Back in July 2014, Thames Water pleaded guilty to discharging untreated sewage into a brook flowing through a nature reserve in the North Wessex Downs Area of Outstanding Natural Beauty. The company had been warned on a number of occasions by internal systems that pumps in the sewage pumping station were breaking down but did not replace them until after the sewage had entered the brook. It was fined £250,000. Unhappy at the level of the fine, Thames Water appealed to the Court of Appeal.

As part of its judgment, the Court of Appeal gave guidance on the approach the court will adopt when fining large commercial organisations convicted of environmental offences. By “large”, the court was referring to companies with a turnover of £50 million or more.

Even if you are not a “large” or “very large” company, don’t assume that this case is not of relevance to you; prosecutions for environmental offences can be very costly affairs – hitting the bottom line as well as the company’s reputation. Having effective systems and processes in place can really help to minimise the risk of environmental problems, and give peace of mind. Whilst this case specifically dealt with sentencing of very large companies, many of the general principles will apply when the court is looking to sentence smaller companies. The case also highlights that whatever the size of your business, it is important to put together accurate financial information for the court to ensure sentencing is based on the correct figures.

Turning back to the guidance, these are the sorts of things the court will be thinking about when sentencing a company the size of Thames Water:

1. The seriousness of the offence.
2. The aim of the sentence is to bring home the message to the directors and shareholders the need to improve regulatory compliance.
3. For very large companies (which would be determined on a case by case basis), it may be necessary to increase the sentence beyond those applicable to smaller companies, so as to achieve a proportionate sentence.
4. “Aggravating” features will include previous convictions and repeated operational failures will be counted as significantly more serious.
5. All relevant mitigating factors need to be taken into account, for instance 1) prompt and effective measures to put things right and prevent a repeat 2) co-operation with the authorities 3) prompt payment of full compensation 4) a prompt guilty plea 5) significant voluntary expenditure over and above what is required legally 6) evidence from the main board that the company is taking steps to improve its compliance with environmental duties.
6. In the worst cases where harm has been caused by deliberate action or inaction, the focus will be on the whole of the financial circumstances of the company, including profitability. This might result in a fine equivalent to up to 100{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} of the company’s pre-tax net profit for the year in question, even if this results in fines in excess of £100 million. Even for lesser harm, to achieve sentencing objectives might result in fines of millions of pounds.
7. Repeat offenders can expect far higher fines.

And, in case you were wondering, the court rejected Thames Water’s appeal, finding that there was room for substantial improvement in environmental compliance and the company’s recent prosecutions record suggested that the appropriate message had “not fully struck home”.

This blog was written by Sarah Wheadon who left the firm on 31 January 2016