A landmark House of Lords judgment considered the scope of the “polluter pays” principle, examining the liabilities of the successors in title to original polluters in the context of Gas Act privatisations. The Lords ruled that the definition of “person” within section 78F of the Environmental Protection Act 1990 (EPA) should not include every person who had become the successor to the liabilities of the actual polluters within the Gas Act context. The Lords were content that the emphasis in section 78F was on the actual polluters.

Retrospective liability under the EPA and the Environment Act 1995 (EA) did not counter the provisions of the Gas Acts of 1948 and 1986 which only transferred liabilities existing immediately before transfer to the privatised entities. As liabilities under the EA and EPA could only have existed after the enactment of the EA in 1995, the court reasoned they were not liabilities that could be transferred under the earlier Gas Acts. The case arose following a claim by the Environment Agency that National Grid Gas plc (National Grid) was liable for the costs of cleaning up a site at Bawtry near Doncaster, where potentially harmful coal tar was buried beneath 11 residential properties. Pursuant to the EPA, the Environment Agency ordered remedial works on the land, and proceeded to undertake the clean-up operation.

History

The Bawtry site was originally owned, and probably contaminated by two private gas companies in the early 1900s. Upon nationalisation of the gas industry, the assets, liabilities and obligations of the privately owned companies were transferred to the East Midlands Gas Board (EMGB) in 1948 and, some years later, the site was sold on to a private developer.

In 1972, the area gas boards were abolished and the assets, liabilities and obligations were transferred from EMGB to the British Gas Corporation. Following privatisation of the industry in 1986, British Gas plc assumed the assets and liabilities of the British Gas Corporation as they stood “immediately before” the transfer date. The Bawtry site was never in fact transferred to British Gas, having earlier been sold to the developer for residential housing.

What followed was a series of company re-organisations, resulting in Transco plc being devolved from British Gas, before National Grid eventually became the successor in title to Gas Act liabilities.

The arguments

Pursuant to Part IIA of the EPA, responsibility for remediation falls upon an “appropriate person”, defined as the person who “caused or knowingly permitted” the substances to be on the land. If no such person is found, the “appropriate person” is deemed to be the present occupier or owner of the land for the time being.

The House of Lords was asked to consider: 

  • Whether the interpretation of “appropriate person” included National Grid, as successor in title. 
  • Whether the liabilities transferred to British Gas during nationalisation and privatisation included those liabilities which did not exist at the time. The Environment Agency argued that the liabilities were contingent liabilities that had not yet arisen at the time of the transfer.

On the first point, the Environment Agency contended that even though National Grid did not itself cause the pollution, it was the statutory successor to the assets, liabilities and rights of the companies that had originally polluted the land. The Environment Agency submitted that the legislation was to be interpreted such that it would include every person who became by statute the successor to the liabilities of the actual polluters and that this was reconciled with the “polluter pays” principle enshrined in the EPA.

The House of Lords rejected this interpretation, suggesting it was “a quite impossible construction to place on the uncomplicated and easily understandable statutory language”. There was nothing in the EPA that defined “appropriate person” as including some other person. The court held that National Grid was not the actual polluter and, in fact, had no more caused or knowingly permitted the pollution than the 11 innocent residents of the Bawtry site.

The House of Lords also found against the Environment Agency’s contentions in relation to the transfer of liabilities to National Grid. Whilst the legislation was retrospective in creating potential liabilities for acts done in the past, it did not create a deemed past liability for those actions. The liabilities to be imposed on British Gas were the liabilities immediately before the transfer date, not those that came into existence many years later despite referring to pre-transfer activities.

The Court held that the Environment Agency’s interpretation made a nonsense of the legislation surrounding the transfer of liabilities during the nationalisation and privatisation of the industry. In delivering the leading judgment, Lord Justice Scott indicated that very careful statutory language would be needed to impose on a company innocent of polluting activity a liability to pay for works to remedy pollution caused by others to land it had never owned or had any interest in. He said he found it, “extraordinary and unacceptable that a public authority, a part of government, should seek to impose a liability on a private company, and thereby to reduce the value of the investment held by its shareholders, that falsifies the basis on which the original investors, the subscribers, were invited by the government to subscribe for shares”. Further, he could, “see no reason to suppose that Parliament intended to produce that result”.

Implications

This is the first time that the House of Lords has turned its attention to the meaning of “appropriate” person and its liability to contribute to clean up costs under the EPA. Therefore, the implications of the decision are of much greater application than to National Grid alone. The judgment provides a simple interpretation of the law and provides some comfort to companies subject to privatisation along Gas Act principles and their shareholders, who will no doubt be relieved to hear that they are not automatically liable for the costs of remediation simply by virtue of being successors in title to the polluter. It is thought that the Environment Agency may now consider seeking an amendment to the EA in order to manage the impact of this ruling