Summary: The High Court has recently ruled that under the terms of a 1996 local government reshuffle Powys County Council assumed the contingent contaminated land liabilities of its predecessor, Brecknock Borough Council. Distinguishing the facts from the 2007 National Grid Gas case, the court held that liabilities passed to the successor local authority even though the statutory contaminated land regime did not exist at the time the transfer took place.

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, those who have caused or knowingly permitted the contamination of land can be held liable for the costs of clean up. These remediation liabilities apply even if the original polluter has since divested of the land in question and even if the contamination occurred before the CLR came into force. In this way, the CLR introduced a liability regime whereby historic pollution could come back to haunt its creators, years or even decades after it was caused. Understandably, this made many companies and organisations rather concerned, especially those with a long history of potentially polluting operations.

The retrospective scope of the CLR provides the potential for significant periods of time to pass between a pollution event and eventual remediation liability. During this time, the original polluter may have changed hands, been restructured or become a completely different type of entity. But, what happens to CLR liabilities when such organisational changes take place? A 2007 case, R (on the application of National Grid Gas Plc (formerly Transco Plc) v Environment Agency) (the “National Grid Gas case”), considered 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 transfer provisions set out in the Gas Act 1986. The House of Lords held that 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 between public bodies

Unsurprisingly the National Grid Gas ruling sparked curiosity as to whether other types of organisational restructuring could allow successor entities to avoid liability in a similar way. In a recent case, Price and Hardwicke v Powys County Council [2016] (the “Powys case”), 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, as a result of local government reorganisations, the Boroughs of Brecknock, Radnorshire and Montgomeryshire were abolished and replaced with Powys County Council. The Local Government Re-Organisation (Wales) (Property etc.) Order 1996 provided that:

“…all the property, rights and liabilities of the old authority shall…vest in that successor authority”; and

…anything done by or in relation to the old authority…in connection with such property, rights, liabilities, or duties shall be treated as if it had been done by or in relation to the new authority…” .

Accordingly, under the Order all rights and liabilities of Brecknock vested in Powys, as its successor.

Concerns were subsequently raised regarding harmful leachates originating from the former Brecknock landfill site. Following the introduction of the CLR in Wales in 2001, Powys carried out initial monitoring and treatment works on the assumption that it would be responsible for any contamination originating from the former landfill. The National Grid Gas ruling prompted Powys to change tack, however, and in 2015 it informed the current landowners that the Council was not in fact liable for contamination caused by its predecessor’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 from Brecknock to Powys had included contingent liability for contaminated land under the CLR and that Powys should therefore stand in the shoes of the polluter. The court distinguished this case from National Grid Gas and granted the declaration. According to this ruling, if the former landfill site were to be identified as contaminated, Powys would be held responsible for its remediation.

So why, unlike National Grid Gas, was Powys County Council not spared from liability? To understand this, it is worth looking at the National Grid Gas decision in further detail.

The relevant statutory transfer provisions considered in the National Grid Gas case provided that British Gas Corporation Plc would take over liabilities which existed “immediately before” the transfer date. The House of Lords held that this wording did not encompass liabilities created by legislation enacted after the transfer was effected and therefore the Plc had not assumed CLR liabilities attributable to its predecessor. In justifying its interpretation of the transfer wording, the House of Lords 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 public company. Doing so would falsify the basis on which the public had initially invested.

In Powys, the court explained that the transfer of liability to Powys County Council under the Local Government Re-Organisation (Wales) (Property etc.) Order 1996 differed from that which formed the subject of the National Grid Gas case in two significant ways. Firstly, the “immediately before” wording contained within transfer provisions of the Gas Act 1986 was not present. The Order stated that all liabilities of the old authorities would vest in Powys County Council. The Order did not specify that those liabilities needed to have existed at or before the time of transfer. Secondly, the liability transfer in question was from one local authority to another. Concerns regarding transparency of public investment were therefore not relevant for Powys.

The court also stressed that the public should not be put in a worse position merely as a result of local government reorganisations. This justified a wide construction of the liability transfer wording to include those liabilities under the CLR, despite the fact that the relevant legislation only came into force after the transfer had been effected.

So, what does this mean for local authorities going forward? Where the transfer of CLR liabilities between successive local authorities is concerned, the National Grid Gas case seems to be of limited application where authorities have undergone a routine reorganisation. As for the reorganisation of entities generally, the transfer of contaminated land liabilities will still depend on the precise wording of the relevant transfer provisions, and the timing, nature and purpose of the reorganisation in question.