Environmental liabilities and responsibility for environmental liabilities can be a risk area for directors and parent companies if too much control is exercised over potentially polluting activities or operations.

The Main Legislation

The Environmental Liability Directive[1] underpins the statutory basis for environmental liability. The European Communities (Environmental Liabilities) Regulations 2008 ("Regulations") transposed the Environmental Liability Directive into Irish law on 1 April 2009. The Regulations cannot be considered in isolation and work in parallel with other environmental statutory and licensing regimes.

The purpose of the Regulations is to supplement pre-existing environmental regimes. Operators are obliged to prevent or minimise environmental damage even where it has not occurred but an imminent threat of damage is occurring. An operator means anyone who operates or controls an activity. This is a broad definition and could include a director, shareholder or other officer of a company if they exert sufficient control over the operational activities of a business.

The legislation applies to two liability scenarios 1) environmental damage caused by occupational activities which includes those defined in the Regulations including waste activities, industrial emissions directive, labelling of dangerous goods and integrated pollution control activities; and 2) more generally to activities causing damage to protected species and habitats.

An operator is obliged without delay, to take necessary preventative measures where they are aware, or ought reasonably to be aware, that there is an imminent threat of environmental damage[2]. Failure to comply with these obligations is an offence. The obligations are self-executing in so far as the EPA is not required to serve a notice to trigger them.

Operators are also under an obligation to restore, rehabilitate or replace damaged land, water, protected species or natural habitats; operators are responsible not only to remediate to a base line condition, but also for complementary and compensatory remediation.

An exemption from liability is provided in respect of those operators who can prove that the damage or threat of imminent damage was caused by a third party despite appropriate safety measures being put in place, or resulted from compliance with an order or instruction of a public authority[3].

Other Relevant Legislation & Common Law

Operators whose occupational activities fall outside the scope of the Regulations can be pursued using the provisions of the EPA Acts 1992 to 2011, the Waste Management Acts 1996 to 2011, the Local Government (Water Pollution) Act 1977 (as amended), the European Communities (Birds and Natural Habitats) Regulations 2011 to 2015 and the Air Pollution Acts 1987 and 2011.

To date, the EPA has had limited recourse to the Regulations relying on them only as a fall-back measure, preferring other preexisting enactments in the first instance. This would certainly seem to be a practical and reasonable approach to take by the EPA but operators should not be complacent about the extent and effectiveness of the Regulations which could, in some instances, widen the scope of liability for operators in addition to other statutory obligations that may arise.

There is also the potential for environmental liability to arise through common law, which co-exists with the statutory remedies mentioned above and can be claimed in addition to, or in lieu of, such remedies, including the torts of nuisance, trespass, negligence and the rule in Rylands v Fletcher. Liability of corporate officers either arising under statute or common law is also relevant.

The position in relation to potential environmental liability of shareholders and parent companies is interesting. There is no case law in Ireland which considers shareholder or parent company liability for environmental damage specifically but cases in other jurisdictions[4] have considered the factors which could lead to a shareholder or parent companies to be held accountable for environmental damage. In particular, if there is a sufficient degree of control over a subsidiary or reliance on the superior knowledge or expertise of a parent company in the operational activity this is a factor that could be influential where an issue of environmental liability is in dispute. If a shareholder or parent company wishes to limit their potential liability, it is advisable for the subsidiary to operate independently of the company, to avoid duplication of directors and officers, and to avoid the shareholders and parent company becoming involved in the day to day operations of the company. It is also advisable that decisions regarding the subsidiary should be made at meetings of the directors of the subsidiary and documented separately. For an earlier factsheet on managing subsidiaries, click here.

The position of directors' liability for environmental damage has been considered in a number of cases under the Waste Management Act 1996 to 2011 in Ireland. A director has been held accountable for the remediation and clean-up of a site where the director was found to be involved in the active management, control and decision making in relation to the unauthorised waste activity being carried on[5].

Practical Steps - How to Address and Assess Environmental Liabilities

Steps can be taken in order to reduce exposure. The Regulations require an operator to take steps to prevent and remedy an imminent threat of environmental damage and so company contractual documents and standard provisions in relation to environmental damage and liability should reflect this statutory obligation.

In addition, in the context of any transaction (in particular relating to any EPA licensed activities), appropriate due diligence should be carried out and, where necessary, indemnities sought from previous and future owners. Financial provision may be required to cover the cost of environmental liabilities, for example, insurance cover, a parent company guarantee, bond, charge on property or secured fund. As part of the assessment of environmental liabilities regular review of licence obligations and environmental management systems is required to ensure that effective monitoring and reporting systems, delegation to those with defined accountability, transparent organisational structures, training and documented processes and a clear paper trail are maintained.