UK: Contaminated Land – House Of Lords Decision

The House of Lords has unanimously rejected the Environment Agency’s contentions that National Grid Gas plc ("NGG") (formerly Transco) should be liable under Part 2A of the Environmental Protection Act 1990 ("EPA 1990") for the remediation of a former public gasworks site. The firm conclusion of the judgment is that NGG could not be considered an appropriate person for the purposes of funding remediation.

Judgment was handed down on 27 June 2007 in the case of R (on the application of National Grid Gas plc (formerly Transco plc)) (Appellants) v Environment Agency (Respondents). The High Court judgment had held in favour of the Environment Agency and the appeal went directly to the House of Lords by way of the leapfrog procedure.

The case affects the application of Part 2A of the EPA 1990 in relation to sites contaminated by a wide range of privatised businesses, in particular utilities, that may have caused land to be contaminated and have subsequently become subject to statutory reorganisation, nationalisation or privatisation. The policy implications of the decision are far-reaching. It is not difficult to imagine that further consideration by the government and the regulators will be given to this by Part 2A Parliament imposed liability retrospectively. The House of Lords effectively ruled that when passing Part 2A in 1995, the then Parliament did not intend that this retrospective liability would overreach the intent of the Parliament at the time of the British Gas and other privatisations. This will no doubt give rise to considerable academic and constitutional debate.

Where the transfer scheme or other reorganisation took place prior to the implementation of Part 2A and did not clearly contemplate transferring liabilities that arise after the vesting date, the House of Lords decision confirms that developers or purchasers of such land, who may be liable as "knowing permitters", will not be able to rely on the successors of the original polluters to cover or contribute to remediation costs. There is also the issue of whether that type of successor company is a "person" for the purposes of Part 2A. Where the successor company actually owned the land in question after vesting, there may be scope to argue that they have become a "knowing permitter" but this will very much depend on the facts of the specific case.

The key issue was whether NGG could be held liable for the acts of its statutory predecessors. An accepted fact of the case is that the actual polluters of the site were the Bawtry and District Gas Company and the South Yorkshire and Derbyshire Gas Company, both of which were predecessors of NGG and neither of which remain in existence.

In order to establish whether NGG was an "appropriate person" under Part 2A and therefore liable to fund the remediation costs, the House of Lords considered the following questions:

• Is the concept of "appropriate person" wide enough to cover statutory successors to the original polluter?

• Had liability any Part 2A liability of the original polluters passed down to NGG as a result of statutory transfers of liability?

Lord Scott of Foscote gave short shrift to the Environment Agency’s contention that "appropriate person" under the EPA 1990 would extend to cover statutory successors:

The Environment Agency invited the House of Lords to review the Parliamentary record to establish whether Parliament intended Part 2A to extend to successor companies. The Lords resisted this suggestion on the basis that it was only necessary where ambiguity existed in the legislation, and it was not accepted that there was any ambiguity in the language of Part 2A.

Lord Neuberger of Abbotsbury was open to the possibility that in some circumstances it may be right to extend the concept of "polluter pays" beyond the original polluter. However he noted that this was a matter of policy for the legislature and not for the courts.

The Lords also rejected the Environment Agency’s arguments on the second issue of whether liability for remediation had been transferred to NGG. Lord Scott writes:

Also mentioned in the Lords’ decision on this issue was that the liabilities were being transferred to a public company in which the investing public, noted to have included Sid, were invited to buy shares The Lords considered that the investing public were entitled to believe that the liabilities of the new company were as identified in the prospectus and thereby limited to those existing immediately before the date of transfer. Lord Scott of Foscote said:

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The case relates to a former gasworks site in Bawtry, near Doncaster, which was owned by National Grid Gas plc ("NGG"), formerly named Transco plc (and prior to that, British Gas plc). The site was formerly owned and operated first by private entities and subsequently by state-owned entities. When the gas industry was privatised in 1986, the "property, rights and liabilities" were transferred to British Gas plc under a statutory transfer scheme. It is thought that it was during the period when coal gas was being produced by state-owned entities (prior to 1952) that the land became contaminated. The site was sold and redeveloped in the 1960s for housing.

In 2003 the Bawtry site was identified as contaminated land and as a "special site" under Part IIA of the Environmental Protection Act 1990 (the "EPA"), due to pollutant linkages of nickel and polyaromatic hydrocarbons found in the land and groundwater. The area of contamination included 11 housing plots. The Environment Agency carried out remediation work on the site, at a cost of almost £700,000, and then sought to recover a proportion of these costs. NGG provided technical assistance on the remediation.

Under Part IIA of the EPA, the Environment Agency can recover costs from "persons" who caused or knowingly permitted the contamination to be on the site ("appropriate persons"). The Environment Agency identified NGG as an appropriate person, due to its connection with the original causers of the contamination.

NGG brought this judicial review against the Environment Agency’s decision to identify it as an appropriate person. NGG contended that it should not be considered an appropriate person for the following reasons:

• NGG itself did not cause or knowingly permit the contamination in question; a separate person or persons did that (i.e. its predecessors and/or the housing developer). In the judgment, this is referred to as the "Statutory Construction Issue"; that is, how is "person" properly to be construed?;

• At the time of transfer of property, rights and liability to British Gas plc upon privatisation, no liability for contamination under any existing legislation had arisen and therefore no such liability should pass to NGG. This was referred to as the "Absence of Liability Issue";

• As the EPA post-dates the transfer of liabilities to British Gas plc, NGG argued that any liability under the EPA would not have existed and thus could not be transferred at the time of the statutory transfer. This was referred to as the "Transfer of Liability Issue".

The parties did not dispute the fact that the land was contaminated, nor that the contamination had been caused to be present by a predecessor to NGG, albeit that the contaminants may have been subsequently spread over a wider area by the housing developer. Rather, the case centred purely on legal issues relating to the issue of whether NGG was liable for the contaminating acts of its predecessors, particularly in light of statutory succession in this previously nationalised industry.

With respect to the Statutory Construction Issue, Mr Justice Forbes accepted that, as a starting point, NGG is a "person" at law in its own right and thus is independent from its predecessors. However, he agreed with the Environment Agency’s submissions that "person" is not necessarily restricted to an individual legal entity and can be interpreted to mean "an entity comprised of a succession of corporate bodies that have been continuously involved in the relevant activities and in respect of which there are statutory transfer provisions to ensure legal continuity, such as the Gas Industry". He considered that in order to give effect to Parliament’s intention that responsibility for contamination should rest with the original polluter, a purposive interpretation of the EPA was required such that the definition of "person" is construed to cover successors of liability. On the Statutory Construction Issue therefore, Mr Justice Forbes agreed with the Environment Agency that even though NGG itself did not cause or knowingly permit the contamination, it would be considered the same person as the causer.

Mr Justice Forbes gave short shrift to the Absence of Liability Issue. The parties had argued over whether in the absence of Part IIA, NGG (or a predecessor) could have been liable under statutory nuisance. Mr Justice Forbes was not particularly taken by this line of argument. If this was applicable, he noted, then liability for older actions under Part IIA EPA 1990 would depend on whether the Local Authority had happened to serve an abatement notice regarding the land prior to the coming into force of the EPA in 1990. Instead he thought that the relevant issue was not whether liability already existed at the time of transfer but whether NGG should bear the responsibility for the liability later assigned for contamination that occurred in the past.

With regard to the Transfer of Liability Issue, Mr Justice Forbes followed the precedent set by the case of Walters v Babergh District Council [1983] 82 LGR 234, which determined that liabilities should include not only crystallised liabilities at the time of transfer but also potential or contingent liabilities. As such, the fact that the transfer pre-dated the EPA (which imposed retrospective liability) was not of relevance. Mr Justice Forbes concluded: "As it seems to me, it is entirely consistent with the intention of Parliament in enacting the Gas Acts transfer provisions, that the transferee company (acquiring as it did, all the assets, rights an liabilities of the transferor) should step into the shoes of the transferor, not only in terms of current actual liabilities, but also in respect of liabilities that would come into being in the future in respect of the past activities of the transferor."

Exceptionally, NGG has been given leave to appeal directly to the House of Lords (without the need to first appeal to the Court of Appeal), due to the potential widespread implications of the judgment.

This case could impact many privatised industries. Although the position will not be certain until an appeal is heard, it may lead to greater due diligence and risk analysis for relevant properties (whether still retained by the privatised industries or otherwise disposed of).

This judgment will receive a fair amount of publicity, which may result in indirect impacts on properties and transactions relating to properties, which might have been held and contaminated by privatised industries. For example, it may lead to a heightened sense of risk and as a result more due diligence and increased scrutiny of existing remediation. Collateral warranties of consultants and contractors may come under the spotlight. In addition, high street practitioners, mortgages and related professionals may become concerned, leading to possible delays and negative impacts on the value of relevant properties.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 02/07/2007.