Liability for Contaminated Land

Facts

The land in question had, until 1992, been used as a landfill site by the predecessors of Powys – Builth Wells Urban District Council and then the Borough of Brecknock. Following the cessation of the landfill operations in 1992, Brecknock carried out works to bring the site back into agricultural use. However, and perhaps unsurprisingly, the presence of the landfill site led to contamination of soils and groundwater. The watercourse on the site ran into the Rivers Ifron and Wye, and sites designated as SSSIs were therefore affected by this contamination.

Brecknock was abolished in 1996, and replaced by the larger Powys County Council as part of a reorganisation of local government in Wales. When Powys came into existence, they wrote to the owners of the farmland, Mrs Hardwicke and Mr Price, to explain that they had taken over responsibility for any contamination, and thus undertook both monitoring and remediation actions. In 2001, Powys entered into a tenancy with Hardwicke and Price so that they could occupy a small portion of the land to carry out such monitoring activities. However, following the decision of the House of Lords in National Grid Gas, Powys rescinded its former statement that it was responsible for environmental liabilities arising from the landfill site. They thus attempted to bring the lease to an end, and cease all monitoring activities, arguing that these were the responsibility of the owners of the site.

The question for the court was, therefore, whether Powys were correct to conclude that the decision in National Grid Gas resulted in their not being an appropriate person for the purposes of section 78F of the EPA 1990. The relevant parts of this provision read:

‘1.  This section has effect for the purpose of determining who is the appropriate person to bear responsibility for any particular thing which the enforcing authority determines is to be done by way of remediation in any particular case.

The first instance judge had concluded that Powys was such a person, distinguishing National Grid Gas on the grounds that: (i) the wording of the succession provisions did not refer specifically to ‘existing liabilities’ as they had done in National Grid Gas; (ii) the House of Lords in National Grid Gas had been motivated in part by the fact that, on purchasing shares in British Gas, members of the public had invested in the private company on the basis that it was not liable as a statutory successor and no such consideration was relevant in the instant case; and (iii) members of the public ought not to be worse off as a result of the reorganisation of local authorities. ⁵

Decision

The Court of Appeal upheld Powys’ appeal, and held that they ought not to be considered an appropriate person under section 78F. The Court reasoned that there was nothing in the instant case to distinguish it from National Grid Gas. The limiting factors on the scope of that case, which had been identified by the first instance judge, were not, on the Court of Appeal’s analysis, in fact central to the House of Lords’ decision. ⁶ Thus, the appropriate persons for the purposes of the Act in Powys were the owners of the land.

The Court reached this conclusion by answering two key questions. First, could Powys be considered an appropriate person directly under section 78F by interpreting that provision broadly? The question was, as Lloyd Jones LJ explained, whether the words ‘a person who causes’ could be stretched to include Powys. ⁷ His Lordship was clear that the answer was that they could not be so construed, and that, in any case, the question had been definitively determined by National Grid Gas. ⁸ Thus, the case confirms that which was said by the House of Lords: ‘person’ does not, in respect of section 78F, include successor bodies to the original polluter.

The second question was whether the mechanism by which Powys became successor to Brecknock meant that they could be liable as a result of that succession, not directly as an appropriate person, but by virtue of an allocation of any of Brecknock’s liabilities to them. This argument was considered in more detail by the Court of Appeal, and it is here that the importance of the particular wording of the succession provision became apparent. In National Grid Gas, the provision was worded as transferring all liabilities existing ‘immediately before’ the transfer. In Powys, the relevant order simply referred to liabilities. Did this mean that liability under the EPA 1990, Part IIA could be included under this umbrella term?

One challenge in making such an argument was that at the time at which Powys succeeded to Brecknock, the relevant provisions had not, in fact, come into force. The question therefore was not really whether the order transferred such liability, but rather whether Brecknock could be considered ‘liable’ for legislation not in force at the time of their dissolution. The question turned on whether the EPA 1990 could retrospectively deem Brecknock to have been liable at the time of the reorganisation. The Court of Appeal held that it could not do so. Thus, per Lloyd Jones LJ:

‘Mr Tromans [counsel for Powys] is, in my view, clearly correct in his submission that Pt IIA does not operate retroactively so as to deem a predecessor body to have been under a liability which only arose under legislation which came into force after the predecessor body ceased to exist.’ ⁹

As a result, Powys could not be liable, as it were, parasitically, on liabilities that rested with Brecknock at the time of the reorganisation since Brecknock was not liable at that date.

Discussion

Contingent Liability

The Court considered in some detail the question as to whether it could be argued that liability as an appropriate person in cases like this could be conceptualised as being a ‘contingent’ liability resting on Brecknock at that time of its dissolution which would thus bind Powys. Again, the Court was unconvinced, not least because it is difficult to see how a liability can be ‘contingent’ if, at the time at which the act which was said to give rise to the liability took place, the relevant legislation did not even exist, let alone come into force. That is not to say, of course, that such a body could not be retrospectively liable on the basis of such provisions, but rather than they could not be conceived of as being deemed (as above) or contingently liable at such a date. In reaching this conclusion, the Court considered a number of cases which had already been the subject of consideration by the House of Lords in National Grid Gas and, perhaps inevitably, reached the same conclusion as to where that line of case law led. Again, per Lloyd Jones LJ:

‘[t]he contingent liabilities which were the subject of Walters, ¹³ Devine, ¹⁴ Anton ¹⁵ and Bavaird ¹⁶ were all cases where the predecessor body had acted in breach of an existing duty but where no cause of action in tort accrued until damage was suffered. Such contingent liabilities must be distinguished from a situation where the predecessor body was under no relevant obligation at the time of the conduct of which complaint is made and where the legal obligations are imposed for the first time under a statutory scheme implemented only after the succession has taken place’. ¹⁷

Going beyond National Grid Gas? The consequences for public authorities

This case is significant because it shows the reach of the decision in National Grid Gas. For those who saw that case as primarily a question of the knowledge of members of the public buying shares in the former British Gas, and the consequence of privatisation, it is clear that the general approach in National Grid Gas applies even where the polluter concerned is a public authority, succeeded to by another public authority. In this sense, it is significant in demonstrating that in a high percentage of cases involving contaminated soil (that is, landfill sites operated by public authorities, and gas works) there is a good chance that the polluter, having been replaced by a different iteration of itself, will no longer be liable under the regime.

However, it must be noted that the eventual outcome will not be quite as clear cut as this, thanks to the way in which liabilities in the EPA 1990 are structured. The Court is correct to focus on the fact that liability occurs primarily as a result of falling under the category of appropriate person, either as a polluter or knowing permitted, or, in cases that such a person cannot be found or does not exist, as the owner or occupier of the relevant land for the time being. However, the duty to ensure that the land is remediated falls not on an appropriate person, but on the local authority. ¹⁸ Thus, the conclusion that Powys was not an appropriate person did not mean that they relieved themselves of all duties in respect of this land. Rather, they would remain the fallback source of remediation should the other provisions in the Act itself, and in the statutory guidance which supports it, result in Mrs Hardwicke and Mr Price being liable for less than the full cost of the remediation.

Thus, for example, the statute has a general provision that the costs of remediation should not be sought from owner or occupiers where that will cause hardship. ¹⁹ In such cases, the assumption is that the local authority will foot the bill. The problem with this from Mrs Hardwicke and Mr Price’s perspective is that the very body that decides whether hardship is present (subject of course to the supervisory jurisdiction of the court), is the body which is incentivised not to find hardship (that is, Powys County Council). Thus, the case in broader terms highlights the multiplicity of pressures which rest on local authorities in administering the contaminated land regime and the consequences that this can have for members of the public.

It also brings to the fore again the decision in National Grid Gas which has been the subject of criticism for failing to reflect the reality of historical causation of contaminated in relation to land. ²⁰ The broader the principle which can be derived from these two cases, the more danger there is in the possibility of companies deliberately restructuring to evade primary liability as a polluter under the relevant provisions. Furthermore, most of the commentary post-National Grid Gas, and indeed the tenor of the judgments in National Grid Gas itself, focus on the precise wording of the succession ‘documentation’. ²¹ The decision in Powys suggests that this is not the critical issue. Rather, the Court of Appeal focuses on the dates of the coming into force of the legislation as the determining factor in assessing pre-existing or contingent liabilities which could be transferred to a successor. Thus, the principles expressed in National Grid Gas, which may have been thought to be relevant only in cases where the liabilities passed on seemed, by the document itself to be limited by their temporality, appears from Powys to be a more general statement as to how polluter is actually understood in the contaminated land provisions.

Wider implications – the ‘polluter’

Finally, the case once again calls on us to consider who the ‘polluter’ is for the purposes of the ‘polluter pays’ principle, and emphasises that this principle, at once so intuitive and so demonstrably ‘fair’ is, at best, a shorthand for a series of related considerations which give rise to a sound basis for liability. First, the principle, as an economic principle, is designed to internalise the cost of harmful externalities. To achieve this end, the full cost of any damage caused by pollution must rest on the shoulders of one with a causal link to that damage. ²² There are very few (if any) liability regimes which either attempt or indeed, on a practical level, which could achieve that sort of perfect internalisation. Thus, as an economic concept, the principle operates very differently than it does when faced with reality in practice. Second, the principle as expressed in law tends to become one amongst many reasons for which an individual might be held liable for damage to the environment. In other words, as a legal principle, ‘polluter pays’ does not demand perfect internalisation of the costs, but rather, seeing the principle as a justification for liability, recognises that there may be other, equally valid justifications. An example of such a justification is the ‘windfall’ value which owners or occupiers of contaminated land receive when another ‘upgrades’ the land which they, in many cases, knowingly purchased at a lower price due to its environmental history. ²³ Thus, we can say that the ‘polluter pays’ principle is not necessarily breached per se if part of the cost of the pollution is paid for by a third party, as long as the polluter herself is also required to pay. Third, and as a result of seeing the principle as a justification for liability, rather than an economic concept, we can recognise that the word ‘polluter’ may be defined purely on the basis of causation, or it may also be defined on the basis of fault. There is nothing in the principle itself which demands strict liability, since the word ‘polluter’ could simply be narrowly understood to encompass, for example, only those who were aware of the harmful effect of their actions. Fourth, in cases where fault becomes relevant in excluding certain persons from the class of ‘polluter’, it may also be relevant in including others, despite a potentially more attenuated causal link between that person and the eventual pollution. In the case of section 78F, this explains the ‘knowingly permitted’ class of ‘polluters’, who although not directly causally responsible, by virtue of their knowledge (fault) and causal link (the permission) are treated in the same way as one who directly caused the contamination (that is, as a Class A appropriate person).

Taken together, these considerations paint a picture of the way in which the ‘polluter pays’ principle as a concept is employed in legal systems generally and the contaminated land regime in particular, and we can say that the Powys case helps to feed into the nuance of our understanding as to who the polluter is under this framework. It suggests that whilst the framework of the contaminated land provisions is designed to retrospectively hold someone liable, it is not designed pretend that they were so liable at the time. This general point is of potential significance beyond simply the statutory successors context as the dates at which liability arises is significant in a number of other situation, for example, the operation of indemnity covenants. Furthermore, it suggests that even in cases where the successor is created in full knowledge of potential issues arising from the land, as here, and even where the successor voluntarily assumes such responsibility believing themselves to be so bound, that this does not alter the definition of polluter under the regime so as to render knowledge a potential mechanism by which liability is extended in this way (except as provided for in relation to permitting contamination, see above). Building up a rich picture of how ‘polluter’ is conceptualised in this regime is critical in its operation on a daily basis, but it is also important in our more fundamental understanding when and how liability should arise in these cases. By prompting consideration of these underlying questions, this case is to be welcomed, but we may doubt whether the result itself is likely to be beneficial either from an environmental perspective, or indeed, for public authorities themselves given their on-going duties in relation to the land.