Picking up the bill

The House of Lords decision in the National Grid Gas (Transco) case (R (on the application of National Grid Gas plc (formerly Transco plc)) v Environment Agency [2007] UKHL 30) may have firmly curtailed the extension of the polluter-pays principle to utilities privatised before the entry into force of the Environment Act 1995 but this does not necessarily mean that the question has been totally settled.

'This is good news for successors of public bodies,' says Michael Woods, a partner at Stephenson Harwood specialising in environmental and planning law. 'And it is, in effect, a victory for shareholders in that privatisation wipes the plate clean of any on ongoing liability, but it does not solve the problem of 'orphan' sites, where no polluter can be traced and remediation costs must either be met by householders, as could have been the case here, or come out of the public purse.'

The case arose after the Environment Agency, exercising its prerogative under the Environment Protection Act 1990, as amended by the Environment Act 1995 (Part IIA), decided to decontaminate the site of a former gas works in Bawtry, near Doncaster, now occupied by 11 private residences, and sought to recover the cost from Transco (now National Grid Gas), a division of British Gas set up after the privatisation of the company in 1986.

Determining the appropriate person

The Lords' decision was unanimous that Transco was not the 'appropriate person' from whom to recover remediation cost under the 1990 Act, as Transco was not the polluter and had never ever been the owner of any part of the Bawtry site, which had been sold 20 years before British Gas was privatised.

Construing the provisions of the Act to include Transco as a 'person' ultimately responsible for the cost of remediation was 'a quite impossible construction to place on the uncomplicated and easily understandable statutory language,' said Lord Scott, who concluded: 'Very careful statutory language would be needed to impose on a company innocent of any 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.' In additional remarks, echoed by Lord Neuberger, Lord Scott made a specific point that: 'the agency's attempt to cast the burden of paying for the remediation works on to Transco falsifies the basis on which the investing public were invited to subscribe for shares in British Gas plc.'

Beyond the circumstances of the case remains the issue of who should be responsible in cases where the initial polluters have disappeared or cannot be identified. Should remediation be paid out of public funds? This, in practice means the Environment Agency, which has a limited budget (likely to be further eroded by the damages caused by the recent floods) and may become reticent to carry out its duties fully if lack of adequate resources means there is no realistic prospect of redress.

Where does this leave the polluter-pays principle?

Both Lord Scott and Neuberger indicated that any further clarification in this respect should be introduced by parliament, not by the courts. 'Part IIA has been criticised because it is reliant on guidance for full implementation, which has not been forthcoming,' continues Wood. 'The Agency even had referred to Hansard to try and further its case. But the idea in the legislation was to leave the planning process to drive the issue, taking a more voluntary approach. Little guidance has been issued and that not that many sites have been designated does not mean that Part IIA is not working.'

The Lords' decision to stick to a literal interpretation of the Act was received with particular suspicious by Martin Edwards, a barrister practising from 39 Essex Street, who believes that this could support further calls for a change in the law. 'For such a significant piece of legislation the short judgment seems rather superficial. To anyone who followed the gestation of Part IIA the judgments of Lord Scott and Lord Neuberger potentially emasculate the whole purpose behind Part IIA and appear to place more emphasis on the protection of shareholders' investments than on cleaning up the environment. I would not be surprised if one consequence of this decision will be a revision of the legislation.'

Professor Simon Payne, an environmental law specialist and deputy dean at the Faculty of Social Science at the University of Plymouth, is equally circumspect. 'This decision clearly pushes back the boundaries of contaminated land liability under Part IIA,' he says. 'It has removed the possibility which Forbes J had permitted at first instance of taking a wider purposive approach to defining who an appropriate person is and whether, when the assets and liabilities were transferred in the series of statutory reconstructions of the gas industry, those transfers extended to liability for the historic pollution of the site under EPA Part IIA.'

According to Payne, Forbes J judgment carefully analysed previous, sometimes conflicting authorities concerning statutory successors, leading the judge to decide that, on balance, the intention was that the successor should step into the shoes of the previous company not only in respect of current actual liabilities but also 'the transferee would assume the exposure of the transferor to future liability relating to past actions of the transferor'.

'For the House of Lords the issue was rather simple,' continues Payne who regrets that the Lords' decision contains no analysis of previous authorities and excludes entities linked by statutory reconstruction. 'What is harder to accept,' he says, 'is the assertion that, as Part IIA was not in existence or even contemplated at the time of the statutory reconstructions, the transfer of liabilities that went with each reconstruction did not include any liability now defined under Part IIA. This is a defensible position to take but certainly unhelpful for the polluter-pays principle.'

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