The Latest Moves Towards An EU Environmental Liability Regime - A White Paper Or A White Flag?

The European Union ("EU")¹ first started toying with the idea of adopting an EU-wide liability regime to cover damage caused to the environment back in the early 1980s (see Section A below). Since then it has researched, reviewed, considered and rejected numerous proposals on this topic without taking one single concrete step towards the adoption of any significant legislation. Despite this lacklustre history, the European Commission ("the Commission")² has recently launched a fresh initiative -perhaps more in hope than expectation. At her confirmation hearings in September 1999, the new Commissioner charged with environmental affairs, Margot Wallström, pledged to the European Parliament to complete work on a liability White Paper ³ .

True to her word the White Paper was published in February 2000. ⁴ This article examines the history leading up to the adoption of the White Paper, describes its principal proposals and comments on the likely course of events from here on in.

The issue of whether or not the EU should have a common liability system for environmental damage has been the subject of debate since the early 1980s. The EC's 1984 hazardous waste shipments Directive ⁵ , for example, called upon the Commission to present proposals covering liability for damage caused by waste. This it duly did, albeit with a conspicuous lack of success as regards adoption ⁶ . Experience in the USA with "Superfund" made EU legislators reluctant to move hastily or, indeed, in some instances, at all.

Despite this evident reticence on the part of Member States, a number of events, which took place during 1992 and 1993, convinced the Commission that it would be appropriate for it to try again. These events included:

• The inclusion of "Principle 13" in the 1992 Rio Declaration on Environmental Development which requires signatories, "… [to] develop national law regarding liability and compensation for the victims of pollution and environmental damage ".

• The request contained in the EU Council's ⁷ Resolution adopted on 25 January 1993 after the MV Braer accident and the subsequent oil spill off the coast of the Shetland Islands which called upon the Commission, "[to examine] the feasibility of developing a system of penalties and civil liability for pollution of the environment".

• The adoption on 8 March 1993 by the Council of Europe of a Convention on Civil Liability for Damage Resulting from Activities Dangerous to the Environment ("the Lugano Convention").⁸ The first step of the Commission's new initiative was the adoption, on 17 March 1993, of its Green Paper. The Commission's primary goal in launching this discussion document was to provoke debate and to elicit comments from all interested parties. The Green Paper itself identified what the Commission saw as being the important elements of a comprehensive liability regime and the most difficult problems that it felt needed to be resolved before such a regime could come into force. Those included, for example:

• what theory of liability should apply (i.e. should "polluters" be liable only where they can be shown to have been "at fault" or should they be held strictly liable regardless of any fault on their part?)?;

• to whom should the new liability regime apply (i.e. if the EC opted for a strict liability regime, should it apply across the board or only to "polluters" within specific industrial sectors?)?;

• should the regime adopted apply retrospectively (i.e. should any new liability regime apply only to polluting "events" which take place after the regime is fully implemented or also to contamination caused by events which occurred before the regime was established?)?;

• how should liability be apportioned between several potentially liable parties (i.e. in situations where several entities have contributed to the damage or injury at issue, how should liability be apportioned?)?; and

• to what extent should remedying damage caused by pollution be paid for out of a general fund (i.e. would not a global fund set up to compensate all those damaged by pollution serve as a more efficient alternative to an old style liability regime?)?.

The final version of the Green Paper, however, whilst providing a full diagnosis of the problems made little attempt to suggest any solutions. Earlier drafts went much further in indicating which way the Commission was minded to go. Most, however, if not all of these indications were removed prior to finalisation.

A period of consultation was followed in April 1994 by a Resolution adopted by the European Parliament that called upon the Commission to prepare and submit a legislative proposal for an EU Directive on civil liability in respect of prospective environmental damage. The European Parliament was driven, at the time, by frustration at the Commission’s delay in moving to the next stage. More delay, however, was soon to follow. Faced by scepticism at the EU Council level, the Commission decided to engage outside consultants to provide two studies: one to examine how civil liability regimes work in practice in the Member States; and the second to identify the economic effects of different liability regimes. These studies were completed in the summer of 1996 and, in January 1997, the Commission began preparing its White Paper. Since January 1997, two further, more specific studies. have been carried out, one dealing with liability for natural resource damage, the other with liability for contaminated sites.

A number of draft White Papers have been leaked. In particular, a draft dated April 1998 attracted heavy criticism from UNICE, the EU’s industry federation. While accepting the need for a strict liability regime, UNICE and other industry associations were extremely alarmed by the absence of acceptable statutory defences, in particular compliance with permit and the "state of the art" defence, and the scope of the proposed regime, which covered liability for natural resource damage. These and other comments were taken on board by the Commission before it published the final version of its White Paper earlier this year.

The White Paper is a more streamlined and "superficial" document than earlier versions. The reasons for this are political. Given the strong negative reactions from trade associations, industry and Member States to previous drafts, the White Paper attempts to present a more general and gradualist approach. Although based upon the same basic principles, the White Paper indicates that the Commission is now prepared to take a more relaxed approach. As one might expect the Commission is now facing criticism from the other side of the environmental debate, namely the environmental pressure groups, which have voiced concerns that the Commission is selling out.

Apart from this macro change of emphasis, the White Paper now excludes mention of a number of contentious issues including joint and several liability and special rules for damage caused by waste. The Commission has also relaxed it’s views on the issue of the burden of proof. In previous drafts, the Commission advocated a rebuttable presumption, in favour of the plaintiff that the activity, if covered by the regime, caused the damage. This presumption would have applied in the situation where the plaintiff could show that it was "plausible" that the defendant had caused the damage. In the latest draft, this commitment has been dropped in favour of a statement that the EU regime, "could also contain one or other forms of alleviation of the traditional burden of proof, to be more precisely defined at a later stage".

The White Paper also discusses the possibility of introducing a general principle of "fairness". The Commission now seems to take the view that national courts, or other enforcement bodies, should be given the discretion to reduce an award of damages to the extent that it would appear to be "fair" to do so (see also discussion Section B.8 below). The other key characteristics of the Commission’s White Paper are as follows:

For reasons based primarily upon legal certainty, the Commission has consistently been of the view that a future EU regime should only apply prospectively. In its view the issue of how to deal with environmental damage from the past, so-called "historic" pollution/damage, should be left to Member States.

The White Paper defines environmental liability in terms of an application of the polluter pays principle, one of the guiding dicta of EU environmental law. The Commission recognises that not all forms of environmental damage can be remedied through liability. For example, liability is not suitable for dealing with diffuse pollution issues such as climate change, ozone depletion and desertification. For liability to be effective, three elements have to exist:

• there needs to be one or more identifiable actors (i.e. polluters);

• the damage needs to be concrete and quantifiable; and

• the damage needs to be caused by the identified polluter(s).

Only when these three elements can be satisfied can liability attach.

One of the fundamental principles of EU law is that the EU may only act in areas in which it is so empowered under the founding treaties. Furthermore, where it does act, the Community can only act to the extent required bearing in mind the objective to be achieved. The nature and purpose of most civil liability regimes is to protect human health and property. For example, in the United Kingdom the law of tort in both England/Wales and Scotland has developed within the context of "nuisance", and the duty on persons not to use their own property in such a way as to cause foreseeable damage to neighbours or neighbouring property. The White Paper refers to environmental damage to health or property as "traditional damage". In contrast to "traditional damage", the White Paper identifies two other types of damage, which it classifies as "environmental damage":

• damage to natural resources (biodiversity); and

• damage in the form of land contamination.

The Commission notes that, whereas most Member States already have national provisions covering liability for "clean-up" of contaminated land, most have no provisions addressing liability for damage to natural resources. Following the principles defining the extent of the EU’s legislative competence, and in particular the principle of "subsidiarity", the White Paper recognises that liability for "traditional damage" should be a matter best left to the Member States. Nevertheless, the enforcement of EU environmental legislation is a legitimate concern of the EU and the White Paper proposes that for activities dangerous to the environment, which are covered by EU legislation ⁹ , common EU liability rules are desirable. Equally for "environmental damage", the White Paper limits the scope of the proposed regime to protecting biodiversity that is covered by EU legislation, namely the areas protected pursuant to the Wild Birds Directive ¹⁰ and the Habitats Directive ¹¹ . Together these two Directives are designed to cover a network of protected areas. That network is called Natura 2000. Once the Natura 2000 network. is fully established the Commission estimates that it will cover around 10% of EU territory.

The White Paper provides that the person who exercises control (i.e. the operator) of an activity covered within the scope of the regime should be the liable party if that activity causes damage. Liability would rest with the company in its legal form. The Commission takes the view that the risk of companies divesting potential liabilities to orphan entities is a risk that Member States should deal with individually. The Commission does not envisage making managers or directors or employees of companies responsible as operators. Neither does the Commission envisage lenders, not exercising operational control, being held liable.

Following the approach adopted in recent national and international environmental liability regimes, the Commission favours a strict, rather than fault-based, liability regime. The two influencing factors as expressed in the White Paper for taking this approach are: (i) the difficulty plaintiffs would have in establishing the fault of the defendant; and (ii) a preference to have the risk of liability for inherently hazardous activities borne by the person undertaking that activity, rather than the victim or society at large.

In environmental liability scenarios, it is often the issue of "causation" that presents plaintiffs with the greatest obstacle to recovery. For this reason many liability regimes alleviate the burden on the plaintiff by reversing the burden of proof on to the defendant to show that his act or omission did not cause the damage. Frequently this means that the burden shifts on to the defendant once the plaintiff has produced prima facie evidence of causation. The Commission recognises this characteristic but does not set out a definitive position on what might be included in any future EU regime. Instead, the Commission avoids the issue by saying that one or other form of alleviation should be preferred but that the detail should be defined at a later stage.

The effectiveness of a strict liability regime will depend, to a large the extent, on the scope of the statutory defences available to the defendant. Using existing Member States’ liability regimes as a frame of reference, the White Paper advocates a very limited list of three defences:

• Act of God (force majeure);

• contribution to the damage or consent by the plaintiff; and

• intervention of a third party.

Although liability and the applicable defences have been narrowly defined, the Commission has still felt it necessary to suggest the introduction of a general principle of "fairness". The Commission believes that national courts should be given discretion to reduce the level of compensation that defendants will have to pay in certain circumstances. For example, in cases where defendants can prove that the damage was "entirely and exclusively" caused by emissions specifically authorised or otherwise envisaged by the relevant operating authorisation. In such cases, according to the White Paper, it would be appropriate for a court to apportion the compensation payment (i.e. the restoration costs) between the defendant and the licencing authority. The Commission also talks about other mitigating factors that the courts could take into account. For example, cases where the defendant had done everything possible to avoid the damage.

For "traditional damage", most Member States have already developed principles on quantification of damage and liability thresholds. The Commission envisages that Member States and their courts should be able to apply these principles to "environmental damage". Most Member States have no liability rules for damage to bio-diversity. The Commission proposes that damage should only be actionable where it is "significant" and that, where "restoration" is either not cost-efficient or otherwise not sensible, the defendant should pay compensation equal to the loss of the particular habitat/species damaged. That money should then be spent, on the direction of competent national authorities, on comparable projects for the restoration and improvement of protected natural resources. The Commission suggests developing economic valuation methodologies to establish quantum values reflecting the loss of a particular habitat, species or plant. It makes an analogy to the rules Member States already apply in personal injury cases. For example, designing common guidelines similar to the guidelines most countries have for quantifying the loss of limbs or other parts of the body.

The EU Product Liability Directive is designed to protect consumers and covers damage to persons and property. It does not cover damage to the environment. Nevertheless, there may, according to the Commission, be a risk of overlap between the provisions of this Directive and an eventual Environmental Liability Directive. For example, if a person suffers loss as a result of the use or disposal of dangerous substances. The Commission takes the view that where there is an overlap the product liability provisions should apply in preference to the environmental liability provisions.

In the White Paper, the Commission takes the view that, since the protection of the environment is in the public interest, the State (i.e. national governments) has primary responsibility for acting in cases where the environment is damaged or threatened. This is in contrast to the responsibility for pursuing "traditional damage", where the primary responsibility rests with the person or the owner of the property damaged. Where "environmental damage" is concerned, the White Paper recognises the failings, historically, of governments adequately to protect the environment, often through a shortage of public funds and resources and political complications. For this reason, the Commission advocates what it refers to as a "two-tier approach", whereby public interest groups or individuals should get a right to act on a substitution basis if the State does not act or does not act properly. This approach should enable public interest groups and individuals to avail themselves of administrative and judicial review procedures against the State and direct claims against the polluter.

On the issue of locus standi (i.e. a plaintiff’s right to bring a court action), the Commission considers that only those interest groups that meet objective qualitative criteria should be able to take action against the State or the polluter. However, the Commission gives no insight into how these criteria should be developed, presumably because this is an issue that the Commission believes is best left to Member States themselves. In urgent cases, the White Paper states that interest groups should have the right to ask the courts for an injunction to force a polluter to act or abstain from action, in order to prevent significant damage or further damage to the environment. This right to petition the courts to grant an injunction should not be conditional upon a failure of the State to act and should allow the interest groups the possibility of recovering the costs involved in making the application.

In the White Paper the Commission discusses whether a future EU regime should impose an obligation on companies to have some sort of financial security in place to cover potential liabilities under the new regime. The problem, according to the Commission, will be whether insurance companies and banks have the necessary experience to be able to quantify the risk they might be asked to carry. The Commission notes that, at present, insurance products directed at environmental damage risks are still relatively underdeveloped. Limiting the scope of the regime, in the way envisaged (see Section B.3 above), and capping the degree of liability might help to resolve this problem, but the insurance sector is still likely to be hesitant. In Germany, the environmental liability laws impose a financial security obligation and, as a result, the implementation of the laws has run into difficulties. The Commission favours leaving it to the market to develop its own financial security mechanisms without the imposition of such an obligation.

The Member States, sitting in EU Council session, discussed the Green Paper (the White Paper’s predecessor) on only one occasion, 2-3 December 1993. At that meeting, the positions of the Member States on the concept of EU-wide harmonization of environmental liability rules were made clear. Three different attitudes emerged (N.B. at that time Austria, Sweden and Finland were not yet members):

• Belgium, Denmark, Greece, Italy, Luxembourg, Portugal and Spain: were of the opinion that a case for EU legislation based on a concept of strict liability, had been made.

• Germany, Ireland, the Netherlands and the United Kingdom: believed that some kind of EU legislation setting out broad principles might be appropriate so long as the details were left to each Member State to determine independently.

• France: stated its implacable opposition to any form of EU interference.

The sharp division of attitude on the part of the Member States at that stage is an indication of the difficulties that now face the Commission and the European Parliament, a big supporter of this initiative, as they take the next step towards adoption of legislation. No doubt, in the interim, the position of some Member States will have shifted. Much will depend upon the specifics of the Commission's proposals. Member State governments, however, have been, and continue to be, reluctant to agree to a consolidated and harmonized Euro-approach to this issue. The reasons for this reluctance are basically three-fold:

• Need: Most governments are still not convinced that a pan-European system is necessary. They believe that their own systems cope perfectly well and that those systems do not create any measurable barriers to trade or real economic distortions within the European single market.

• Intrusiveness: Most governments are concerned that a pan-European system would require them to make changes to their systems of civil justice. Given that they do not see a real need in any event, this kind of reform appears to many of them to be excessive and unwarranted.

• US "Superfund": Some governments are anxious to avoid replicating the US "Superfund" experience within Europe. They fear that any proposed pan-European system would almost certainly contain some parallels.

To combat this reluctance the Commission could decide to go down a "framework only" route. If it did, then it appears, based on the statements made at the EU Council meeting in December 1993, that the requisite majority of Member States would be prepared to support adoption. The danger in this course of action, however, is that the scheme eventually adopted will be devoid of any real significance. Given the scope suggested in the White Paper, the only major reform of national liability regimes will concern liability for damage caused to natural resources. However, given that these provisions will apply only to areas protected under the Natura 2000 network, in which economic development is heavily restricted, then the added value of such a regime may not make it worth the effort of adoption. From the heady days of the waste liability proposal, the Commission has been forced, little by little, to rein back its ambitions for a pan-European liability regime. Right or wrong, what the Commission now has in mind is timid in the extreme – more a white flag than a White Paper. It is quite possible that, ultimately, the Member States might accept the Commission’s terms of surrender and adopt nothing at all. Before it does so, however, there will be a considerable amount of debate. Following the adoption and publication of the White Paper, a further consultation process is now taking place with industry, environmental groups and other interested parties. This should last for about five to six months, after which the Commission will, almost certainly, adopt a proposal for an EU Directive. That proposal will then have to be presented to the European Parliament and the EU Council and, only then will the real adoption process begin. Both the European Parliament and the EU Council will have to agree on the final text of the Directive in accordance with the so-called "co-decision procedure". Given the intricacies of the adoption procedure, legislation is unlikely to be adopted before the year 2003. More likely still, however, is rejection through inaction.

1 The European Union -- originally the European Economic Community -- was formed in 1957 through the signing of the Treaty of Rome. Currently, there are fifteen Member States: Austria; Belgium; Denmark; Finland, France; Germany; Greece; Ireland; Italy; Luxembourg; the Netherlands; Portugal; Spain; Sweden and the United Kingdom.

2 The "European Commission" is the EU’s equivalent of a full-time civil service. Its primary function is the formulation of EU policy. Its task in this regard includes the drafting and proposing of legislation. The European Commission is also the "guardian of the EU Treaty". In that capacity it is required to ensure that the principles and rules of the EU Treaty are properly applied, not only within the Member States, but also within the EU’s institutions themselves.

3 A White Paper is a discussion document that acts as a forerunner to the publication and adoption of EU legislation.

4 "Communication from the Commission – White Paper on Environmental Liability" COM DOC (00) 66 final, 9 February 2000.

5 Since replaced by Council Regulation (EEC) No. 259/93 on the supervision and control of shipments of waste within, into and out of the European Community, OJ L30, 6.2.93.

6 In 1989 the Commission presented a proposal for a Council Directive on civil liability for damage caused by waste, OJ C251, 4.10.89, amended proposal, OJ C192, 23.7.91. From the date of its publication, it was discussed by the EU Council on only one occasion and then only cursorily. It has never been officially withdrawn but it is safe to say that it will never be adopted.

7 The EU Council is the principal decision-taking body of the EU – it is, in effect, its legislature. The EU Council is made up of one representative from each of the 15 Member States of the EU. That representative is invariably a government minister.

8 The Council of Europe’s Convention on Civil Liability for Damage Resulting from Activities Dangerous to the Environment was adopted on 8 March 1993 and opened for signing on 21 June 1993. It is significant because it represents the only completed pan-European text that attempts to address, in a comprehensive way, liability issues arising out of pollution. It is important to remember, however, that this is not an EU text. The Council of Europe is a loose political agglomeration of twenty-seven European countries (hereinafter referred to as "Participants") including Member States of the EU and the European Free Trade Association and several East European countries. The Convention has no binding effect on those Participants that do not ratify its provisions.

9 This includes the following categories of EU legislation: legislation which contains discharge or emission limits for hazardous substances into air or water; legislation dealing with dangerous substances and preparations with a view to inter alia protecting the environment; legislation with the objective to prevent and control risks of accidents and pollution, handling, treatment, recovery, recycling, reduction, storage, transport, trans-frontier shipment and disposal of hazardous and other waste; legislation in the field of biotechnology; and legislation in the field of transport of dangerous substances.

10 Council Directive 79/409/EEC on the conservation of wild birds, OJ L319, 7.11.81 (as amended).

11 Council Directive 92/43/EEC on the conservation of natural habitats of wild fauna and flora, OJ L206, 22.7.92 (as amended).