South East Water Limited v The Environment Agency [2026] UKFTT 293 (GRC)

[2026] UKFTT 00293 (GRC)

Case Reference: FT/EV/2025/0119

First-tier Tribunal

(General Regulatory Chamber)

Hearing Heard on: 23 February 2026

Date 4 March 2026

Environment

Heard by Cloud Video Platform

Before

JUDGE HARRIS

MEMBER MATTHEWS

MEMBER MITCHENER

Between

SOUTH EAST WATER LIMITEDAppellant

THE ENVIRONMENT AGENCYRespondent

Dr Michael J Bowes for Appellant

Rebecca Vanstone for Respondent

Decision: The appeal is Dismissed

REASONS

Background to the appeal

[1]This appeal concerns a Variable Monetary Penalty (“VMP”) Final Notice (the “FN”) imposed by the Environment Agency (the “EA”) on South East Water Limited (“SEW”) on 25 July 2025 in connection with abstraction of water without a licence. The facts set out in the FN, which are not in dispute, are as follows:

[2]On 26 August 2015 SEW was granted an abstraction licence, reference SO/040/0002/014, to abstract water from a borehole at Lilley Farm, Tudley, Kent for public water supply. The licence had an expiry date of 31 March 2021.a. Between 4 May and 19 June 2021 (inclusive) SEW abstracted water from the Lilley Farm borehole without an abstraction licence. A total of 52,264 cubic metres (52.3 million litres) of water was abstracted without a licence.

b. SEW was aware that the licence had expired. There had been a Quarterly Compliance Meeting between SEW and the Environment Agency on 18 May 2021 during which it was noted that the licence had lapsed. There was no indication in that meeting that abstraction had in fact re-commenced.

c. The offending was first reported to the Environment Agency on 21 June 2021. The report stated that there had been abstraction at Lilley Farm during the weekend of 19-20 June 2021 but it had been stopped. A subsequent Incident Report, dated 26 July 2021, clarified that the abstraction had in fact commenced on 4 May 2021 and ceased on 19 June 2021, a period of 47 days. The Incident Report explained that there had been a change in personnel and as soon as the error had been noticed the abstraction was stopped and immediate steps were taken to prevent a recurrence.

d. On 25 June 2021 SEW applied for a new licence to abstract from Lilley Farm. SEW confirmed that no further abstraction would be made until the new licence had been granted. The new licence was granted on 4 March 2022 and largely contained the same conditions as the expired licence.

e. SEW subsequently admitted the offence in an interview under caution. It was explained that the Supply Demand Manager (SDM) was responsible for delivering compliance with licences. The company has very few time-limited licences (7 in total) and the SDM had a manual, diarised process to keep track of them. The company was aware that the Lilley Farm licence had an expiry date but claimed the failure to apply to renew the licence was due to human error. The SDM in post at the time of expiry was working a notice period prior to leaving SEW’s employment in April 2021. A new SDM started the role in June 2021 and there were no handover notes or anything to explain that the licence had not been renewed. SEW’s operational teams, which operated the abstraction, wrongly assumed the licence had been renewed when the abstraction started in May 2021. No-one had checked that the renewal had, in fact, happened. The SEW employees at the meeting on 18 May 2021 when it was flagged that the Lilley Farm licence had lapsed did not have the responsibility to follow this up with the operational teams, which SEW regretted.

f. There was no automated process to flag that a licence was approaching expiry. This has since been corrected and SEW now has an automated system and monthly management reports to highlight when a time-limited licence is close to expiry. It was also indicated that the company’s Metering Policy would be changed to include a section on time-limited licences.

g. There is no evidence that the unlicensed abstraction had an adverse impact on the environment. Both the expired licence and the new licence contain a condition limiting the quantity of water that can be abstracted to 1,555 cubic metres per day. SEW supplied details of the daily quantity abstracted during the unlicensed period. None exceeded 1,555 cubic metres.

h. By continuing the abstraction after the licence expired SEW avoided paying the annual licence charge of £6,345.90. The charge is applied annually based on the maximum water that could be taken under the licence rather than the amount actually taken. As a new licence was granted on 4 March 2022 the charge that would have applied between 1 April 2021 and 3 March 2022 would have been £5,859.10.

[3]The EA issued a Notice of Intent to impose a VMP on 6 March 2025 which was accompanied by a calculation of a proposed penalty of £75,859.10.

[4]SEW made representations in relation to the proposed VMP on 2 April 2025. In summary this made the following points:a. There was no risk of environmental harm at all. The source was below an aquiclude. There could be no impact on surface water due to the presence of the substantial aquiclude which separated the groundwater being abstracted from surface water. By extension, as there was no impact on surface water there could be no impact on ecological receptors. The appropriate category of harm, if any, was therefore category 4 because it was a “substantiated incident with no impact to nature conservation”.

b. Category 4 harm is defined as “risk of Category 3 harm”. This carries a lower starting point of £35,000 for a large organisation with turnover of £50 million or over.

c. SEW does not dispute that negligence is the appropriate assessment of culpability. It argues that this was not as a result of a systemic lack of internal processes, but a direct result of COVID-19 lockdown restrictions which hindered the efficient replacement of staff turnover with responsibilities to ensure continuation of regulatory compliance.

[5]The EA issued the VMP FN on 25 July 2025. It responded to SEW’s representations as follows:a. It accepted that there was no risk of actual harm and that the risk to the environment was low. It also accepted that the water taken during the unlicensed period was within the terms of both the expired and new licences. It did not accept there was no environmental risk at all, because operating without a licence brings with it a risk to the environment because it is unregulated. The risk in this case was limited due to the relatively short timescale that water was abstracted without a licence. Because one of the category 3 harm factors is present in this case it would not be appropriate to assess the harm as lower than category 3. However, taking all the harm factors into account, it accepted that harm is at the lower end of the category 3 scale.

b. It is appropriate to treat SEW as a Very Large Organisation (VLO) and adjustments to the starting point have therefore been made.

c. The EA considered the mitigation presented in relation to COVID-19, but did not accept it was a relevant mitigating factor and accordingly did not reduce the penalty. The penalty in dispute

[6]The VMP FN imposed a penalty of £75,859.10. This was calculated by applying the Sentencing Council’s definitive guideline (Organisations: Unauthorised or harmful deposit, treatment or disposal etc of waste/ Illegal discharges to air, land and water for the sentencing of environmental offences), referred to as the Sentencing Guideline, which appears at page B260 of the bundle. This is a 13-step process which involves consideration of a number of different factors. The key factors for the purposes of this appeal and the reasoning for each given by the EA were as follows:a. In relation to determining the offence category, the EA considered the culpability to be negligent. The reason given was that failure by a water company to apply for and ensure its abstraction of water for the purpose of public water supply is covered legally by an abstraction licence is viewed as serious. SEW knew that the licence expired on 31 March 2021 but failed to apply to renew it. There was a failure to have a proper system in place to ensure that the licence was in fact renewed, to check that it had been renewed and to communicate within the organisation to ensure relevant teams were aware of the status of the licence. The manual system in place at the time to keep track of the small number of time-limited licences was not sufficiently robust to prevent the offence from being committed. Simple steps to prevent the offending from occurring could easily have been taken (as they have been since the offending) but were not taken. The EA concluded that culpability is at the higher end of the negligent category as a result of the catalogue of failings in this case.

b. On the same step, the EA considered that the harm was category 3. The reason for this is that there was no evidence of actual environmental impact and the risk of environmental harm was low. The quantity of water taken was within the terms of the expired licence and the newly granted licence. There has been limited undermining of the regulatory regime as a result of the offending. This was of short duration, and the unlicensed abstraction is now under full regulatory control. The EA concluded that the harm was category 3 but at the lower end.

c. In relation to the starting point and category range, the EA noted that offending in this case was committed before legislation removed the statutory cap of £250,000. The EA used its policy that was in place at the time of the offending which recognised the statutory cap. SEW had a turnover of £281,775,000 for the year ending 31 March 2024, which significantly exceeds the threshold of £50 million for a Large Organisation set out in the Sentencing Guideline and therefore EA treated SEW as a VLO. The Sentencing Guideline state that it may be necessary to move outside the suggested range to achieve a proportionate sentence for a VLO. The EA stated that it had applied the principles in section 125 of the Sentencing Act 2020 and those set out by the Court of Appeal in R v Thames Water Utilities Limited

[2015] EWCA Crim 960

as endorsed by the Court of Appeal in Thames Water Utilities Limited v R

[2019] EWCA Crim 1344

, at paragraph 28.

d. The EA considered it was appropriate to move outside the suggested starting point and range in the Large Organisation table to achieve a proportionate penalty. The relevant starting point for a negligent category 3 offence in the Large Organisation table is £60,000 with a range of 35,000-£150,000, so the EA adjusted it in this case to £300,000 with a range of £140,000 to £750,000 (the top of the negligent category) to achieve a proportionate starting point and range that reflects the circumstances of the case and the turnover of the company. At the time of the offending there was a statutory cap of £250,000 for VMPs and it was the EA’s policy to reduce the starting points set out in the Sentencing Guideline tables by a factor of 4 to reflect this cap. It therefore used a starting point of £75,000 and a range of £35,000 to £187,500 in this instance. An upward adjustment to the starting point to reflect the higher level of negligence was not made as a downward adjustment to reflect the lower degree of category 3 harm cancels this out.

e. The EA considered the following aggravating factors: i. Two cautions for pollution offences (under s.85 of the 1991 Act) were accepted in 2007 and 2009. Due to the age of these cautions little weight is placed on them as an aggravating factor in this case. ii. Financial gain by avoiding payment of the annual licence charge, which is taken account of at step 5 iii. Multiple warning letters regarding failure to comply with abstraction licences have been sent to SEW in 2014, 2016, 2019 and 2021.

f. The EA also considered the following mitigating factors: i. SEW has no previous convictions for environmental offences ii. SEW reported its offending to the EA iii. There was full co-operation with the investigation iv. SEW made full and frank admissions v. Steps were taken to prevent a recurrence by applying for a new licence

g. When taken together the EA concluded that the combination of aggravating and mitigating factors warrants an overall downward adjustment of the starting point to £70,000.

h. The EA at step 5 (removal of any economic benefit) added £5,859.10 to the penalty to reflect the avoided annual charge of £6,345.90, pro-rata, to take into account the fact that SEW was granted a new licence starting on 4 March 2022.

i. On proportionality, the EA concluded that no adjustment is necessary for proportionality. The proposed penalty is sufficiently substantial to have an economic impact on SEW and to bring home to management and shareholders the need to improve regulatory compliance. The Appeal

[7]SEW submitted its appeal against the VMP FN by way of form GRC1 dated 21 August 2025. It provided the following grounds:

“It is agreed by the Environment Agency that there was no evidence of environmental harm. The abstraction was entirely within the scope of both the expired licence and the subsequently granted licence. The term ‘undermining’ relied upon by the Agency is not defined in the Environmental Offences Guideline. Case law such as Thames Water Utilities Ltd v Regina [2019] EWCA Crim 1344 underscores the importance of proportionality. ‘Undermining’ should properly be confined to deliberate or reckless acts that genuinely frustrate regulatory control, not inadvertent administrative lapses of the present kind. There was no broader risk to the integrity of the regulatory system, nor any damaged caused. This was a one-off administrative oversight during COVID-19 staff changes, not evidence of systemic weakness. A narrow construction is both arguable and appropriate. Proportionality requires that penalties correspond to actual harm, culpability and circumstances. Applying Category 3 to a case with no environmental impact and an administrative regulatory risk is disproportionate. Proportionality applies equally to the regulator and the undertaker, and the Tribunal must guard against penalties that exceed what justice demands. South East Water promptly notified the Agency of the lapse, cooperated fully throughout the investigation, and demonstrated good faith in securing the renewal of its licence. Such mitigation strongly militates against any finding of serious culpability or undermining. The above points should place the case at the lowest possible end of harm, supporting a Category 4 classification.”

[8]The outcome sought from the appeal was “We request that there is a variation in the level of fine from level 3 to level 4, and that the financial value of VMP be reduced accordingly.” The EA’s response to the appeal

[9]The EA filed a response to the appeal on 17 September 2025. In summary it made the following points:a. It maintained that Category 3 was the appropriate level of harm.

b. It disagreed with SEW’s position as to how the Sentencing Guideline should be applied in the following ways: i. Undermining of the regulatory regime is a factor that is taken into account when assessing harm. There is nothing in the Sentencing Guideline to state that this factor should be confined to deliberate or reckless acts as suggested by SEW. It is a factor that has been properly taken into account in this case as part of the assessment of harm, and appropriate weight has been given to it. ii. Mitigating factors such as co-operation with the investigation and self-reporting of the offence are properly taken into account after the harm and culpability categories have been assessed. They do not form part of the culpability or harm assessment and therefore cannot affect that assessment. iii. The principle of proportionality applies to the value of the penalty which is assessed against the offender’s means. The Sentencing Guideline provides specific guidance in relation to VLOs in respect of this. It should be noted that the penalty imposed on SEW represents just 0.027% of the company’s annual turnover for 2023-2024; an amount that reflects the type and nature of offending and an amount easily within the company’s means. This is far from being a disproportionate penalty. Legal Framework

[10]Section 24(1) of the Water Resources Act 1991 provides that no person shall abstract water from any source of supply or cause or permit any other person so to abstract any water except in pursuance of a licence granted by the appropriate agency and in accordance with the provisions of that licence.

[11]Schedule 2 paragraph 1 of the Environmental Civil Sanctions (England) Order 2010 provides that a regulator may by notice impose a requirement to pay a monetary penalty to a regulator of such amount as the regulator may determine (a “variable monetary penalty”). Before doing so the regulator must be satisfied beyond reasonable doubt that the person has committed the offence.

[12]Under paragraph 8 of that schedule the person receiving the final notice may appeal against it, in the case of a VMP, on the ground that the amount of the penalty is unreasonable.

[13]On the appeal the Tribunal has wide powers: it may (inter alia) withdraw, confirm or vary any notice under challenge (the 2010 Order, article 10). In the usual way, the Tribunal treats the appeal as a rehearing. It must simply make its own decision on the evidence before it (which may well differ from that before the enforcement authority at the time of the decision in question). This said, the Tribunal must accord ‘great respect’ and ‘considerable weight’ to any public authority’s policy on financial penalties (see Waltham Forest LBC v Marshall and Ustek

[2020] UKUT 0035

[14]The Sentencing Guideline provides its own framework of factors to assess when determining the appropriate level of harm. For category 3 harm, the factors are:a. Minor, localised adverse effect or damage to air or water quality, amenity value or property;

b. Minor adverse effect on human health or quality of life, animal health or flora;

c. Low costs incurred through clean-up, site restoration or animal rehabilitation;

d. Limited interference with or undermining of other lawful activities or regulatory regime due to the offence;

e. Risk of category 2 harm.

[15]For category 4 harm, the key relevant factor is a “risk of category 3 harm”. Procedural matters concerning the hearing

[16]The hearing took place by Cloud Video Platform (CVP). The Tribunal was satisfied that it was appropriate and fair to conduct the hearing in this way. Two individuals from SEW joined by telephone. The evidence

[17]The Tribunal considered a bundle of 319 pages provided by the EA. The EA provided an authorities bundle consisting of 42 pages and SEW produced a supplemental bundle of 282 pages, including authorities. The Tribunal had the benefit of skeleton arguments from both parties.

[18]There was no oral evidence. Submissions

[19]In its skeleton argument and at the hearing, SEW made the following additional submissions:a. The EA miscategorised the harm; this categorisation must be rooted in the substance and reality of the incident, which resulted in no harm, not a purely technical characterisation of regulatory non-compliance.

b. Undermining of the regulatory regime is not defined but SEW argues it connotes conduct that meaningfully frustrates regulatory control, weakens environmental protection or creates real risk by evading oversight. It must be something real and substantive. It is not directed at a one-off administrative oversight arising from human error during a period of organisational disruption during the COVID-19 pandemic where there was no harm caused and which was remedied retrospectively. Applying category 3 to such a lapse risks imposing a penalty which is disproportionate to the harm, culpability and circumstances of the offence.

c. The authorities relied on by the EA do not assist on categorisation; there are no authorities which relate to a Category 4 harm. SEW accepts that there should be punishment, but that it must be proportionate.

d. The EA should have applied its Common Incident Classification Scheme (“CICS”); on the facts of this case under the CICS the incident falls squarely into Category 4 as there was no environmental harm and indeed no impact. SEW argued that there needs to be a holistic view of the incident and the Sentencing Guideline cannot be looked at in isolation from the CICS or Guidance for reporting and assessing water industry regulation incidents (“WIRI”).

e. Treating abstraction without a licence as undermining the regulatory regime absent environmental consequence is unsustainable. It treats non-compliance itself as the harm. Undermining the regulatory regime must involve some case-specific adverse feature, such as intentional conduct or reckless disregard. It conflates regulatory non-compliance with environmental harm. SEW argued that the EA’s position that an unlicensed operation inherently carries risk was “theoretical” and must be tested against reality.

f. The aggravating features are limited and contextual. They do not justify treating the culpability as at the upper end of negligence, nor do they warrant the weight placed on them by the EA in assessing penalty.

g. The EA gave insufficient weight to the contextual circumstances of the COVID-19 pandemic. This was “an inadvertent, time-limited administrative oversight rather than evidence of entrenched systemic disregard.” SEW argued that the incident was not an operational failure. It also argued that the water company is a group of individuals who were affected by the pandemic and that this should not be overlooked.

h. The EA also gave insufficient weight to the mitigating factors such as self-reporting, no prior convictions and admissions.

i. If the harm is category 4, the correct starting point is £35,000 no £60,000 and the penalty must be recalibrated in the £22,000 to £100,000 bracket.

[20]In its skeleton argument and at the hearing, the EA made the following additional submissions:a. SEW has misunderstood the EA’s reliance on authorities, which were cited to guide the Tribunal on the correct application of the Sentencing Guideline to determine a VMP, particularly when dealing with a VLO. The authorities were not intended to indicate similar facts as each case should be considered on its own facts and sentenced using the Sentencing Guideline.

b. On culpability it is not disputed that the culpability is negligent. SEW failed to have a proper system in place to ensure that the licence was renewed and to check this had taken place. The culpability is at the higher end of “negligent” in the circumstances.

c. The EA’s approach when calculating a variable monetary penalty is to follow the Sentencing Guideline which is used to determine the appropriate penalty. The EA’s CICS is used as an aid to determine the appropriate enforcement response but it is the Sentencing Guideline which is used to determine the appropriate penalty and the CICS should not be used as an interpretative tool in that context. The categorisation of harm in the Sentencing Guideline is not the same as in the CICS and the two are separate. The WIRI guidance is not relevant because it was not in force at the date of incident and relates to discharges into water (that is, pollution) rather than abstractions.

d. There was no actual environmental harm in this case and the risk of harm was low, but it is the undermining of the regulatory regime that led to the conclusion category 3 harm was appropriate. The EA does not accept that undermining should be confined to deliberate or reckless acts and submits that the assessments of harm and culpability are entirely separate.

e. The purpose of the regulatory regime is to provide a system that prevents pollution, protects the environment and ensures accountability; offending that is due to negligence undermines that regime. As one of the category 3 factors is present, the correct category of harm is category 3 at the lower end.

f. Even if the harm was category 4, which the EA does not accept, it could still be proportionate to impose a penalty in the region of £75,000 for a VLO.

g. It is not disputed that SEW was a VLO for the purposes of penalty calculation.

h. Upward adjustment to the starting point should be made before the application of aggravating and mitigating factors.

i. The main aggravating factor is multiple previous warning letters to SEW for failure to comply with abstraction licences.

j. The EA took into account the factors of no previous convictions, self-reporting, cooperation, admissions and steps taken to prevent a recurrence at Step four of the calculation. The EA does not accept that COVID-19 lockdown restrictions are a mitigating factor. Similarly, the absence of harm is not a mitigating factor; this has already been taken into account when categorising harm and to do so again at the mitigating factors step would be double counting.

k. The penalty is proportionate, in line with the EA’s published Enforcement and Sanctions Policy and just in all the circumstances. The issues

[21]The principal issues to be determined involve the application of the Sentencing Guideline which appears at page B260 of the bundle and the EA’s Enforcement and Sanctions Policy Annex 1 which appears at page B247 of the bundle to the facts of the case. These are helpfully identified in the EA’s response as five questions:a. What is the appropriate category of harm?

b. What is the appropriate starting point penalty and range for the category of offence, taking the company’s turnover into account?

c. What adjustment, if any, should be made for aggravating and mitigating factors?

d. What adjustment, if any, should be made to ensure that the penalty is proportionate?

e. What penalty should be imposed? Discussion and conclusions

[22]We agree with the EA that the appropriate framework for considering the level of penalty, as opposed to determining the appropriate enforcement action, is the Sentencing Guideline and that the CICS and WIRI are used for different purposes by the EA. We have therefore applied the Sentencing Guideline when considering the matters in dispute concerning the VMP. What is the appropriate category of harm?

[23]The principal issue in dispute in this case was the categorisation of harm. SEW argues that there was no environmental harm or undermining of the regulatory regime and that the harm should have been category 4 not category 3.

[24]It appeared to the Tribunal to be common ground that there was no environmental harm caused by the unlicensed abstraction and so the factors of effect on the environment, health or clean up costs do not by themselves indicate that a categorisation of 3 is appropriate. The dispute arises in relation to whether there was “Limited interference with or undermining of other lawful activities or regulatory regime” due to the unlicensed abstraction.

[25]The EA’s position is that there was such interference or undermining of the regulatory regime. It argues that there had been a licence in place and that abstraction without a licence took place for 47 days following its expiry which is a clear undermining of the regulatory regime.

[26]We find as a matter of fact that SEW was aware that it had a time-limited licence in place and that this would need to be renewed. SEW, taken as an organisation rather than a collection of individuals, did not have an effective system in place at the time of the incident to ensure that this happened in a timely way or at all. The result of this was that it abstracted water without a licence for a period of 47 days.

[27]For the avoidance of doubt, we do not agree with SEW’s argument that there was no systemic operational difficulty which led to the breach; the breach resulted from there being no system to ensure renewal at the appropriate time.

[28]The purpose of licensing water abstraction, and indeed the EA’s principal aim, is to protect and enhance the environment. Water is a vital natural resource and it is essential that it be obtained in such a way that is sustainable for the environment. The licensing regime assists with this purpose by ensuring that the abstraction of water is regulated and can be subject to appropriate oversight. When an organisation abstracts water without a licence, which is illegal, this oversight is undermined; if others were to do so, even for a short period, then the EA’s ability to regulate effectively is disrupted. For these reasons we consider that SEW did undermine the regulatory regime due to committing the offence.

[29]The relevant factor in the Sentencing Guideline for determining whether harm should fall within category 3 refers to “Limited interference with or undermining of other lawful activities or regulatory regime due to offence”. We consider that there was undermining of the regime. We acknowledge that on the facts of this case the extent of such undermining is relatively limited in that it concerns a single organisation and a single site. However, we consider that the presence of limited undermining which was due to the offence is sufficient in all the circumstances to mean that the appropriate categorisation of harm is category 3 not category 4. The principles set out at paragraph 4 of the EA’s Enforcement and Sanctions Policy, which should be applied when carrying out any enforcement activity, include deterring future breaches by the offender or others and we consider that assessing the harm as category 3 is a deterrent to others. What is the appropriate starting point penalty and range for the category of offence, taking the company’s turnover into account?

[30]There is no dispute that SEW should be treated as a VLO for the purposes of calculating penalty. It does not appear to us to be in dispute that if the category of harm is 3 then the EA has selected the appropriate starting point and range for the calculation; the arguments made by SEW appear to be directed at a different starting point had the harm been categorised as 4. Applying the Waltham Forest case and giving appropriate weight to the EA’s policy as the regulator, we were not satisfied that this was wrong or should be overturned.

[31]Accordingly, we conclude that the starting point for the penalty and range should remain unchanged in the VMP FN. What adjustment, if any, should be made for aggravating and mitigating factors?

[32]We agree with the EA that aggravating and mitigating factors should be taken into account after the categorisation of harm rather than as part of it, as otherwise there is double counting of these factors. This is consistent with the Sentencing Guideline, which uses aggravating and mitigating factors as tools for adjusting the starting point for sentencing at step 4, whereas harm and culpability are considered at step 3.

[33]We consider that the environmental impact of the offence and consideration of operational dysfunction ought properly to be considered at step 3 as part of the assessment of harm. There is no reference to these as statutory aggravating or mitigating factors to be considered at step 4 in the Sentencing Guideline, although we note that the list provided is non-exhaustive.

[34]We consider that the EA gave consideration and appropriate weight to the factors set out at step 4 of its calculation at pages A14 and 15 of the bundle. The fact that SEW disagrees with this is not sufficient to demonstrate that this is wrong as a matter of law.

[35]Accordingly, we consider that there should be no further adjustment for aggravating and mitigating factors at step 4 of the calculation. What adjustment, if any, should be made to ensure that the penalty is proportionate?

[36]The key steps for proportionality in the calculation are steps 5 to 7. The Sentencing Guideline states “The court should now ‘step back’ and, using the factors set out in steps 5, 6 and 7 review whether the sentence as a whole meets, in a fair way, the objectives of punishment, deterrence and removal of gain derived through the commission of the offence”. Step 5 factors in the economic benefit gained from the unlicensed period, which is undisputed.

[37]The Sentencing Guideline states at step 6 that “the combination of financial orders must be sufficiently substantial to have a real economic impact which will bring home to both management and shareholders the need to improve regulatory compliance…It will be necessary to examine the financial circumstances of the organisation in the round. If an organisation has a small profit margin relative to its turnover, downward adjustment may be needed. If it has a large profit margin, upward adjustment may be needed.”

[38]Step 6 of the calculation in this case notes that the financial means and circumstances were considered in determining SEW is a VLO. It then considers the other factors and concludes that the penalty is proportionate.

[39]At step 7 it states “The court should consider any further factors that are relevant to ensuring that the proposed fine is proportionate having regard to the means of the offender and the seriousness of the offence. Where the fine will fall on public…bodies, the fine should normally be substantially reduced if the offending organisation is able to demonstrate the proposed fine would have a significant impact on the provision of their services”. It also identifies a non-exhaustive list of additional factors, but we consider none of them are directly relevant here. The FN concluded that there were no further factors to be taken into account at this stage.

[40]SEW’s skeleton arguments and oral submissions at the hearing emphasised the need for proportionality, but this was largely in the context of the categorisation of harm, arguing that it was not proportionate to categorise the harm as 3 rather than 4. We were not satisfied that steps 5-7 concerning proportionality had been incorrectly applied by the EA and accordingly concluded that these should remain unchanged. What penalty should be imposed?

[41]Having concluded that the harm should be category 3 and that the calculation should remain unchanged in relation to its starting point, aggravating and mitigating factors and proportionality, we decided that the penalty overall should remain unchanged. In reaching this conclusion, we gave appropriate weight to the EA’s Enforcement and Sanctions Policy as that of the relevant regulator and were not persuaded that the conclusion reached by the EA was wrong in any of the respects which were challenged by SEW.

[42]Accordingly, we dismiss the appeal