Framework Directive on Environmental Liability - European Commission Finally Adopts Proposal

Introduction

On January 23, 2002, following a decade or more of discussion and debate, the European Commission finally adopted a formal proposal for a Directive on Environmental Liability. The Commission is formally to present the proposal to Environment Ministers at the Environment Council on March 4, 2002.

The proposal will then be steered through the complex EU legislative mechanisms, involving now quite substantial interplay between the Commission, the Parliament and the Council. Final approval is by no means assured - whether to the measure in its current form or in some modified form.

What is certain is that over the next two to three years both the 'business' and the 'environmental protection' implications of the measure will be examined from many angles - and that there will be much lobbying for changes: lobbying directed to the Parliament, to national Environment (and Industry) Ministries - which input to the EU Council, and to the Commission itself.

At such time as the proposal may eventually become adopted as a Directive there will follow a period of some two years during which Member States will be required to make such changes as are necessary to their laws and administrative practices in order to comply with its requirements.

The main thrust of the proposal is that certain defined categories of operators, whose activities present particular risks to the environment, should bear strict liability as regards being required to take action to prevent or to restore environmental damage. But the proposals will not only affect such operators: they will also apply more widely, to cover all categories of operation in so far as the harm threatened or harm done fall within the concept of 'biodiversity damage', provided in the case of operators not falling within the strict liability provisions, that the biodiversity damage was a consequence of some fault of negligence.

In short, the significance of the measure is its potential to require Member States' laws to be extended in two particular directions: in terms (i) of the scope of strict liability in relation to 'environmental damage', and (ii) in terms of the degree of protection afforded under liability rules to a relatively new kind of protected interest: biodiversity.

As we shall see, any assessment of the net impact of the proposals depends not just on a detailed understanding of the draft Directive: it requires also an appreciation of how far, within each Member State, existing liability rules may already satisfy the draft Directive's requirements. Some care must be taken not to assume that all that is contained in these proposals will require legislative change.

This Bulletin seeks to describe the Commission's proposals in moderate detail: and to make a preliminary assessment of the draft Directive's likely impact on environmental liability rules in the United Kingdom

Business impact

The proposal is stated not to require the imposition of liabilities with retrospective effect. It relates prospectively only: to liabilities arising from harm done by activities which will have occurred after the proposed Directive has come into effect - a date not likely to be earlier than 2007.

Nevertheless, businesses should even now look carefully at the scope of the proposals described below - and should monitor and become engaged in the discussion and debate which will ensue. The proposal is, as drafted, a severe disappointment both to industry groups and to the environmental lobby. Each, it is clear, will push hard for changes.

In terms of the impact of the proposal it is important to note that the proposal is a more a framework 'minimum requirements' measure than a 'harmonisation' measure. The proposal does not seek to establish a detailed template to which each Member State's laws must become precisely aligned - neither more strict nor more liberal.

The proposal expressly provides that 'the Directive shall not prevent Member States from maintaining or adopting more stringent provisions in relation to prevention and restoration of environmental damage'. Such more stringent rules may include, according to the express terms of the proposal, a focus on additional activities than those targeted by the proposal itself (ie. the categories of operations within Annex I can be enlarged - see further below); or the identification of additional responsible parties to those upon whom the proposal itself focuses liabilities. So for example, the imposition of liabilities on 'owners' and/or 'occupiers' in contexts where actual polluters cannot be found, or simply cannot fund necessary preventive or restorative action, seems clearly to be permitted: a matter of some significance to the United Kingdom, given the owner/occupier contingent liabilities provided for within the contaminated land liability regime - Part IIA, Environmental Protection Act 1990).

The development of a broad-based environmental liability Directive has been on the Commission's working agenda ever since 1991 when, in face of much opposition, it agreed not to progress further its plans for a 'strict' civil liability regime tailored to harm caused by waste.

This climb-down was expressly stated to be temporary: the Commission promising to bring forward proposals for a more broad-based civil liability regime, not tied only to harm caused by waste.

In 1993 the Commission issued a hastily prepared 'Green' paper indicating in general terms its thinking as regards the possible shape of such a broad-based regime of strict civil liability for 'environmental damage': a concept defined within the Green paper in a quite limited sense - as relating to the kinds of harm ordinarily compensable within national legal systems (ie personal injury, illness, property damage) but in situations where that harm has been caused by pollution.

Consultation on the Green paper produced reaction not characterised by strong support. Some doubted the very need for such a measure at EU level (citing the principle of 'subsidiarity' and calling in question any 'level playing field' need for harmonisation of such civil liability laws); some felt the measures would impact unduly severely on business, whilst others thought the proposed measures were too modest, not covering 'environmental damage per se' and not therefore giving sufficiently full effect to the 'polluter pays principle'.

A further objection - and one which appears to have had some influence with the Commission - was that the case for establishing a strict liability regime (in relation to traditionally compensable kinds of damage when caused by 'pollution'), within the ambit of civil liability regimes more generally founded on notions of fault-based liability, had not been adequately made. What, it was asked was so special about harm caused by 'pollution, so as to justify such very substantial differentiation between the treatment of claimants harmed in this way as compared with those harmed, for example, by more traditional accidents (where proof of fault is generally required) .

In the face of such a spectrum of opposition the Commission took comfort in commissioning several research studies, before coming forward in spring 2000 with a 'White' paper which reflected something of a move away from the earlier focus on civil liability, and towards Member State responsibility for ensuring, principally through the operation of public law systems of administrative direction and administrative cost recoupment, that those who threaten or cause environmental damage should bear the burden of preventing or repairing that damage.

Subsequently this shift from notions of civil liability to an emphasis on effective systems of administrative direction and/or administrative cost recovery (in situations where cleanup has been effected at public cost) was taken a step further in July 2001 when the Environment Directorate issued for consultation a brief Working Paper.

Indeed this Working Paper 'squared the circle' almost entirely. Whereas some had objected to the especially favoured treatment bestowed by the 1993 Green Paper upon those who had suffered illness or personal injury by 'environmental' means as compared with those who might have suffered such harm by other means the Working Paper of 2001 indicated that the Commission was minded to come forward with a proposal which would serve to maintain the internal rational coherence of systems of civil liability within Member States, by excluding entirely such 'environmental' personal injury-illness civil liability claims from it provisions.

The ' Civil liability' misnomer

This brief history is of some practical significance: it explains a degree of linguistic confusion which we can be confident will produce much misunderstanding in the months (and years) to come as the draft Directive is discussed within the EU's legislative mechanisms. The original proposals on waste (1989, revised in 1991) and the Green Paper of 1993 were each quite properly described as proposals for harmonisation of Member States' rules on civil liability for 'environmental damage' (albeit defined in the quite limited way described above). Notwithstanding that the Commission's proposals have now moved far away from civil liability for environmental damage, that label - 'civil liability for environmental damage' - remains engrafted within people's minds, with continuing power to mislead.

No Retrospective Effect - Burden of Proof

As indicated earlier the liabilities set out within the proposals are not intended to operate retrospectively.

The proposal states that 'the Directive shall not apply to damage caused by activities that have been carried out before' the date upon which Member States will be required to have implemented the Directive: a date which, remember, is unlikely to be significantly before 2007.

The meaning of this general provision is elaborated in two particular contexts. It is stated that the proposed Directive will be inapplicable in relation to environmental damage done (i) by waste disposed of lawfully before that implementation date, or (ii) caused by substances released into the environment by installations before that date.

There may, of course, be situations where there may exist some evidential uncertainty as regards the time when the activities causing particular damage actually occurred. In this connection the issue of burden of proof will be of some practical significance. The principle stated in the Commission's proposal is that where the competent authority can establish 'with sufficient plausibility and probability' (ie something less than legal 'proof') that the activity causing the damage occurred after the Directive's commencement date, the Directive shall apply unless this can be satisfactorily disproved by the operator.

This may seem to undermine a little the headline 'guarantee' that the measure will not apply retrospectively. The position will, in fact, be that the Directive will apply to harm which can plausibly be argued to have been caused by activities after the commencement in any case where the defendant cannot then prove that the activities in question actually occurred earlier. This evidential principle reflects the likely imbalance of knowledge, as between competent public authorities and operators, as regards the dates of past actions and activities of those operators.

There is however, within the proposal, a mechanism by which operators may seek to escape this shifting of the evidential burden. If within one year of the commencement of the Directive's liability provisions the operator lodges with the competent public authority an environmental impact statement of 'reliable quality and veracity' evidencing 'environmental damage which may have been caused by its activities', the shift in the evidential burden will not apply.

This mechanism, by which operators will be encouraged to 'come clean' about the environmental harm they may have caused through their activities prior to commencement, will no doubt give rise to some significant tactical questions for operators. An important question in each case will be to ask how far the information provided may serve as an admission of liability in relation to national liability rules in place prior to commencement of the Directive's 'minimum' requirements. Remember: although the minimum requirements of Directive are not required to be implemented so as to apply retrospectively, the Directive will operate alongside any more onerous liability rules as may exist (before and after commencement) within Member States. For this reason operators may need to take care as regards what they seek to demonstrate in order to seek to avoid liabilities under the Directive: those admissions may serve only to trigger liabilities under national liability rules already in place.

The Main Liability Provisions

Under the proposals Member States legal systems will be required as a minimum:

• to require that companies whose environmentally risky operations bring them within the categories of activities listed in Annex I to the Directive shall bear the costs (either through their own actions or through reimbursement of public sector costs) of taking action to prevent or to clean up such 'environmental damage' as they may imminently threaten or which they may have caused. This obligation will exist regardless of fault being demonstrable on the part of the company in question. There shall be required within each Member State in this context a regime of strict liability as regards: (i)administrative direction to prevent or remediate environmental harm, and (ii) where such preventive or remedial action has been taken by a public authority, reimbursement of the costs so incurred by that body.
• to require that companies generally (ie not just those within Annex I) shall bear (directly, or via administrative cost recoupment) the costs of protecting or repairing certain sites in relation to 'biodiversity damage'. The Commission regards this requirement as likely to require an important step forward in the scope of public law liability regimes within most Member States. 'Biodiversity damage' is regarded by the Commission as a form of damage in respect of which, within Member States, liability rules (civil or administrative) have not developed in any substantial way. The proposed liabilities in relation to actual or threatened biodiversity damage are broad-based in terms of potential businesses affected (not, as indicated above, being limited to businesses falling within Annex I). However, a significant limiting factor as regards this field of proposed liability is that, unlike the strict liability attaching to environmental damage done by Annex I activities, the liability of non-Annex I companies for causing biodiversity harm will apply only where the threatened or actual biodiversity damage is a consequence of some fault or negligence on the part of the company causing the risk, or the harm, in question.

The ambit of Annex I is clearly of importance. It comprises some 14 paragraphs, each describing categories of activity by reference to particular schemes of control or regulation within existing EU environmental law Directives. So, for example, the coverage of the Annex extends to such matters as the operation of installations subject to permit in pursuance of Council Directive 96/61 EC concerning integrated pollution prevention and control; the operation of installations subject to authorisation in pursuance of Council Directive 84/360 EEC on the combating of air pollution from industrial plants; and the operation of installations subject to permit in pursuance of Council Directive 76/464 on pollution caused by certain dangerous substances discharged into the aquatic environment. It will be evident that the list is long and complex: businesses should make an early assessment as regards how far their activities may be covered.

The mechanism proposed for the enforcement of the liabilities set out in the two bullet-points above is by way of the imposition of broad duties on the competent public authorities of Member States either to require liable operators to take necessary preventive or restorative action, or for the competent authorities to take such preventive or restorative action themselves and then to recover those costs from the liable operator. In the latter situation the costs which should be recouped should include within their sum the costs of assessing the damage (prior to having taken action to restore), and also - as the case may be - the cost of assessing the imminence of a threat of environmental damage.

The focus on the obligations of Member States is demonstrated further by a provision that in any situation where there is actual or imminently threatened environmental damage and (i) the operator responsible cannot be identified, or (ii) can be identified but cannot pay for all the necessary preventive or restorative measures, the Member State will be required to ensure nevertheless that the environmental damage is, as applicable to the particular case, prevented or restored.

Note, however, that although Member States may not allow such risk, or harm, to remain unattended to it will be quite permissible for such burdens not ultimately to rest upon the State. It will be quite permissible, for example, for the United Kingdom to continue its present approach to contaminated land remediation: so that in cases where the actual polluter cannot be found the liability to remediate should fall not upon the State but upon present 'owners' and 'occupiers' of the site.

Meaning of 'environmental damage' and 'biodiversity damage'?

These two concepts are critical to the scope of the obligations set out within the proposed Directive. The two concepts are not entirely separate. Rather, the latter is a subspecies of the former. It is a component of 'environmental damage' (so that Annex I operators will bear strict liability as regards 'biodiversity damage'), but it also has a significance of its own - in terms of the fault-based liability for 'biodiversity damage' which is to be imposed on operators more generally.

Under the proposal 'environmental damage' may come in any of three guises:

(i) biodiversity damage

This comprises any damage which seriously and adversely affects the conservation status of natural habitats or species which are (i) listed within Annex 1 to the Wild Birds Directive (1979) or Annexes I, II or IV to the Habitats Directive (1992), or (ii) which are not covered by those EU nature conservation measures but which are covered by designation within the conservation legislation of the Member State. The notion of 'conservation status' cannot, at least at present, be regarded as being defined with any real clarity within the proposal - but does appear to limit 'biodiversity damage' to damage which affects the habitat or species in the 'long-term'.

(ii) harm to water: this comprises damage which adversely affects the ecological status, ecological potential and/or chemical status of water so as to make likely a deterioration of quality from one Water Framework Directive category to another;

(iii) harm to land in the form of soil or sub-soil contamination which creates serious potential or actual harm to public health

Current public law remediation/reimbursement obligations under English Law

In considering the practical impact of the proposed regimes of liability for environmental damage it is important to bear in mind the quite broad administrative liability, and administrative cost recoupment provisions, which already exist within England and Wales (and Scotland) as regards harm to water and harm to land. Of particular significance are the provisions of the Water Resources Act 1991 s 161A-D (under which those who pollute or threaten to pollute 'controlled water' may be required to bear the cost of preventive or restorative action); and the provisions of Part IIA of the Environmental Protection Act 1990 in relation to obligations to remediate, or reimburse public sector costs in relation to the remediation of, contaminated land.

It seems likely therefore that for the United Kingdom the most significant changes to be brought about by the proposed Directive will be in relation to the to the restoration of 'biodiversity damage'. And here much will depend on the meaning that will attach to the concept of 'restoration' in the particular context of biodiversity damage. Some guidance is afforded on this matter by Annex II to the Commission's proposal: albeit that the drafting of this Annex leaves a good deal to be desired as regards clarity of meaning.

Some substantial debate is likely to ensue as regards liability under the proposals for damage done by GMOs. The position would appear to be that (given that Annex I includes operations governed by the EU Directives on the contained use and the deliberate release of GMOs) 'environmental damage' caused by such operators may well become subject to strict liability. The more substantial question will be whether the harm alleged, or harm threatened, in particular cases is such as to fall within the concept of 'environmental damage'? Will it be damage to biodiversity in the context of an EU or nationally protected species or site? Will it comprise harm to water quality? Will it involve harm to land, creating a serious risk of harm to health? In most cases the answer is likely to be 'no'. The more standard claims will likely be in relation to (i) damage to the 'organic' status of the claimant's business, or (ii) damage to biodiversity within a non-protected area or in relation to harm to non-protected species. Such claims do not appear to be assisted by the Commissions proposals. There are sure to be complaints that the Commission has welched on its promise some months back that 'liabilities in respect of GMOs' will be covered.

Causality

The proposal seeks to give reassurance to industry that for the liability provisions to apply there will need to be a clear link between the environmental/biodiversity harm in question and the particular activities of a particular operator.

Industry's worries about 'assumed guilt by association' are specifically addressed. The proposal makes clear that its provisions will not apply to situations where environmental damage (or an imminent threat of environmental damage) has been 'caused by pollution of a widespread, diffuse character, where it is impossible to establish a causal link between the damage and the activities of individual operators'.

These provisions are significant, given that much of the difficulty to date in claimants succeeding in environmental damage cases seems not - as one might have suspected from the discussion so far - been a consequence of the absence within English law of strict (as compared to fault-based) civil liability. Indeed under English law, since the Cambridge Water Company decision in 1993, we do have a broadly-operating system of strict civil liability for harm caused by the escape of substances stored for industrial purposes. The more substantial difficulty which has faced claimants has in fact been to successfully 'pin' liability upon defendants whom they cannot prove (even on a balance of probabilities) to have caused the harm which they have suffered: remember farmer Graham's failure to have persuaded the court as regards his beliefs as to the cause of illness to his cattle (Graham v ReChem); and the similar evidential inadequacy of the case presented in Reay v British Nuclear Fuels Limited.

The Commission's proposal would appear to leave it open to Member States to decide to what extent each may wish to develop special burden of proof/evidential burden rules in order to deal with this apparent difficulty facing claimants. And the decision taken by a Member State is likely to be, as much as anything else, a reflection of its own rules on (i) the degree of proof required for success in a civil claim (the argument for special rules on burden of proof to assist claimants is stronger where, for success, proof is required beyond a mere 'balance of probabilities'), and (ii) on compulsory disclosure by defendants of evidence relevant to the claimant's case. In the context of our own system of (i) civil proof on a mere balance of probability, and (ii) compulsory document disclosure, there would seem to be no head of steam developing for substantial change in the context of environmental claims.

Multiple causation

In cases where, however, it can be shown that the harm in question was caused by the combined activities of each of several operators the proposed Directive will be applicable - but some substantial discretion will be permitted Member States as regards the approach to be adopted to such multiple liability.

The proposal states that where the competent public authority is able to establish with 'a sufficient degree of plausibility and probability' that the same damage has been caused by the actions or omissions of several operators Member States are permitted to choose between two options. They may either provide that the relevant operators are to be held jointly or severally liable for that damage; or they may provide that the competent authority should apportion the share of costs to be borne by each operator on a 'fair and reasonable' basis.

Note, however, that there are also, within the proposed Directive, quite significant provisions in this context about the burden of proof.. The Member State will only be permitted those options in a situation where no operator is able to establish with particularity the extent to which the damage results from its own activities. In such a case, and note the burden of proof on the operator, the operator will only be obliged to bear the costs related to that particular damage.

Exclusions, Exemptions and Defences

Exclusions

The Commission has taken care to create some 'clear water' between its own environmental liability proposals and those which operate within particular sectors of business activity under established international agreements.

So, for example, in the context of oil pollution the proposed Directive makes clear that it shall not apply in relation to actual or imminently threatened environmental damage which arises from an incident where liability is regulated by the Convention on Civil Liability for Oil Pollution Damage 1992 and the associated Compensation Fund Convention; the Civil Liability for Bunker Fuel Convention 2001; the Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea 1996 and the Convention on Civil Liability for Damage cause by Carriage of Dangerous Goods by Road, Rail and Inland Navigation Vessels).

In the nuclear context the proposed Directive shall not apply to damage or risks from nuclear activities covered by the treaty establishing the Atomic Energy European Community; and nor will it apply to any incident or accident in respect of which liability or compensation is governed by the Paris Convention 1960, the Vienna Conventions of 1963 and 1997, the Joint Protocol of 1988 relating to the application of the Paris and Vienna Conventions, the Brussels Convention 1971 or the Convention on Supplementary Compensation of 1997.

Lest it might be argued that the Directive's public law obligations might suffice to found, by implication, private law claims akin to the tort of breach of statutory duty (or 'statutory negligence') the proposal states that nothing in the proposal is intended to give to any private individual a right to compensation for any economic losses he or she may have incurred arising out of environmental damage or threatened environmental damage.Such claims are not, of course, prohibited by the proposed Directive. It is a matter for the discretion of each Member State whether such claims should be a part of its civil liability laws (although quite typically, purely economic losses arising out of damage to assets belonging to others is not recoverable under such systems - eg hoteliers' business losses following a nearby incident of pollution).

More generally, and quite unsurprisingly, the proposals will not apply to 'activities the sole purpose of which is to serve national defence'.

Exemptions and defences

More generally the proposals will not apply to environmental damage or imminent threats of such damage where the damage is caused by:

• (i) acts of armed conflict and similar;
• (ii) natural phenomenon of exceptional, inevitable and irresistible character (provided the operator has not been negligent)
• (iii) acts done with intent to cause damage by a third party notwithstanding there having been put in place appropriate safety measures;
• (iv) acting in compliance with a compulsory order from a public authority

In relation to strict liability (but not so as to protect operators guilty of negligence) certain further defences are provided for within the proposals. These would include, most significantly:

• (i) harm resulting from emissions which have been authorised;
• (ii) harm resulting from activities and emissions which are believed to be safe for the environment according to the state of scientific and technical knowledge at the time the activities in question occurred.

These two exclusions/defences crept into the Commission's proposals at a quite late stage in its deliberations. They are generally thought not to have been part of the package designed within the Environment Directorate, but to have been included as the 'price' that Directorate has had to pay to have the proposal adopted collectively by the college of Commissioners. They are matters upon which we may expect to see a good deal of impassioned discussion within, for example, the European Parliament and its several committees.

Insolvency practitioners will be relieved to see the following provision in the proposal: an insolvency practitioner shall not incur personal liability for activities of the insolvent company during the insolvency provided that the insolvency practitioner has acted in accordance with relevant national provisions governing the insolvency and is not otherwise at fault or negligent.

Role of individuals and NGOs within the liability framework

Over the past decade there has been much debate about the position of adversely affected individuals and NGOs within any proposed scheme of environmental liability. Under the present proposals such persons are excluded from directly seeking to render operators 'liable': rather they are to be afforded rights (i) to require that competent authorities give proper consideration to alleged instances of risk or harm in circumstances where they may be under a duty to take action, and ((ii) to seek judicial review where there appears to be substantive or procedural legal error on the part of competent authorities in the discharge of their duties.

More specifically, the proposed Directive states that public interest groups (such as NGOs) and persons adversely affected by damage (or likely to be adversely affected by environmental damage) will be entitled to submit to the competent authority 'observations' relating to instances of environmental damage within their knowledge, and shall be entitled to 'request' the competent authority to take action.

The competent authority will be entitled to require that the request for action be accompanied by 'all relevant information and data supporting the observations submitted'. It is not immediately clear whether 'all relevant' means 'all relevant and (readily) available' information: or whether this provision will require what may be quite substantial burdens of prior investigation on the part of the individual or the NGO.

Where the request and accompanying information shows that environmental damage or the threat of such damage is 'sufficiently plausible' the request for action will have to be formally considered by the competent authority. This consideration will involve some further opportunity being afforded to the referring individual/NGO to let its views be known; and shall conclude, within a reasonable time frame, with a reasoned decision from the competent authority about the steps or measures (if any) which it proposes to take in fulfilment of the Directive.

The proposed Directive then requires that the affected individual or NGO, which has requested action, shall have access to a procedure involving judicial review of the procedural and 'substantial' (sic) legality of the decisions, acts or failures to act on the part of the competent authority.

Financial security

The proposal does not require compulsory insurance or other financial security. It does, however, require Member States to 'encourage' the use by operators of 'any appropriate insurance' or 'other form of financial security'. There shall also be 'encouraged' the 'development of appropriate insurance or other financial security instruments and markets'. The language in which these requirements are couched clearly leaves much discretion to individual Member States. Their significance lies perhaps in the reporting requirements of the proposed Directive, under which each Member State will be required to send to the Commission information about its actions in relation to the Articles of the Directive, including the ways in which it may claim to have honoured these particular exhortations.

Conclusion

The coming months, and even years, are likely to see strong arguments - in both directions - for modification of a number of aspects of the proposed minimum environmental liability 'benchmarks' with which the Commission wishes Members States' environmental liability laws and administrative practices to comply as from c.2007.

Businesses will be well advised -

• to take stock immediately of those aspects of the proposals which will require significant changes within the United Kingdom and to lobby for change if these seem unacceptable, and
• to monitor closely the deliberations of the European Parliament, the Council and the Commission, as aspects of the proposals either become more firmly rooted or become the target of proposed amendments.Here, as elsewhere, quite slight changes to the wording of the proposals may very well have quite substantial business implications.

These are clearly matters to which future Bulletins will need to return.

© Herbert Smith 2002

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