On the 3rd June the Court of Appeal handed down judgment in the case of R v Thames Water Utilities Ltd  EWCA Crim 960. This important case, presided over by the Lord Chief Justice has recently been heralded as a sign of the intention of the higher courts to impose higher fines on large corporate offenders.
Thames Water had pleaded guilty to an offence arising from the discharge of untreated sewage into a brook flowing through a nature reserve, an offence contrary to Regulations 38(1)(a) and 39(1) Environmental Permitting (England and Wales) Regulations 2010. Regulation 38 (1) provides that contravention of Regualtion 12 (1) is an offence. Regulation 12 (1) provides:
The company appealed against a fine of £250,000. The discharge had occurred from a sewage pumping station operated by Thames Water. The function of the pumping station was to receive untreated sewage from the surrounding area and from another pumping station and to transfer it downstream to a sewage treatment works. The cause of the discharge was the failure of two pumps whose role it was, was to transfer the waste further downstream. The pumps failed through an absence of routine maintenance, rendering the suction side of the pumps unserviceable. In the five months before the incident, there had been at approximately 16 instances of failures of the pump set. Prior to the waste discharge, alarms had activated indicating that the pump set had failed. Soon afterwards, the pumps were stripped out and upgraded to a specification that was better suited to deal with the environment in which they were placed. The recorder, who imposed the fine, found that the appellant had been negligent: The recorder held that the company had had a number of warnings that the pumps were breaking down; they were close to a very special nature site and should have been replaced earlier. Negligence plays no part in the commission of an offence contrary to Regulation 12 of the Permitting Regulations, it was merely the term of art used by the recorder, and subsequently adopted by the Court of Appeal, to characterise the rather lackluster approach to pump maintenance admitted by the appellant; the appellant’s counsel did not demur from the description.
This was the first case of its kind to come before a court since the Sentencing Council’s definitive guideline on environmental offences came into effect. The proposed non-fatal sentencing guidelines for health and safety offences follow a very similar approach to the definitive Environmental offences guidelines which came into force in early 2014. It follows that the approach taken by the Court of Appeal in this case is likely to be indicative of the approach that would be taken by the court in a large corporate Health and Safety case.
The Council had made it clear that the starting points and range of fines in the guideline did not apply to very large organisations such as the appellant. The effect of this judgment was to give guidance on the approach to be adopted in the case of very large commercial organisations ran for profit.
The court stated that the provisions in the Criminal Justice Act 2003 s.142, s.143 and s.164 were a starting point. The aim of the sentence was to bring home the appropriate message to the directors and shareholders of the company in question. Sentences imposed prior to the guideline were largely considered not to achieve that object. One cannot fail to see the comparison for health and safety practitioners. The stated aim of the Sentencing Guidelines Council when developing the draft health and safety guidelines was very similar. The effect being that sentences are likely to rise considerably for large corporate offenders.
To put the judgment into perspective the Court spent 10 out of 16 pages of the transcript dealing with the correct approach that should be taken to the admission of fresh evidence on appeal and on how counsel and sentencing judges should approach basis of plea and R v Newton hearings. This was not a judgment that exclusively concentrated on the appeal against sentence. That said the court laid out in clear and express terms the approach to take when sentencing large corporates.
The court indicated that the starting point for the sentencing of large corporate offenders ran for profit is ss.142, 143 and 164 of the Criminal Justice Act 2003, as summarised in paragraph 3 of R v. Sellafield Limited  EWCA Crim 49. After having considered the various purposes of sentencing followed by the culpability of the offender and the harm caused, the courts attention then turned to the approach for the fixing of fines.
Mr. Justice Mitting then went onto state that:
It is of particular importance in the case of such very large commercial organisations to take into account the financial circumstances of the offender as required by s.164 of the CJA 2003. This should ensure that the penalty imposed is not only proportionate and just, but will bring home to the management and shareholders the need to protect the environment.
The judge then went onto consider the provisions of S 164 CJA 2003, namely:
Before fixing the amount of any fine to be imposed on an offender who is an individual, a court must inquire into his financial circumstances.
The amount of any fine fixed by a court must be as such as, in the opinion of the court, reflects the seriousness of the offence.
In fixing the amount of any fine to be imposed on an offender (whether an individual or other person), a court must take into account the circumstances of the case including, among other things, the financial circumstances of the offender so far as they are known, or appear, to the court.
Subsection (3) applies whether taking into account the financial circumstances of the offender has the effect of increasing or reducing the amount of the fine.”
However when considering very large organisations it was held in clear and unambiguous terms that:
The Court is not bound by, or even bound to start with, the ranges of fines suggested by the Sentencing Council in the cases of organisations which are merely large”.
The court indicated that in the worst cases when great harm has been caused by deliberate action or inaction, the need to impose a just and proportionate penalty will necessitate a focus on the whole of the financial circumstances of the company.”
The starting point, by reference to the guideline, is the turnover of the company,
but having regard to all the financial circumstances, including profitability. In such a case, the objectives of punishment, deterrence and the removal of gain (for example by the decision of the management not to expend sufficient resources in modernisation and improvement) must be achieved by the level of penalty imposed. This may well result in a fine equal to a substantial percentage, up to 100%, of the company’s pre-tax net profit for the year in question (or an average if there is more than one year involved), even if this results in fines in excess of £100 million.”
The corporate size of the offender becomes much more important when some harm is caused by negligence or greater fault. Even in the case of a large organisation with an impeccable record, the fine is designed to be large enough to bring the appropriate message home to the directors and shareholders and to punish them.
The court on two occasions observed that it would not have interfered with fines “very substantially greater” or “significantly greater” than six-figure fines imposed for environmental offences. It was axiomatic that all relevant mitigating features had to be taken into account. In environmental pollution cases, those would include prompt and effective measures to rectify the harm caused by the offence and to prevent its recurrence, frankness and co-operation with the authorities, the prompt payment of full compensation to those harmed by the offence and a prompt plea of guilty. In addition, significant expense voluntarily incurred in recognition of the public harm done should be taken into account. Clear and accepted evidence from the chief executive or chairman of the main board that the board was taking effective steps to secure substantial overall improvement in the company’s fulfillment of its environmental duties would be a significant mitigating factor. The size of the company became much more important when harm was caused by negligence or greater fault. Even in the case of a large organisation with an impeccable record, the fine had to be large enough to bring the appropriate message home to the directors and shareholders and to punish them. In the case of repeat offenders, the fine should be far higher and should rise to the level necessary to ensure that the directors and shareholders took effective measures properly to reform themselves and ensure that they met their environmental obligations. In the instant case, the appellant’s record over the years did not suggest a routine disregard of environmental obligations, but it did leave room for substantial improvement; its recent record suggested that the appropriate message had not fully struck home. On the other hand, a statement from one of the appellant’s senior officers showed that the appellant was taking the issue of environmental pollution seriously and was spending substantial sums to modernise and improve its infrastructure. That represented significant mitigation. Nevertheless, the fine of £250,000 was lenient. The court held it would have had no hesitation in upholding a very substantially higher fine.
However, in concentrating on the companies profitability the court has moved away from the approach taken for other offences. The draft Health and Safety Guideline focuses on company turnover, as does the sentencing approach for other financial crime such as fraud, and money laundering. The court appears to have followed the approach taken for penalties handed down in the financial services markets where substantial breaches are based on an organisations profitability. The approach in financial services being more reparation based so as to ensure that organisations do not financial benefit from any particular breach. Profit used as the datum upon which a fine is based is riddled with difficulty. What would be the situation where a large unprofitable organisation ran at a loss where to offend? After all a percentage of less than nothing is less than nothing.
There court appears not to have been particularly concerned with the reinvestment of Thames Waters profits back into the company to improve services, notwithstanding that the company is providing a public service. This was held by the court in the Sellafield case to have been a significant mitigating factor which the court adverted to when it held that Network Rail’s fine should be less than Sellafield’s. The approach taken by the court of appeal was one of ‘look at all the financial circumstances’. Both Network Rail Infrastructure Ltd and Sellafield Ltd were of a similar profitability at the time of the time of sentence in that case to Thames Water Utilities in this case. Yet notwithstanding that the court in Thames Water took a more profitability biased approach.
Save for a complete change of direction by the Sentencing Guidelines Council for Health and Safety Offences it is likely that the definitive guideline when published will retain as its sentencing focus the turnover of the company. However, in light of the judgment in this case it my well now be that the guidelines have a caveat for large corporate offenders to the extent that a sentencing judge is not fettered by the sentencing brackets contained within the guideline when sentencing corporations with very large turnovers.
Blog | 30 Jun 15