Record environmental fines for sewage breaches

On 26 May 2021, Thames Water Utilities Limited was fined GBP4 million after untreated sewage escaped in February 2016 from sewers in Greater London served by its Surbiton treatment works into a park and woodland traversed by the Hoggsmill River in New Malden. The park is much used as an attractive recreation ground by local people and the chalk stream provided an important habitat for fish aquatic birds and insects.

Approximately 79 million litres of sewage sludge covered an area of some 6,500 sq metres. It took 30 people a day for almost a month to clear up the sludge and associated paper and other detritus etc.

The pollution incident was the result of a pumps failure, which caused sewage effluent to back up the pipes network, coupled with a failure on the parts of the responsible members of Thames Water’s staff to respond to over 50 warning alarms over a period of five hours.

Since 2017, when it was fined GBP20.3 million for a similar offence, Thames Water has been fined in total over GBP28 million for 10 cases of water pollution.

However, this total has recently been dwarfed by the fine imposed on Southern Water Services Limited on 9 July 2021 at Canterbury Crown Court following the company having pleaded guilty to 51 counts of knowingly discharging sewage into the sea at 17 waste water treatment works in North Kent, West Sussex and Hampshire over a number of years. The Court fined Southern Water GBP90 million plus costs to be assessed. The company had, while pleading guilty, attempted to argue that the sewage dumping had not in fact been deliberate. However, that position was not accepted by the Court.

The company had also attempted to obstruct investigation by the Environment Agency, and three former members of its staff have been convicted for obstructing data collection. The significant disparity compared with the fine imposed on Thames Water doubtless reflected the fact that in this case the offences were deliberate. The GBP90 million would have been even higher (GBP135 million), but for the “discount” for a guilty plea, It was also clear that the company had not invested improvements after previous but separate cases since 2013, in which it had been fined some GBP2.7 million.

Accordingly, Mr Justice Jeremy Johnson determined that the fine needed to have a “significant financial impact which will bring home to both managers and shareholders the need to improve regulatory compliance”.

In 2019 OFWAT imposed a GBP126 million penalty on Southern Water as a result of the company’s regulatory failings in matters subject to OFWAT’s jurisdiction.

It appears that these penalties have had some effect, as institutional shareholders have indicated their disappointment and expressed their wish that Southern Water should end its ways. It has also recently been announced that shareholders are diluting their equity by selling a majority of their shareholding to Macquarie Asset Managers. Macquarie has announced that it will invest, on behalf of the long term investors including pension funds and insurance companies over GBP1 billion in “new equity to recapitalise the business and implement a more sustainable financing strategy” for Southern Water. It is understood that Southern Water will then spend GBP2 billion over the next four years to upgrade its infrastructure. Macquarie has said that it aims to strengthen “a zero-tolerance mindset to environmental pollution by significantly improving Southern Water’s environmental track record”.