Poisoned chalice

On 17 May, the High Court handed down judgment on liability for the acts of statutory predecessors under the contaminated land regime. In R (National Grid Gas plc (formerly known as Transco)) v The Environment Agency [2006] EWHC 1083 (Admin), Transco sought judicial review of the Environment Agency's decision that it was liable for contaminated land it inherited on privatisation of the gas industry. While Transco itself did not cause the contamination, one or more of its predecessor gas companies did and a statutory transfer scheme had transferred property, rights and liabilities from these companies to Transco. Forbes J firmly dismissed Transco's application, but has given the company permission to seek leave to appeal from the House of Lords.

Background

The site, in Bawtry, Doncaster, was an old gasworks site that was subsequently developed for housing in 1966 and now consists of 11 privately owned homes with gardens. The land was designated as contaminated under the contaminated land regime in 2003, following the discovery by a resident of a pit filled with a tar-like substance in his back garden. The site had been operated by a succession of gas companies dating back to the early 20th century during which time the industry was nationalised in 1948, reorganised in 1972 and then privatised in 1986.

The Environment Agency took over responsibility for regulating the site. It identified the gas industry collectively, and Transco in particular, as liable for clean-up along with the company that built the housing development. The latter no longer existed, given which the Agency took the view it could not ask Transco to remediate the site. Instead, it carried out the clean-up works itself, with public funds, and sought to recover half of the cost from Transco as an 'appropriate person' under Part IIA of the Environmental Protection Act 1990. This was on the basis that the contamination had been caused by one or more of Transco's statutory predecessor companies that operated the site until 1965. The Agency was clear that it would not exercise its power to recover the cost from the owners/occupiers of the housing development on the basis they had purchased the land in good faith and with no knowledge of the contamination.

Transco argued that the Agency's decision was wrong in law on three grounds: (1) Transco had not itself caused or knowingly permitted the contamination in question, and so could not be an 'appropriate person'; (2) there had been no liability at the time of transfers from predecessors, so that no liability could have been transferred; and (3) even if there had been liability at those times, the transfers could not have operated to transfer liabilities under Part IIA as those provisions introduced a wholly new form of liability that had not been in force at the time of the transfers.

Polluter pays

The main issue in the case turned on how the concept of 'appropriate person' is to be interpreted. Under the contaminated land regime, the 'appropriate person' is the entity that takes responsibility for clean-up. In particular is it to be interpreted, as Transco argued, in accordance with traditional company law doctrine that different companies have separate legal personalities with the effect that Transco cannot be responsible for the activities of another company? Alternatively, is it to be interpreted, as the Agency contended, in the context of the contaminated land regime and the purpose of transfer schemes? The policy driver underlying the contaminated land regime is the 'polluter pays' principle. Parliament's clear intention, the Agency argued, was that responsibility for remediation should fall on the polluter, rather than upon subsequent innocent owners or the public purse. Meanwhile the statutory framework for the gas industry indicated that Parliament intended that there should be a seamless transition between the succession of companies operating the gas industry.

Mr Justice Forbes accepted the Agency's approach and held that the relevant provisions of the contaminated land regime had to be given a purposive construction. Where assets rights and liabilities are transferred under a clear chain of statutory provisions which ensures continuity, Parliament's intention that responsibility for contamination should be borne by the original polluter would best be furthered by construing the term 'appropriate person' as including not just the original polluter, but also its statutory successors.

Although those findings essentially dealt with all three of the grounds, Forbes J also considered the other two, including Transco's argument about the relevance of the transfer scheme. In this particular case, the wording of the relevant transfer scheme in the privatisation legislation is in s 49(1) of the Gas Act 1968. Section 49(1) provides that all property, rights and liabilities to which the British Gas Corporation was entitled or subject immediately before the transfer date became the responsibility of the privatised company. The issue, therefore, was whether the reference to liabilities referred to crystallised liabilities or contingent liabilities. Although the judge did not rule specifically on this, it must be taken to refer to contingent liabilities, ie, where the acts/omissions giving rise to the liability have taken place, even if the liabilities have yet to crystallise. In considering the effect of the transfer scheme, the judge focused on the decision in Walter v Babergh DC [1983] 82 LGR 234, which concerned an action for negligence and/or breach of statutory duty under the Public Health Act 1936. In that case, Woolf J came to the conclusion that 'liabilities should be construed to include 'contingent or potential liabilities' on the basis that the public should be able to look to the new authority or company precisely in respect of those matters which it could look to the old authority or company. Put simply, the public's position should be no better or no worse.

Implications

The decision clearly has significant financial implications for Transco and industry more generally. The estimate for remediation of the Bawtry site was £700,000 and Transco owns approximately 2,000 other gasworks sites.

The background to the case is not uncommon, involving as it does ongoing activity by an undertaking that has resulted in contaminated land, but where the identity of the body carrying out the activity has changed so that the original body or bodies whose specific act or acts actually caused the contamination no longer exist. The many examples of where this has occurred in the contaminated land field include public or private undertakers in fields such as utilities and railways, local authorities that have operated (for example) landfill sites for waste disposal and government departments that have been subject to statutory reorganisation. In these cases the changes in the identity of the body in question have been effected by or involved the statutory re-organisation and transfer of assets and liabilities by way of nationalisation, privatisation or local government reorganisation.

The decision to make Transco liable is particularly strong, as it is based upon the interpretation of Part IIA and Parliament's intention in enacting the regime rather than on an analysis of the relevant provisions of the transfer scheme. The court adopted a purposive construction of the contaminated land regime and gave effect to the policy intention to make the polluter pay for clean up rather than strict traditional legal doctrine.

The provisions of transfer schemes on the transfer of liabilities tend to use the same wording. If this decision survives the appeal process, it could have significant implications for other sectors, including power, steel, railway and telecommunications. It may not be clear whether the relevant statutory transfer scheme intended to transfer this type of 'liability' '“ a liability that did not exist at the time of either the acts giving rise to the liability or the scheme. However, the outcome is perhaps an inevitable consequence of a regime that seeks to ensure the clean-up of the country's historic legacy of contaminated land and imposes liability retrospectively in order to do so.

Of interest to legal historians may be the point that this is thought to be the first time that the important House of Lords' decision in Pepper v Hart [1993] AC 593 has been used to win an environmental case. The Pepper doctrine relaxes, in certain specified circumstances, the rule against allowing courts to refer to Parliamentary material as an aid to construction. The expression of legislative intention in s 78F(2) was ambiguous or obscure in the factual context, and so it was permissible to consider that intent by reference to the Parliamentary record. Ministerial statements demonstrated that the government had considered expressly the issue of statutory successors to bodies such as British Coal and British Gas, and had intended that Part IIA liability be borne by successors.