Loss Prevention Alerts

Loss Prevention Alert 10 - ENVIRONMENTAL PROTECTION ACT 1990; ENVIRONMENT ACT 1995

PREPARED BY GRIFFITHS & ARMOUR

1. Background

Part IIA of the Environmental Protection Act 1990, which was added into it by the Environment Act 1995, came into force effective 1st April 2000. A government circular incorporating Statutory Guidance in the operation of the Act has also been issued.

Local authorities who in the main have to enforce the provisions of the Act are obliged to follow the Statutory Guidance.

2. What are the Objectives?

The objectives of the Act are: -

(a) to identify and remove unacceptable risks to human health and the environment;

(b) to seek to bring damaged land back into beneficial use and to do so at manageable cost.

3. How will this Affect Liability?

Local authorities are under a duty to identify contaminated land. They also usually act as the enforcing authority in establishing what remediation is necessary, who should be responsible for carrying out that remediation and who should meet the cost.

· Liability to meet those costs is a statutory liability.

· Strict liability is introduced - it is no defence to state that you have acted with reasonable skill and care.

· Liability applies retroactively regardless of when the pollution of land occurred.

4. Who Might be Liable under the Act?

Where feasible, the "polluter pays" principle will apply. Any person who caused or knowingly permitted contamination to be in, on or under the land will be an "appropriate person" to undertake or pay for remediation - a Class A person.

Only if no such Class A person can be found will responsibility pass to others such as the current owner or occupier of land - a Class B person.

5. What About Consultants and Contractors?

The requirement for remediation is to a level which ensures that land is suitable for current use. Future change of use will involve planning requirements to make the land suitable for a new use but past change of use may have caused earlier pollution to become harmful in the context of current use. Liability will attach to those who caused pollution of the land in priority to those who now occupy it.

Construction operations in the majority of cases involve intrusive operations such as, for example, site investigations, tunnelling, foundation work etc. These intrusive activities might disturb otherwise immobile substances causing them to migrate to where they can cause harm. In these circumstances, consulting engineers and contractors might be deemed to have caused the polluting event either by the giving of advice or by carrying out the intrusive works.

It seems unlikely that a consulting engineer could be found to have "knowingly permitted" contamination to be in on or under the land. The Statutory Guidance expresses the view that "knowingly permit" can only occur where there is both knowledge that the pollutants are in, on or under the land and the power to prevent them being there. A consulting engineer would not normally have the power to do anything about the presence of pollutants even if he was aware that they were there. Contractors, by contrast, might fall foul of the "knowingly permitted" test by virtue of having occupancy of and control over a site.

Following representation to government and lobbying by ACE, the Statutory Guidance contains certain specific exclusions from liability. These are not absolute exclusions - the primary legislation does not permit that.

The exclusion of a consultant or contractor from liability is dependent upon there being some other "appropriate person" to meet the liability for remediation. That person will very often be the client and in some circumstances the exclusion is specifically dependent upon the client's ongoing existence. If no such other person can be found, for example because the client has gone into liquidation, a consultant or contractor may face a strict liability for the remediation costs.

The wording of the exclusions are difficult to construe and therefore, more detailed, guidance is available on request. However, the conclusion is that they are generally regarded as being helpful to consulting engineers.

6. Liability in Contract

Existing liabilities in contract are unaffected by the new Act. If the consulting engineer or contractor has acted negligently or is in breach of contract or has signed a form of indemnity he is likely to be liable to his client or third parties to reimburse them as a result of their strict liability.

7. What should you do?

1. Your potential exclusion from strict liability is dependent on there being some other person who caused the same pollution. You should therefore consider the ongoing financial security of clients who commission environmentally sensitive projects and in particular the risk of working for single-project development companies.

2. The exclusion of liability for services which include intrusive investigation of land is more stringent than where a consultant gives advice alone. You should require your clients to let and sign all contracts for boreholes, trialpits or other physical works.

3. Always beware of the dangers of providing indemnities.

4. Consider isolating, wherever possible, pollution related activities within separate subsidiaries which are, so far as possible, asset-free.

5. Avoid parent company guarantees which might limit the effectiveness of corporate barriers to strict liability.

6. Incorporate into your agreements the clear right to withdraw from a project where you have reason to believe that the way in which the project is being developed is environmentally damaging - and exercise that right if needs be.

8. The Insurance Position

1. Liabilities under the Act are strict - they are not dependent upon negligence. Professional indemnity policies which operate on the basis of error, neglect or omission or breach of professional duty are unlikely to respond to this strict liability.

2. The ACE Scheme - which operates on the basis of "…any legal liability" will apply to claims for remediation brought under the Act subject to the aggregate limits of indemnity appropriate to pollution risks. However, the continuation of this cover is likely to be dependent upon members of the Scheme adopting the risk management advice set out above.

3. Public liability policies are unlikely to be triggered.

4. First party environmental impairment policies represent better protection to your clients than reliance upon traditional PI policies. Your client should be encouraged to effect such cover - premiums are now at much more realistic levels - and, if possible, arrange for the policy to include a waiver of subrogation rights against you.

And Finally….

The new legislation currently applies only to England; Scotland, Wales and Northern Ireland are currently developing their own regimes

This guidance note is intended as an overview of what is a complex piece of legislation. If you require further advice please contact either G&A, ACE or AGS.

Griffiths & Armour 8 June 2000