Per day fine system is needed, but with the correct limits

The environmental pollution situation in China calls for severe penalties for heavily polluting enterprises. The lead author had the fortune to participate in deliberations on revising the Environmental Protection Law, and from the current trend it seems that the amended law will bring in a “per day fine” system.

Per day fines

Per day fine means, in respect of a persisting violation of environmental law, a per day continuing penalty based on the duration of the violation of the law. It usually applies to a persisting pollution problem, changing the traditional one-time penalty to continuing penalisation, and so making environmental penalties heavier.

The per day fine system is set up to make penalties heavier the longer the violation of the law endures, and is very applicable to rectifying the severe imbalance between the penalties imposed for violating the law and the costs of pollution treatment to the large number of polluting enterprises, and even lends itself to a situation where the fine is paid on the one hand while operation and profit-making continue on the other.

The system is widely used in the US, and there is also relevant practice in China, in Chongqing. For example, the Clean Air Act, the Toxic Substances Control Act and the Environmental Liability Act in the US all specify that a fine of up to US$25,000 per day may be imposed for a violation of environmental law, and for repeat offenders a fine of up to US$75,000 for each day that the violation persists.

The Regulations of Chongqing Municipality for Environmental Protection (2007) provide for the per day fine system for the first time in China: “where an act of pollution discharge in violation of the law or damaging to the ecological environment results in serious environmental pollution or harm, an additional pollution discharge fee of two to five times may be charged. If the perpetrator refuses to rectify the pollution discharge offence, the environmental authority may impose a daily cumulative penalty based on the fine limit specified herein”.

With the deterrence offered by this penalty system, at least 80% of enterprises promptly effected rectification. By contrast, before implementation of the per day fine system, only about 5% of enterprises promptly rectified their pollution problems.

System assumptions

The inclusion of the per day fine system in the Environmental Protection Law is very necessary. However, for purposes of the objectivity and reasonableness of the system, the following rules require rational formulation.

Conditions and date of commencement. In the deliberations on revising the Environmental Protection Law, there was a continuous debate as to whether to set “rectify/treat within a specified period of time, failure to effect rectification/treatment by the specified deadline” as the condition precedent for a per day fine. From the perspective of current practice, the regulations are inconsistent.

For example, section 11 of the Water Pollution Control Ordinance of Hong Kong specifies that if any person discharges contaminated water into the waters of Hong Kong, or into any inland waters without authorisation, an offence is constituted. If the offence continues, an additional fine of HK$10,000 per day may be imposed while the offence persists; or if pollution is discharged into a communal sewer or communal drain, a fine of HK$40,000 per day may be imposed. In contrast, the Chongqing regulations provide that: “If the perpetrator refuses to rectify the pollution discharge offence, the environmental authority may impose a daily cumulative penalty based on the fine limit specified herein.”

The lead author is of the opinion that the conditions for, and the time of commencement of, the per day fine are important elements of the system, and have a direct bearing on whether the system can be made compatible with the principle of “double jeopardy” in administrative law. Pursuant to this basic principle of administrative law, if a past offence or one that has already been committed is determined to be “one matter”, a second or other subsequent fines may not be levied, thereby potentially leading to the per day fine system being decried.

To resolve this problem, it is more suitable to design “per day fine” as an enforcement punishment in administrative action: If the party subject to administration refuses to perform its obligation by the specified deadline, the administrative authority increases the burden of the payment obligation on a daily basis based on the party’s delay in performance so as to procure performance by the party of its obligation. On this basis, “the requirement of the administrative authority of rectification/treatment by the party subject to administration within a specified period of time” must be the condition precedent for a per day fine, and if the party subject to administration “fails to effect rectification/treatment by the deadline”, the per day fine system is triggered and the deadline date serves as the date of commencement for the per day fine.

Upper limit of fines. From the perspective of current relevant practice, the normal practice is to set an upper penalty limit rather than a specific figure for the daily penalty for per day fines. The lead author is of the opinion that an upper limit on the daily figure for a per day fine should be specified, because the Environmental Protection Law binds not only polluting enterprises but also includes enforcers of environmental laws. The setting of an upper limit is an important mark of enlightened legislation.

A composite regime

However, China’s environmental law regime is composite. Although there is an Environmental Protection Law, each environmental protection sector has separate laws based on different environmental elements, such as the Prevention and Treatment of Water Pollution Law, the Prevention and Treatment of Air Pollution Law, the Prevention and Treatment of Solid Waste Pollution Law, etc. In law enforcement practice, the provisions of these separate laws are usually applied.

Accordingly, it is important to include the per day fine system in the Environmental Protection Law, but it is inappropriate to include specific provisions on the upper penalty limit. Instead, consideration should be given to including a provision of principle, along the lines of “based on the original penalty amount”, to serve as the basis when a specific penalty is levied.

Wang Jihong is the executive partner and Shi Jie is a partner at Grandway Law Offices