One of Britain’s biggest water companies was fined £90m ($126m) today for deliberate dumping of “billions of litres” of sewage into the North Sea over a 5 year period. But no Directors or other staff were implicated in the proceedings, and none were bound over to ensure that they would receive prison sentences if/when it happens again.
“These offences show a shocking and wholesale disregard for the environment, for precious and delicate ecosystems and coastlines, for human health, and for fisheries and other legitimate businesses that operate in the coastal waters,” said the judge. But the £90m fine compares to annual profits of well over £200m.
The judge said the company had a history of criminal activity for its “previous and persistent pollution of the environment”. It had 168 previous offences and cautions but had ignored these and not altered its behaviour. “There is no evidence the company took any notice of the penalties imposed or the remarks of the courts. Its offending simply continued,” he said.
In 2019, three employees were convicted of obstructing the collection of data by the government-owned Environment Agency, which was investigating raw sewage spilled into rivers and on beaches in south-east England, but none spent a single day in jail.
The case between the environmental regulator and Southern Water, which the company tried to suppress, raised questions about the Southern Water’s corporate governance and why employees would obstruct the agency.
It also puts the spotlight on the regulator’s monitoring of sewage treatment plants and water companies and the extent to which the public can trust assessments of water cleanliness.
Southern Water, which supplies 4.6m customers in Kent, Sussex, Hampshire and the Isle of Wight with water and sewage services, was charged at the same time as the employees but the company was found to be not “criminally liable” for obstruction of the investigation.
Five staff members were convicted in 2018 of obstructing EA investigations between July 11 and 13, 2016 although two of the convictions were overturned on appeal. Several of the employees argued that they were acting under the instruction of the company solicitor not to give data to the regulator, even though the agency is dependent on information supplied by the water companies for its monitoring of sewage outflows.
The court documents cite a “lack of co-operation . . . and in some cases . . . conduct which was clearly calculated to frustrate the inspection”.
In one example, a management scientist said she was instructed by a lawyer to refuse to allow the EA to take documents that would have provided data on sewage outflows from a waste water treatment works.
In another example, a colleague was instructed by a superior “to remove the bagged diaries from the officers’ possession and lock them in his van”.
Marie Bourke, a senior associate at law firm Russell Cooke who was not involved in the case, said that it “can be hard to prove that the orders came from senior executives even when prosecuted employees say they are obeying people higher up the food chain”.
A separate investigation by Ofwat, the industry’s financial regulator- which resulted in a £3m fine and £123m payment to customers — has already found Southern Water had manipulated water samples and “deliberately misreported data” for seven years until 2017 so that it could avoid financial penalties. This included evidence that the company used tankers to shift waste water away from problematic sites so that they could avoid submitting a poor reading to the EA.
Southern Water said: “Throughout the court hearing in early 2017 the staff members who were individually prosecuted alongside the company were fully supported and continue to be. They were independently represented in court and all were given an absolute discharge with some later overturning their convictions on appeal. The company was found not guilty.”
David Hall, professor of the Public Services International Research Unit at the University of Greenwich, said the case pointed to regulatory weakness, which “is a systemic part of the problems with the privatised water companies”.
“In a case which concerns possible serious breaches of statutory duties, their powers and practice contrast poorly with those of the EU’s competition regulators who fined Eon €38m and Suez €8m over non-cooperation,” he said.
The investigations follow a series of pollution incidents including Southern Water’s £2m fine three years ago for flooding the Kent coast with raw sewage, leaving beaches including Margate closed to the public for nine days. Another £200,000 fine was imposed for similar offences in 2013.
Southern Water was criticised by the pensions regulator in 2018 after it almost halved annual contributions to its pension scheme at the same time as paying out £190m of dividends between 2016 and 2017.
Feargal Sharkey, an environmental activist, said: “Once again the utter failure of the Environment Agency and Ofwat to properly regulate the water industry becomes apparent. How was Southern Water able to dump sewage into our rivers for seven years unnoticed? When will Ofwat’s fines start reflecting the true environmental cost of this carnage not just some notional debt to the consumer? This incompetence cannot continue, it’s time for government to intervene.”
Southern is owned by a consortium of private equity and infrastructure funds including UBS Asset Management and JPMorgan Asset Management. The Labour party has pledged to renationalise England’s regional water monopolies, which are accused of rewarding executives and shareholders at the same time as presiding over a series of pollution failures. None of England’s rivers currently have designated bathing water quality status, according to an FT investigation.
Southern, which pleaded guilty to all 51 counts, argued the sewage dumping had not been deliberate. Richard Matthews QC, for Southern, argued it was the result of a string of “deeply regretful” mechanical and technological faults across 17 sites between 2010 and 2015.
The Judge disagreed and said the sewage dumping was clearly a deliberate and flagrant breach. Mr Justice Jeremy Johnson, sentencing the privatised water company, said it had discharged between 16bn and 21bn litres of raw sewage into some of the most precious, delicate environments in the country.
Matthews apologised on behalf of the new board of directors and the chief executive, Ian McAulay, for “serious failures in its wastewater treatment”. He said the company was now absolutely committed to transformation, transparency and cultural change.
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