The Court of Appeal, in its first judgment covering the
sentencing of 'very large organisations' since the
Environmental Sentencing Guideline ('ESG') came into force
last year, has held that the previous level of fines in a large
number of environmental cases was not adequate to bring the
appropriate message home to company directors and shareholders, and
therefore for the most serious cases a substantial increase in the
level of fines would usually be appropriate. The Judgment should
immediately be read by organisations who may be affected by the
ESG. This summary can only attempt to convey the very powerful,
clear and uncompromising message from the Court of Appeal.
In R v Thames Water Utilities Limited [2015] EWCA Crim
960, the court had to consider an appeal against the amount of
the fine imposed on the operator of a sewage pumping station
('TWU') from which untreated sewage was discharged
into a brook over the course of a week in 2012. Following a guilty
plea by TWU, the judge applied the ESG, taking into account the
level of harm caused, the culpability and turnover of the
organisation involved.
'Large' organisations are defined by the ESG as those with
a turnover of £50 million or more, which also states that for
'very large organisations' whose turnover very greatly
exceeds that amount, 'it may be necessary to move outside the
suggested range to achieve a proportionate sentence'. TWU's
turnover at the time of sentencing was £1.9 billion and its
profit for the year ending 2014 was £346 million. The trial
judge fixed a fine of £250,000 by multiplying the fine for a
large company roughly in proportion to the amount that TWU's
turnover exceeded that of a large company.
In rejecting TWU's appeal the Court of Appeal stated that it
would have upheld a very much more substantial fine and held
that
- the level of fines for very large organisations must not be fixed merely by a mechanistic extrapolation from the ESG, but also by examining the financial circumstances of the organisation in the round
- there was no need to provide a definition of a very large organisation based on a financial figure as it would be obvious if an organisation was very large and doubtful cases could be assessed individually
- offences resulting from negligence or worse, including repeated operational failures, should count as significantly more serious
- to bring the message home to directors and shareholders of organisations which have offended negligently once or more before, a substantial increase in the level of fines sufficient to have a material impact on the finances of the company as a whole would ordinarily be appropriate, possibly resulting in fines measured in millions of pounds
- in the worst cases a focus on the whole financial circumstances of a company might result in fines of up to 100% of the company's pre-tax net profit, perhaps even fines in excess of £100 million
- even where the harm caused was less serious, fines should be in proportion to the financial circumstances of the organisation, and in appropriate cases must be measured in millions of pounds
Comment
This judgment, like the one in 'Sellafield and Network
Rail' involving Health and Safety breaches, should leave no one
under any illusions that high fines will be imposed for serious and
systemic breaches, in order to bring home to directors and
shareholders the seriousness of the offence and to provide an
incentive to them to remedy failures. In the case of Network Rail
the Lord Chief Justice stated that the directors' bonuses
should have been very significantly reduced.
The message is plain - get it wrong and companies, directors and
shareholders will be held to account and should expect a high fine.
It is therefore time to focus on preventing incidents. US companies
have been exposed to severe sentencing regimes in the US for years,
and as a result are far more receptive to taking advice on how to
avoid disasters.
If an incident cannot be avoided then far more focus will be
required in future on considering every possible defence. In the
event that there is none then there must be careful and thoughtful
preparation of mitigation and a detailed analysis of a
Company's financial position.
You have been warned!
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