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Brownfield Briefing Conference 22 January 2008

Contaminated Land ­ Caselaw Update

Justine Thornton Barrister 39 Essex Street1 Introduction2

1. There has been very little caselaw considering the Part IIA contaminated land regime3. This may reflect the relatively slow progress made in identifying and cleaning up contaminated land in the UK since the regime came into force in 20004. 2. There have been only two reported judicial decisions considering points of law raised by the regime, although one of them went all the way to the House of Lords in 2007, thereby illustrating the regime's significance5. A fairly meaty decision from the Secretary of State is awaited in relation to an appeal against a remediation notice6. 3. The advantage of testing a regime through the Courts/inquiry process is that areas of uncertainty under the regime can be clarified. So for example, the decision awaited from the Secretary of State will hopefully provide an indication of the position of developers who develop an already contaminated site. 4. Whilst caselaw directly on Part IIA is scanty, there have been other cases in the last 12 ­ 18 months considering other aspects of contaminated land which are also considered in this paper. Liability of successor companies for clean up R. (National Grid Gas Plc (Formerly Transco plc) v Environment Agency 5. Having leapfrogged from the Administrative Court to the House of Lords, the "Transco" or `Bawtry' case has provided a final decision on the question of liability for companies which are the statutory successors of nationalized corporations under Part IIA of the Environmental Protection Act 1990. It has also provided the first serious judicial examination of the Part IIA regime. 6. R. (National Grid Gas Plc (Formerly Transco plc) v Environment Agency ([2007] UKHL 30) concerned housing development in the 1960s on a former gasworks site

[email protected] In preparing this paper I have made extensive use of an excellent book on Contaminated Land by Stephen Tromans and Robert Turrell Clark, published by Sweet and Maxwell (new edition out in December 2007) 3 i.e under Part IIA Environmental Protection Act 1990 4 See for example the discussion in the new second edition of Contaminated Land by Stephen Tromans and Robert Turrell Clarke at para 3.243 5 R(on the application of National Grid Gas PLC) v Environment Agency [2007] UKHL 30 and Circular Facilities (London) Ltd v Sevenoaks DC [2005] EWHC 865 (Admin) 6 Appeal by Crest Nicholson and Redlands in relation to a contaminated site in St Albans

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where coal tar residues buried in tanks were discovered which required significant remedial works. 7. The claimant, National Grid Gas plc, was a company which had been established as part of the corporate reorganization of British Gas plc a few years after the privatisation of the Gas industry. British Gas had been the statutory successor to the British Gas Corporation under a transfer scheme in 1986. The British Gas Corporation had itself been the subject of a statutory transfer from organisations including the East Midlands Gas Board ("EMGB"), which was one of the original polluters of the site. 8. In identifying the Class A liability group7 for those works, the Environment Agency included the claimant on the basis that one or more of its statutory predecessors (which included Transco and British Gas) had caused or knowingly permitted the presence of the relevant substances through operating the gasworks. Other potentially appropriate persons in the form of dissolved companies had been considered not to be "found" for the purposes of the regime and the claimant sought judicial review of the Agency's determination that it was an "appropriate person". The claimant based this on three grounds: a. that it had not itself caused or knowingly permitted the presence of the substances, and so did not fall within section 78F(2); b. that at the time of the various transfers of liability through the `chain' of statutory succession, no relevant liabilities had existed in law, or arisen in fact (there being no evidence of a statutory nuisance, for example); c. and even if there had been liability under any of the then applicable liability regimes, transfers could only have been effective as to those liabilities and not that under Part 2A which had not been in force at the time of any of the transfers. 9. The Administrative Court rejected these arguments ([2006] Env. L.R. 49 and considered that the provisions of Part 2A should be given a purposive construction. Forbes J found that Parliament's intention had been clearly to place primary responsibility for the remediation of contaminated land on the original polluters in the form of causers and knowing permitters, rather than `innocent' owners or the public purse, referring to the Parliamentary record on the basis that legislative intent in section 78F(2) was ambiguous or obscure. The only way of giving effect to the intent expressed in the record was to construe the term "person" so as to include statutory successors as well as the original polluter, so that liability passed to successors in title. 10. The House of Lords has now taken the opposite view, finding the statutory language plain and unambiguous, so that Pepper v. Hart provided no authority for recourse to the Parliamentary record, and that there was little if anything to support the imposition of liability in Hansard in any event. The critical issue was considered to be the phrase "immediately before" used in transferring liabilities under each of the statutory transfer schemes. These provided that the successor would take over the liabilities of the predecessor "immediately before" the transfer date. The unanimous view of their Lordships was that as liability under Part 2A had not been created until many years after the transfer dates, that liability had not existed (even as a contingent) "immediately before" the transfers, and so could not have passed as part of the succession. Although Part 2A was retrospective in the sense of creating potential present liability for past acts, it did not create a deemed past liability for those acts. The claimant had not caused or knowingly permitted the presence of the substances

`Class A' liability refers to those first in line to be made liable which, as befits, the `polluter pays' policy underlying the regime includes those who either `caused' or `knowingly permitted' the contaminating substances

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and the language used in section 78F could not be construed so as to incorporate them within this definition. Implications of the Transco case8

11. Statutory transfer schemes, whereby assets and liabilities are transferred by virtue of an Act of Parliament are relatively common place, since post-war nationalization of industry and the privatizations in the 1980's. 12. However the Transco case is concerned, in large part with the specific wording of a particular scheme and similar issues in other statutory transfer schemes may not therefore lead to the same outcome as in the Transco case, e.g local government reorganizations, as the Judges made clear. The wording used in such provisions varies and has tended to become more detailed and elaborate over time. The example given by the Judges was of schemes under the Water Act 1989 where provision was made for transfers to include future liabilities not existing at the date of the transfer. 13. The timing of the scheme may also be important. Schemes created since the introduction of the contaminated land regime may well also lead to a different outcome. 14. As regards the transfer scheme in the context of the privatization of the gas industry in the 1980's, the Judges were very hostile to the view that the "polluter pays principle" underlying Part IIA could be used to undermine the value of investments in the gas companies purchased by members of the public from the Government (the `retrospective falsification' of the basis upon which shares in British Gas plc had been acquired). 15. The Judges also appeared to be particularly influenced by the lack of connection between the successor company and the contaminated land so that the claimant company could be considered to have neither knowingly permitted or caused the presence of substances. 16. The implications of the case for property developers will be of concern in that they may find themselves having to bear the whole burden of Class A liability in cases where the other Class A polluters are the end of a chain of statutory succession of polluters. 17. The implications may also be significant for owners and occupiers as potentially Class B. In the Transco case the Environment Agency decided to apply the hardship provisions within Part IIA which prevented the householders from having to bear the cost of remediation. In different circumstances, it may well be that the burden has to be borne by such `innocent parties' 18. Outside the privatization context, local authorities may similarly be found not to be responsible for the acts of their statutory predecessors, depending upon the precise terms of any transfer provisions. In this situation the remediation costs would potentially be borne by the innocent landowners rather than the public purse (In the Transco case, DEFRA provided a grant for the clean up under the Supplementary Credit Scheme). Despite the hardship of this outcome, it seems unlikely that this could justify a departure from clear and unambiguous provisions in a transfer scheme.

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See the useful discussion in Contaminated Land at page 167

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19. Although the case is concerned with succession under statutory schemes, Lord Neuberger's judgment includes comments on corporate succession. In particular he considers liability in the context of the sale and purchase of `assets' and the `business' or part of the `business' of a polluting company, but without clear distinction between asset, business and share transactions. 20. As with statutory succession, the essential issue with corporate succession is whether the person who has caused or knowingly permitted the contamination can be `found'. The outcome may be different depending on whether the transaction is a share or asset sale. Where a company's shares are purchased, the purchase includes contingent and future liabilities attached to the company. Where a company's assets or business are purchased but not the shares themselves, liabilities not attached to the specific assets purchased remain with the company. Where assets such as land have liabilities attached to them, these will pass with the asset. In the case of Part IIA this will be on the basis of knowingly permitting with liability also remaining with the original causers and other knowing permitters. Stephen Tromans, author of the Second Edition of Contaminated Land has noted: "Whilst on one view the comments made in Transco as to the retrospective falsification of the basis upon which shares were acquired could be applied to the general corporate context, it would seem that the general principles of corporate personality should apply so that the original polluting company still exists and can be found albeit that the ownership of its shares (and usually the assets owned or controlled by the company have changed) and so may be within Class A" 9 The knowledge required in knowing permitter liability 21. The final point worth mentioning about the Transco case relates to the issue of the knowledge required for a person/company to be fixed with liability as a `knowing permitter'10. The case does not consider the point directly but it does however identify how the Environment Agency had included property developers within an initial group of potential Class A appropriate persons and Lord Scott consider that it seemed likely that these `persons would have been aware of the presence of the coal tar under the ground of the old site' and that it would have been arguable that they had knowingly permitted the coal tar to remain there 22. The earlier case of Circular Facilities (London) Ltd v Sevenoaks DC [2005] EWHC 865 considered the point directly11. In particular is it enough for there simply to be knowledge about the entry or presence of the substances or must there also be knowledge about their contaminating nature. The latter approach would make it very difficult for regulatory authorities to establish knowing permitter liability particular if the activities in relation to the pollutants in question were carried out many years ago. The other relevant question is what type of knowledge suffices ­ actual knowledge of the relevant activities or constructive knowledge (eg shutting one eye's to the obvious).

Contaminated Land para 5.70 Knowingly permitted is understood to require both knowledge that the substances in question were in on or under the land and the possession of a power to prevent their presence there DEFRA Circular 01/2006 Annex 2 para 9.10 11 The underlying facts were that Sevenoaks DC served a remediation notice on the company in 2002 on the basis the company knowingly permitted contaminating substances. The land had belonged to the company since 1979 and had been developed in 1980. A soil investigation report dated 1978 discussed the contamination at the site. A copy of the report was on the Council's records stamped as received on 27 March 1980 and the records showed that the Council's building control officer had visited the site on the 25 March 1980. The Council's case was that the Company owned and developed the land and by its servants or argents had put the report in the hands o the Council so it was to be inferred that the contents of the report were known to the company. The Company's case was that the controlling mind of the company ­ a Mr Ketteringham- had not seen the report until approx 2002.

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23. The Court in Circular Facilities held that knowledge is only required as to presence of the substances and not knowledge about their contaminative nature12. On the question about actual/constructive knowledge, the Court took a more restrictive view. The suggestion that the availability to the developer of a report on the planning register containing information as to the presence of substances in the land could provide the requisite knowledge was rejected. Although the judgment consists largely of an analysis of the lack of clarity in the proceedings in the magistrate's court, it does suggest that there is a requirement for an appropriate person to have actual knowledge of the presence of substances rather than knowledge which is purely constructive or implied, though this could be inputed in some circumstances. 24. On the facts, there appeared to be an individual (a Mr Scott) who was in `an informal partnership' with the company and probably acted as its agent in the dealings with the Council over the development of the land. He may have had actual knowledge of the substances at the time but had since died. The Judge referred to the possibility of imputing his knowledge to the company on the basis of an agency relationship but the evidential difficulties involved including the fact that the individual had since died illustrate the practical difficulties with establishing knowledge in such cases. This approach has been criticised as requiring local authorities to undertake detailed investigations to establish the requisite knowledge linking companies and other persons to contaminated sites13 25. In those cases where it is a company which is said have to knowingly permitted the presence of contaminants, the question arises as to what knowledge is to be attributed to the company. This will be determined on ordinary principles of corporate law14. It may be the case that in the context of contaminated land, knowledge by someone who was not a director yet who had authority to take decisions involving the presence of contaminants, might well be attributed to a company. Such persons might include the environmental manager or safety officer for example. See Shanks v McEwan (teeside) Ltd v Environment Agency [1997] JPL 82415 26. One of other problems in the case concerned the forum for the proceedings ­ the magistrate's court ­ and relevant procedures. As Mr Justice Newman noted, "in the context of magistrates' courts proceedings, without the benefit to be gained from disclosure obligations, that trials on matters as historic as this, without reference to adequate documentation, giving rise to complex principles of laws, present a demanding set of proceedings for a district judge to resolve." There was no mechanism by which Sevenoaks could require Circular Facilities to disclose documents that may have proven the knowledge of the controlling mind. This case may be one of the reasons why now appeals from decisions of local authorities no longer to the magistrates Court but all appeals to the Secretary of State16. 27. The Judge ordered a retrial of the issue of the Company's knowledge. Faced with either a retrial in the magistrate's court or a Court of Appeal hearing to appeal the High Court ruling, the Council withdrew the remediation notice. Sevenoaks are reported as saying that they `certainly wouldn't serve a remediation notice in future'17.

The Court was considering the issue in the context of knowledge of the potential for reaction with other substances or change through biological processes in section 78F(9) but this applies equally to s78F(2). See Valerie Fogleman JPL [2005] 1269 14 See Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 WLR 413 15 Issue was whether the company could be said to have knowingly permitted the deposit of waste at one of its sites in breach of a licence condition. It was held that if knowledge by senior management was required for the offence then it was sufficient that the management knew that the site was generally used for receiving waste of the relevant type. 16 S104 Clean Neighbourhoods and Environment Act 2005 17 ENDS report 375 (page 17).

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Knowing permitter liability and property developers

28. A decision is awaited from the Secretary of State in relation to an appeal against a remediation notice. The case has raised a number of meaty issues. Details of the appeal hearing in April 2007 are contained in an ENDS Report (388 May 2007 pp1415) 29. The contamination in question is a large plume of bromate in a chalk aquifer in Hertfordshire. The plume is the largest in the UK and affects a high quality acquifer used for drinking water supply. The source of the plume is a former chemical works formerly located on a site which is now part of a housing development. The site was designated as contaminated and as a special site. The Environment Agency issued a remediation notice in November 2005. The notice named Redland Minerals, the former owner of the chemical works as responsible for the bromate and the subsequent housing developer, Crest Nicholson as responsible for the bromide on the basis of its actions in developing the site. Each company is blaming the other for the pollution. 30. The case in question exposes a particularly harsh aspect of the imposition of retrospective liability for contamination in that the contamination did not arise by way of physical change but by virtue of a change in legislation a number of years after the development which raised chemical standards for drinking water. 31. The case will hopefully lead to the first detailed consideration of knowing permitter liability in the context of contaminated land and may prove to be of particular relevance to developers who buy contaminated land and develop it.

Remediation requirements 32. Other issues in the case include the requirements and reasonableness of remediation18. Lender liability 33. The earlier stages of the proceedings considered the issue of lender liability. The Agency originally included the lender who financed the housing development in the remediation notice. This was on the basis the lender took ownership of the site for a period of time and, as a result of the consequent control, was categorized as a knowing permitter. Following representations by the lender including as to the nature of lending practices in the 1980s, the Agency excluded the company on the basis the lender liability exclusion applied. Outcome 34. The outcome of the case will be a decision by the Secretary of State which will hopefully provide useful guidance on the relevant issues. Any decision does not however have the same status as precedent as a decision by the Courts does. Inspectors on future cases are not obliged to follow the outcome although it may be expected that the general approach is likely to be followed, assuming it is correct in law and given it will be a decision of the Secretary of State.

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Kathy Mylrea (who was involved in the case) will consider these aspects in her talk.

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35. The legislation makes no specific mention of the grounds on which an appeal may be made against a decision of the Secretary of State. The assumption is that judicial review will lie against such decisions. A note on `causing' 36. It is worth mentioning a recent case looking at `causing' in the context of water pollution which takes a different approach to the question of a `failure to act' than the Part IIA guidance, thereby highlighting the Part IIA approach.

37. `Causing' contaminating substances to be present in or or under the land is generally be a question of fact. Caselaw in the field of water pollution offences (which also uses `causing' as its test of liability) suggests that the Courts are likely to approach the issue in a robust common sense way without knowledge fault or negligence needing to be shown 38. Leaking pipes, corroding tanks and vandals opening taps often leads to contaminated, for which the company/organization running the operation tends to be liable. Earlier cases which suggested that some positive act was required have been disproved as too restrictive. This approach seems to accord with the Governments view that the test of `causing' will require that the person concerned was involved in some active operation or series of operations to which the presence of the pollutant is attributable and that much involvement may also take the form of a failure to act in certain circumstances (DEFRA Circular 01/2006 Contaminated Land Annex 2 para 9.9.) 39. In contrast, in the recent case of Environment Agency v Biffa Waste Services [2006] EWHC 1102, the Court took the view that the departure of the contractor from site and his failure to continue taking waste away were regarded as correctly classified as an omission and not as `causing' pollution.

Local Authority Failure to Act 40. As mentioned above, the reaction of Sevenoaks District Council to its experience of serving remediation notices was not to serve any more. Other local authorities may be similarly reluctant because of resource issues or lack of experience with the regime. 41. A local authority which is aware that it has contaminated land in its area yet for whatever reason fails to act effectively to avoid harm could however find itself faced with a challenge to its failure to act. 42. The challenge could come from a third party (eg neighbours) which suffers loss or damage as a result of the failure to act (eg ill health or effect on their property). 43. Domestic law suggests that the neighbours would not succeed in bringing an action against the local authority in these circumstances19 . However a challenge may prove possible under the the Human Rights Act 44. Case law of the European Court of Human Rights suggests that the rights to life under Article 2 and the respect for home and private life under Art 8(2) may be capable of applying to situations where an authority fails to take effective action to

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See R v Lam and Brennan (t/a Namesakes of Torbay) and Torbay BC [1998] PLCR

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protect individuals from harm caused by pollution whether this arise from acts of the state itself or those of private entities. 45. The recent case of Fadeyeva v Russia (2007) 45 EHRR 10 provides an example. Mrs Fadeyeva, a Russian national lived in a flat 450 m away from the largest steel plant in Russia. In order to protect the locals from pollution, a buffer zone was set up round the plant but nonetheless lots of people lived in the zone. The plant was subsequently privatised. Various reports and legislative environmental programmes referred to the high levels of emissions from the plant and the impact on people's health. Mrs Fadeyeva brought legal proceedings seeking resettlement which were unsuccessful. 46. The European Court found there was no direct evidence that the applicant's health had suffered as a consequence of living near a waste treatment plant. However the Court concluded the very strong combination of indirect evidence and presumptions made it possible to conclude that the applicant's health deteriorated as a result of her prolonged exposure to the industrial emissions from the steel plant. Even assuming that the pollution did not cause any quantifiable harm to her health, it inevitably made the applicant more vulnerable to various diseases. Moreover, the Court concluded that there could be no doubt that it adversely affected the quality of life at her home. The case involved a failure by the Russian state to protect its citizens from pollution by private industry Russia argued that the essential justification for its refusal to resettle the applicant was the protection of the interests of other residents of the area who were entitled to free housing under the domestic legislation. On the facts in Fadayeva, despite the wide margin of appreciation left to the State, Russia failed to strike a fair balance between the interests of the community and the applicant's right to effective enjoyment of her right to respect for her home and private life. 47. It remains to be seen whether those authorities can be used in relation to contaminated land situations but the possibility exists 48. In the event of any claim it may be important whether the local authority has acted in accordance with recognised scientific and technical guidelines. See for example the 2007 case of Hans Gaida v Germany20 . Mr Gaida owned a plot of land and used it to run a poultry farm. A licence was granted to a company to construct a mobile phone base station 20 m from his house. Mr Gaida alleged ill heath and detrimental impacts on his fledgling chickens. He filed an objection seeking to have the licence revoked. The application was rejected by the German authorities on the basis that the radiation emanating from the base station complied with standards prescribed by relevant safety guidelines. In the absence of conclusive scientific evidence to the contrary it had to be assumed that no health damage could be expected. The German Courts took the same approach as did the European Court of Human Rights in holding Mr Gaida's claim to be manifestly ill founded. Environmental consultants 49. The investigation, assessment and remediation of contaminated land involves a range of expertise. It is therefore important to obtain professional advice from consultants who are experienced in the assessment and remediation of contaminated land 50. Two cases are relevant to environmental consultants. One concerns the liability of environmental consultants for the contents of their report. The other concerns a dispute as to the extent of insurance cover under a professional indemnity policy.

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App 32015/02 Decision as to admissibility

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Liability 51. Environmental consultants must have heaved a huge sigh of relief about the decision by the House of Lords in Sutradhar v. Natural Environment Research Council21. Tragic though the plight of the poisoned residents of Bangladesh undoubtedly is, to have hold the British Geological Society liable would have involved a huge leap in liability, requiring consultants to think way beyond the terms of their remit, for which they are being paid, in any case where their work might have relevance to the position of third parties or the general public. 52. The British Geological Survey (BGS) had carried out research on groundwater resources in Bangladesh in connection with an irrigation project from deep artesian wells. In 1992 the BGS published a hydrochemistry report to the Bangladesh government as to the elements found within the water, such as aluminium and zinc. However, it had not been tested for arsenic, and the report made no express reference to this fact. 53. Aside from the irrigation project with which BGS were involved, UNICEF, the World Bank and other organisations had implemented a vast programme for 4000 shallow hand-pumped wells to supply clean drinking water to rural Bangladesh. The water had not been tested for arsenic. Between 35 and 77 million people were thereby exposed to the risk of injury: described in a WHO Report in 2000 as the greatest ever environmental disaster. The claimant, a resident of Bangladesh, suffered personal injury from arsenic poisoning and brought an action in negligence against BGS. 54. In the House of Lords, Lord Hoffmann, who gave the main speech, summarised the claimant's case in two different ways: that BGS owed him a duty to test for arsenic, or that BGS should not have issued a report which gave the impression that there was no arsenic ­ the first requiring the imposition of a positive duty and the second being essentially a claim of misrepresentation. As Lord Hoffmann put it, the fact that someone had expert knowledge did not in itself create a duty to the whole world to apply that knowledge in solving its problems. Although BGS had been working in Bangladesh and had chosen to run tests for some elements, it was held this could not create a duty to test for other elements, and BGS had therefore owed no positive duties to the government or people of Bangladesh to do anything. It could only be liable for those things that it did and the statements that it made, not for what it did not do. 55. As to the terms of the report, the claim was essentially that BGS knew, or ought reasonably to have known, that the report would be relied upon as a statement that the relevant water of Bangladesh was fit to drink, and, more specifically, that it did not contain arsenic or any other toxic substances. It was quite impossible to find any such statement in the report, which made no mention of arsenic. The question was whether it was arguable that BGS had owed a duty to the population of Bangladesh not to publish a report that, although containing useful information about many other matters, implied by what it did not say that BGS shared the then conventional wisdom about arsenic, which was that its presence was so unlikely that it was not necessary to test for it. Lord Hoffmann considered that the question only had to be stated in that way to show how implausible the case was. 56. The standard framework for deciding whether a duty of care is owed is usually to ask whether the damage was reasonably foreseeable, whether there was sufficient "proximity" between the claimant and the defendant, and whether it was fair, just and

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[2006] UKHL 33

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reasonable to impose a duty. This necessary relationship of proximity was absent, as BGS had no control whatever, whether in law or in practice, over the supply of drinking water in Bangladesh, nor was there any statute, contract or other arrangement that imposed on it responsibility for ensuring that the water was safe to drink. The duty of care depended upon a proximate relationship with the source of danger, namely the supply of drinking water in Bangladesh. Accordingly, the claim had no reasonable prospect of success and was struck out. Professional indemnity cover for consultants 57. Professional indemnity policies provide cover for loss arising from the alleged fault or negligence of persons who sell their knowledge or skills. An example of losses to consultants results from a site investigation at Chatham Docks Kent in preparation for developing the island for residences. The Royal Navy had used the island for several hundred years among other things to dump waste including asbestos. The consultants estimated the amount of material to be removed, at a cost of £23 million. In the event a far greater amount of material had to be removed at a cost of £67.6 million. Following a 77 day court hearing the consultants were found to have failed to exercise reasonable care and skill and a provisional award of £18.5 million in damages was awarded. 58. Encia Remediation Ltd v Canopius Managing Agents Ltd (2007)22 concerned a dispute as to the extent of insurance coverage under an environmental consultants professional indemnity policy. 59. Encia had entered into a contract to provide civil engineering works to a house builder (Shepherd Homes Ltd), including the design and carrying out of piling works and project management for a residential development to be constructed on reclaimed land in West Hartlepool. 60. Properties constructed on the site began to show signs of cracking due to settlement. The house builder began proceedings against Encia claiming substantial damages arising from allegedly defective design, and in some cases construction, of the piles. 61. Encia contended that the claim was covered by its professional indemnity policy which provided cover for claims for negligence and negligent breach of contract "in the professional conduct of Encia's business". The insurers rejected the insurance claim on the basis that it was excluded by the Policy. 62. Encia's business was described in the policy schedule as "civil and environmental engineering and as more fully declared in the proposal forms and any accompanying information submitted with the proposal forms". The Court was asked to consider: the meaning of "civil and environmental engineering" as used in the policy and how this should be interpreted. 63. Just before the relevant policy year Encia had been the subject of a management buy-out from part of a larger operation, with Encia taking the work of three offices and another company taking the work of three other offices. Encia was until the management buy out in 2002, known as AIG Remediation Ltd. 64. The Judge noted that the policy provided professional indemnity cover in respect of professional services. It was accepted that the policy did not cover construction as such. The central issue was whether in the case of a design and build contract, the design element was or was not insured.

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QBD (Comm) [2007] EWHC 916 (Comm) (Cresswell J) 24/4/2007

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65. In construing an insurance policy 1) the words used must be considered in the context of the particular clause as a whole 2) the clause must in turn be considered in the context of the policy as a whole iii) which must in its turn be set in its surrounding circumstances or factual matrix. 66. The Court held that the business of "civil and environmental engineering" covered a wide range of activities. The Judge referred to Jackson and Powell on Professional Liability and to a description of the range of activities covered by civil engineers (civil engineers manage the conception, innovation, promotion, design, construction, operation, maintenance and eventual removal of the amenities of modern civilization. These amenities range from water supply to offshore energy, transport systems to buildings, land reclamation to municipal services and industrial production to environmental improvement'). The term was wide enough to include a contract to design and carry out piling works and project management for a residential development constructed on reclaimed land. 67. The Judge found that after the split of the business following the management buyout the two risks were at all times broked side-by-side on the same occasions with the same underwriters. Where what had been one risk became two risks broked sideby-side. The insurers all knew and appreciated that what had been one risk had become two risks. It would make no commercial sense for the cover to differ in respect of the risks. 68. The matrix of fact included the materials presented in relation to the other company's risk and the background of the risk in the previous policy year. The words of the policy schedule describing the business included all Encia's business activities in the field of civil and environmental engineering and embraced design and build contracts as well as design contracts. The words "and as more fully declared" were not words of limitation. Nor did the declarations in the proposal form serve to narrow the meaning of the words "civil and environmental engineering". An exclusion clause was not applicable given the width of the definition of Encia's business. Public liability insurance and the extent of environmental cover 69. Insurance is available for liabilities arising from contaminated land. It is not possible however to ensure adequate protection for such liabilities by relying solely on public liability and other general liability policies. Whereas public liability policies generally provide cover for tort claims for bodily injury arising from sudden and accidental pollution incidents (though some underwriters will exclude pollution absolutely if there is a high risk potential) the extent of cover provided by them for other environmental liabilities is not clear. 70. A particular issue that has arisen in the Courts recently is whether a public liability policy provides cover in respect of an action by a regulatory authority against an insured in respect of contamination. 71. In Bartoline Limited and (1) Royal & Sun Alliance Insurance plc (2) Heath Lambert Limited23 Bartoline Limited ("Bartoline") manufactures solvents based products. It had public liability insurance cover from Royal and Sun Alliance. Following a fire at the factory, nearby watercourses were contaminated by a mixture of water, fire-fighting foam and chemicals. The Environment Agency, carried out emergency work to the watercourses and subsequently served works notices under section 161 Water Resources Act 1991 on Bartoline requiring it to carry out certain

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QBD (Merc) Judge Hegarty QC 30/11/2006

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further works for the removal of contaminated water from the watercourses. The Agency sought to recover its expenses in relation to the emergency works from Bartoline pursuant to section 161(3) of the Act. The amounts involved, including Bartoline's own clean up, under the notices, came to approximately £800,000. 72. Bartoline made a claim under its public liability policy for the expenses incurred by the Agency in carrying out emergency works and operations in consequence of the pollution caused by the fire. RSA rejected this particular head of claim. The preliminary issues before the judge included whether liability to the Agency under section 161 and costs of the works required was capable of being a legal liability for damages within the meaning of section 2 of the Policy. The relevant insuring clauses were as follows: "The Company will provide indemnity to any Person Entitled to Indemnity 1. up to the Limit of Indemnity against legal liability for damages in respect of A) accidental injury of any person B) accidental loss of or damage to Property C) nuisance trespass to land or trespass to goods or interference with any easement right of air light water or way. other than legal liability for damages which result from a deliberate act or omission of the Insured or which is a natural consequence of the ordinary conduct of the Business and which could reasonably have been expected by the Insured having regard to the nature and circumstances of such act or omission happening during any Period of Insurance in connection with the Business. 2. Against legal liability for claimant's costs and expenses in connection with 1 above. 3. In respect of A) costs of legal representation at 1) any coroner's inquest or inquiry in respect of any death 2) proceedings in any court arising out of any alleged breach of statutory duty resulting in any occurrence specified in 1) above. which may be the subject of indemnity under this Section B) all other costs and expenses in relation to any matter which may form the subject of a claim for indemnity under 1) above Incurred with the Company's written consent 73. The issue before the Court was whether Bartoline's liability to the Agency constitutes a "legal liability for damages" in respect of "accidental....damage to property" or "nuisance, trespass to land...or interference with any easement right of air, light, water or way" arising from the escape of polluting matter from the premises as a

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result of the fire which occurred on 23 May 2003. 74. the Court held that neither the liability of Bartoline to the Agency pursuant to section 161 of the Water Resources Act nor the costs of undertaking works pursuant to a works notice served under section 161A of the Act are capable of being a legal liability within the meaning of section 2 of the Policy. 75. The Court took the view that any liability to repay the expenses incurred by the Agency under sections 161(3) or 161D(3) of the 1991 Water Resources Act (WRA) and any liability to pay damages in tort were `quite different animals'. 76. WRA liability arises out of the need to protect the public interest in the environment whereas tort arises out of the need to protect individual interests in property. WRA liability gives rise to a right to recover the cost of certain works and operations as a debt; whereas tort liability confers a right to recover damages by way of compensation for loss and damage. The quantum of damages recoverable in tort

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might well be different from the amount of the reasonable expenses recoverable under the WRA. 77. The essential purpose of public liability policies is to provide an indemnity in respect of certain types of tortious liability. That is reflected in the choice of the word "damages" in the insuring clause of the Policy in this case. The judge commented that the point is made even clearer by the particular context in which the word is used, since the indemnity is granted only in respect of "legal liability for damages in respect of......accidental loss of or damage to property......nuisance trespass to land or trespass to goods or interference with any easement right of air light water or way." That is why, in the various cases cited, it was consistently held that monies payable pursuant to statute, whether directly or indirectly, could not fall within the scope of the relevant indemnity. 78. One of the cases considered by the Judge was the Court of Appeal's decision in Yorkshire Water Services Limited v Sun Alliance and London Insurance Plc and othrs [1997] 2 Lloyds Rep 21. This case involved a claim by Yorkshire Water Services under similarly worded public liability policies for urgent flood alleviation works carried out by Yorkshire Water on its own property to prevent further damage and third party claims following the escape of large quantities of sewage sludge into sewage works and the river. Yorkshire Water claimed under its policies in respect of the flood alleviation works and an indemnity in respect of flood alleviation works. Flood alleviation works on its own property could not be said to give rise to damages by way of compensation paid or payable to third parties in respect of their properties. The policy did not cover preventative works to prevent a claim by third parties.

Timing of an occurrence 79. Given Part IIA is concerned with the imposition of retrospective liability for contaminated land, the activities giving rise to pollution incidents may have occurred many years before a local authority makes a determination of contaminated land. In turn this means that those saddled with liability for clean up may bring claims for the cost of remedial works against past public liability policies. 80. Public liability policies tend to have a `long tail' of liability in that the period for which they provide cover is the period during which bodily injury or property damage occurs as opposed to the period during which a claim is made against the insured for injury or damage. Given most policies underwritten before 1990 did not exclude cover for gradual pollution, appropriate persons are likely to be keen to rely on the earlier policies. 81. Courts in the US have developed theories to determine the time at which an occurrence takes place under a commercial general liability policy and which policy/policies which are `triggered' by a claim for contamination. 82. There is no case under English law which adopts a trigger theory in respect of property damage. In Bolton MBC v Municipal Mutual Insurance Ltd [2006] EWCA Civ 50, the Court was concerned with asbestos injuries which manifested themselves many years after exposure to the fibres. The Court had to decide which of 2 public liability policies had to bear the cost of the injuries ­ the insurer at the time the exposure to asbestos occurred (in the 1960s) or the insurer providing cover at the time the injuries manifested themselves (in 1980). If the Bolton case is treated as applicable to property damage from contaminated land, the policy which is triggered is the policy on the risk when actual damage to third party property occurs or the damage is discovered.

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Contamination and conditional Contracts 83. Whilst the contaminated land regime in Part IIA may not have yet lived up to initial expectations in terms of the numbers of sites identified as contaminated it is fair to say that it has had a significant impact on the way property transactions are conducted since its implementation in 2000 84. In some cases where land is sold on the basis that contamination may be present but time or circumstances (such as the Seller's presence) do not admit of a full site investigation, it may be agreed that part of the purchase price will be retained on completion, that a survey will be undertaken within a given period and that the contingency sum will be released if the survey is satisfactory. These arrangements may give rise to disputes if the sums involved are significant. 85. In BSS Fashion Merchandising v Urban Regeneration Agency [2006] EWHC 2754m(Ch) the Urban Regeneration Agency which aimed to develop urban sites in London identified a site with potential for redevelopment in Hackney owned by BSS. Sale of the site was agreed. Prior to the signing of the written agreement, the defendant had identified the possibility that works would be necessary upon the property before it could be made available for redevelopment. It had taken advice about that from environmental consultants and the upshot was that the defendant had insisted on a particular term being inserted into the written agreement, to the effect that, the sum of £200,000 was to be retained. Within three months of the claimant vacating the property, the defendant would instruct an environmental consultant to carry out an intrusive survey and deliver its report to the claimant's solicitor and time would be of the essence in respect of those events. If no report was delivered within that period, the defendant's solicitor would be obliged to hand over to the claimant's solicitor the sum of £200,000 plus any accrued interest. 86. In fact the defendant granted to the claimant a lease to occupy the property for a further period so the report could not be done within 3 months. The Claimant later demanded the money back and the Defendant refused to give it on the basis that the parties had by way of an oral agreement agreed to an extension of time for the report. The task of the Court was to determine what was said between the two men during that conversation. Following an analysis of emails, attendance notes, oral evidence, the Judge concluded that no such agreement existed and found for the Claimant. Corporate Transactions ­ triggers under environmental indemnities 87. Indemnities are a contractual means by which the parties to a transaction allocation which party shall save another from loss in specified circumstances. Indemnities contain triggers which activate a claim under the indemnity. What amounts to triggers for a claim can be of considerable importance. 88. The case of BAL 1996 Ltd v British Alcan Aluminium PLC [2006] Env LR 26 QB TCC concerned the sale of an Alcan business which included land on which landfills were located and about which there was concern (presence of ammonia). The purchase subsequently claimed under the indemnity for the cost of investigatory works and potential remedial work. The Court was asked to determine whether these events amounted to a `trigger' under the wording of the indemnity so as to entitle the Claimant to make a claim under the indemnity.

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