Regulatory Justice - Sanctioning in a post-Hampton World

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Response to Cabinet Office’s BRE Consultation – Regulatory Justice:
Sanctioning in a post-Hampton World
Introduction
This is the response of the United Kingdom Environmental Law Association
(UKELA)1 to the BRE’s consultation on regulatory justice. UKELA welcomes the
review as a timely opportunity to have a full and open discussion of the issues raised.
UKELA is the UK forum which aims to make the law work for a better environment
and to improve understanding and awareness of environmental law. UKELA’s
members are involved in the practice, study or formulation of Environmental Law in
the UK and the European Union. It attracts both lawyers and non-lawyers and has a
broad membership from the private and public sectors.
The response follows the structure of the questions asked in the consultation
document. UKELA has considered questions 1-4 and 20-34 only.
Necessarily, UKELA makes its response primarily on the basis of environmental
regulation, but UKELA notes that the review is concerned with regulation generally.
UKELA welcomes this approach because regulators, the regulated, the public
interested in effective environmental regulation and those deciding cases and appeals
need common principles and coherent outcomes.
The Review
Q1 What would you like the review to achieve for your organisation?
UKELA hopes the review leads to a regulatory system that (i) better encourages the
regulated (whether individuals or companies) to comply with environmental laws; (ii)
provides greater clarity, consistency and certainty in environmental regulation than
exists at present; and (iii) enables and/or encourages a more effective use of
sanctions.
Company limited by guarantee Registered number: 2133283; Registered office: Honeycroft House,
Pangbourne Road, Upper Basildon, Berkshire, RG8 8LP; Registered Charity No. 299498 http://www.ukela.org/
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Q2 Considering the issues set out in Chapter three, what changes would you like
to see arising from the review?
UKELA would like to see:

The introduction of a system of effective environmental administrative
penalties (subject to the limitation described further below);

Improvements in the approach currently taken to criminal prosecutions (as set
out in greater detail below).
Q3 What would be the most positive outcome for you?
The above changes (see Q2) implemented in a way which:

commands the respect of the public, business and regulators;

provide effective solutions for regulators and the courts to deal with the
diverse range of companies and individuals who may commit environmental
crime  rather than a fixed and inflexible approach; and

is cohesive, comprehensive and timely.
Q4 What would be the worst outcome for you?
The decriminalisation of large areas of environmental law: UKELA considers that
without criminal prosecution as a backstop option underpinning the system generally,
this would risk the public losing confidence in the UK’s system of environmental
regulation; and would send the wrong signal to business about the importance of
complying with environment laws.
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Criminal prosecutions
Q 20 Is criminal prosecution an effective tool in dealing with regulatory
offences?
Yes  although it is more effective in some circumstances than in others. To assist
the review, Appendix 1 to this response contains some examples which reflect this
range of effectiveness.
UKELA considers criminal prosecution must be part of any effective enforcement
pyramid as a backstop to deal with the most serious behaviour by individuals,
companies and directors. Criminal sanctions demonstrate society’s opprobrium of
offensive conduct in a way that other sanctions cannot. It is this, rather than
deterrence and penalty, that sets criminalisation apart from regulatory sanctions
(which, if set appropriately, can deter and punish). Criminal prosecution should
therefore be reserved for use only when the offence concerned is serious enough to
merit this.
In practice, however, circumstantial and practical issues in the use of criminal
prosecution can limit its effectiveness as a tool for dealing with some regulatory
offences. For example, in some circumstances pursuing a criminal prosecution may:

appear to be a disproportionate response to the offence alleged;

inhibit the use of alternative, more flexible sanctions;

brand a person or company with criminality when the circumstances leading to
the prosecution may not be direct consequences of their actions;

take a long time to come to court – with, for example, business consequences
for the respondent concerned who may ultimately be acquitted;

fail to rectify damage caused by the offence;

result in high costs in relation to the proper penalty, which may be inefficient
for both the regulator and the regulated.
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Q 21 Are there benefits in using criminal prosecution?
Yes. See above.
Q 22 Please give your views on whether you think regulatory offences should or
could be recategorised with some offences becoming decriminalised.
Although, in principle, UKELA would not oppose consideration of the
decriminalisation of some environmental regulatory offences as part of the review, in
practice there are very few offences where UKELA considers this would be
appropriate. On the whole, UKELA considers that criminal prosecution should be an
available backstop for the overwhelming majority of environmental regulatory
offences.
Q 23 Please outline your experience with criminal proceedings including the
knowledge of Magistrates or Crown Court judges of your regulatory area, the
level of fines, the duration of cases from initial proceedings to final resolution
and whether cases settle before proceeding to court.
The Tribunal
It is self evident that magistrates (whether lay magistrates or District Judges) and
Circuit Judges do not have specialist knowledge of many, or any, of the wide range of
regulatory issues which come before them. It is also self evident that the tribunal is
being asked to measure a penalty for which there is no independent method of
calculation. They are weighing factors and reaching a judgment. UKELA
acknowledges therefore: (i) that experienced criminal tribunals are an important
source of independent judgment in the difficult exercise of fixing penalties in very
widely varying circumstances, i.e. they are trained and experienced in assessing what
the offender has done wrong and what the consequences were or might have been,
and (ii) it is not practical to do more than provide guidance on principles of
sentencing in this sphere of regulation.
The Review is considering systems of regulation and penalties. However, those
systems are implemented by people who have to make judgments. At present there is
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no criticism of the setting of administrative penalties because there is nothing to
criticize. It will be seen elsewhere in this Response that UKELA strongly supports
the retention of criminal sanctions. Hence UKELA has considered how the concerns
about the experience of criminal tribunals might usefully be addressed. At present
there is no environmental or regulatory court. However arrangements could and
should be made to list such work in ways which concentrate experience. This would
ensure that criminal sanctions for regulatory offences remain in step with penalties in
other areas of offending but would improve understanding, consistency and certainty.
There appears to be no reason why a list of Circuit judges and Recorders with an
interest or practice in the area could not be maintained either on each Circuit or
otherwise. Likewise, there is no good reason to prevent such Recorders from sitting
as Deputy District Judges in the Magistrates’ Court in appropriate cases.
Level of fines
This is an area in which there has been much commentary which need not be repeated
but which is cited in [2005] ELM 17, 109.
Members of UKELA have experience of outcomes of criminal proceedings which
were either unduly lenient or manifestly excessive. The latter can be and frequently is
corrected by appeal, though for almost all regulatory offences there is no means of
dealing with unduly lenient sentences because they do not fall within the scope of
offences which may be referred by the Attorney General. This is unsatisfactory.
Guidance
Since May 2001 prosecutors in all areas of regulatory crime have brought the
Magistrates’ Association guidelines to the attention of even more Magistrates by
literally handing up copies or guiding Magistrates and their legal advisors/clerks
through the principles. The Environment Agency regularly produces “friskies
schedules”, that is a schedule of aggravating circumstances as per R v Howe and Son
(Engineers) Ltd, R v Friskies Pet Care and the Magistrates’ Court Sentencing
Guidelines (for Companies for Health, Safety and Environmental Offences). The
Magistrates’ Court Sentencing Guidelines has been used since 2001, reinforced since
2002 and endorsed by the Court of Appeal in 2003 in the case of R v Anglian Water
Services Ltd. It is felt that these are now percolating through to the Magistrates.
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The Review will know that sentencing guidelines in environmental cases are
programmed to be reviewed during the course of 2006 (see the Sentencing Advisory
Panel’s web site).
Duration of cases
Typically, investigation times are longer in environmental crime than in other spheres
of crime. It is not unusual for periods of 1-2 years to elapse between an event and
commencement of criminal proceedings.
There is a very wide range of times to complete proceedings. Often, there will be a
plea on the return date of the summons. However, proceedings may take 12 – 18
months to complete even in the summary jurisdiction.
Settlement of cases
Assuming this question is directed to the proportion of cases which are listed for trial
but resolve beforehand, UKELA can confirm that the very large majority of
environmental prosecutions result in a guilty plea. However, there is often significant
effort expended in agreeing or litigating (via a Newton hearing) the basis of the plea,
i.e. how it is said that the offence was committed or the extent of the harm which
resulted.
Q24 In general, do you think that the current system is adequate? If not, how
would you suggest that it be improved?
Overall, whilst UKELA considers that the current framework of enforcement is
adequate, it could be improved (as could its implementation). UKELA considers that
such improvements might include, in appropriate circumstances, the introduction of
intermediate and alternative sanctions (as to which, see further below). These
measures would only result in an improvement to the system if they were introduced
in a way which (i) enhanced the clarity and coherence of the system and (ii) did not
compromise or detract from existing sanctions (such as enforcement notices and,
ultimately, criminal prosecution). UKELA members have different views on the
appropriateness of strict liability in environmental regulatory offences. Some
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members hold the view that as a matter of public policy in the environmental field it is
important that companies are held to account for the acts and defaults of their
employees (and that there would be practical problems in proving mens rea if
companies were not held strictly liable in such cases). Others think that Parliament
simply chooses strict liability as a default option and that it is not a necessary (or even
the most effective) means of holding companies to account. It is agreed, however,
that there appears to be no overall coherence to how the system operates. In
particular, the present system lacks consistency in the point at which the behaviour
and/or individual circumstances of the wrongdoer is judged – e.g. should this done at
the point of setting the standard for liability (strict or causing/knowingly permitting);
or in the punishment.
Intermediate sanctions
Q25 Should the review look to the greater use of administrative penalties as an
option for intermediate sanctioning?
Yes, so long as the enforcement of environmental laws and the criminal sanctions
within the system is not undermined by such a change. In general, the circumstances
of any breach not the type of offence should determine the response by regulators
(prosecution or administrative penalties).
Q 26What type of model would be appropriate? Consider the safeguards,
appeals mechanisms and standards of proof that the model should embrace.
One approach would be to empower regulators to apply administrative penalties in the
alternative to prosecution as a matter of discretion. Where a penalty is applied and
accepted prosecution would not occur. Where a penalty is applied but refused
prosecution would follow. The discretion to refuse to accept a penalty should mean
that, subject to it being Human Rights Act compliant, there would be no need to set up
a separate appeals route for those who refuse to accept the penalty so avoiding
creating another regulatory system through a review that aims to simplify.
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This approach would avoid the need to reclassify current environmental offences as
either criminal or civil – when one considers breach of a permit condition (a relatively
frequent environmental offence the consequence of and circumstances surrounding
which may be inconsequential or hugely significant) how can one sensibly categorise
all events as criminal or civil?
The public would be protected by knowing that environmental offences remain
criminal but can be dealt with more effectively so freeing up regulator’s resources to
focus on other high-risk or unlawful activities. The public could still commence a
private prosecution, as now, where regulators fail to act (but not where an
administrative penalty was offered and accepted to avoid double jeopardy).
The courts would receive fewer but more significant cases so freeing up court time.
Business would have the confidence that penalties would only be imposed where, as
currently, the regulator considers that there is evidence to suggest beyond reasonable
doubt that offence has been committed. Those who accept administrative penalties
and regulators would be spared the time and resource drain of protracted court
proceedings. Business would be protected from unfair penalties through their right of
refusal.
The funds from such penalties, other than perhaps covering their investigation costs
(as otherwise regulators would generally opt to prosecute), should not benefit
regulators – this would avoid the impression that the imposition of penalties was
driven by revenue considerations. Such funds could instead be applied to benefit the
environment or local community. The courts have had considerable problems
collecting fines from offenders and this should be avoided if possible. One way of
achieving this might be to empower regulators to prosecute for the original offence if
an administrative penalty is not paid on time.
Such administrative penalties could be fixed or variable. Variable penalties (with
ceiling limits and some reference to means) backed by clear guidance would seem to
met the aims of the review better than fixed penalties. Variable penalties might take
account of: investigation costs; profit gained from non-compliance; remediation
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costs; weighting for environmental impact; and potentially a weighting by turnover of
the company (see also response to Q34 below).
An alternate approach to the above would be the introduction of “civil penalties”, the
merits of which are clearly set out in the UCL report already cited in the review
consultation document. Civil penalties may be less straightforward to introduce in
practice than the model of administrative penalties described above, but may have
certain advantages that are worthy of consideration, such as greater scope for the
recovery of the costs of the environmental damage caused.
Enforcement notices
Q27 Do you feel the current use of enforcement notices requiring compliance in
the future achieves their goal?
Yes. Although there are well-recognised difficulties in their application in practice,
UKELA supports the use of enforcements notices as an effective and proportionate
means of addressing both unlawful activity (such as the fly-tipping of waste), and
breaches or potential breaches of environmental permits (including the failure to take
reasonable measures to prevent future harm).
The issues to which this question refers have been considered and reported upon
relatively recently (http://www.odpm.gov.uk/index.asp?id=1147884).
Q28 Would coupling such notices with an administrative penalty for noncompliance be more effective in securing compliance than the threat of a
criminal prosecution?
Compliance tools and prosecution are already intertwined and complementary. An
administrative penalties regime would be valuable in “plugging a gap” between the
two.
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Alternative sanctions
Q29 Should the review consider the case for introducing alternative sanctions by
the courts or by regulators in the case of regulatory offences such as reputational
sanctions, probation orders or restorative orders?
Yes. UKELA would be in favour of the introduction of all of these sanctions as
additional alternatives to existing sanctions (but not as substitutes for them).
Q30 Could the effect of alternative sanctions of this type be as effective as
economic or criminal sanctions?
UKELA’s view is that alternative sanctions will generally not express society’s
opprobrium for the most serious environmental wrong-doing as effectively as criminal
prosecution. In some circumstances, however, alternative sanctions may be more
effective that economic or criminal sanctions (e.g. when a firm is unconcerned about
its reputation and a fine would be of no consequence it may be more effective to
obtain a restorative order). In most instances alternative sanctions would be a
valuable additional option rather than an alternative e.g. reputational sanctions (such
as negative publicity orders used in Australia) could be used effectively to magnify
the opprobrium of a criminal conviction in appropriate cases, but could not be
considered a substitute for criminal prosecution.
Financial penalties
Q31 Please tell us if you think the financial penalties handed down in both the
Magistrates or Crown Courts are appropriate and effective for regulatory
offences?
This issue has been well canvassed and UKELA repeats its response to DEFRA on its
review of environmental enforcement in September 2005 (copy attached).
Q32 Should the financial penalty in the case of regulatory breaches reflect the
economic gain derived from the non-compliance?
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Yes, but ideally in way which also reflects the culpability of the party in breach  and
does so in a transparent manner. Take, for example, the simple case of a company
which breaches a permit and is therefore liable to pay a fine. Intuitively, one would
expect the fine to be not less than the financial benefit gained by the breach. In our
view, the present system does not sufficiently reflect this expectation in practice; nor
in many cases does it satisfactorily reflect the culpability of the party concerned
(whose breach may be the result of anything ranging from an innocent mistake to
willful avoidance). Ideally, the system should also make a clear and obvious link
between financial benefit and culpability on the one hand, and the level of penalty on
the other.
The packaging regulations offences provide a good example of all these issues in
practice. For such offences, high penalties are often imposed because the prosecution
adduces evidence to show the financial benefit gained by non-compliance. The fine
imposed in such circumstances is usually closely related to that sum and, where
relevant, the culpability of the party in breach. The problem of transparency often
remains however: on the occasion of future breaches being considered the link is not
always clear.
It should also be noted that “financial benefit” it is often not as simple as merely
looking at the positive economic gain arising from non-compliance. Ideally, any
system should also provide for circumstances where a defendant, although not
obtaining an obvious positive economic gain from non-compliance, has nevertheless
obtained a substantial financial benefit in the form of a saving on investment. (See
also response to Q34 below).
Q33 Should the financial penalty in the case of regulatory breaches reflect the
level of harm or potential harm caused?
UKELA considers that a financial penalty should reflect actual environmental damage
or the extent of the risk of such harm, but that factor should be weighed in the light of
culpability.
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The Criminal Justice Act 2003 requires that the seriousness of the offence is assessed
according to the defendant’s culpability as well as the level of harm actually caused or
intended or which was foreseeable (S143(1)). The Sentencing Guidelines Council2
make it clear that harm must always be judged in the light of culpability. Hence, the
present approach to assessing financial penalties does reflect the level of harm or
potential harm, though in most cases the actual costs of environmental damage caused
are not recovered.
Q34 Should the financial penalty consider other factors such as previous
compliance record, ability to pay, and the seriousness of the offence, annual
turnover of the business etc? Which of these factors are the most important?
Yes. We note that the present statutory framework allows for the seriousness of the
offence and the means of the defendant to be taken into account, along with
mitigating factors including the defendant’s compliance record. UKELA firmly
supports all such factors being considerations when assessing the quantum of a
financial penalty  with the seriousness of the offence and compliance record being
the most important. Ability to pay, although a relevant and legitimate factor for
consideration, should be given less weight (although it is recognised that, in practice,
the decision makers are likely to pay close regard to this factor). Any system should
also allow a decision maker to look at the financial situation of the defendant in the
round  considering factors such as turnover, gross profit, net profit, fixed assets,
liquid assets, liabilities, cash flow and ability to borrow. Reference to only one of
these measures would be likely to distort the assessment of means.
2
Guideline Overarching Principles published by the Sentencing Guideline Council
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Appendix 1
Most regulatory breaches by the large corporate bodies result from management
failings. The bulk of environmental crime arises from the activities of SMEs which
either: (i) have inadequate understanding and/or systems but do not deliberately
breach regulations or create risks, or (ii) knowingly, recklessly or intentionally carry
on their undertaking in a way which either ignores regulation or presents obvious
hazards.
Very different considerations as to effectiveness apply to each category. As an
approach to dealing with these and subsequent questions, the range of offending has
been imperfectly represented by three fictitious examples.
1.
Water Co – a statutory undertaker which is prosecuted as a result of a
failure of machinery at a waste water treatment works (WWT). The
machinery failed on three occasions; each after attention had been
drawn to inadequate fail safe systems. On the third occasion there was
a release of substances to a river with a fish kill and closure of drinking
water abstractions for 48 hours. Water Co was prosecuted for failing
in its duty of care in respect of the waste; allowing waste to escape and
cause harm to the environment and risk to human health; causing
poisonous, noxious and polluting matter to enter the river. The
prosecution was commenced two years after the event. Water Co
pleaded guilty on the return date of the summons, being 4 weeks after
the commencement of the proceedings. The Magistrate’s retained
jurisdiction fining Water Co the maximum penalty of £45,000 (2 x
£20,000 and 1 x £5000) and awarded the prosecution costs of £10,000.
The total of £55,000 was paid by Water Co in 28 days. Water Co’s
turnover is £2 bn.
2.
Small Co – a skip hire company which operates from a site which is
regulated by the Environment Agency under the terms of a licence
which permits it to transfer commercial and domestic wastes, but not
hazardous wastes. Small Co is regularly inspected by the Agency and
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there are frequent minor non-compliances with the conditions of its
licence which are always rectified promptly upon being pointed out.
Small Co receives a load of waste which includes asbestos which is
hazardous. Small Co identifies the asbestos and keeps it on site for 2
months, being unsure how to deal with it. Vandals burn waste on the
site, spreading asbestos in the locality. Proceedings are commenced
against the company and Mr Small, the managing director, within six
months, each on a single charge of keeping controlled waste without a
licence which was then subject to a maximum penalty of £20,000 on
summary conviction. Small Co pleads guilty at the first opportunity
and the Magistrates commit the matter to the Crown Court on the basis
that they have insufficient powers to sentence. Small Co is fined
£5000, Mr Small is fined £2000 and each ordered to pay a contribution
of £1000 towards the prosecution costs. Fines and costs are ordered to
be paid over a period of 12 months.
3.
Rogue used to work in a hospital. He knew the cost of disposal of
clinical waste. He sets up a clinical waste collection business. He
completes false waste transfer notes which indicate that clinical waste
is destined for a suitably licensed site. In fact, he buries the waste on
farm land. He is prosecuted for waste offences, forgery and 7 Theft
Act offences arising from the monies received by deception. He elects
trial on indictment and is convicted on 4 of 7 counts. He receives a
custodial sentence and no order for costs. The investigation and
prosecution take two and a half years to complete and cost £100,000.
Proceedings to recover the proceeds crime yield the lesser of the
benefit or assets, being £20,000 which the value of Rogue’s car.
The Water Co example is effective regulation in that:
i.
it deals with a failure to heed warnings
ii.
it provides a public opportunity to mark public disquiet about pollution
incidents
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iii.
the board of the company dislike prosecutions and being asked to go to
court
iv.
it is a conviction which is recorded against the company and which
will attract the attention of auditors, potential purchasers of the
company and any court dealing with a subsequent offence
v.
in the range of financial penalties imposed in criminal courts, it is a
substantial fine
The Water Co example is ineffective regulation in that:
i.
it is an admission that the warnings had no good effect
ii.
the company has a very substantial operation and excellent systems
which have a good record of environmental management, but human
error, mechanical failures and failure to apply systems is bound to
result in pollution incidents from time to time, so the company comes
to expect a certain level of prosecution
iii.
the penalty is insignificant in comparison to the company’s means, by
any measure
iv.
no individual was prosecuted even though somebody in a position of
responsibility must have ignored the warnings
v.
the prosecution was stale by the date of sentence
The Small Co example is effective regulation in that:
i.
it dealt with an incident in which the public was put at risk of serious
harm
ii.
it was quick
iii.
it attributed blame to both the company and the individual who was
responsible
iv.
The judge in the Crown Court recognized that Small Co had the
problem of the asbestos thrust upon them, they intended to deal with it
properly when they knew what to do, and that the serious harm had
arisen from a low level of culpability
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The Small Co example was ineffective regulation in that:
i.
it is difficult for Mr Small to understand that the actions of a vandal
can visit criminal liability on his company and him personally – he was
less disposed to co-operate with Agency as a result
ii.
The Magistrates took a serious view of the case because of the
involvement of asbestos and were of the view that the low culpability
was less relevant. Hence they committed the case. In the result, two
courts considered the case, yielding a penalty which is low to moderate
in absolute terms.
iii.
There was a net cost to the regulator in bringing the proceedings
The Rogue example is an example of effective regulation in that:
i.
Rogue was stopped
ii.
Rogue was imprisoned which is the maximum deterrent available both
to him and to others
iii.
It is difficult to imagine any other course of action on facts such as
these
The Rogue example is an example of ineffective regulation in that:
i.
The proceeds of the criminality were not recovered
ii.
The investigation and proceedings consumed significant resources
from the regulator, in both time and money
iii.
Rogue was acquitted on three counts
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