Contaminated land - Blue Circle Industries v The Ministry of Defence (10 June 1998) Court of Appeal

United Kingdom

This was the appeal to the Court of Appeal of a case covered in the 1997 Case Law Digest. The Court of Appeal had to address the issue of compensation for the loss of a sale due to contamination. Blue Circle Industries was in the process of selling its property to Sun Microsystems when it and the prospective purchaser became aware of contamination on the site. The Court of first instance found that this led to the collapse of the sale and a fall in the market value of the property. There was little dispute that the Ministry of Defence was responsible for the contamination. There was also little dispute that the actual remediation costs could be claimed by Blue Circle Industries against the Ministry of Defence as a direct head of damages, but this alone would not have compensated Blue Circle Industries for its losses. Blue Circle Industries therefore sought to recover damages for losses resulting from the loss of the sale and fall in market value. Blue Circle Industries owned an attractive 137 acre site in Berkshire and marketed the property as a corporate retreat, complete with a Victorian manor house, award winning hotel accommodation and extensive grounds including an ornamental lake. The property borders the Atomic Weapons Establishment site at Aldermaston operated by AWE plc. A number of ponds on the site operated by AWE plc contained radioactive silts and muds which if left undisturbed were, according to the Ministry of Defence , not dangerous. Unfortunately heavy storms in the late 1980's caused these ponds to flood and spread the radioactive contaminated silts and muds across marshland within the Blue Circle Industries property. Blue Circle Industries were unaware of this contamination at the time of the floods and only became aware of it during the course of negotiations to sell the property to Sun Microsystems in 1993. Sale negotiations had anticipated a purchase price of £10.3m. Sun Microsystems pulled out after learning of the radioactive contamination. Blue Circle Industries, unable to sell the property, originally brought an action under the Nuclear Installations Act 1965, nuisance, Rylands v Fletcher, negligence, and trespass, in an attempt to recover its losses. The common law causes of actions were ultimately stayed and only the action under Section 7 of the Nuclear Installations Act 1965 was pursued. This imposes strict liability on a licensee of a nuclear site for damage to property caused by nuclear matter. Blue Circle Industries established that the level of radioactive contamination was in excess of the requirements under the Radioactive Substances Act 1960. Clean up was therefore required and the Judge at first instance accepted that this constituted damage to the property for which the Ministry of Defence was liable. Physical damage, the Court of first instance held, was an alteration in the physical characteristics of a property due to the presence of contaminants rendering it less useful or less valuable. The Court of Appeal upheld this decision. Whilst the case was heard under Section 7 of the Nuclear Installations Act 1965 only, in respect of a possible action under the rule in Rylands v Fletcher, the Judge did say in passing, "...the facts of the case would be a classic example of a case within [that] rule...". The Court of Appeal went on to consider the issue of recovery and quantum of damages for the loss of sale. The Judge at first instance accepted as a matter of expert evidence that the loss of this sale was directly attributable to the physical damage to the property by the radioactive contamination. He accepted that the loss in property value was a consequence of that physical damage. He held that the loss of the bargain which had occurred after the date of contamination and before the date of remediation was foreseeable. The Judge therefore held that Blue Circle Industries could obtain damages for its losses during this period. In order to calculate the damages for loss of sale the Court looked at the proposed purchase price, gave consideration to expert opinion on the value of the property following Sun Microsystems' withdrawal and deducted a sum to represent the chance that the sale to Sun Microsystems could have collapsed in any event for reasons unconnected with the contamination. Taking all that into account Blue Circle Industries was awarded a sum in excess of £6m for the loss of sale, remediation costs and interest. The Court of Appeal upheld this reasoning and dismissed the appeal. Whilst this case will no doubt be highly relevant to common law claims relating to contamination of third party lands, there is a danger in drawing too many conclusions from this case. Certainly it is not authority for the proposition that contamination linked to a fall in market value will always render the fall in market value actionable as a head of damages. It must be noted that the Blue Circle Industries land was intended for a particularly sensitive use and was contaminated with nuclear material which even at the lowest levels is likely to generate considerable concern. This case also concerned the loss of a particular sale to a particular customer. Most importantly, there was a finding of fact that physical damage had been occasioned to the land. (Times Law Reports, 16 June 1998)