Privatised industries - High Court ruling on liability for clean-up costs

In a judgment handed down on 17 May 2006, the High Court has held that National Grid Gas plc will be liable to contribute to the cost of remediating a site in Yorkshire that it never owned and which was contaminated by former gas companies prior to privatisation. The judicial review (R (on the application of National Grid Gas plc) v Environment Agency [2006] EWHC 1083) related to a specific site, but it could have significant implications on contaminated land liability for many formerly nationalised industries in the UK.

Background

The case relates to a former gasworks site in Bawtry, near Doncaster, which was owned by National Grid Gas plc (“NGG”), formerly named Transco plc (and prior to that, British Gas plc). The site was formerly owned and operated first by private entities and subsequently by state-owned entities. When the gas industry was privatised in 1986, the “property, rights and liabilities” were transferred to British Gas plc under a statutory transfer scheme. It is thought that it was during the period when coal gas was being produced by state-owned entities (prior to 1952) that the land became contaminated. The site was sold and redeveloped in the 1960s for housing.

In 2003 the Bawtry site was identified as contaminated land and as a “special site” under Part IIA of the Environmental Protection Act 1990 (the “EPA”), due to pollutant linkages of nickel and polyaromatic hydrocarbons found in the land and groundwater. The area of contamination included 11 housing plots. The Environment Agency carried out remediation work on the site, at a cost of almost £700,000, and then sought to recover a proportion of these costs. NGG provided technical assistance on the remediation.

Under Part IIA of the EPA, the Environment Agency can recover costs from “persons” who caused or knowingly permitted the contamination to be on the site (“appropriate persons”). The Environment Agency identified NGG as an appropriate person, due to its connection with the original causers of the contamination.

Overview of claim

NGG brought this judicial review against the Environment Agency’s decision to identify it as an appropriate person. NGG contended that it should not be considered an appropriate person for the following reasons:

• NGG itself did not cause or knowingly permit the contamination in question; a separate person or persons did that (i.e. its predecessors and/or the housing developer). In the judgment, this is referred to as the “Statutory Construction Issue”; that is, how is “person” properly to be construed?;
• At the time of transfer of property, rights and liability to British Gas plc upon privatisation, no liability for contamination under any existing legislation had arisen and therefore no such liability should pass to NGG. This was referred to as the “Absence of Liability Issue”;
• As the EPA post-dates the transfer of liabilities to British Gas plc, NGG argued that any liability under the EPA would not have existed and thus could not be transferred at the time of the statutory transfer. This was referred to as the “Transfer of Liability Issue”.

The parties did not dispute the fact that the land was contaminated, nor that the contamination had been caused to be present by a predecessor to NGG, albeit that the contaminants may have been subsequently spread over a wider area by the housing developer. Rather, the case centred purely on legal issues relating to the issue of whether NGG was liable for the contaminating acts of its predecessors, particularly in light of statutory succession in this previously nationalised industry.

With respect to the Statutory Construction Issue, Mr Justice Forbes accepted that, as a starting point, NGG is a “person” at law in its own right and thus is independent from its predecessors. However, he agreed with the Environment Agency’s submissions that “person” is not necessarily restricted to an individual legal entity and can be interpreted to mean “an entity comprised of a succession of corporate bodies that have been continuously involved in the relevant activities and in respect of which there are statutory transfer provisions to ensure legal continuity, such as the Gas Industry”. He considered that in order to give effect to Parliament’s intention that responsibility for contamination should rest with the original polluter, a purposive interpretation of the EPA was required such that the definition of “person” is construed to cover successors of liability. On the Statutory Construction Issue therefore, Mr Justice Forbes agreed with the Environment Agency that even though NGG itself did not cause or knowingly permit the contamination, it would be considered the same person as the causer.

Mr Justice Forbes gave short shrift to the Absence of Liability Issue. The parties had argued over whether in the absence of Part IIA, NGG (or a predecessor) could have been liable under statutory nuisance. Mr Justice Forbes was not particularly taken by this line of argument. If this was applicable, he noted, then liability for older actions under Part IIA EPA 1990 would depend on whether the Local Authority had happened to serve an abatement notice regarding the land prior to the coming into force of the EPA in 1990. Instead he thought that the relevant issue was not whether liability already existed at the time of transfer but whether NGG should bear the responsibility for the liability later assigned for contamination that occurred in the past.

With regard to the Transfer of Liability Issue, Mr Justice Forbes followed the precedent set by the case of Walters v Babergh District Council [1983] 82 LGR 234, which determined that liabilities should include not only crystallised liabilities at the time of transfer but also potential or contingent liabilities. As such, the fact that the transfer pre-dated the EPA (which imposed retrospective liability) was not of relevance. Mr Justice Forbes concluded: “As it seems to me, it is entirely consistent with the intention of Parliament in enacting the Gas Acts transfer provisions, that the transferee company (acquiring as it did, all the assets, rights an liabilities of the transferor) should step into the shoes of the transferor, not only in terms of current actual liabilities, but also in respect of liabilities that would come into being in the future in respect of the past activities of the transferor.”

Appeal

Exceptionally, NGG has been given leave to appeal directly to the House of Lords (without the need to first appeal to the Court of Appeal), due to the potential widespread implications of the judgment.

Implications

This case could impact many privatised industries. Although the position will not be certain until an appeal is heard, it may lead to greater due diligence and risk analysis for relevant properties (whether still retained by the privatised industries or otherwise disposed of).

This judgment will receive a fair amount of publicity, which may result in indirect impacts on properties and transactions relating to properties, which might have been held and contaminated by privatised industries. For example, it may lead to a heightened sense of risk and as a result more due diligence and increased scrutiny of existing remediation. Collateral warranties of consultants and contractors may come under the spotlight. In addition, high street practitioners, mortgages and related professionals may become concerned, leading to possible delays and negative impacts on the value of relevant properties.