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Successor bodies let off the hook for predecessor’s historic contamination

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Summary: The Court of Appeal in Powys County Council v Price and Hardwick [2017] has overturned the High Court’s ruling, finding that Powys County Council is not liable for contamination issues associated with landfill operations of its local authority predecessor. By narrowing instances where contaminated land liability can be pinned on polluters of the past, this decision may lead to increased risks for innocent current landowners and future developers.

Background to the contaminated land regime

Part IIA of the Environmental Protection Act 1990 (otherwise known as the “contaminated land regime” or “CLR”) came into force in England and Scotland in 2000, and in Wales in 2001.  Under the CLR:

  • A person that has “caused or knowingly permitted” the contamination of land can be held liable for the costs of clean up.  These remediation liabilities can bite even if such person has since divested of the land in question and even if the contamination occurred before the CLR came into force.  
  • Where a person that caused or knowingly permitted the contamination cannot be found, liability instead falls on the current owner or occupier of the site (even if they not aware of the relevant pollution).

The retrospective scope of the CLR means that the occurrence of the pollution event and the  crystalising of the associated remediation liability can be separated by years or even decades.  In this time, the original “causer or knowing permitter” may have been restructured any number of times.  What happens to CLR liabilities when such organisational changes take place?   Does the reorganised entity stand in the shoes of the predecessor for CLR purposes and thus bear the liability for “causing or knowingly permitting” historic contamination, or is it disassociated from liability for activities of the past?  A 2007 case, R (on the application of National Grid Gas Plc (formerly Transco Plc) v Environment Agency) (the “National Grid Gas case”), determined this very question in the context of the privatisation of a state-owned utility corporation. 

Specifically, the National Grid Gas case considered whether CLR liabilities had been passed from British Gas Corporation (a state owned gas utility) to British Gas plc (a public limited company) under the reorganisation and transfer provisions set out in the Gas Act 1986.  The House of Lords held that the transfer wording did not encompass liabilities created by legislation enacted after the transfer was effected and therefore the CLR liabilities had not been transferred in the circumstances.  National Grid Gas, who had subsequently acquired the gas storage and transportation undertaking of British Gas plc, was therefore not responsible under the CLR for contamination caused by its public body predecessor. 

Price v Powys: the transfer of contamination liabilities to successor bodies  

Earlier this year, Powys County Council tested the application of the National Grid Gas decision in the context of a historic local government reshuffle in Wales.

Until 1992 the Borough of Brecknock operated a landfill on part of a privately-owned farm, before bringing the site back into agricultural use.  In 1996, the Boroughs of Brecknock, Radnorshire and Montgomeryshire were abolished and replaced with Powys County Council.  Under the terms of the relevant secondary legislation (the Local Government Re-Organisation (Wales) (Property etc.) Order 1996 (the “1996 Order”)) all rights and liabilities of Brecknock vested in Powys, as its successor.

Following the introduction of the CLR in Wales in 2001, Powys carried out initial monitoring and treatment works at the former Brecknock landfill site on the assumption that it would be responsible for contamination caused by the landfill operations of its predecessor.  The National Grid Gas ruling prompted Powys to change tack, however, and in 2015 it informed the existing landowners that the Council was not in fact liable for contamination caused by Brecknock’s landfill operations, citing the National Grid Gas case as authority.   

In response, the owners of the site applied to the court for a declaration that the transfer of liabilities under the 1996 Order had included potential retrospective liability under the CLR and that Powys should therefore stand in the shoes of the original polluter.  Earlier this year, the High Court found in favour of the landowners and held that under the terms of the 1996 Order, Powys County Council had assumed future CLR liabilities of its predecessor, even though the CLR did not exist at the time the transfer took place.

As to why Powys was not spared liability in the same way National Grid Gas had been, the High Court distinguished the circumstances from those in National Grid Gas case on the following bases: 

  • The relevant statutory transfer provisions considered in the National Grid Gas case provided that the successor company would take over liabilities which existed “immediately before” the transfer date. In contrast, the terms of the 1996 Order, simply stated that all liabilities of the old authorities would vest in Powys – it did not specify that those liabilities needed to have existed at or immediately before the time of transfer. 
  • The National Grid Gas case involved the transfer from a state owned utility to a public limited company in which the public was investing.  The House of Lords decision in that case stressed that where members of the public had been invited to subscribe for shares in a successor entity at a time when the CLR did not exist, it would be inappropriate to subsequently impose CLR liability on that successor entity. In contrast, the liability transfer at issue in Price v Powys was from one local authority to another and these considerations did not apply.  

The Court of Appeal ruling: Powys taken off the hook

Powys County Council appealed against the High Court’s decision.  On 27 July July this year, the Court of Appeal reversed the lower court’s ruling, responding to the High Court’s reasoning as follows:

  • The words “immediately before” in the relevant transfer provisions were not essential to the decision reached by the House of Lords in National Grid Gas.  Such wording merely serves to emphasise what should be treated as the usual position – that the rights and liabilities which vest in a successor organisation are only those which are vested in the predecessor prior to the transfer unless clear wording provides otherwise. As the 1996 Order transfer provisions did not expressly extend to subsequent liabilities, and as the CLR was not in force at the time, Brecknock’s retrospective CLR liabilities had not been passed on to Powys.
  • The fact that the relevant successor body in the National Grid case was a company in which members of the public had directly invested, whilst supportive of the House of Lords’ reasoning, was not essential to its conclusion.  Powys being a local authority was not a sufficient basis on which to distinguish this case from National Grid.

The Court of Appeal decision took Powys off the hook, and the CLR liabilities at issue fell on the landowners instead.  Powys and other local authorities in similar positions breathed a sigh of relief.

So, what can we take away from this decision?  It is clear that both the drafting and timing of liability transfers are key factors in determining whether CLR liabilities have been effectively passed on to successor bodies.  In particular, where a transfer has taken place before the CLR came into force, express wording is necessary if future CLR liabilities of the original polluting body are to have been effectively passed on to its successor. In many cases, such drafting will be absent.  

The decision is good news for private sector companies and public sector organisations in existence today that derive from corporate groups or public sector bodies of the past.  Such entities will be rather less concerned now than they might otherwise have been that the historic reorganisations that have led to their current being have infected them with possible future CLR liability. 

The decision is bad news for innocent landowners and future developers.  With re-organised historic “causers or knowing permitters” now more difficult to find, they need to be aware of the increased CLR liability risks to which they may now be exposed.

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