The High Court has ruled in R (on the application of National Grid Gas plc) v Environment Agency (17 May 2006) that National Grid Gas (NGG) is liable under the Contaminated Land Regime for contamination caused by its statutory predecessors. The decision has significant implications for both the gas and other industries and for undertakings which have been the subject of nationalisation, privatisation or local government reorganisation.
Leave to appeal to the House of Lords has been granted, and NGG has already indicated that it will be going ahead.
Background
NGG and its predecessors inherited a large portfolio of disused sites and derelict land across the UK, approximately 80% of which comprised former gasworks. Upon the privatisation of the gas industry under Thatcher's Government, the newly formed British Gas plc set up a company in 1986, now called National Grid Property (but probably better known as SecondSite or Lattice Property), to manage the clean-up and disposal of its legacy of sites, many of which were potentially contaminated.
The NGG case
A resident of a housing estate in Bawtry, Yorkshire discovered a pit filled with coal tar in his back garden in 2001. The housing estate had been built on a former gasworks during the 1960s.
Under section 78A(2) of the Environmental Protection Act 1990 (EPA), land is contaminated if there is a significant risk of: (a) significant harm being caused to the health of living organisms or other interference with ecological systems and, in the case of man, harm to his property; or (b) where the pollution of controlled waters is being, or is likely to be, caused.
In 2003, the relevant local authority, being under a statutory duty to inspect land in its area for the purposes of identifying contaminated land, identified the land as contaminated and designated the site as a 'special site'. The authority found that the residents of the housing estate were at risk of harm from the coal tar, and because there was a major aquifer underneath the site used for water abstraction, the contamination was thought to be causing, or likely to cause, groundwater pollution.
Where land contamination causes or may cause water pollution, the local authority is required to designate the site as 'special'. As a result, the Environment Agency becomes the relevant enforcing authority in place of the local authority.
If a local authority identifies contaminated land, it (or in the case of a special site, the Environment Agency) will be under a duty to serve a remediation notice on the 'appropriate persons', requiring them to remediate the contamination. Such persons are, in the first instance, those who caused or knowingly permitted the contamination (a 'knowing permitter') or, where such persons cannot be found, the owners or occupiers of the land, even though such owners or occupiers may not be aware of the contamination.
However, the relevant enforcing authority may in some cases be precluded from serving a remediation notice, for example where it has the power to carry out the necessary remediation itself under section 78N of the EPA. This section provides such power in cases where the local authority or Environment Agency would only be able to recover a portion of the costs of remediation from the relevant appropriate persons. Section 78P allows recovery of 'reasonable' remediation costs from appropriate persons. What is reasonable is decided by reference to the statutory guidance.
Paragraphs E34-E36 of the statutory guidance provide that where there is more than one knowing permitter and one of those persons cannot be found (for example, where a company has since been dissolved), the enforcing authority should recover from the remaining knowing permitter only the portion of the cost which that person would have been liable for if the other knowing permitter had been found.
In the NGG case, it was not known exactly when the contaminating substances were generated on the site, although the parties agreed they were likely to have been caused by the production of coal gas by NGG's predecessors, Bawtry and District Gas Company and South Yorkshire and Derbyshire Gas Company, between 1915 and 1952. In 1948, the Gas Act 1948 transferred the site, rights and liabilities from the previous undertakers to the East Midlands Gas Board (EMGB). EMGB used the site for storage and distribution purposes until 1965, when the site was sold and redeveloped as a housing estate.
The Environment Agency, as the relevant enforcing authority, identified two knowing permitters of the contaminated land as appropriate persons, namely NGG on the basis that it was liable for the acts of its statutory predecessors and one of the redevelopers of the site, Kenneth Jackson Ltd, which had obtained planning permission for residential development. However, Kenneth Jackson Ltd had been dissolved and could not be 'found' for the purposes of the Regime.
The Environment Agency carried out the remediation itself and then, applying the statutory guidance, found that NGG was liable to contribute to a reasonable proportion of the costs. It is reported that the total cost was in the region of £700,000, but it is not clear from the High Court judgment what proportion of that sum was sought from NGG.
NGG judicially reviewed the Agency's decision on the following grounds.
- NGG did not itself cause the contamination and so could not be an 'appropriate person' for the purposes of the Regime, and the normal rules on corporate personality should apply. Therefore the reference to 'person' in Part IIA of the EPA should be construed as a reference to the undertaking which actually caused or permitted the contamination.
- NGG is a separate legal entity from its predecessors and so should not be held liable for the acts of its predecessors, and
- the relevant gas transfer schemes transferred only those liabilities which were in existence (that is, had already crystallised) at the time of the transfer and therefore did not apply to any potential or contingent liabilities which crystallised later under subsequent legislation. Therefore, in order for liability to arise under Part IIA of the EPA, there would have had to be some existing liability which somehow later 'transmuted' into liability under Part IIA of the EPA.
It is interesting to note that NGG was not, in fact, found to be a knowing permitter; the Agency accepted that liability would have passed to the current owners and occupiers of the houses on the housing estate. However, by virtue of section 78J of the EPA, owners and occupiers cannot be made liable for the remediation of water-related pollution and so the residents would only have been liable for the land-based contamination.
In this case, though, the Agency followed the statutory guidance at paragraph E44 which states, 'Where a Class B (owners and occupiers) person owns and occupies a dwelling on the contaminated land in question, the enforcing authority should consider waiving or reducing its costs recovery where that person satisfies the authority that, at the time the person purchased the dwelling, he did not know, and could not reasonably have been expected to have known, that the land was adversely affected by presence of a pollutant'. It informed the residents that if NGG was not liable, it would not seek to recover any remediation costs from the residents, on the basis that they had bought the land in good faith and had no notice of the existence of contamination.
The High Court dismissed NGG's application. Its conclusions were as follows.
- The provisions in Part IIA of the EPA should be given a purposive approach. Following the rules of statutory construction in Pepper v Hart (1993) AC 593, Parliament's clear intention was that liabilities accrued in respect of contamination caused by the relevant predecessors (such as British Coal and British Gas) should be borne by their successors.
- The word 'person' is construed to give effect to Parliament's clear intention that primary responsibility for the remediation of contaminated land under Part IIA of the EPA should fall on the original polluter in accordance with the 'polluter pays' principle. The High Court took the view that the relevant gas transfer schemes strongly indicated that there should be a seamless transfer of liabilities between the various legal entities and as a result, the word 'person' includes both the undertaking which caused or knowingly permitted the contamination and any body that has succeeded to the liabilities of that original undertaking under the relevant schemes.
- The relevant gas transfer schemes had transferred to NGG both existing and contingent liabilities accrued by its statutory predecessors. Liability under Part IIA of the EPA is retrospective and so can apply to contamination caused prior to those statutory provisions coming into force. It was, therefore, not necessary to demonstrate that at the time the contamination was caused the relevant predecessor had already incurred liability in respect of contamination under the then applicable legislation.
Comment
The NGG case is only the second case under the Contaminated Land Regime to have reached the High Court and was decided only shortly after the decision reached in Circular Facilities (London) Ltd v Sevenoaks District Council ([2005] EWHC 865).
In making its decision, the High Court would have considered the fact that there are approximately 2,000 other former gasworks across the UK (the clean-up of which, it is thought, could cost the gas industry an estimated £1bn) and that the outcome of this case would affect firstly the potential liability for clean-up of those sites where statutory successors in title to contaminated land will shoulder responsibility, and secondly how the courts will view liability for contamination caused by undertakings in other industries where nationalisation, privatisation or local government re-organisation has occurred.
Perhaps it is owing to the fact that such important and wide reaching consequences will flow from its decision that the High Court gave NGG leave to appeal its decision to the House of Lords.
The uncertainty surrounding the effectiveness of the Regime continues. Following the Circular Facilities case, with its controversial decision over the identification of an 'appropriate person', causation, and the knowledge of contamination an 'appropriate person' had to have in order to be found liable, it was felt by many that the Regime had lost its teeth.
The decision in the NGG case sends the opposite message; the Regime is effective, and if NGG's appeal is lost, may continue to assist with the clean-up of hundreds of contaminated sites across the UK for many years to come. Having said this, it must be remembered the case has been decided in circumstances where it is statutory successors in title who are responsible for their statutory predecessors.
- Anna Rabin is head of construction at Jeffrey Green Russell, Tel: 020 7339 7038, E-mail: arr@jgrlaw.co.uk
