The power of six

A new range of civil powers has been launched for certain environmental offences in the UK. The aim is to increase the options available to regulators and provide alternative sanctions to criminal prosecutions. Practitioners will need to understand this regime and its implications.

The new offences are designed to increase the options available to regulators and provide alternative sanctions to criminal prosecutions. Environmental regulators such as the Environment Agency (EA) and Natural England (NE) are the first to be granted these new powers.

UK legislation has historically been drafted to make breaches of regulation criminal offences and as a result enforced through the criminal courts. However, two important reviews of UK regulation, the Hampton review, 'Reducing Administrative Burdens: Effective Inspection and Enforcement', in March 2005, and the November 2006 Macrory report, 'Regulatory Justice: Making Sanctions Effective', concluded that regulatory offences should be treated differently.

The government subsequently enacted the Regulatory Enforcement and Sanctions Act 2008 (RESA). Part 3 of RESA contains a framework for the creation and application of civil sanctions for a wide range of regulatory offices.

The six sanctions

Fixed monetary penalties (FMP): these are designed to provide an alternative to prosecution in relation to low-level, minor breaches. In many ways they are analogous to fixed penalties for road traffic offences.

Companies will be fined £300 and there is a discount of 50 per cent for early payment, but late payments attract an increased payment of 50 per cent. Examples include failures to provide monitoring data or other information when required.

Discretionary requirements are designed for mid to high-level examples of breach and allow regulators to impose one or more of the following sanctions:

Compliance notice (CN): this is a written notice which requires a party to take specific steps within a certain period to cease activities amounting to a regulatory breach or to prevent one occurring in the future. They can be thought of as similar to enforcement notices that already exist in regimes that require permits, such as environmental permitting.

Restoration notice (RN): this is a written notice which requires a party to take specific steps to restore the position to what it would have been if there had been no regulatory breach. An RN must also clearly identify the damage that has occurred, the action required to restore the position and the period within which those actions should be taken. An RN can be issued with a variable monetary penalty or a CN or stop notice but not with an FMP.

Stop notice (SN): this requires a business to cease its activity until it has taken steps to become compliant. It can be issued with any other civil action except for an FMP. Because of the serious implications for a business of an SN, the regulator must pay compensation if either they withdraw a notice or the company successfully appeals against it. SNs are not suspended automatically on appeal, although it is proposed that the appeal tribunal fast tracks urgent applications against suspension pending a full appeal hearing.

Enforcement undertaking (EU): these are voluntary agreements by a company to take steps that would make amends for a breach. EUs can be offered as soon as the regulator signals his intention to impose a civil sanction, although a regulator is not bound to accept an EU. The regulator may instead choose to impose another civil sanction or indeed to prosecute. For a regulator to accept an EU there must be a clear recognition of any failings or harm and the regulator will usually look for director or board level commitment to restoration and further compliance. If a regulator accepts an EU then it cannot impose another civil sanction or prosecute for the original breach. However, failure to comply with the terms of an EU is in itself a criminal offence which could result in a prosecution.

Variable monetary penalties (VMP): this is a written notice similar to an FMP. However, the regulator has discretion as to the amount of penalty, subject to a cap of £250,000. This is significant because it means that an FMP could be higher than the amount of the fine if the matter was taken through the courts. VMPs are designed for the more serious offences where the regulator decides that prosecution is not in the public interest. The government model requires regulators to apply a three-step process to work out the amount of the penalty: first, an estimate of the financial benefit of the breach (normally the costs avoided, so, for example, in a waste packaging prosecution this would be the amount of cost saving of failing to register); second, by adding an appropriate deterrent component; and third by deducting any other costs incurred, such as the costs of any actions taken voluntarily in response to the offence.

The deterrent component requires a regulator to choose a starting sum, either by reference to the restoration costs, financial benefit or the maximum criminal fine a magistrates' court can impose for the offence. According to government guidance the regulator can choose the starting sum according to which 'characterises the offence' and then adjust it, based on aggravating and mitigating factors. The basis of the calculation of the level of fine has been the subject of much debate. It seems likely that we will see challenges to VMPs, based on the subjective elements in calculating the components. At least in the early years, appeals are likely to follow the imposition of VMPs.

The appeals process

There is scope for all civil sanctions (including SNs) to appeal to the General Regulatory Chamber of the First-tier Tribunal under the new tribunal rules. The First-tier Tribunal has the power to award costs against a party. However, unlike the courts, costs will not necessarily be awarded on the basis of who is successful in the appeal. They will only be awarded against a party who has acted unreasonably in bringing, defending or conducting the proceedings. Each party has the right to appeal from the First-tier Tribunal to the Upper Tribunal on a point of law. It is likely that in time we will see a specialist environmental court which in turn should result in a greater consistency of approach.

Which offences are covered?

Only certain environmental offences are caught by the new powers. Significantly, two of the most common types of environmental offences, namely those under section 85 (water pollution) of the Water Resources Act 1991 and section 34 (waste duty of care) of the Environmental Protection Act 1990 are not included. Additionally, not all civil sanctions are available for all offences as demonstrated in the table. For example, for a section 33 (waste) offence under the Environmental Protection Act 1990, the only possible civil sanction is a stop notice. Otherwise criminal sanctions will have to be pursued. While the scope of environmental offences is limited at this stage, in due course we are likely to see this scope extended.

Next steps

The secondary legislation, namely the Environmental Civil Sanctions (England) Order 2010 and the accompanying Environmental Civil Sanctions (Miscellaneous Amendments) (England) Regulations 2010 came into force on 6 April 2010. The order sets out the basis on which the civil sanctions may be used, the offences in primary legislation for which civil sanctions may be imposed and specifies which civil sanctions may be imposed for each offence. The accompanying regulations set out the same information as the order for offences in secondary legislation.

The EA's consultation as to how it intends to use its new powers closed on 7 May 2010 and the EA is due to publish the results of that consultation together with guidance. The EA has previously said that it expects to start using civil sanctions in September 2010.

Natural England will also go through the same consultation process. While we await the guidance there are some issues to think about in advance.

Key considerations

It will be up to the regulator to choose between the civil and criminal sanction path and once the path is chosen, with limited exceptions, regulators can not subsequently revisit that initial choice of path. Practitioners will need to fully understand this process and the options available. There is, for example, the opportunity to volunteer an EU. There is also an opportunity to offer a third-party undertaking which will involve taking action to benefit a third party affected by the offence.

Practitioners will need to understand that certain civil penalties can be applied in combination with each other, such as RNs and VMPs, but others, including EUs, cannot be for the same offence. Practitioners must ensure they understand all the relevant permutations and also be proactive where relevant. They will need to be aware of the potential negative publicity and loss of reputation for their clients as a result of civil sanctions. Regulators will be required to publish the details when enforcement action is taken using civil sanctions, including FMPs and EUs and their terms, and regulators will be encouraged to set up a public register on their website.

It is likely that there will be an increase in enforcement of low-level offences which will lead to FMPs, as the process for issuing civil sanctions is likely to be significantly quicker than proceedings for the criminal courts. However, businesses will need to be properly advised as to the risks of simply admitting to an FMP. Although the fines themselves are minor, the publicity and any knock-on commercial implications also have to be considered.

VMPs are likely to be a fruitful ground for practitioners. The methodology appears complex and is likely to be challenged.

This is a new regime which for now applies to a limited range of environmental offences. This may, however, be the shape of regulation in years to come. Environmental regulators are the first to be awarded these new powers and no doubt their actions will be watched with great interest. There are pitfalls for business and practitioners will need to be able to unpick the details of this new regime so that they can either use it to their own advantage or are able to respond where appropriate.