, including allowing repeated discharges of untreated sewage into water streams and ignoring risks identified by staff.
In 2016, Yorkshire Water was fined £1.1m at Leeds Crown Court for breaching its permit. A permit condition required it to have a back-up pump available at a treatment works to replace any faulty pumps used in sewage treatment. The company failed to do this, and several thousand cubic metres of effluent entered the river Ouse near York, causing excessive ammonia levels. The judge criticised the company for its “clear lack of planning and contingency” in failing to carry out appropriate repairs and maintenance over a six-month period.
Impact on the real estate sector
It’s not just water companies that are vulnerable to high fines. Enforcement action is common within the agricultural sector, waste management, and construction and demolition companies – all of which could be relevant to property developers or owners.
Powerday plc, one of London and the South East’s biggest waste companies, was fined £1m by Harrow Crown Court. The case concerned the illegal deposit and storage of 17,000 tonnes of waste, including asbestos-contaminated site development waste, on two occasions. The fine reflected Powerday’s financial benefit from committing the offences. The company also agreed to pay more than £200,000 in costs to the Environment Agency.
And the retail sector is also vulnerable. Tesco was fined £8m by Preston Crown Court for allowing thousands of litres of petrol to escape a filling tank and enter sewers and the river Irwell over a 29-hour period. The Environment Agency found Tesco had failed to address a known environmental problem. The fine covered both environmental and health and safety breaches.
Starbucks was fined £160,000 at Westminster Magistrates Court after repeatedly leaving rubbish bags on a busy central London pavement. Starbucks’ head office and its local branches had ignored regular warnings from Westminster City Council to stop putting rubbish bags on the street outside of normal collection times, and had been served with several fixed-penalty notices. Ultimately, the council took legal action and prosecuted Starbucks for breaches of the Environmental Protection Act 1990.
How to protect your business
The case law shows a trend of higher fines. Any business should take the following common sense steps to avoid the risk of heavy environmental fines:
■ Understand your duties Ignorance is no defence of the law and regulators will expect businesses to be aware of their duties in respect of environmental protection.
■ Keep your house in order Having environment and emergency management systems in place will help your business avoid environmental breaches and deal more quickly with environmental emergencies.
■ Be proactive
The courts take a dim view of companies that fail to take steps to address a known issue. If you know about it, sort it.
■ Ask what went wrong
If something goes wrong, it is important to investigate what happened, employing external counsel where necessary.
Helen Bowdren, environmental partner, Dentons
