Construction companies face vastly increased fines for breaching environmental law – so be clear about the legal implications of your activities or you could end up in big trouble

Simon Colvin

Fines less than £100,000 were once common for serious environmental incidents involving multiple environmental offences in the construction sector. Those days are gone. The Court of Appeal judgment in the recent case of R vs Thames Water Utilities Ltd [2015] EWCA Crim 960 draws a clear line in the sand.

For many construction companies, the prospect of multimillion pound fines for environmental offences is now a reality. The clear message from the Court of Appeal is that environmental offences should not be treated any differently from other regulatory offences. If banks and financial institutions can receive multimillion pound fines for breaching financial regulatory controls, then operators in the construction sector which breach environmental controls should not be treated any differently.

The judgment is vital reading for those who aren’t clear about the legal implications of their activities. Here are the key points from the judgment:

Warning signs Warning signs either in the form of ongoing equipment failures, or concerns raised by employees or others should not be ignored. If they are ignored and an environmental incident is the result, the courts will take a dim view of the failure by a company to take appropriate action. Very clear records need to be kept of discussions concerning any such failures, the steps being taken to deal with any failings, the reasons for the decisions taken and the related time scales. There needs to be an awareness at director/board level and there should be strong justification for any decisions. Otherwise, in the event of a repeat incident, there is a strong risk of severe criticism from the courts, and the failure to act appropriately will be seen as a significant aggravating feature leading to a much higher fine.

Environmental compliance needs to feature on the board room agenda and in investor discussions

The correct category of harm The case highlights the potential for dispute concerning the correct categorisation of “harm” for the purposes of the Sentencing Council Guideline for Environmental Offences. The case reinforces the importance of strong contemporaneous evidence to support any argument for a reduction in the categorisation level. The regulator will always seek to obtain the highest categorisation possible as this feeds through to a higher fine. The evidence gathering process to enable you to successfully dispute the regulator’s classification needs to start in the immediate post incident phase and not weeks later when very often it is too late. This step should form part of any incident response protocol.

Boardroom and shareholder engagement The case reinforces a point made in other recent judgments from the Court of Appeal in relation to environmental cases: the importance of engagement at a management (board/director) and shareholder level. The judgment notes that “clear and accepted evidence from the chief executive or chairman of the main board that the main board was taking effective steps to secure substantial overall improvement in the company’s fulfilment of its environmental duties would be a significant mitigating factor”. The Sentencing Council Guideline and the court clearly recognise that is where the real decision-making power lies. Environmental compliance needs to feature on the boardroom agenda and in investor discussions.

Don’t repeat the same mistake The judgment reinforces the importance of proper debriefs following an environmental incident to ensure all appropriate steps are taken to prevent a recurrence. A failure to do so will leave a company exposed to criticism that it did not learn any lessons from the prior incident in failing to improve its performance and make the necessary changes, leaving it open to a much higher fine second time round.

The Court of Appeal judgment sends a clear message to those companies whose operations pose a risk of environmental harm. Get it wrong and you could face fines of tens if not hundreds of millions of pounds.

Although this case concerned a very large organisation, there are a number of important themes and messages that are relevant to companies and operators of all sizes. Particularly those that relate to the steps operators can take to protect their interests in the event of an environmental incident.

Operators should take the opportunity to translate the key messages from the judgment into their environmental management systems and incident response protocols. This is the best approach to limiting the scope and extent of the sanctions a court can impose in the event of an environmental incident.

Simon Colvin is a partner in Weightmans