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Print articleNew Rules on Liability for Serious Environmental Damage
March, 2008 - Hans L Bergqvist and Martin Järvengren
In the autumn of 2007, the rules in the Environmental Code on liability for environmental damage in the form of pollution were made more stringent. The changes were due to the EC directive on environmental liability (1). The liability of businesses operators and property owners has thus become more extensive. Amendments have, inter alia, been made to chapter 10 of the Environmental Code. The chapter deals with the liability of business operators and property owners to restore polluted areas - the after-treatment liability. The amendments introduce a liability for particularly serious environmental damage.
Even under the previous rules, a business operator or a property owner could be made responsible to investigate and after-treat land and water areas, as well as buildings and facilities which were polluted. Those liable are divided into two categories. Responsibility must, first and foremost, be demanded from those which have conducted the polluting business after 30 June 1969, including property owners which own a property where chemicals and waste have been stored and where those have caused pollution. If it is not possible to find anyone responsible in the first category, or if none of them can pay for the cleaning-up, secondly, the one which has acquired the property after 31 December 1998 and upon the acquisition knew or should have known of the pollution can be held liable. The liability falls under public law, i.e. in relation to the public, usually through the county administrative board. If there are several subjects liable in the same category, the authorities can demand responsibility from those found most suitable. In reality, often the current business operator or property owner is held liable to the public.
Under the provisions of the Environmental Code, the scope of the liability will be determined, taking certain fairness principles into consideration. However, these fairness principles are rarely applied in reality. Guiding case law in the field is however still sparse. The liability can also be lifted if one has only contributed to a minor part of the pollution. The one held liable to the public, then has a right of regress, i.e. to demand responsibility from those which over time have contributed to the pollution. Then to determine and substantiate how the responsibility is to be divided is an even more difficult task for the business operator or the property owner. Guiding case law in this field is even sparser.
The rule that damages shall be paid for damage which a business has caused to its surroundings, pursuant to chapter 32 of the Environmental Code, already applies. The liability for damages is, in principle, strict. Damages are to be paid for damages through pollution of water areas and ground water, change of water levels, air pollution, land pollution, noise, vibrations or other similar disturbances. A damage is deemed to have been caused through a disturbance from a business if, with respect to the type of disturbance and effect of the damage, other possible causes of damage, and other circumstances, there exists a probability of such a causal connection.
The latter is a rule ameliorating the burden of proof. However, the injured party must first, in the usual manner, prove that the business in question has caused the pollution; it is only regarding the causal connection between this disturbance and an effect on the property of the injured party that the rule of evidence comes into play. In order for the injured party to receive damages, the damage must be of a kind which would not reasonably be tolerated with regard to the circumstances in situ. For example, no one can be held liable for traffic noise in a city or smoke in an industrial town.
The new rules mean that the liability, under chapter 10 in the Environmental Code, upon serious damages, is extended and that the rules cover substantially more types of damages on the environment. Firstly, environmental damage which through pollution of land constitutes a substantial risk to peoples’ health is deemed to be a serious environmental damage. Secondly, an impact on a water area or ground water, which has a substantial negative effect on the quality of the water environment, is deemed to be serious environmental damage. Thirdly, damage which to a substantial extent injures or impedes the preservation of certain animals or plants, or in the habitat for such species. The latter means that Natura 2000-areas will receive extended protection. It also means that the species which are protected in the species protection decree, and the breeding areas and resting places of those species receive extended protection. When assessing if the damage is serious, one should especially take into consideration whether the damage has a substantial injurious effect when it comes to preserving protected animals or plants and their habitat. The assessment of the effect of the damage shall be made, inter alia, with the help of measurable details about the number of individuals or the habitat area, the injured individuals in relation to the species as well as how the life force of a certain species has been affected.
Damage will not be deemed serious if, e.g., the negative effect is less than the natural variation of the species over time. It is possible that a business operator may have a permit to carry on a business which can substantially affect the environment in a protected area. To the extent that the negative effect is caused by such business and the business operator has complied with the terms for the permit, the business conductor cannot be held liable for the damage caused.
In the event of serious environmental damage, the person responsible for the damage is obliged immediately to take action which will prevent additional damage, and to ensure that the polluted land no longer constitutes a substantial risk for peoples’ health.
An extended obligation for the business operator to notify the supervisory authority, usually the environmental office of the municipality, if there is an impending risk for serious environmental damage or if serious environmental has occurred, has also been introduced. If it is discovered that serious environmental damage has occurred, the business operator shall immediately notify the supervisory authority and state the actions which the business operator has taken and will take as well as additional actions which may need to be taken. The statement to the supervisory authority must contain information about the type, extent, cause of the damage as well as information about other circumstances which are of importance in order to remedy the damage. The statement shall also contain a map of the damaged area and areas to which the damage may spread.
What is perhaps the most interesting with the new rules is that full liability applies for serious environmental damage, in contrast to the after-treatment liability which applies to a reasonable extent. In the event of serious environmental damage, the subject liable is obliged to restore the environment to the state it would have had if damage to the water environment, protected species and their habitat had not occurred. There is also an obligation to compensate for the lost environmental values while awaiting the restoration and to compensate for these values in other ways if a restoration is not possible. Restoration in other ways means measures which consist of further improvements to protected habitats and protected species or waters, either on the damaged place or elsewhere. The compensating measures shall mean that an area’s condition and quality from an environmental viewpoint must become better than what would have been the case had the damage never occurred. – The provisions are such that certain application problems when it comes to determining or risk assessing the extent of the liability are easily foreseeable.
The issue of extension of the group of liable persons and piercing of the corporate veil has been an on-going topic during the last 10 years. A couple of years ago, the companies committee proposed that, through an addendum to chapter 10 section 2 of the Environmental Code, a provision should be introduced about piercing of the corporate veil in certain situations. If a business operator was not able to fulfil its obligations, the person who, to a reasonable extent, could be held liable by exercising decision making control over the business to a considerable degree contributed to this inability. However, this proposal did not lead to any amendments to the Environmental Code. The environmental liability committee however discussed the issue again in its report (2). The committee did not see any need for a piercing of the corporate veil rule, but proposed nevertheless amendments to chapter 10 section 2 to that effect. According to the committee’s proposal, a person could be held liable, to a reasonable extent, who by exercising decision making control over the business operator to a considerable degree in an inappropriate way contributed to the business’ inability to fulfil its responsibility. However, nothing came of this proposal either, which perhaps can be deemed unfortunate from a legal point of view. That is since the term business operator is not completely unambiguous and clearly defined. E.g. in one decision from the Environmental Appellate Court on 3 November 2005 in case M 2812-05, the decisive issue in determining the business operating liability was who actually and legally had had an opportunity to intervene.
The new more stringent rules pertain to environmental damage caused by pollution, events or near-accidents which have taken place after 1 August 2007, not however such which originate from a business or action which was ended before 1 August 2007. The older provisions apply to those. With respect to how the term ”business” has been interpreted in the legislative preparatory work and in the precedents, a “holding case”, where the actual business has ceased before the 1 August 2007, could probably lead to liability under the new provisions. It should be added that the liability, under chapter 10 of the Environmental Code is time-barred by a statute of limitation.
To conclude, the amendments to the Environmental Code which came into effect 1 August 2007 entail that all business operators get extended environmental liability. Nature has been given its own independent protective value. There is no limit to how extensive the liability for serious environmental damage can be. Damages which pollution has caused in sensitive areas and for the biological diversity can be predicted to be very difficult to measure. It is unclear which methods can be used to remedy such damages. The costs for investigations and restoration, or compensation, can in certain cases be assumed to become enormous. There are as yet no insurance solutions to use. Pursuant to the EC directive, the Commission will, before 30 April 2010, present a report which, inter alia, discusses the insurance terms and other forms of financial security. If appropriate, the Commission will propose a system for harmonized mandatory financial security.
As a consequence of the liability rules in chapter 10 of the Environmental Code, when buying a property and businesses, one should very carefully examine, inter alia, the existence of pollution and if a business may be assumed to include a risk of pollution damage, which may be said to be common practice in such transactions. The division of possible future liability and costs for investigation and after-treatment should be regulated as early as in the purchase agreement between the buyer and sellers. Within groups or upon outsourcing of certain business, especially to another party which conducts the outsourced business within its own facility or property, one should also consider issues of the division of liability and the risk of “piercing of the corporate veil”. In order to achieve an advantage in the event of a possible discussion of liability, a business operator should also, on a continuous basis, document not only its business but also its surroundings.
Have you come across these issues in your business? How to safeguard your business? We welcome feedback. If you have any ideas or questions, please contact Hans L Bergqvist; [email protected], or Martin Järvengren; [email protected]
Even under the previous rules, a business operator or a property owner could be made responsible to investigate and after-treat land and water areas, as well as buildings and facilities which were polluted. Those liable are divided into two categories. Responsibility must, first and foremost, be demanded from those which have conducted the polluting business after 30 June 1969, including property owners which own a property where chemicals and waste have been stored and where those have caused pollution. If it is not possible to find anyone responsible in the first category, or if none of them can pay for the cleaning-up, secondly, the one which has acquired the property after 31 December 1998 and upon the acquisition knew or should have known of the pollution can be held liable. The liability falls under public law, i.e. in relation to the public, usually through the county administrative board. If there are several subjects liable in the same category, the authorities can demand responsibility from those found most suitable. In reality, often the current business operator or property owner is held liable to the public.
Under the provisions of the Environmental Code, the scope of the liability will be determined, taking certain fairness principles into consideration. However, these fairness principles are rarely applied in reality. Guiding case law in the field is however still sparse. The liability can also be lifted if one has only contributed to a minor part of the pollution. The one held liable to the public, then has a right of regress, i.e. to demand responsibility from those which over time have contributed to the pollution. Then to determine and substantiate how the responsibility is to be divided is an even more difficult task for the business operator or the property owner. Guiding case law in this field is even sparser.
The rule that damages shall be paid for damage which a business has caused to its surroundings, pursuant to chapter 32 of the Environmental Code, already applies. The liability for damages is, in principle, strict. Damages are to be paid for damages through pollution of water areas and ground water, change of water levels, air pollution, land pollution, noise, vibrations or other similar disturbances. A damage is deemed to have been caused through a disturbance from a business if, with respect to the type of disturbance and effect of the damage, other possible causes of damage, and other circumstances, there exists a probability of such a causal connection.
The latter is a rule ameliorating the burden of proof. However, the injured party must first, in the usual manner, prove that the business in question has caused the pollution; it is only regarding the causal connection between this disturbance and an effect on the property of the injured party that the rule of evidence comes into play. In order for the injured party to receive damages, the damage must be of a kind which would not reasonably be tolerated with regard to the circumstances in situ. For example, no one can be held liable for traffic noise in a city or smoke in an industrial town.
The new rules mean that the liability, under chapter 10 in the Environmental Code, upon serious damages, is extended and that the rules cover substantially more types of damages on the environment. Firstly, environmental damage which through pollution of land constitutes a substantial risk to peoples’ health is deemed to be a serious environmental damage. Secondly, an impact on a water area or ground water, which has a substantial negative effect on the quality of the water environment, is deemed to be serious environmental damage. Thirdly, damage which to a substantial extent injures or impedes the preservation of certain animals or plants, or in the habitat for such species. The latter means that Natura 2000-areas will receive extended protection. It also means that the species which are protected in the species protection decree, and the breeding areas and resting places of those species receive extended protection. When assessing if the damage is serious, one should especially take into consideration whether the damage has a substantial injurious effect when it comes to preserving protected animals or plants and their habitat. The assessment of the effect of the damage shall be made, inter alia, with the help of measurable details about the number of individuals or the habitat area, the injured individuals in relation to the species as well as how the life force of a certain species has been affected.
Damage will not be deemed serious if, e.g., the negative effect is less than the natural variation of the species over time. It is possible that a business operator may have a permit to carry on a business which can substantially affect the environment in a protected area. To the extent that the negative effect is caused by such business and the business operator has complied with the terms for the permit, the business conductor cannot be held liable for the damage caused.
In the event of serious environmental damage, the person responsible for the damage is obliged immediately to take action which will prevent additional damage, and to ensure that the polluted land no longer constitutes a substantial risk for peoples’ health.
An extended obligation for the business operator to notify the supervisory authority, usually the environmental office of the municipality, if there is an impending risk for serious environmental damage or if serious environmental has occurred, has also been introduced. If it is discovered that serious environmental damage has occurred, the business operator shall immediately notify the supervisory authority and state the actions which the business operator has taken and will take as well as additional actions which may need to be taken. The statement to the supervisory authority must contain information about the type, extent, cause of the damage as well as information about other circumstances which are of importance in order to remedy the damage. The statement shall also contain a map of the damaged area and areas to which the damage may spread.
What is perhaps the most interesting with the new rules is that full liability applies for serious environmental damage, in contrast to the after-treatment liability which applies to a reasonable extent. In the event of serious environmental damage, the subject liable is obliged to restore the environment to the state it would have had if damage to the water environment, protected species and their habitat had not occurred. There is also an obligation to compensate for the lost environmental values while awaiting the restoration and to compensate for these values in other ways if a restoration is not possible. Restoration in other ways means measures which consist of further improvements to protected habitats and protected species or waters, either on the damaged place or elsewhere. The compensating measures shall mean that an area’s condition and quality from an environmental viewpoint must become better than what would have been the case had the damage never occurred. – The provisions are such that certain application problems when it comes to determining or risk assessing the extent of the liability are easily foreseeable.
The issue of extension of the group of liable persons and piercing of the corporate veil has been an on-going topic during the last 10 years. A couple of years ago, the companies committee proposed that, through an addendum to chapter 10 section 2 of the Environmental Code, a provision should be introduced about piercing of the corporate veil in certain situations. If a business operator was not able to fulfil its obligations, the person who, to a reasonable extent, could be held liable by exercising decision making control over the business to a considerable degree contributed to this inability. However, this proposal did not lead to any amendments to the Environmental Code. The environmental liability committee however discussed the issue again in its report (2). The committee did not see any need for a piercing of the corporate veil rule, but proposed nevertheless amendments to chapter 10 section 2 to that effect. According to the committee’s proposal, a person could be held liable, to a reasonable extent, who by exercising decision making control over the business operator to a considerable degree in an inappropriate way contributed to the business’ inability to fulfil its responsibility. However, nothing came of this proposal either, which perhaps can be deemed unfortunate from a legal point of view. That is since the term business operator is not completely unambiguous and clearly defined. E.g. in one decision from the Environmental Appellate Court on 3 November 2005 in case M 2812-05, the decisive issue in determining the business operating liability was who actually and legally had had an opportunity to intervene.
The new more stringent rules pertain to environmental damage caused by pollution, events or near-accidents which have taken place after 1 August 2007, not however such which originate from a business or action which was ended before 1 August 2007. The older provisions apply to those. With respect to how the term ”business” has been interpreted in the legislative preparatory work and in the precedents, a “holding case”, where the actual business has ceased before the 1 August 2007, could probably lead to liability under the new provisions. It should be added that the liability, under chapter 10 of the Environmental Code is time-barred by a statute of limitation.
To conclude, the amendments to the Environmental Code which came into effect 1 August 2007 entail that all business operators get extended environmental liability. Nature has been given its own independent protective value. There is no limit to how extensive the liability for serious environmental damage can be. Damages which pollution has caused in sensitive areas and for the biological diversity can be predicted to be very difficult to measure. It is unclear which methods can be used to remedy such damages. The costs for investigations and restoration, or compensation, can in certain cases be assumed to become enormous. There are as yet no insurance solutions to use. Pursuant to the EC directive, the Commission will, before 30 April 2010, present a report which, inter alia, discusses the insurance terms and other forms of financial security. If appropriate, the Commission will propose a system for harmonized mandatory financial security.
As a consequence of the liability rules in chapter 10 of the Environmental Code, when buying a property and businesses, one should very carefully examine, inter alia, the existence of pollution and if a business may be assumed to include a risk of pollution damage, which may be said to be common practice in such transactions. The division of possible future liability and costs for investigation and after-treatment should be regulated as early as in the purchase agreement between the buyer and sellers. Within groups or upon outsourcing of certain business, especially to another party which conducts the outsourced business within its own facility or property, one should also consider issues of the division of liability and the risk of “piercing of the corporate veil”. In order to achieve an advantage in the event of a possible discussion of liability, a business operator should also, on a continuous basis, document not only its business but also its surroundings.
Have you come across these issues in your business? How to safeguard your business? We welcome feedback. If you have any ideas or questions, please contact Hans L Bergqvist; [email protected], or Martin Järvengren; [email protected]
Footnotes: (1) Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage. (2) SOU 2006:39 |
