Legal Briefing

Developments in waste crime enforcement: what next for offenders, waste operators and landlords?


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Crime, Fraud and licensing | 01 April 2015

The consequences of small and 
large-scale waste crime reach far beyond the unpopular effects on local amenity. Indeed, rogue operators undercut legitimate waste businesses and expose landlords of industrial or commercial premises to regulatory action and financial risk. The environmental, commercial and financial threats posed by waste crime have been recognised by Defra. On 26 February this year, it published a consultation proposing to strengthen the powers of regulators to intervene against offenders.

This article will discuss the reasons behind criminal activity in the waste sector and examine the current penalties for waste crime as well as the potential impact of changes in the sentencing regime and Defra’s recent proposals. It will go on to discuss the risks for landlords whose tenants run waste operations unlawfully and consider what landlords can do to minimise their exposure to such risk.

WHY WASTE CRIME?

The principle of a waste hierarchy embedded in the EU Waste Framework Directive has spawned regulation across member states to encourage the reduction of waste production and improve the rate of re-use and recycling of materials. This drive at EU-level to tackle waste generation and disposal also directed political focus on the volumes of waste being sent to landfill and culminated in the entry into force in the UK of the Landfill Directive. The Landfill Directive imposes a tax on landfill operators for receiving waste, which tax is passed on by the operators to businesses or local authorities delivering the waste. Implementation of these directives in the UK resulted in stricter controls within the waste industry, leading to additional environmental permitting obligations and requirements on waste producers, carriers, and brokers. Such policy measures have meant greater demand for waste recycling and treatment services and a rise in the cost of these services as a consequence. For waste treatment operators, this translates into opportunities to generate significant profits.

For all the environmental benefits brought about by waste legislation, its objectives have suffered from the law of unintended consequences. Indeed, stricter controls over waste management and disposal have also meant increased complexity and expense for legitimate waste treatment operators, and an opportunity to make savings and increase profit margins if such expenses are unlawfully avoided. Society as a whole pays the price of such savings through lost tax revenue, clean-up costs and forfeited revenue for legitimate operations. The cost of illegal waste 
sites, fly-tipping and Landfill Tax evasion 
has been estimated to exceed £100m 
per year1.

Compounding the incentive to evade the costs associated with legitimate waste treatment is the perception that both the risk and consequences of enforcement 
are small.

CURRENT LEGAL FRAMEWORK TO PENALISE WASTE OFFENCES

Potential penalties for waste offences must first be considered in light of the current strain on enforcement authorities. The widespread perception that offenders ‘get away with it’ is amplified by the significant funding cuts recently imposed on enforcement bodies, most notably the Environment Agency (EA). The environment and business division of the EA, which includes enforcement, has suffered significant cuts in its funding and staff count. The EA ran a taskforce programme between 2011 and 2014 to focus on ‘intelligence-led’ enforcement, but sources within the organisation say that much of the knowledge acquired through this programme has been lost as a result of staff redundancies.

Despite the real challenges arising from this reduction in enforcement resources, investigations and prosecutions that are brought successfully against offenders 
can result in significant penalties.

Prosecutions for the most common types of waste offences can lead to sentences carrying a prison term and/or large fines. Not all investigations end in a prosecution, however, with warnings and cautions open as two alternatives for the enforcement authority. Warnings are simply recorded 
on a file for future reference, but a 
caution requires the waste operator 
either to admit liability and accept the formal caution, or deny liability and be subject to a criminal prosecution.

Penalties at the upper end of the sentencing scale are rarely handed down to waste crime offenders, which has contributed to the sentiment that the courts are ‘soft’ on this type of offence. Several developments in the criminal and civil sanctions regime, as well as a recently launched consultation by Defra to focus on combating waste crime could change this.

POTENTIAL IMPACT OF RECENT AND PROPOSED CHANGES TO SENTENCING 
AND ENFORCEMENT

Sentencing guidelines

In February 2014, the Sentencing Council published new guidelines on the sentencing of environmental offences. Since 1 July 2014, these guidelines have been used by the courts to sentence offending individuals and organisations.

One of the main objectives of the new sentencing guidelines was to align the level of fines imposed with the level of profit made by an offending entity. The matrix according to which culpability, seriousness and financial means of the offender are all taken into account to determine the sentence is particularly relevant to waste crime in which unlawful operators often make substantial profits. The outcome of recent prosecutions goes some way to show that a tougher stance is being taken. In January of this year, for instance, a company which had made an estimated £500,000 in turnover from the operation of an illegal landfill site was ordered to pay £250,000 in proceeds of crime. It also had to pay a fine of £30,000 plus £20,000 of the prosecutions’ costs for breaching Regulations 12, 13 and 38 of the Environmental Permitting Regulations (EPR) 2010 and s33 of the Environmental Protection Act (EPA) 1990.

While anecdotal evidence suggests a move towards stricter sanctions, it is still early to draw definitive conclusions about the impact of the sentencing guidelines on the incidence of waste crime.

Civil sanctions

The proposed changes to the civil sanctions regime may herald a different approach to dealing with waste crime. If passed by Parliament, the new legislation will allow waste operators to offer an enforcement undertaking if they breach their permit conditions or operate without a permit. Enforcement undertakings – whereby offending entities undertake to make amends for their offence (often by paying into environmental schemes) – are not currently available for breaches of environmental permits. Offering an enforcement undertaking can be a way of avoiding criminal prosecutions as it is a step usually taken before criminal proceedings are commenced. However, the enforcing authorities will want to ensure that the undertaking is commensurate with the suspected offence, even if there is insufficient evidence to prosecute. Enforcement undertakings have proved popular and are likely to see substantial uptake in the waste industry if the proposals are confirmed.

DEFRA CONSULTATION ON PROPOSALS 
TO ENHANCE ENFORCEMENT POWERS

Defra has recognised the need for more direct measures to deal with waste crime and has published a consultation on enhancing the enforcement powers of environmental regulators across England and Wales. Published on 26 February 2015, this consultation proposes the establishment of six new or enhanced powers for the Environment Agency and Natural Resources Wales. These can be summarised as:

  1. New power to suspend an environmental permit if a waste operator fails to meet the conditions of an enforcement notice;
  2. New power to issue notices asking operators to take steps to prevent a permit breach from getting worse, for example refraining from accepting more waste onto poorly managed sites;
  3. New power to take physical steps to prevent further breaches of permits, for example locking gates;
  4. New power to take steps to remove 
a risk of serious pollution, even on 
non-permitted sites;
  5. New power to make an application 
to the High Court for an injunction without the prerequisite of demonstrating that criminal proceedings will be ineffective; and
  6. enhancement of the existing power to require the removal of waste from land.

The proposed powers are designed to reduce obstacles standing in the way of effective enforcement by the regulators. 
Of particular note is the proposal for regulators to be able to issue claims in the High Court to ensure compliance with enforcement notices without necessarily going through the ‘usual’ criminal route. This could mean an increase in injunctions granted against operators breaching the conditions of their permit.

The second part of the Defra consultation consists of six main themes on which the government seeks the views of local authorities, waste producers, operators, brokers and carriers, professionals and businesses in the waste industry. Of interest to lawyers is the suggestion of making it a specific requirement of the EPR that waste site operators have the requisite technical and financial competence before being granted a permit. The technical competence point is reminiscent of the now repealed ‘fit and proper person’ test which regulators could previously apply before granting waste management licences. The financial competence point is very much akin to reinstating the obligation for operators to provide financial provision before being allowed to carry out an operation. Such provision would be available to the regulators to cover the cost of remedial works should the site be abandoned by the operator. There is also a call for evidence on the issue of landowner awareness of the possible consequences of letting sites to waste operators.

The proposed changes to the regulators’ powers have the potential to improve effective enforcement. However, even with an additional £5m dedicated to it over two years from 2014, funding for enforcement against waste crime has been described by ENDS Report as ‘far behind the £25m suggested for effective enforcement’.

REGULATORY RISK OF LETTING 
SITES TO WASTE OPERATORS

In the context of limited EA funding and uncertainty surrounding the detailed scope of Defra’s proposals, landlords letting land to waste operators must be alive to the risks this carries.

Despite the sentencing guidelines’ onus on ensuring that fines for environmental crime have a noticeable impact on an offending entity, 2014 saw a steady and significant rise in pollution incidents, a large proportion of which relate to waste issues. When they are committed by tenants, waste offences can have significant detrimental effects 
on landlords.

The ‘polluter pays principle’ should mean that tenant waste operators who pollute the environment should bear the regulatory consequences. However, if a tenant refuses to comply with enforcement notices or indeed becomes insolvent and unable to remedy its breaches, the landlord can find itself in the regulator’s firing line, as well as suffer the commercial consequences of owning a poorly managed site.

Landlords whose tenants refuse to 
comply with permit conditions and/or create a nuisance have, in practice, two basic options:

  1. Force the tenants off the land by forfeiting the lease and re-entering the premises; or
  2. Let the tenants remain on the land and continue their unlawful activity (all be it coupled with efforts to convince the tenants to comply).

The most direct remedy for a landlord whose tenant is conducting activities in breach of an environmental permit, or in a way which causes a nuisance, is to forfeit the lease. Commercial leases are likely to contain provisions entitling the landlord to forfeit the lease if its tenants continually break the law or cause a nuisance. In reality, unscrupulous tenants having unlawfully stored or treated waste on a site are unlikely to remove this before vacating. Once the landlord has forfeited the lease and re-entered the premises, clearing this waste becomes its responsibility. It is then open to the landlord to seek to recoup the costs of doing so from the tenant, through a civil claim for damages if required, but this may be of little use if the tenant has become insolvent or otherwise unable to pay.

Further, if landlords let their tenants carry on with unlawful activities, the landlords themselves could face regulatory enforcement. First, the landlords could be accused by the regulator of ‘knowingly causing or permitting’ the waste to be unlawfully stored, treated or deposited, which is an offence under s33 of the EPA 1990. There is no need for the landlords to condone the tenants’ activities or even know that a breach of permit conditions is taking place to be deemed to ‘knowingly permit’ an offence. The prosecution only needs to show that the landlords had knowledge of the operations, failed to ascertain that this was being carried out in compliance with the requisite permits and failed to intervene2. Secondly, if the tenants have failed to comply with an enforcement 
notice served under s59 of the EPA 1990, the regulators have the power under 
s59ZA of the same Act to serve a notice 
on the landowners and require them to remove the waste from the site. If the tenants are also in breach of planning legislation (for example by breaching the conditions of their planning permission), local authorities are entitled to serve a planning enforcement notice under s172 
of the Town and Country Planning Act 
1990. Such a notice is automatically 
served both on the tenants at fault and on the owners of the land. Finally, landlords could find themselves ultimately responsible, under the contaminated land regime, for environmental contamination caused by the unlawful waste activities of their tenants.

Landlords reluctant to forfeit their tenants’ lease but concerned about potentially criminal activities taking place on their land may also seek to exert commercial pressures on their tenants. These could take various forms, depending on the landlord-tenant relationship and the terms of the lease, but are not guaranteed to bring the tenants into compliance.

COMMERCIAL RISKS OF LETTING 
SITES TO WASTE OPERATORS

Letting a site to tenants who carry out unlawful waste activities can have other significant commercial and reputational consequences for landlords, as well as regulatory ones. The first and very real risk associated with inappropriate waste storage is that of fires erupting and causing serious property damage at the site and in adjacent premises. The loss of amenity caused by unsightly waste disposals can also cause devaluation of the rental and sale value of neighbouring properties and force landlords to lower rents.

SOLUTIONS FOR LANDLORDS

Legal remedies do exist for landlords who find themselves obliged to pay for the permit breaches of their tenants, but they have limitations. For instance, the financial risks associated with suing tenants who are unlikely to be able to pay may discourage landlords from pursuing claims.

In some cases, the regulators prosecuting waste operator tenants may be prepared to ask the court to order the tenants to pay compensation to landlords as ‘victim compensation’. There is no guarantee that these compensation orders will be made by the court, however, and they often do not compensate landlords fully.

There are also statutory defences which landlords can seek to use if they find themselves with a regulatory prosecution for the actions of their tenants. For example, landlords could argue that they did everything they could be expected to do to secure compliance with a planning enforcement notice. The threshold for this is high, however, often requiring the landlords to demonstrate that they have exercised their right to forfeit and taken measures to remove waste unlawfully stored or treated on the premises. It is also a defence for landlords charged of knowingly permitting a breach of the EPA 1990 to prove that they ‘took all reasonable precautions and exercised all due diligence to avoid the commission of the offence’. Again, the threshold is a high one: the concept of ‘knowingly permitted’ is interpreted widely and can readily be used against conscientious landlords.

In the context of such limited remedies, it is advisable for landlords to take preventative action when letting sites to waste operators. Due diligence should be carried out on the technical and financial competence of prospective tenants. Lease terms should also make it clear that breaches of environmental legislation give the landlord the right to terminate the lease. Whilst financial guarantees may once again become mandatory as a result of the recent Defra consultation, landlords are advised to seek financial bonds or personal guarantees from directors of waste operators before granting leases. Such financial security should be sufficient to minimise the landlords’ exposure to the costs of waste removal or regulatory fines. Frequent monitoring of waste sites is also recommended, as is communication with the regulators at the early stages of a suspected offence. These are steps which in-house lawyers are well placed to support businesses with in order to avert the costly commercial and regulatory consequences of tenants’ waste crimes.

By Michael Barlow, partner, and 
Elsa Hadley, solicitor, Burges Salmon LLP.

E-mail: michael.barlow@burges-salmon.com; 
elsa.hadley@burges-salmon.com.

NOTES

  1. Environment Services Association Education Trust, Waste Crime: Tackling Britain’s Dirty Secret, 
March 2014.
  2. See Walker and Son (Hauliers) Ltd v Environment Agency [2014].