Eversheds comments on new UK environmental penalties

The new UK environmental penalties will make companies nervous of retrospective action, according to Paul Verrico, principal associate at Eversheds. These new sentencing guidelines came into force on 1 July 2014 and increase the levels of fine likely to be imposed on those committing environmental crimes.

Verrico said: ‘Historically, the approach of the courts to sentencing for environmental offences has been inconsistent, leading to uncertainty surrounding the potential fines that organisations might incur for breaches of environmental regulations. In the absence of definitive guidelines, the courts have, for more than 15 years, been directed by various factors, including the defendant’s resources. Some courts have, however, struggled to send out a consistent message.

‘In two recent Court of Appeal cases, appeals against six-figure fines imposed for breaches of environmental law were dismissed following extensive scrutiny and criticism of the defendant organisations, their management and their finances, even though no harm actually arose from the breaches concerned. The defendants’ financial means [one having a turnover in excess of £700m, the other in excess of £1.5bn] were central to these decisions, reinforcing the principle that fines must be significant enough, with reference to the organisation’s finances, to reflect the importance of compliance with environmental legislation. In the latter case, a background of relatively minor non-compliances for which the defendant company had received a number of cautions was described as a “serious record of minor criminality”.’

He added that the increased level of fines being handed down by the courts for environmental offences, and the willingness of the courts to give further guidance on what aggravates offending, have been a clear forerunner to the coming into force of the Sentencing Council’s Definitive Guideline in relation to environmental offences.

Verrico continued: ‘The guideline will apply to sentences handed down on or after 1 July 2014 for certain environmental offences [including the unlawful deposit of waste and the discharge of polluting matter into the air, freshwater or groundwater]. It will therefore apply to breaches committed prior to this date where sentencing has not yet occurred. It is anticipated that sentences passed under the guideline will be greater than would have been imposed previously — organisations with a turnover of more than £50m could face fines of up to £3m, and, where an organisation’s turnover “significantly” exceeds £50m, fines may be increased beyond this level in order to achieve a sentence proportionate to the organisation’s financial resources.’

He said that the guideline contains detailed steps on how the courts must calculate sentences in relation to both organisations and individuals. In relation to organisations, fines vary according to turnover, culpability and the seriousness of the offence and harm caused. Other relevant factors, said Verrico, include whether the offence was committed for financial gain, whether the organisation has a history of offending and whether any steps were taken to remedy the problem.

‘The Sentencing Council has clearly stated that committing an offence must not be a cheaper option than complying with the law,’ he said. ‘Courts must ensure that any economic benefit derived from the offending [such as the avoidance of costs or any financial gain made as a direct result of the offence] is cancelled out. Essentially, fines must serve as a deterrent to future offending and therefore have a real economic impact upon the offending organisation.

‘In recent years, there has been a significant shift in the courts’ approach to sentencing for environmental offences. As demonstrated in the above-mentioned Court of Appeal cases, the courts are increasingly critical of organisations, their management and their finances. We expect this scrutiny to intensify as the guideline comes into force.’

According to Verrico, it is increasingly important that both individuals and organisations are proactive in ensuring they comply with regulatory requirements. ‘Organisations should already have in place systems and processes to ensure that environmental offences are not committed. To the extent that those systems are not in place, auditing and evaluating environmental management systems would be a wise decision considering the new, significant financial implications of non-compliance with environmental law. Indeed, being able to demonstrate to the court that any offence committed was the result of a mistake, rather than an intentional breach of the law or a failure to employ good practice, is key to reducing potential financial penalties.

‘Considering the retrospective application of the guideline, there will be a number of organisations currently under investigation for environmental offences that will be feeling very nervous in the face of the extensive scrutiny and increased financial penalties they may now suffer.’