A “Fast-Track” Regime for Environmental Sanctions

DEFRA’s consultation on the strengthening of environmental sanctions in April and May 2023 found in favour of two significant changes: to remove the £250,000 cap on Variable Monetary Penalties (VMPs), meaning penalties can be unlimited, and to introduce unlimited VMPs as a civil sanction in the Environmental Permitting (England and Wales) Regulations 2016. These changes will greatly increase the sanctioning powers of environmental agencies. The Implementation date is set to be 1^st December 2023 (albeit yet to be confirmed) and the changes will apply to England only, as per the consultation. The removal of the cap and the potential for what amounts to a “fast-track” prosecution procedure will be of concern to insurers as well as companies in the environmental sector. It will be of particular interest to insurers that provide an indemnity for legal costs in the defence of an environmental prosecution.

Enforcement of Environmental Sanctions

Environmental civil sanctions are non-criminal penalties given to an individual or company for an environmental offence. They were introduced to provide a proportionate alternative to prosecution or a formal caution and are enforced by environmental regulators. The relevant regulator for England, where the changes will apply, is the Environment Agency (EA).

The EA has the power to enforce Fixed Monetary Penalties, VMPs, Compliance Notices, Restoration Notices, Stop Notices, and Enforcement Undertakings. This article will focus on VMPs in light of the upcoming changes.

VMPs are discretionary penalties imposed by the EA for breaches of relevant legislation. Currently, the relevant legislation is the Environmental Civil Sanctions (England) Order 2010. Under the 2010 Order, the EA can enforce a VMP up to a value of £250,000. The penalty will be proportionate to the offence and is aimed at the more serious offences that a Fixed Monetary Penalty will not be able to cover. VMPs can apply to all of the Environmental Civil Sanctions (England) Order 2010 Schedule 5

offences, except for section 33(6) of the Environmental Protection Act. While VMPs cover more serious offences than Fixed Monetary Penalties, the most serious cases may lead to criminal proceedings.

An Example of a Civil Sanction

On 27 April 2024, the EA pursued a prosecution against Anglian Water Services Limited, regarding the impact of their Sewage Treatment Work on water quality in East Anglia. The prosecution was brought under the Environmental Permitting Regulations 2016, Regulation 38(1)(a). Anglian Water Services Limited were found guilty and were required to pay a fine of £2,650,000.000 and costs of £16,520.09. The amount of this fine shows how significant the financial costs of an environmental breach can be. The removal of the £250,000 cap will allow the EA to impose a significant fine under a VMP, widening their sanctioning powers.

Changes Proposed by the Consultation

The DEFRA consultation decided on two legislative changes: removing the £250,000 cap under the Environmental Civil Sanctions (England) Order 2010 for VMPs and introducing unlimited VMPs as a civil sanction in the Environmental Permitting (England and Wales) Regulations 2016 (the Regulations). Both changes intend to make penalties for environmental offences proportionate to the degree of environmental harm and culpability.

The proposed change to the 2010 Order has raised concerns amongst the waste and resource management, energy and mineral products sectors, and water companies  as well as insurers around potential new unrestricted fines. DEFRA and the EA have emphasised that safeguards will be put in place and that the Independent Sentencing Council Guidelines will be used to underpin all penalties. The Guidelines should help ensure that penalties are proportionate to the size of the proposed offender, their ability to pay, their degree of responsibility for the offence, and the seriousness of the incident.

The proposed changes to the Regulations have raised concerns that the EA is being provided with too much power. However, the consultation found that such change is necessary to ensure regulators have the right tools to drive compliance and to allow for proportionate deterrence and punishment. However, in order to ensure that punishments are proportionate, robust governance is needed on how penalties are to be imposed.

The EA already has well established and expert-supported governance, providing oversight both locally and nationally. This governance will be supported by the Enforcement and Sanctions Policy, which will aid in assessing the appropriate enforcement action following investigation of an environmental incident. Relevant factors will include level of harm, culpability, history of offending, and the operator’s response to the breach. As per the the 2010 Order, in the most serious cases criminal prosecution may be brought.

The Enforcement and Sanctions Policy will be updated to reflect the removal of the cap, and the introduction of VMPs into the regulations. Changes will provide more detail on how VMPs will operate alongside existing options, and how the penalty amount will be calculated. These updates will be made after the amendments to the legislation are passed.

Process for Serving a VMP

Before imposing a VMP, the EA must be satisfied beyond reasonable doubt that the person has committed the offence. Prior to imposing a notice, they must first serve a ‘notice of intent’. This will set out the grounds of imposing the VMP, the amount of the penalty, information as to the right to make representations and objections within 28 days beginning with the day on which the notice was received, and the circumstances in which the regulator may not impose the penalty (including any relevant defences).

Once the ‘notice of intent’ has been received, the proposed offender has 28 days to make written representations, raise a defence, or make a third-party undertaking. When this period has expired, the enforcement agency will decide whether to confirm the notice unchanged, confirm it with changes, or not confirm it. The final notice must include information as to the grounds for imposing the penalty, the amount to be paid, how payment may be made, the period within which payment must be made (no less than 28 days), rights of appeal, and the consequences of failing to comply with the notice.

If representations are unsuccessful, then an appeal can be brought. The grounds of appeal for a VMP are:

• that the decision to issue the notice was based on an error of fact;
• that the decision to issue the notice was wrong in law;
• that the amount of the penalty is unreasonable;
• that the decision was unreasonable for any other reason;
• any other reason.

As you will have read, these time limits are relatively short, and from an insurance perspective, if insurance is available for defence costs, notification of the notice of intent and the instruction of suitable qualified lawyers to advise and respond to the notice will need to be completed quickly.

Key Takeaways

As mentioned earlier, the amendments are presently set to be introduced on 1 December 2023, and will be followed by the updated Enforcement and Sanctions Policy. These changes will provide the EA with greater sanctioning powers and amended guidance on implementation. It is important to note that while the upcoming changes will apply only to England, there may be subsequent legislative changes that apply to all of  the United Kingdom.

The changes will apply to all operators who commit offences under either piece of legislation. However, DEFRA has committed to ensuring that public enforcement guidance is updated to suit the amendments. VMPs should not be imposed by regulators until the guidance has been updated.

Following the legislative amendments, enforcement agencies will have significantly more powers in relation to prosecution. The removal of the £250,000 cap, and the fact that proceedings need not be issued through the courts, means that proposed offenders can find themselves faced with high value fines which require a prompt response. VMPs cover a range of different offences, and parties should be aware that where fines used to be capped at £250,000, they can now be unlimited. The 2023 case of Anglian Water Services Limited and the record £90 million fine for Southern Water show how high fines for breaches of environmental regulation can be.

Parties should ensure that they are aware of their legal obligations and that they update their compliance procedures as required. If they are served with a ‘notice of intent’, then they should seek to inform their insurers and contact lawyers promptly. This will ensure as much time as possible to respond to the notice, and to prepare both the necessary representations and any grounds for appeal if those representations fail.