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20-11-2018

Senior Associate at Moon Beever, Simon Duncan discusses a recent case which considers a breach of the Environmental Protection Act 1990. Here, he considers how to make the polluter pay... 

Background

 

The Environmental Protection Act 1990 imposes obligations on companies that process waste.  In particular, those companies must not deposit controlled waste on any land unless a waste management licence authorising the deposit is in force, and the deposit is in accordance with the licence terms.

 

Where a breach occurs, the Environment Protection Agency can complete the remedial work and recover the expense incurred from the company.

 

The provisions of the Act are intended to give effect to the Waste Framework Directive.  This enunciates the principle that the ‘polluter pays.’  The problem that was not anticipated however by the legislation, is what happens when the polluter cannot pay because it’s insolvent?

 

Doonin Plant Limited [2018] CSOH 89

 

This was an application for directions brought by the Joint Liquidators of a Scottish waste management company. 

 

The company had a licence to deposit waste at a former colliery site.  After the licence expired the company deposited waste at the site.  Even if the licence had been in force, it would not have permitted this waste to be deposited there.

 

The Scottish Environmental Protection Agency (“SEPA”) served a notice requiring the company to complete remediation work.  The Joint Liquidators had monies in the estate of £634,000.  SEPA estimated the remediation costs to be between £2.3 and £3.7 million.  The notice was issued after the company entered liquidation.

 

The central question for determination was whether the remediation costs would be an expense of the liquidation, or a contingent debt.

 

Decision 

 

The expenditure incurred by the Liquidators when complying with the notice was an expense of the liquidation.  As such it outranked the unsecured creditors’ claims.

 

Lord Doherty, having reviewed the authorities, summarised his reasoning as follows:

 

“Viewing the nature of the liability imposed by the notice through the prism of the directive… I conclude that it must reasonably have been intended by the legislature that expenditure by a liquidator complying with a notice should be a litigation expense.  Otherwise it is very likely that polluters who become insolvent would frequently escape paying for the damage to the environment that their conduct has caused.’

 

Essentially, for this reason, the third limb of the test handed down by Lord Neuberger in Re Nortel Gmbh [2014] AC 209 was not met, namely, it was inconsistent with the regime under which liability was imposed to regard this liability as a debt pursuant to IR 13.12(1) (b).

 

The Court noted that until or unless SEPA had done the remediation work, no debt was owed to SEPA.  SEPA would not complete the remediation because there were no funds from which to recover all of the anticipated costs.

 

The difficulty for the Joint Liquidators in this case however is that there are insufficient monies in the estate to pay for all the required remediation.  The company’s funds would be exhausted. 

 

The Court anticipated that the Joint Liquidators and SEPA would discuss what remediation work might be possible with the available funds.  It was also suggested that the Court would look favourably on a further application from the Joint Liquidators, to ensure that they could be remunerated ahead of the remediation costs.  However, a further point appears to have been overlooked.   

 

How to make the polluter pay

 

Companies do not pollute anything.  The directors caused the company to breach the provisions of the Environmental Protection Act.  In doing this, they exposed the company to the liability of having to pay remediation costs that would otherwise not have been incurred.  This conduct is a clear breach of the directors’ duty to act in the best interests of the company.  The Joint Liquidators could issue proceedings against the directors pursuant to Section 212 Insolvency Act 1986.  If these resulted in a successful recovery, these funds could be used to pay for the remediation work.  This would ensure that the polluter really does pay.  It may also lead to a recovery for the unsecured creditors and ensure that the same directors are not considered fit and proper to be licensed to continue business in the next entity.

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