In the recent case of Tool-Temp Limited v The Environment Agency a civil penalty was considered in relation to the Fluorinated Greenhouse Gas Regulations 2015 (“F-gases Regulations”). The First-tier Tribunal’s General Regulatory Chamber (“the Tribunal”) found that the Environment Agency (“EA”) had failed to fully consider reasonableness when deciding to impose the civil penalty and when considering the monetary amount.

This case follows a similar case last year involving Scania and provides further insight into how the Tribunal will consider and examine the reasonableness of civil penalty notices.

Background 

Tool-Temp Limited (“TTL”) was a small business with an annual turnover of about £3 million. 5-10% of TTL’s business involved importing pre-charged hydrofluorocarbon (“HFC”) goods from Switzerland and selling them on the British market.

Prior to Brexit, the quotas required to import goods containing pre-charged HFC were handled by TTL’s Swiss suppliers under an EU scheme. However, post-Brexit, the F-gases Regulations (Schedule 2, Article 14(1)) pushed the onus of obtaining sufficient HFC quota authorisation onto British importers. The threshold for needing authorisation was 100 tonnes of carbon dioxide equivalent per annum. 

Following discussions with its Swiss suppliers, TTL purchased 200 tonnes of carbon dioxide authorisations. In March 2022, following receipt of its verification report, TTL discovered that it had exceeded its quota by 12 tonnes of carbon dioxide and self-reported this breach to the EA. It was noted that such a breach was unlikely to have been noticed if TTL had not reported itself, as the reporting level was 500 tonnes of carbon dioxide.  

On 4 April 2023, the EA issued a civil penalty notice to TTL under Reg 31 of the F-gases Regulations with a VMP of £4,200. 

TTL appealed the civil penalty.

Grounds 

The appeal was brought on 2 grounds:

Issue 1: EA’s decision to serve the civil penalty notice was unreasonable 

Issue 2: alternatively, that the amount specified in the VMP was unreasonable. 

To determine reasonableness, the Court considered the EA’s Enforcement and Sanctions Policy (“Enforcement Policy”). Annex 2, section A of the Enforcement Policy says the EA will assess: 

1. the nature of the breach
2. culpability
3. the size of the organisation
4. financial gain
5. any history of non-compliance
6. the attitude of the non-compliant person 
7. personal circumstances 

and whether punishment or future deterrent was necessary.

Issue 1  

The Tribunal discussed the Enforcement Policy’s reasonableness considerations in reverse order:

TLL’s Circumstance

TTL argued that whilst it sought guidance from its Swiss suppliers, there was no clear guidance available from the EA or other sources on the new F-gases Regulations. The Tribunal found that the new requirements presented a big change to business operations and the guidance documents available at the time were not of a high quality. 

TTL’s attitude 

The reporting threshold was 500 tonnes of carbon dioxide. TTL argued that had it not self-reported voluntarily, it is unlikely the EA would have discovered the breach. Upon finding the breach, TTL also acquired more authorisations in an attempt to meet the shortfall (although this is not permitted).  The Tribunal noted that the director of the company had tried to comply with the regime and had taken reasonable steps to ensure compliance.

History of non-compliance

TTL had no history of non-compliance.

Financial Gain and company size

The Tribunal found that, even at the highest quota price per tonne of carbon dioxide, as used by the EA in its submissions, TTL’s gain would only have been £300. TTL was a small company.

Culpability

Despite the EA finding that TTL was negligent, the Tribunal concluded that given TTL’s efforts to comply, its culpability was low.

Nature of the Breach 

The Tribunal highlighted the negligible breach, and that the monetary savings offered no competitive business advantage. 

Was punishment or future deterrent necessary?

The Tribunal found that the EA did not have proper regard for this step of the reasonableness consideration. Having considered all the above elements, the Tribunal determined that punishment would be disproportionate and TTL did not need future deterrent. 

As such the Tribunal found that imposing the civil penalty was unreasonable. 

Issue 2

Although unnecessary, having determined issue 1 in TTL’s favour, the Tribunal continued to consider issue 2. Working on the basis that TTL was a small business, and its culpability was low, the Tribunal held that, had a penalty been necessary, an appropriate amount would be £500. Thus the amount specified in the notice was unreasonable. 

Key takeaways

The case underlines the importance of considering the specific circumstances of a regulatory breach in determining the reasonableness of a civil penalty and the First Tier Tribunal will expect the EA to undertake that exercise. It also emphasizes the need for regulatory bodies to provide adequate support and guidance to businesses navigating complex regulatory regimes. 

Although the specific circumstances of this case involved the civil penalty regime under the F-gases Regulations, the Tribunal’s decision and reasoning is likely to be of relevance to other operators and regulated facilities subject to the environmental permitting regime following the extension at the end of last year of a similar civil penalty regime (variable monetary penalties or VMPs) to environmental permitting non-compliances. For a more information on VMPs, listen to episode 3 of our Environment Matter’s podcast here.

Our Environment team is highly experienced in regulatory challenges and disputes, so please do get in touch should you wish to discuss this case or its potential implications further.

This case summary was written by Victoria Barnes and Emily Boyd-Nash