A recent case in the High Court, which has the potential to act as a landmark judgement, raised some interesting notions regarding the powers of the Environmental Authority (“EA”) and how businesses are impacted in the environmental sector going forward.
Southern Water Services Ltd were accused by the EA of deliberately manipulating wastewater quality monitoring systems by orchestrating no-flow conditions to avoid failing the regulatory tests in place. Consequently, the EA applied to Medway Magistrates Court for a summons charging Southern Water CEO, Matthew Wright, along with other officers and managers, with conspiracy to defraud under common law.
Section 37(1) of the Environment Act 1995, which provides the power to prosecute for any offence incidental to its functions, is the power on which the EA relied on to bring the prosecution. Section 37(1) has been described as containing a “hanging phrase” by specifying that “and the Agency may institute criminal proceedings in England and Wales”. The EA argued that this phrase should be interpreted as giving them unlimited prosecution power, irrespective of whether the prosecution is incidental to any of its functions. However, this position was rejected by the court on the basis that the conjunctive use of “and” confirmed that the power was linked to the EA’s functions.
The EA then put forward an alternative construction that section 37(1) enables the EA to prosecute for any offence of any nature, provided the prosecution is capable of being calculated to facilitate, or is conducive or incidental to, the carrying out of any of its functions; and where, in the EA’s opinion, the prosecution is so facilitative or conducive or incidental.
In simpler terms, “functions” can be interpreted as all the duties and powers of the EA that Parliament has entrusted to it. Essentially, the court decided that based on the facts, prosecuting for a conspiracy to defraud in relation to the alleged manipulation of wastewater quality monitoring systems is undisputedly incidental to the EA’s functions – wastewater management is a major function of the EA.
This case provided a significant update to prosecutorial powers which extend to the EA. It confirms that the powers now apply to serious common law offences when they are connected to environmental regulatory functions. This not only clarifies the scope of section 37(1), but empowers the EA in its ability to pursue environmental wrongdoings in the context of serious and complex fraud. The decision demonstrates a clear expansion of the EA’s powers; until now, its prosecutorial powers have been interpreted broadly but largely confined to regulating specific environmental offences under specific legislation. This case endorses the view that the EA’s powers can now extend beyond those environmental offences and apply to serious criminal conduct, where it connects to their regulatory functions in a sufficient way.
What does this mean for businesses in the sector?
Directors and senior managers working for EA regulated businesses in the sector should be warned that the EA is now prepared to pursue them, as well as the company, where it believes that the wrongdoing is so serious and extends beyond a regulatory breach. This reinforces the idea of having in place; strong environmental governance frameworks, accurate monitoring and reporting systems, and clear documentation of compliance oversight by those directors and senior managers.
Following the decision in this case, the EA may feel more confident in its ability to enforce complex investigations involving fraud, dishonesty or concealment. Businesses operating in sectors like water, waste management, energy, or industrial manufacturing may now find themselves facing more environmental and criminal investigations, which have the potential to lead to linked civil claims and reputational damage.
The key takeaway for businesses within the environmental sector is that strong governance, clear reporting procedures, and effective oversight of environmental compliance will help lessen these risks.
How can we help?
For further information on issues raised in this article, please contact a member of our Business, Crime and Investigations team.
Phillippa Ellis
Partner
Business Crime and Investigations, Commercial Disputes, Cryptoassets, Environmental Disputes, FCA Investigations
Phillippa leads our business crime and investigations team. Phillippa provides strategic counsel to public and private sector clients on complex legal matters associated with business crime and reg... Read More
Ellie is a Solicitor in our Commercial Disputes team. Ellie graduated from the University of South Wales with First Class Honours.... Read More
Charlotte is a Trainee Solicitor in our Commercial Disputes team. Charlotte completed her LLB Law degree at Cardiff University where she also returned to complete her LPC LLM masters degree.... Read More
