Principle of the Polluter pays

The contaminated land regime set out in Part IIA of the Environmental Protection Act 1990 was brought into force on 1st April 2000. This legislation seeks to apply the "Polluter pays" principle by imposing liability for the clean up of contaminated land on the appropriate person. The main objective of the Act is to ensure both that any contaminated land is cleaned up and that the costs of any clean up are borne by the appropriate person. However, the recent House of Lords decision in R (on the application of National Grid Gas plc (formerly Transco plc)) v Environment Agency [2007] UKHL 30 has reached a conclusion which could have a dramatic impact on the efficacy of the contaminated land regime.

Under this regime and in line with the "polluter pays" principle, in the first instance liability lies with those who have "caused or knowingly permitted" contamination to be present in, on or under land. If, however, such a person cannot be found, liability then falls to the current owners or occupiers of the site, regardless of whether they were aware of the contamination. The legislation also provides for the actual clean-up works to be carried out, if necessary by the local authority or the Environment Agency, and for the costs of that clean up to be recovered from either the original polluter or the owner/occupier.

Historical contamination from gas works

In this particular case the land had been identified as contaminated in 2003, as it was considered there was a significant risk of ground water pollution and to the residential occupiers of the land. The Environment Agency had itself carried out the clean up but was seeking to recover the costs (around £700,000).

The site was developed in 1966 by Kenneth Jackson Limited (a company no longer in existence) into residential properties. Kenneth Jackson Limited had purchased the land from Kenton Homes Limited (who also no longer existed) who had in turn purchased the land from East Midlands Gas Board in 1965. It had been established that the contamination was likely to have been caused some time between 1910 and 1960 when the property was used to produce gas from coal by the Bawtry and District Gas Company and its statutory successor the South Yorkshire and Derbyshire Gas Company. As a result of the Acts of Parliament, the Gas Act 1948, the Gas Act 1972 and the Gas Act 1986 the property rights and liabilities of Bawtry and District Gas Company and South Yorkshire and Derbyshire Gas Company had transferred to National Grid Gas.

Recovery of clean up costs

The Environment Agency carried out the clean up works and then sought to recover the cost of the clean up from National Grid Gas on the basis that it had inherited the liabilities of its predecessors through the various statutory transfer schemes made under the relevant Gas Acts. The Environment Agency had decided not to pursue the existing residential owners and occupiers of the site as they had not caused the pollution and on the basis that, with regard to the hardship that this would cause the residents (in accordance with Chapter E of the Defra Circular 01/2006), it would not be appropriate to pursue these individuals.

No transfer of liabilities

The case went to the House of Lords who decided that under the transfer scheme effecting the privatisation the liabilities that transferred were those which existed immediately before the transfer date. The environmental liabilities did not arise until 1995 when the Environment Act 1995 inserted Part IIA of the Environmental Protection Act 1990. The Lords were of the view that those who invested in shares in British Gas at the time the company was floated did so on the basis of the value of the company at that time including all of its assets and liabilities. Liabilities were limited to those in existence immediately before the relevant transfer scheme.

The Lords decided that very careful language would be needed to impose liability on a company to pay for works to remedy pollution caused by others to land it had never owned or never had any interest in. They considered it unacceptable that liability should be imposed on a private company reducing the value of the investment held by its shareholders in this retrospective manner. It would therefore appear that the wording of the Gas Acts which governed the privatisation of the industry had a significant role to play in reaching this conclusion.

What will this decision mean for other industries?

Although this decision is likely to come as a relief to the gas industry, other industries which have been the subject of nationalisation, privatisation or local government reorganisation, such as water and electricity, may not find themselves in the same position. The Electricity Act 1989, which governs the privatisation of the electricity industry, appears to be worded similarly to the Gas Acts in limiting the liabilities being transferred to those in existence immediately prior to the transfer. However, the Water Act 1989, which governs the privatisation of the water authorities, specifically states that the rights and liabilities of a water authority that were transferred to the private company include "…liabilities under the law of any part of the UK or of any country or territory outside the UK". This wording would seem to allow for the transfer of liabilities under the EPA 1990 as amended, potentially leaving private water companies open to costs claims for the clean-up of land in their control.

This said, it should be noted that the contaminated land regime is only intended to be used to remedy contaminated land issues that are not resolved through the planning system. Given the limited number of contaminated land cases to reach the courts to date, it therefore once again remains to be seen whether or not this decision actually has a significant impact on these industries or on the contaminated land regime in general.

The House of Lords was considering the EPA 1990 in the context of an English property and applying guidance issued by DEFRA. The position would, however, have been identical in Scotland, albeit that the claim would have been brought by SEPA.