Who pays for past pollution?

Who is responsible for cleaning up land polluted by companies that no longer exist? A recent ruling has clarified the matter for the gas industry, but for others it may not be so clear, Jo Garbett discovers

In the 18th and 19th centuries, the country was in the whirlwind of industrial revolution. Coal, gas, rail, electricity and steel companies were set up in many towns and cities and busily started production. Although these activities secured the UK's position as a pioneer of industrialisation, they left contaminating and harmful residues on the land.

Part 2A of the Environmental Protection Act 1990 (EPA) was introduced in 1995 in part to deal with this legacy. It implemented an improved system for the inspection, identification and remediation of historically contaminated land.

Underpinning the question of where liability should lie for the cost of cleaning-up land is the principle adopted from European environmental law that the "polluter should pay".

Put simply, the EPA says that the "appropriate person" to clean up land is the person who "caused or knowingly permitted" the contaminating substances to be in, on or under the land. This person is known as a Class A appropriate person and if more than one, they will form a Class A Liability Group. If, after reasonable enquiry, no Class A person is found, then liability will fall to the current owner or occupier, the Class B person. In addition, there are various statutory exclusion tests and hardship provisions.

The recent decision of the House of Lords in the case of the Crown (on the application of National Grid Gas) versus the Environment Agency (EA) is the first time the Lords have been asked to consider the scope of the polluter pays principle.

The decision is significant. It determines where liability will lie when land was polluted decades or even centuries ago by private undertakings which were nationalised and then privatised. The Lords recognised that there may well be policy arguments for and against liability in this scenario lying with the privatised successor company.

But the role of the courts is to interpret the relevant statutory provisions enacted by parliament, and in this instance, the Lords decided that those provisions were clear.

Clear-cut case
The case concerns a former gas works site in Bawtry, Doncaster. Until the mid 1900s, it was owned and operated by two privately owned gas companies. Upon nationalisation of the gas industry in 1949, the site was transferred to the East Midlands Gas Board (EMGB) under the provisions of the Gas Act 1948. Gas production at the site ceased shortly after nationalisation, and in 1965 the site was sold to a private company and eventually developed for private housing.

The state-owned gas industry was reorganised by the Gas Act 1972. All area gas boards were amalgamated into British Gas Corporation (BGC) and the boards subsequently dissolved. The industry was then privatised by the Gas Act 1986, creating British Gas plc, now National Grid Gas (NG).

Each of the gas acts meant only the liabilities to which the predecessor was "subject immediately before" the date of transfer would be inherited by the successor organisation. Part 2A EPA was enacted in 1995 and came into force in England in April 2000. The land in question was found to be contaminated in 2004.

The EA argued - successfully at first instance - that NG was liable to clean up the land. It said the appropriate person should be interpreted by reference to the polluter pays principle. Therefore, it includes not only the polluter (here EMGB or its predecessors) but also its statutory successors.

The EA also argued that liabilities transferred under the gas acts included those that only came to light after Part 2A was passed, even though they were not known of at the date of transfer.

The House of Lords unanimously rejected the EA's case on both counts. They held that it was a "quite impossible construction to place on the uncomplicated and easily understandable statutory language [of Part 2A]. The emphasis in [Part 2A]... is on the actual polluter, the person who .... caused or knowingly permitted...".

NG did not cause or knowingly permit any substances to be in, on or under the land. That was done by EMGB or its predecessors many years before NG came into existence.

Lord Hoffman said: "There is nothing in the act [EPA] to say that appropriate person shall be deemed to include some other person, or which defines who that other person should be. [NG] is plainly not an appropriate person within the meaning of the act."

The Lords also held that the EA's suggested construction made nonsense of the transferring provisions in the gas acts, which clearly limit the assets and liabilities transferred to those existing "immediately before" the transfer date. "The notion that that language can encompass a liability created by parliament in 1995 by the amendment of the 1990 act seems to me, with the greatest respect, unarguable."

Past liabilities
The reasoning of the House of Lords is straightforward. They recognised that Part 2A EPA is retrospective - it creates a potential present liability for acts done in the past. But that is entirely different from creating a deemed past liability for those acts, and there is nothing in the EPA to create retrospectivity in that sense.

The EA's interpretation had the effect of artificially extending the concept of the polluter or appropriate person in the context of the polluter pays principle.

In terms of the gas industry, the implications of the judgment are straightforward. NG is not an appropriate person under Part 2A EPA in respect of land that was sold before privatisation. Liability will instead be determined in the usual way, by considering which entities can be said to have "caused or knowingly permitted" the contamination.

Given that many of the polluting gas undertakings are unlikely to be in existence today, much of the cost may well fall to developers of the land, owners or occupiers and central government. As the majority of the contamination was caused when the industry was nationally owned however, it is questionable how unfair it is for the state to fund such remediation.

The Lords recognised that members of the public, encouraged by the advertisements and prospectus, subscribed for shares on the basis that British Gas would take over the assets and liabilities of BGC as they stood "immediately before" the date of transfer.

Aside from the impossibility of the clear transferring wording of the gas acts, including a liability coming into existence some nine years later, the EA's attempt to cast the burden of liability on to NG falsified the basis on which the investing public were invited to subscribe for shares. This meant that the Treasury and thereby the public at large, benefited.

Other implications
The impact on other previously nationalised industries is less straightforward. Some utilities were broken up on privatisation and government owned residuary bodies set up to deal with any liabilities arising out of past acts. If asserted, any Part 2A liability may well have fallen to those residuary bodies in any event.

In respect of other privatised industries, it seems likely that Part 2A EPA liability in respect of land sold pre-privatisation will not now be found to fall on the privatised successor companies. But there may be further debate to be had in cases where the statutory transfers of liability are more generous. There are, for example, instances of transferring legislation expressly providing for the transfer of "future liabilities arising out of past acts".

Some legislation (see the Water Act 1989) made express provision to include the transfer of "such rights and liabilities as may arise after the transfer date". In other cases, the language goes further and includes "such property, rights and liabilities to which the [transferee] may become entitled or subject after the making of the scheme and before the relevant date".

Relevant to the facts of this case, some provisions operate so as to impose on the transferee "liabilities arising after [the transfer scheme] comes in to force in respect of matters arising before it comes in to force" (see the Energy Act 2004 and the Railways Act).

Lord Neuberger recognised that much more explicit words would be needed to justify the contention that the gas acts wording is apt to cover non-existent liabilities created later. It is questionable whether their lordships would have been as untroubled as they were in this case if the gas acts had contained such language.

Jo Garbett is a senior associate at Pinsent Masons solicitors for NG
www.pinsentmasons.com

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