Southern Water Services Ltd, R v

In either late December 2010 or some time before 7 January 2011 Southern Water Services Limited, part of the Southern Water Group, a utility company owed by professional shareholders, discovered that their sewage-pumping station at Margate, which discharged effluent into the sea off the coast of Kent, was faulty and was discharging untreated sewage. They did not notify the Environmental Agency or the Fisheries Conservation Authority until 17 January 2011. That was a breach of their licence and their obvious duty to the public. It transpired that three of the four transfer pumps had failed. Vibration appears to have caused the feet of the pumps to shear. This reduced the capacity of the works so that up to 50 per cent of the sewage was discharged untreated on occasions into the sea. In the period to July 2011, because they were unable to make permanent repairs to the pumps, there were further discharges of untreated sewage into the sea.

From the papers before the judge it appears that that the company failed to disclose the full extent of those further discharges, until the Environment Agency required them to do so.

On 2 July 2013 in the Canterbury Magistrates' Court the company pleaded guilty to contravening the conditions imposed on it by regulation 12(1), regulation 38(1)(a) and regulation 39(1) of the Environmental Permitting (England and Wales) Regulations 2010. The case was committed to the Crown Court. It was heard on 23 August 2013 in the Crown Court at Canterbury by Her Honour Judge Adele Williams, the resident judge who is very familiar with local conditions in Kent.

In cases of this kind a judge's duty is first to find the degree of culpability; and second, to consider the extent of the harm or potential harm, before turning to consider the financial circumstances of the offender.

As to culpability, the judge found that there had been a failure to notify and to remedy the problems quickly. We will return to that finding shortly. As to harm, the judge found, in accordance with the case advanced by the Crown, that there was no evidence of actual harm. It appears from the helpful materials that have been put before us by Mr Thwaites QC that there was no evidence of actual harm.

However, it was important to look at the potential harm and, particularly in environmental cases, to consider also the impact upon the local economy. It is self-evident that it is the perception of pollution that often has a very serious effect on a local economy. The Crown opened to the judge the fact that the coast of Kent had more blue flag beaches within the area of Thanet than any other authority in the United Kingdom. Part of the coast was designated as a site of Special Scientific Interest. There was extensive use of the areas for amenities, particularly bathing and water sports. Furthermore, the waters were used for shell fisheries. The judge found that any loss of confidence in the use of the coastal waters of Kent could have a serious effect on the local economy.

The judge then looked at the aggravating features. She concluded, first, that there had been a failure to notify the initial failure promptly and properly, and some of the other discharges. She also found that there had been a failure to use sufficient resources to remedy the problem more quickly. Finally, she looked at the company’s record of previous convictions.

As mitigating features, the judge looked at the co-operation that had been given, what had been done to remedy the problem, and the plea of guilty.

She fined the company the sum of £200,000.

In the appeal, which has been argued before us today by Mr Thwaites QC, it has been put forward that the fault was caused by a fault in design; that it would have been very difficult to anticipate the problems that arose.

The difficulty with that submission made at this stage, which is fair to say of the way in which Southern Water and its main board have approached the whole of this serious criminal offending, is that those representing the company were not given the proper material to enable them to explain to the sentencing judge why there had been no fault on their part in the design. Secondly, nothing of any substance was put forward before the sentencing judge to show why there had been delay in dealing with this matter. Mr Thwaites QC has directed our attention to some interviews which took place with the low-level operatives responsible.

Apparently the main board of Southern Water Services Limited failed to appreciate the seriousness of the criminality involved in what had happened and to commission proper evidence, if such was the case, to show that there was good reason why the failure could not be remedied more quickly. It was said on behalf of the Crown that there had been a systemic failure and that the company should have put in more resources. Again, there was no evidence from the company at its main board level to deal with this submission. It is, therefore, hardly surprising that the judge concluded, as she did, the level of culpability which we have set out in the absence of any evidence from the company, and evidence properly put forward, which would show the care and attention that a company of this size would give to such a serious incident as this. If there was material which could have enabled the judge to reach a different conclusion, it is entirely the company's own fault that the judge came to the conclusion she did, as they did not put forward any evidence.

Secondly, it is said that the company had not caused any damage. That is accepted. The submission was advanced that sewage had been discharged into the sea for years and years and years, and why should anyone worry about it?

It seems to us that it is self-evident that the permission that was given by the Environment Agency was conditional on the fact that the pumping station was state of the art; and that it would remove a good proportion of the harmful bacteria. It seems to us that it must be a judgment for the Environment Agency as to the way in which they presented the case to the judge. The judge was entitled to come to the conclusions we have summarised that there was the potential for serious harm. The submission made to us by Mr Thwaites QC is not supported by evidence. Nor was it supported by evidence below. Again, that is indicative of the way in which the main board of Southern Water has treated this matter.

It was, therefore, right that the judge should approach this case on the basis that there had been no actual harm, but that there was the potential for serious harm to the local economy and that there had been a degree of unexplained culpability which reflected poorly on Southern Water.

Against the findings of the judge, with which we can see no basis on the material before us for interfering, we turn to look at the financial circumstances. Southern Water is a very large company by any standards. It had a turnover of approximately £0.75 billion in the last financial year. Its turnover in the year before that was only a little less. Its profitability after tax was £79 million in 2012 and £156.9 million in 2013. It is a company owned by professional shareholders who have two representatives on the board. It is, therefore, a company that has very substantial resources and a management that is quite capable, if it were to put its mind to it, of dealing with the problems that arose in this case.

We have had a statement from the company secretary in which it is said that no dividends have been distributed out of the profits to which we have referred. It is clear that the fact that a privately owned company of this kind does not distribute its profits but ploughs in back into the business is irrelevant. It is a profitable company, and in the water industry professional shareholders would be expected to make investments. The court looks at its profitability in the ordinary way, as if it were an ordinary privately held company. It is quite different to Network Rail, where the monies put into the company come from the public purse.

We turn to consider one further factor. The company has a record of 160 previous offences. Some of them are minor and represented by cautions. Some of them are strict liability offences. Looked at as a whole, there is a record of persistent offending by this company.

In the absence of any explanation as to what the main board of the company has done to reform itself, to eliminate its offending behaviour and to give a detailed explanation of what happened in the incident which was before the learned judge, there is very little mitigation that can be put forward. It is very important - and we wish to make this clear - that in offences of the seriousness of the kind represented by this case it is incumbent on the Chief Executive and main board of the company - particularly one with a serious record of minor criminality which this company has - to explain to the court the cause of its offending behaviour, the current offence and its proposals for protecting the public from such further offending. In other words, as was set out in the judgment of this court in R v Sellafied Limited and R v Network Rail Infrastructure Limited [2014] EWCA Crim 49, the court wants to know how the company is addressing the purposes which Parliament has laid down for sentencing and preventing further criminal behaviour by the company.

We hope, therefore, that this will be the last case which comes before this court where water companies and other similar utilities have not taken much more seriously the criminality of such offences of the seriousness involved in this case.

We can see no basis for interfering with the fine imposed by the judge. Indeed, this court would not have interfered with a fine very substantially greater than that imposed upon this company in the circumstances of this case.

For those reasons, therefore, this appeal is dismissed.

Is there any application for costs?