Tribunal Rules on Reasonableness and Proportionality of Civil Penalty in Scania v. Environment Agency Case

Citation: [2023] UKFTT 947 (GRC)
Judgment on

Introduction

In the case of Scania (Great Britain) Limited v Environment Agency, the First-tier Tribunal (General Regulatory Chamber) heard an appeal against a civil penalty imposed by the Environment Agency for failure to comply with fluorinated greenhouse gases regulations. Tribunal Judge Simon BIRD KC considered whether the penalty was reasonable and applied the relevant legal principles to determine the appropriate sanction.

Key Facts

Scania (Great Britain) Limited (“the Appellant”) failed to obtain the requisite hydrofluorocarbon (HFC) authorisations before placing HFCs on the UK market, violating Article 14(1) of EU Regulation 517/2014 and the domestic Fluorinated Greenhouse Gases Regulations 2015. The Environment Agency (“the Respondent”) imposed a maximum civil penalty of £200,000 for the breach based on a calculation of costs avoided and additional undisclosed factors. The Appellant challenged the amount, claiming it was based on an inflated cost of HFC quota authorisation (£25.00/tCO2e) and disproportionate. The Appellant had, in fact, paid £10.00/tCO2e, a figure it argued more accurately reflected the actual costs avoided.

The Tribunal laid out the following principles in its decision-making process:

  1. The standard of proof for imposing a civil penalty is on the balance of probabilities (Paragraph 1(2) of Schedule 4 to the Regulations).
  2. The Tribunal’s role is not to substitute its judgment for that of the Respondent’s but rather to assess if the imposed penalty was based on a factual or legal error or if it was unreasonable (Paragraph 14 of Schedule 5 of the Regulations).
  3. The principle of proportionality is critical, in which penalty must be fair, unsound, or excessive, considering all circumstances.
  4. The penalty must reflect the financial gain accrued or costs avoided due to the breach.
  5. Consideration of mitigating factors, including whether an operator self-reported the breach, has taken steps to remedy it and its previous compliance history.

The case law highlighted “unreasonableness” within the meaning of paragraph 4(b) of Schedule 5 to the Regulations as a central point. The decision analyzed whether the Respondent’s imposition of the maximum statutory penalty was reasonable and proportionate and in keeping with the Respondent’s own enforcement and sanctions policy (“ESP”).

Outcomes

The key outcomes of the Tribunal’s analysis of the case are as follows:

  1. The Respondent’s reliance on the maximum cost of £25/tCO2e paid by an operator in 2021 for the HFC QA was found to be an outlier and thus unreasonable.
  2. The Tribunal held this cost did not accurately represent the economic benefit the Appellant had derived from the breach.
  3. The Respondent misapplied its ESP by prematurely adjusting the penalty starting point in Step 3 for financial gain, rather than properly addressing this in Step 4, where mitigation should also be considered.
  4. The Tribunal acknowledged significant mitigating factors on behalf of the Appellant – self-reporting, cooperation, and the absence of prior similar breaches.
  5. Consequently, the Tribunal concluded that the civil penalty should be reduced to £90,511, a sum which balanced the economic benefit derived by the Appellant and the mitigating factors presented.

Conclusion

In Scania (Great Britain) Limited v Environment Agency, the Tribunal clarified the principles of reasonableness and proportionality in the context of civil penalties for environmental offences. This case underscored the importance for the Respondent to consider actual costs avoided and to apply its ESP in a manner that accounts for both the financial gain from the breach and any mitigating factors. By setting out a clear, structured analysis of the application of these principles, the Tribunal established a nuanced approach to future cases involving civil penalties for breaches of environmental regulations.

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