The introduction of the new Contaminated Land Regime on 1st April 2000 following the implementation of Part IIA of the Environmental Protection Act 1990 (as provided for by section 57 of the Environment Act 1955) has profound implications for many sectors including the property market, owners of potentially contaminated land and local authorities who are required to prepare registers of contaminated land in their area.
The implications for the insurance market are no less serious and ordinary businesses will find that cover for environmental liabilities may depend upon achieving high standards of diligence - lenders, take note. Debenture holders and Receivers also risk liability for damage arising, perhaps years later, as a result of an environmental incident during the period of a receivership. The net spreads widely.
A case in point occurred in the USA where the British-owned Fleming American Investment Trust acquired the Alabama, New Orleans & Pacific Junction Railway Company which, between 1882 and 1902, operated a factory at Slidell in Louisiana for making creosote to treat railway sleepers. As a result there was contamination of the site for which Fleming American, as the current owner of the company which originally caused the pollution, was held by the US EPA to be liable. The estimated cost of cleaning up the site was reported to be $132m (£86.2m). Other companies are also involved in the EPA's action but a significant proportion of the cost may have to be paid by Fleming American whose shares fell by over 30% as a result.
How has this come about? There is growing concern over the environmental impact of the way in which we live, both as individuals and as businesses, and there is particular international concern to halt and reverse global warming. Within the UK there is increasing public concern on general environmental and health risks over such matters as genetically modified plants and food produced from them, of potential pollution by industrial raw materials and by-products. There is also a growing demand for improved information.
The slow rate of applications for authorisations under the Environmental Protection Act 1990 suggests that most British businesses are probably still oblivious of how radical the changes in the law are although the more forward looking companies have a policy of due diligence in assessing the environmental impact of their activities and how this might be improved, for example by changes in the sourcing of inputs and the organisation of and technologies used in their businesses. Although often imposing an immediate cost, such studies have frequently shown that the results of environmental audits quickly pay for themselves.
It is clear that the political hue of Westminster governments is no longer the principal determinant of environmental legislation in the country. The real impetus comes from the EC, chiefly in the form of Directives whose objectives the governments of Member States are obliged to meet within a stated period of time by means of domestic legislation.
Liability for Waste
Businesses face unlimited fines under the UK's tough 'cradle to grave' anti-pollution laws. Firms are responsible for the waste they produce even after it has been taken off their hands. Regulations impose a legal "duty of care" on businesses for the safe keeping and disposal of the waste they produce. They are intended to ensure that the producer of waste continues to have some responsibility for its safe handling even after it has been transferred to the local authority or other waste carrier. Any breach will be a criminal offence for which unlimited fines may be imposed.
This "duty of care" is contained in the Environmental Protection Act 1990 and affects all businesses. Only household waste from domestic properties is exempt. It is designed to ensure:-
- that all waste is properly contained
- that any person to whom it is transferred is authorised to receive it
- that a written description of the waste is given, sufficient to enable it to be dealt with by those handling it further down the chain
- that all reasonable measures are taken to prevent any breach of the Act by other people, such as by fly tipping.
Under separate legislation all commercial carriers of waste, including demolition contractors, commit a criminal offence if they are not registered with the County Council, or can show that they are exempt from registration requirements.
Lender Liability.
This is a new and potentially serious problem arising out of environmental protection legislation. There are two separate aspects which should be of concern to lenders. Firstly, if a company becomes insolvent and is possessed by its creditors, those creditors automatically become liable for costs arising out of environmental damage for which the borrow may originally have been liable. For example, if the insolvent company were found to have caused land or groundwater to become contaminated then the creditors would become vicariously liable for the associated costs of clean-up.
For example, in 1995 the Midland Bank was forced to carry out an environmental clean-up after repossessing a residential property in Devon which the previous owned had used to dump old tyres.
A trend is becoming apparent in the USA whereby lenders can be held to be liable for environmental clean-up even if they had had no more responsibility for the environmental contamination than having been in a position to influence the decision-making of borrowers who were responsible for pollution - regardless of whether or not they actually did. The situation in the UK and Europe may be moving in a similar direction and some risk may arise as a result of interpretation of liability terms in some of the relevant legislation.
Updated: 24th July 2000