The financial importance of environmental compliance – now up to 100% of your annual pre-tax profits

Almost 12 months since the introduction of the definitive guideline for sentencing environmental offences, a recent Court of Appeal decision has shed important light on the scale of financial penalties arising from such offences. 

Following last July’s (2014) implementation of the definitive sentencing guidelines for environmental offences, we have already seen the stakes being raised for both individuals and organisations found to have committed one of a number of prescribed environmental offences.

With the proposed sentencing ranges extending as high as £3million for large organisations and permission to move outside of the suggested range to achieve a proportionate sentence where required, the incentives to ensure organisational compliance with environmental legislation have never been greater.

In the recently determined case, we have been provided not only with the first Court of Appeal authority since the coming into force of the environmental guidelines, but a further shot across the bows in relation to the sentencing of large organisations.

The case

In 2014, the company concerned pleaded guilty to an offence contrary to the Environmental Permitting Regulations when untreated sewage was accidentally discharged into a brook flowing through a nearby nature reserve. After a guilty plea at the first opportunity, a fine was imposed in Reading Magistrates’ Court totalling £250,000 plus costs. With permission of the sentencing judge, an appeal was then submitted against the amount of the fine awarded which was placed before the Court of Appeal.

Upon consideration of this appeal, the Court of Appeal judges held that in the worst cases of environmental crime (those with the most serious levels of harm caused by deliberate action or inaction) involving very large organisations with a turnover in excess of £50,000,000, 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. In such instances, the imposition of such a fine stated to be a necessary and proper consequence of the importance to be attached to environmental protection. This was reinforced by the statement that this may apply even if the resulting fines were in excess of £100 million.

It goes without saying that the above comments are intended to be directed at the most serious environmental offences committed; not only in terms of harm levels but also in terms of those assessments of culpability, such fines being reserved for cases where there has been an intentional breach of or flagrant disregard for the law or where there has been a deliberate failure by an organisation to put in place and to enforce such systems as could reasonably be expected of them.

Of some reassurance to large statutory undertakers, such as the company before the Court in this particular case, were the comments that it is impossible for management to ensure that no unauthorised discharge can ever occur and without the existence of some form of fault, it would appear that they will be unable to justify a significant difference in the level of fine imposed merely on the grounds of turnover of an organisation.

However, what we have seen in this judgment is that the size of an organisation will become increasingly important when some harm is caused by negligence or greater fault.

Sending a message

More so than ever we are and will likely continue seeing fines being used with the stated aim of sending a message to both directors and shareholders alike as to the importance of compliance. This is clearly being reiterated within the Court of Appeal in this and other previous decisions, and can usefully be repeated within boardrooms to influence and inform organisational approach to corporate governance.

With the writing on the wall for those financial implications of non-compliance with environmental law, being able to demonstrate that any offence committed has been the result of a mistake, rather than an intentional breach of the law or a failure to employ good practice, will be increasingly important.

Whilst organisations should already have systems and processes in place to ensure that environmental offences are not committed, should you require any assistance with the drafting or review of current systems of governance and compliance in place, or gap analysis for further areas of improvement, please contact a member of our Environmental Compliance Team.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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David Egan

Partner - Joint Head of Environment

I am a Partner at DWF, providing clear, expert advice on matters relating to crisis management, environmental incidents and fatal accidents.

Steffan Groch

Partner and Head of Regulatory - Head of Sectors

I head up DWF's national Regulatory team as well as leading the firm’s ‘go to market’ sector expertise. I am also Chair of the UK Health and Safety Lawyers Association.

Paul Matthews

Partner - Head of Regulatory (Yorkshire and North East)

I am a Partner in the Regulatory team and a corporate defence specialist who provides up-front regulatory compliance advice and representation to businesses and senior managers in relation to investigations and prosecutions by regulatory bodies.