Case Reference: NV/2023/0003
Environment
Decided without a hearing
Before
JUDGE NEVILLE
Between
SAFEGUARD WORLD INTERNATIONAL HOLDINGS LIMITED
Appellant
and
ENVIRONMENT AGENCY
Respondent
Decision: The appeal is dismissed.
REASONS
This is an appeal by Safeguard World International Holdings Limited (“Safeguard”) against a penalty notice, served by the Environment Agency on 24 November 2022 under regulation 39 of the Energy Savings Opportunity Scheme Regulations 2014. The penalty notice imposes a civil penalty on Safeguard of £2,625. The Environment Agency also decided that details of the penalty notice would be published on its website.
Background to the penalty notice
The Energy Savings Opportunity Scheme (“ESOS”) is a mandatory energy assessment and energy saving scheme that applies to large undertakings and groups containing large undertakings in the United Kingdom. At Schedule 1 of the 2014 regulations, a large undertaking is defined as one that either employs at least 250 persons or has an annual turnover in excess of €50 million and an annual balance sheet total in excess of €43 million. It is common ground that Safeguard is a large undertaking and at all material times has been obliged to participate in ESOS.
The following chronology is undisputed:
16 February 2015 – Guidance to businesses on complying with ESOS was published online, on behalf of all UK ESOS regulators: Complying with the Energy Savings Opportunity Scheme (Footnote: 1).
5 December 2019 – Safeguard’s deadline for submission of its ESOS Phase 2 notification, with which it did not comply.
9 July 2021 – The Environment Agency served a Compliance Notice by posting it to Safeguard’s registered office, in accordance with regulation 51.
26 July 2021 – Deadline set by the Compliance Notice, by which time there was no response from Safeguard.
3 September 2021 – The Environment Agency served an Enforcement Notice, again by post to Safeguard’s registered office, requiring it to comply with Part 4 and Part 5 of the regulations.
3 December 2021 - Deadline set by the Enforcement Notice, by which time there was again no response from Safeguard.
23 May 2022 – The Environment Agency unsuccessfully tried to contact Safeguard by telephone.
30 June 2022 – The Environment Agency served a Notice of Intent to Safeguard’s registered office by recorded delivery, stating its intention to impose a civil penalty and requiring any information relevant to that decision be submitted by 28 July 2023.
It was only on 12 July 2023 that Safeguard responded to the Environment Agency, subsequently providing further information.
The penalty notice
The penalty notice was served in response to Safeguard’s failure to comply with the enforcement notice served on 3 September 2021. The Environment Agency applied Annex 2 of the version of its Enforcement and Sanctions Policy (“ESP”) (Footnote: 2). Subsequent references to the ESP are to the version published at the date of the penalty notice. The structure for deciding a penalty is as follows.
First:
Section A explains the steps we will take to decide whether to impose a civil penalty or to work out the final penalty amount. Within the steps we will assess:
the nature of the breach
culpability (blame)
the size of the organisation
financial gain
any history of non-compliance
the attitude of the non-compliant person
personal circumstances
[…]
How the Environment Agency sets the penalty level
When we can apply our discretion we carry out the following steps to make our decisions:
Step 1 - check or determine the statutory maximum penalty for the breach.
Step 2 - decide whether to waive the penalty or set the initial penalty amount by assessing the nature of the breach and other enforcement positions in line with sections B, C, D and E.
Step 3 - if we decide to impose a penalty, work out the penalty starting point and penalty range based on culpability (blame) and size of the organisation.
Step 4 - set the final penalty amount by assessing the aggravating and mitigating factors and adjust the starting point as appropriate.
For Step 2, Section D of Annex 2 provides further specific guidance for particular breaches of ESOS. In this case:
D2.4 Failure to comply with a notice
This breach means failing to provide information or take the steps required by a compliance, enforcement or penalty notice.
Regulation 46 sets the maximum penalties - they are all of the following:
an initial penalty of up to £5,000
a daily penalty of up to £500 for each working day the responsible undertaking remains in breach, starting on the day after the service of the penalty notice, subject to a maximum of 80 working days
the publication penalty
Our nature of the breach assessment
We will normally impose a penalty for this breach as it impacts the integrity of the scheme. We will normally use the statutory maximum as the initial penalty amount.
The Environment Agency’s stepped assessment was as follows:
Step 1 – Statutory maximum penalty
The figures at D2.4 were noted.
Step 2 – Initial penalty amount
Addressing the nature of the breach, the Environment Agency applied D2.4 to set the statutory maximum penalty as the initial penalty amount..
Step 3 – Penalty starting point and penalty range
The Environment Agency categorised Safeguard’s culpability as ‘negligent’, Section A of Annex 2 providing that:
This means failure by the organisation as a whole to take reasonable care to put in place and enforce proper systems for avoiding commission of the offence.
In reaching that decision, the Environment Agency noted Safeguard’s failure to comply with the relevant deadline of 5 December 2019.
The size of the organisation was categorised as ‘large’ defined by Section A as an organisation with a turnover greater than £50 million.
Tables 1 and 2 in Annex A then calculate the penalty starting amount and penalty range by using the above conclusions to provide multipliers to the initial penalty amount, subject to a minimum starting point of £1,000. This resulted in a penalty starting point of £1,500 with a penalty range of £1,000 to £3,750.
Step 4 – Final penalty amount
The Environment Agency considered the previous failure to respond to its communications and Safeguard’s continuing failure to comply with ESOS at the time of the penalty notice to be aggravating factors.
In mitigation, the Environment Agency noted Safeguard’s subsequent apology, acknowledgment of its compliance obligations, engagement with the process and the involvement of an assessor to facilitate compliance, and that it had taken an initial step towards compliance by making its online submission. It noted Safeguard’s explanation for its conduct, being that since the Covid pandemic its staff had worked entirely remotely.
Taking into account those factors, a final penalty amount was chosen in the sum of £2,625. No explanation has been provided of how this sum was reached, but I note that it is 70% of the maximum penalty range.
Safeguard’s appeal
Safeguard’s submissions, in their entirety, are as follows:
Due to Covid-19 all our employees in the UK were sent home to work from there and adhere to the Covid-19 lockdown rules. We did not receive any mail from ESOS until a later date. As soon as we were made aware of ESOS assessment we jumped into action and did everything in our power to submit what was needed. Talking back and forth with [name omitted] from Environment Agency we received word on August 1st 2022, that Safeguard in fact qualify as a large undertaking. On August 22nd 2022 the compliance was filed, to me this shows how urgent of a process this was for us. We never once didn’t want to comply; in fact we are already in process with phase 3 and will have this done by early 2023
As per the above statements I feel that our penalty is high and would like to see it removed.
Consideration
Regulation 48(1) provides that the appeal may be brought on the grounds that the penalty notice was:
Based on an error of fact,
Wrong in law; or
Unreasonable.
I cannot discern any factual disagreement with the basis upon which the penalty amount was calculated, nor any asserted error of law. Safeguard simply argues that the amount is unreasonably high, given the circumstances.
I do not consider the word ‘unreasonable’ at regulation 48(1) to denote unreasonableness in the classic public law sense; see Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223. This is inconsistent with the power given to the Tribunal at regulation 50(b) to modify the penalty notice as it sees fit, and I instead treat the word as having its everyday meaning of unfair, unsound or excessive. The word also reminds the Tribunal that, while it decides the matter for itself, appropriate weight must be afforded to the view taken by the Environment Agency: the regulator entrusted by Parliament to administer the scheme and maintain its integrity and effectiveness, and having expertise and experience in doing so; see Hesham Ali v Secretary of State for the Home Department [2016] UKSC 60 at [45].
The Environment Agency has adopted and published the ESP. This provides a rational, principled and consistent approach to enforcement. In this case I can discern no error in the application of the stepped process at Annex 2. This produced, arithmetically, the appropriate starting point and range. Safeguard does not dispute being a ‘large’ organisation. Any argument that its breach was not ‘negligent’ is without merit. It was required to ascertain the legal obligations applying to businesses of its size and comply with them. Not only did it fail to do so for a considerable period, until notified of its default by the Environment Agency, nor does it appear to have taken appropriate steps to monitor official notices sent to the address it had registered at Companies House for that purpose.
The Environment Agency’s decision to increase the penalty, within the appropriate range, cannot be described as unreasonable. Nor can the figure chosen be described as manifestly too high. The Environment Agency took the relevant aggravating and mitigating factors into account, including Safeguard’s explanation that its staff were all working remotely due to the pandemic. I have not been referred to any legal or practical obstacles existing from July 2021 to December 2021 that would have prevented regular checks for physical post. It was entitled to afford those circumstances the weight it did, in compliance with the ESP.
I conclude that there was nothing unreasonable in the Environment Agency’s decision to serve the penalty notice, or in setting the amount. None of the grounds at regulation 48(1) are established and the appeal is dismissed.
Signed Date:
Judge Neville 4 January 2023