Gas industry rocked by second landmark contaminated land case

Gas industry rocked by second landmark contaminated land case

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 (the "Regime") for contamination caused by its statutory predecessors. As Anna Rabin, Head of Construction at law firm Jeffry Green Russell explains, this decision has significant implications for both the gas industry and other industries and undertakings which have been the subject of nationalisation, privatisation and local government re-organisation.

The High Court's decision in R (on the application of National Grid Gas plc) v Environment Agency comes very soon after the controversial outcome in the first landmark contaminated land case, Circular Facilities (London) Ltd v Sevenoaks District Council ([2005] EWHC 865).

Leave to appeal to the House of Lords has been granted and NGG has already indicated that will be going ahead with an appeal. The appeal is expected to be expedited.

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, after the switch to natural gas from the North and Irish Seas took over from the manufacture of gas from coal and oil sites during the 1960s-1970s. 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 Act 1990 ("EPA1990") 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 ("LA"), being under a statutory duty to inspect land in its areas for the purposes of identifying contaminated land, identified the land as contaminated and designated the site as a "special site". The LA found that the residents of the housing estate were at risk of harm being caused by the coal tar found and because there was a major aquifer underneath the site used for water abstraction, the contamination was thought to be causing, or was likely to cause, groundwater pollution. Where land contamination causes or may cause water pollution, the LA is required to designate the site as "special". As a result, the Environment Agency ("EA") becomes the relevant enforcing authority in place of the LA.

If a LA identifies contaminated land, it (or in the case of a special site, the EA) 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, notwithstanding the fact 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 1990. This Section provides such power in cases where the LA or EA 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 E.34-E.36 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 could have 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 gas undertakers to the East Midlands Gas Board ("EMGB") which was the relevant Area Gas Board created by virtue of the 1948 Act. EMGB used the site for storage and distribution purposes until 1965, when the site was sold and redeveloped as a housing estate.

The EA, 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, which left NGG as the sole knowing permitter.

The EA carried out the remediation itself and then, applying the statutory guidance, found that NGG was liable to contribute to a reasonable proportion of the remediation costs expended. It is reported that the total cost of the remediation 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 EA's decision on the following grounds:

1. NGG did not itself cause the contamination and so could not amount to an "appropriate person" for the purposes of the Regime and the normal rules on corporate personality should apply and therefore the reference to "person" in Part IIA of the EPA 1990 should be construed as a reference to the undertaking which actually caused or permitted the contamination;
2. NGG is a separate legal entity from its predecessors and so should not be held liable for the acts of its predecessors; and
3. 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 1990 there would have had to be some existing liability (for example, in respect of a statutory nuisance under the then applicable legislation) which somehow later "transmuted" into liability under Part IIA of the EPA 1990.

It is interesting to note that if NGG were not, in fact, found to be knowing permitters, the EA 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 1990, 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 EA 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 and concluded as follows.

1. The provisions in Part IIA of the EPA 1990 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 statutory predecessors (such as British Coal and British Gas) should be borne by their statutory successors.
2. 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 1990 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 transition of liabilities between the various legal entities and as a result, the word "person" includes both the actual undertaking which caused or knowingly permitted the contamination and any body that has succeeded to the liabilities of that original undertaking under the relevant statutory schemes.
3. 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 1990 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 Regime to have reached the High Court and has been decided only shortly after the decision reached in the first case brought under the Regime, 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 will affect:

(a) potential liability for clean-up of these sites, where statutory successors in title to contaminated land will shoulder responsibility for remediating contamination caused by their predecessors; and

(b) how the courts will view liability for contamination caused by other undertakings in other industries where nationalisation, privatisation or local government re-organisation has occurred, for example the water, electricity and rail industries.

Perhaps it is the fact that such important and wide reaching consequences will flow from the decision in this case 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, and the controversial decision in that case which centred around identification of an "appropriate person", causation and the knowledge of contamination an "appropriate person" had to have in order to be found liable under the Regime, it was felt by many that the Regime had "lost its teeth". This was particularly so as the LA in that case settled out of court with the developer and withdrew the remediation notice it had served.

The decision in the NGG case sends the exact 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
Head of Construction, Jeffrey Green Russell
Copyright © Anna Rabin 2006 – All rights reserved

For further information, please contact Anna Rabin at arr@jgrlaw.co.uk or by telephone on 020 7339 7038.