Heightened awareness of environmental protection has increased the focus on enforcement action for breaches of environmental law.
Directors should be alive to the fact that environmental liability can be both civil and criminal and, in terms of criminal breaches, liability can be attached both to a corporate entity and to individual directors or other officers.
Under several environmental regimes, a director, member or other officer commits an offence, as well as the organisation, if the corporate offence was committed with the consent or connivance or attributable to the neglect of the of the director or officer.
Gordon Anderson, sole director of waste and recycling company Paperback Collection and Recycling (“PCR”), pleaded guilty to offences of excess storage and depositing of waste, contrary to the Environmental Permitting (England and Wales) Regulations 2016. PCR were convicted of an offence contrary to regulation 38 and Anderson of an offence contrary to regulation 41. Following the guilty pleas, he was sentenced to 15 months’ imprisonment, suspended for 18 months, a 15-year directors disqualification order, together with 250 hours of unpaid work.
Anderson appealed against the sentence of 15 months’ imprisonment and the 15 year directors disqualification order. The appeal was allowed in part with the Court rejecting all aspects of his appeal against the sentence apart from the disqualification period.
In 2014, the Sentencing Council published a specific sentencing guideline for environmental offences which contains different categories for ‘harm’: major (category 1), significant (category 2) and low (category 3).
Anderson challenged the categorisation of the offence and the sentencing judge’s finding that the offence fell at the top of category 2. Anderson argued that the assessment should have been limited to include only the clean-up costs arising from the excess waste. The Court disagreed. When assessing the financial element of the harm, the judge was not wrong to take into account the entirety of the clean-up costs. This was not a confiscation proceedings or an application for compensation and therefore the judge was not restricted to an amount of money that might reasonably be awarded by way of compensation. Where there is a clear and sufficient nexus between the appellant’s offending and the harm, the judge is entitled to reflect this in the need to clear the entirety of the waste, even where an environmental permit had existed that would have allowed the storage of some waste. This argument was therefore rejected.
In brief, a Newton hearing occurs when the defendant has pleaded guilty to the offence, but there is a dispute as to the factual basis on which sentencing should proceed. The judges is permitted to convene a hearing, without a jury, to listen to evidence on the matters in dispute, before proceeding to sentence the defendant(s).
Anderson argued that the judge had erred in determining that a Newton hearing was unnecessary given that points of evidential conflict had arisen. The Court found that Anderson’s argument was fundamentally flawed. First, Anderson himself encouraged the judge not to hold a Newton hearing. The Court explicitly stated that it was unsustainable to expressly forgo the opportunity for such a hearing, only to later complain that the judge had failed to adopt his position on evidence. Second, the Court noted that the factual disagreements which had an impact on the sentencing exercise were in any event limited and there were no significant disputed factual issues where the judge had accepted the prosecution evidence over the defence evidence. This argument was therefore rejected. It is worth noting that Anderson’s argument may have had more weight had a factual dispute arose which was capable of making a material difference to the sentence.
The ‘corporate veil’ is a metaphorical concept that the rights and duties of a corporation are solely the responsibility of the company alone, having its own ‘legal personality’. It is generally prohibited to ‘pierce the corporate veil’ and disregard this concept in order to obtain a remedy against someone other than the company in respect of a liability which would otherwise be that of the company alone.
Anderson advanced this argument, saying that the judge had impermissibly pierced the corporate veil in treating the liability of PCR as the financial gain of himself personally.
The Court rejected this argument as “misconceived.” The judge was assessing the correct punishment to be imposed as a consequence of Anderson’s criminality and the concept of piercing the corporate veil “had no relevance to the fact-finding exercise the judge needed to undertake in assessing culpability and harm regarding the particular director’s conduct.” The sentencing judge was entirely correct to have regard to the motives, intent and conduct of the director in the context of the business activities of the company.
The Court applied the Guidelines, noting that the judge was enjoined by them to take into account the appellant’s motive as director of the company, namely whether he was acting altruistically or for commercial advantage. They again, rejected Anderson’s argument, stating that to take these considerations into account does not pierce the corporate veil but is an appropriate consideration in making a correct assessment of the nature of the offending and therefore extent of the punishment that is appropriate.
Finally, Anderson argued that the disqualification period of 15 years was excessive. The Court agreed and, in giving their judgment, cited Re Sevenoaks Stationers (Retail) Ltd [1990] 3 WLR 1165; [1991] Ch 164 which identified three brackets in relation to disqualifications under section 6 of the Company Directors Disqualification Act 1986: top (over 10 years), middle (6 – 10 years) and minimum (2 – 5 years).
15 years is the maximum disqualification period and should be “reserved for particularly serious cases.” Anderson was a man of otherwise good character who, albeit late in the day, pleaded guilty and who had never previously been subject to a disqualification order. The Court therefore decided that his sentence should fall in the middle bracket and a period of 6 years’ disqualification was considered appropriate.
For good reason environmental breaches are taken seriously and where the offending of a body corporate can clearly be attributed to the acts or defaults of a senior person, they also commit an offence. Whilst immediate custodial sentences for directors remain rare, courts are fearless in imposing a range of sentencing options, including lengthy director disqualification orders.
One of the best ways for companies to protect themselves and their directors and officers alike from liability for environmental contraventions is to have in place a properly functioning environmental management system. Directors and senior people need to play an active role in ensuring that duties are discharged otherwise they risk being found guilty of neglect in the event of an environmental breach.
At Ashfords we have experience in advising organisations in relation to their compliance arrangements in environmental and other areas of regulatory compliance, as well as supporting organisations and their senior officers in response to incidents and regulatory investigations and prosecutions. If you would like more information, please contact our Business, Risk and Regulation team via Partner Ian Manners.
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