Essential new case law for environmental lawyers

Author - Tim Green - Barrister - Outer Temple Chambers

Environmental crime is frequently committed for financial gain and as a result regulators, and in particular the Environment Agency, have in recent years had frequent recourses to the powers of restraint and confiscation against convicted companies. As has been said repeatedly by the Court of Appeal, the legal machinery contained in the Proceeds of Crime Act 2002 is deliberately draconian. With these two facts in mind, please can I draw the attention of all those practising in environmental law to the recent Court of Appeal decision in R v Powell and Westwood [2016] EWCA Crim 1043. Powell and Westwood is now the leading authority on the liability of companies and their directors for confiscation arising out of environmental enforcement and is thus essential reading for any lawyer advising a director on the consequences of conviction against his company.

In short, the Judgement is good news for company officers. It significantly reduces the scope for regulators to pursue confiscation against directors notwithstanding their convictions environmental offences, providing they are otherwise running legitimate businesses.

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The facts
Wormtech Limited (Wormtech) of which both respondents were directors and shareholders, was granted a permit for an in-vessel composting facility at a site on land owned by the Ministry of Defence at Caerwent in South Wales. The facility was permitted to recycle 25,000 tonnes of co-mingled food and green waste into compost. The operating permit required the operation to compost in closed vessels and in open windrows. The permit contained conditions to protect the environment. In its regulation of the site the Environment Agency officers noted repeated breaches of the permit conditions.

As a result, an enforcement notice was served on Wormtech in about August 2012, suspending the part of the permit allowing waste to be accepted onto the site. A site visit on 21st September 2012 revealed no site workers or machinery. Hundreds of tonnes of food waste had been left rotting down and producing leachate. In addition, leachate lagoons were overflowing. The site appears to have been abandoned by October 2012, and on 26th November 2012 a winding up order was made against Wormtech. It fell to the Ministry of Defence and the public purse to clear up the site, dealing with the leachate and resultant pollution. The cost of that was approximately £1.125 million

Jacqueline Powell was convicted at the Newport Crown Court of two counts of consenting or conniving as a director in the failure Wormtech Limited to comply with the condition of an environmental permit and one count of consenting or conniving as a director of a company in the commission of an offence by the company, namely treating, keeping or disposing of controlled waste in a manner likely to cause pollution. Jonathan Westwood had pleaded guilty to counts mirroring those against Powell. In Westwood's case, however, he pleaded guilty to those counts, not based on consent or connivance, but on the basis, that the company's offence was attributable to his neglect.

Questions regarding the company’s ownership and control were at the heart of the judgement. Mrs Powell was a director and significant shareholder. She resigned as director on 30th September 2012. The Crown said she was the directing mind of the company with control of finances and having day-to-day responsibility. Mr Westwood was active in the management of the operations at the site and was between November 2006 and 13th August 2012 a director and shareholder. There were also other shareholders in Wormtech.

Finally, Wormtech had been wound up before it paid the costs of cleaning up the site. This pecuniary advantage (£1.25m) saving was the subject matter of the appeal.

The issue
The appeal was brought by the prosecution who objected to the ruling made by the Crown Court Judge hearing the confiscation. The Crown argued that the savings in avoiding the clean-up of the site was a benefit accruing to the company which should be attributed to the respondents. The Crown relied on R v Seager & Blatch [2010] 1 Cr App R (S) 60 , and in particular [para 76] where the court said:

“In the context of criminal cases the courts have identified at least three situations when the corporate veil can be pierced … Secondly, where an offender does acts in the name of a company which (with the necessary mens rea) constitute a criminal offence which leads to the offender's conviction, then “the veil of incorporation is not so much pierced as rudely torn away”: per Lord Bingham in Jennings v CPS paragraph 16.”

The respondents resisted the application primarily on the grounds that the second limb of Seager & Blatch [as above] did not apply in the light of the Supreme Court's view of the applicable law in relation to piercing the corporate veil in Prest v Petrodel Resources Ltd [2013] 3 WLR 1 which limited the circumstances in which the corporate veil could be removed to hold the individual company directors liable for the company’s turnover. In Prest the Supreme Court found that the principles governing the removal of the corporate veil were the same in criminal law and civil law. The corporate veil was only pierced when the company was being used either to (1) conceal criminality or (2) to evade some other legal duty on the director of the company.

The judgement
Section 6(4)(c) of POCA provides that the court must, if it decides that a defendant does not have a criminal lifestyle, decide whether he has benefited from his criminal conduct. Section 76 provides as follows:

(3) Particular criminal conduct of the defendant is all his criminal conduct which falls within the following paragraphs—
(a) conduct which constitutes the offence or offences concerned; …
(5) If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage.”

The Crown in Powell and Westwood relied on those provisions as the foundation for its submission that the pecuniary advantage to the company of not paying for the clean-up costs it would otherwise have incurred could properly be attributed to the respondents and sound in a confiscation order equivalent to the sum avoided. However, the prosecution conceded that the company was not simply set up to conceal criminality from the outset, or that the company directors had used the company to evade some other legal duties incumbent on them.

Relying on several recent cases including the Supreme Court decision in Prest v Petrodel Resources Ltd [2013] 3 WLR 1 and recent Court of Appeal ruling in R v Boyle Transport (Northern Ireland) Ltd [2016] 4 WLR 63, the Court of Appeal held that regard should be had to the nature and extent of the criminality involved. Attention was drawn to R v King (Scott) [2014] EWCA Crim 621 where Fulford LJ at [para 32] referred to a clear distinction to be drawn between cases in which goods or services are provided by way of a lawful contract but the transaction is tainted by associated illegality, and cases in which the entire undertaking is unlawful. In those circumstances the court would need to consider amongst other things the difference between those two types of case.

The Court in Powell and Westwood gave weight to comments made in Boyle Transport, that in considering whether the company in question was little more than a device to conceal criminality, regard should be had to the nature and extent of the criminality involved. This was key in determining the directors’ liability in confiscation for the criminal property (in this case savings from not cleaning up the environmental harm) obtained by the company.

In Powell and Westwood, although the failings of the company in complying with the relevant environmental regulatory regime were very serious, the following matters were considered in the respondents’ favour by the Court of Appeal:

(1) The company had been founded in 2002. Its purpose was the legitimate disposal of food waste.
(2) It had obtained the necessary permits to do so. At the time, its site and buildings were not foreseen as unsuitable for the quantities of waste that were eventually brought onto the site.
(3) The Crown Court Judge accepted that the company had taken several steps involving very significant expenditure to comply with the regulations and the permit. He noted that the company had instructed and paid considerable amounts of money to consultants to advise it.
(4) Drainage channels had been installed. Boreholes had been sunk. Construction works had taken place to improve guttering and drainage. A main access of surface water to a local stream had been blocked off. Two lagoons had been constructed to receive leachate and considerable amounts of money were spent tankering off leachate.
(5) The company's profit margins were not large. The Crown Court Judge said that it was true to say that the company had provided a valuable service for some years to the communities it served. It was a lawful operation which had become unlawful through breaches of conditions.

It is important to note that notwithstanding these facts, the Court of Appeal found that the respondents were both aware of the failure to comply with regulations at the material time and that the reason for non-compliance was out of a desire to increase the company's profitability. But it seemed important to the court, in looking at the nature of the criminality as Boyle Transport indicates it should, to note that there was no facade or concealment for hiding behind the company's structure in a way which abused the corporate shield. It was also important to note that the company officers were not the only shareholders.

Thus in Powell and Westwood the Court of Appeal held that notwithstanding the savings made by the company’s failure to pay for the clean-up operation following its environmental offending, and the fact that the original offending was either attributable to the consent or neglect of the respondents [the company officers], it was not right on the facts of the case to conclude that the company was used simply to conceal environmental offending or evade the duties independently lying on the respondents. Accordingly, the respondents were not liable for company’s savings in failing to pay to clean up the environmental harm. The appeal by the prosecution failed.

What Powell and Westwood means in practical terms
This Judgement will offer important comfort to company directors facing enforcement action for environmental offending where as is often the case, this offending has led to significant financial savings. Notwithstanding the company officer’s responsibility to prevent this offending, providing the business has an underlying legitimate purpose, then confiscation is likely to extend only to their own benefit (salaries and dividends etc.) but not to the company’s turnover.

Tim Green
Outer Temple Chambers

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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