The Finnish Supreme Court has ruled on environmental liability in four different cases after the Act on Compensation for Environmental Damage (1994/737) (the "Act") came into effect in 1995. Three of the cases concerned construction works. The latest ruling of the Supreme Court is from the beginning of 2012, case KKO 2012:29, in which the Court held the contractor solely liable for the environmental damage caused by its activities. The Supreme Court also gave a similar ruling in 1999 (KKO 1999:124), again holding the contractor solely liable for the environmental damage. Nevertheless, the question of allocation of the liability regarding environmental damages remains unclear because the Supreme Court has also held the developer liable in the case KKO 2001:61.

The purpose of the Act was not to change the legal status but to aggregate the fragmented legislation into one act. Before the enactment of the Act, liability for environmental damages was not based on the written law but on the legal practice. Prior to the Act, the Supreme Court held both contractor and developer liable for environmental damages that are nowadays regulated under the Act. The strict and joint liability was applied particularly to environmental damages that arose in connection with construction work, such as damages arising from hazardous activities like blasting, mining, excavation, foundation and demolition works.

The liability according to the Act

The Act regulates environmental damages that are caused by activities carried out in a certain area and that result from (1) pollution of the water, air or soil; (2) noise, vibration, radiation, light, heat or smell, or (3) other similar nuisance. According to Section 7 of the Act, liability for compensation for environmental damage shall lie with the person (1) whose activity has caused the environmental damage (the "operator") or (2) who is comparable to the person carrying out the activity (the "comparable operator"). According to the legal practice, contractors were, as a rule, regarded as operators, whereas developers were considered and evaluated from the perspective of comparable operators. However, a developer was regarded as operator when its business activity was a component in the broader operation of a construction company or when its employees worked on the project alongside the contractor's employees. The Act provides that, in the assessment of the comparability, due consideration shall be given to the competence of the person concerned, his or her financial relationship with the person carrying out the activity and the profit he or she seeks from the activity. The possession of real estate is also listed as one criterion in the legislative history.

The competence of the person concerned

The first precondition for the assessment of the comparability is whether the developer has the competence of the contractor. There is a contractual relationship between the developer and the contractor. However, the contractual relationship does not directly indicate comparability or control over another entity. Therefore, it is important to emphasise the facts arising from the contract and the actual arrangements when assessing the existence of competence. If a developer has competence over a contractor, it indicates that the developer could, together with the other preconditions, be regarded as the comparable operator in terms of the Act.

Because the allocation of the obligations and the responsibilities arising from the contract are essential to assessing competence, it is easier to support the developer's liability in certain contract types. For instance, the turnkey contract and the part contract are the extremes in terms of the developer's and the contractor's obligations. In the turnkey contract, the developer's competence is the most limited because the contractor is in charge of the project in its entirety. In the part contract, the developer shares responsibility with various contractors but retains principal responsibilities for the project, such as the coordination responsibility. Thus, the part contract is a contract type in which a developer has more responsibility compared, for instance, to the turnkey contract or the traditional all-in contract.

Therefore, it could be said, however with caution, that the legal practice which prevailed prior to the Act continues to have some level of legal significance when interpreting the law. Prior to the enactment of the Act, the Supreme Court emphasised, inter alia, the allocation of the site management duties when assessing the developer's liability. For instance, where the contractor was obligated to obey the developer's supervisory instructions, such as orders regarding the working time and the timing of the construction works, the Supreme Court has mostly held the developer liable for the environmental damage on the strength of the developer's competence. Moreover, the ownership of the equipment and other machinery and the possession of an environmental permit have also counted for in the allocation of environmental responsibility. Thus, these factors, amongst other things, have to be taken into account when assessing the competence of the developer on a case by case basis.

Financial relationship and the profit the developer seeks from the activity

Another significant factor in assessing the comparability is the financial relationship between the developer and the contractor. The most crucial factor in the comparability evaluation is the financial interdependence of the contractor and the developer. For instance, the financial relationship can be evaluated from the perspective of contract law, corporate structure and or control as defined in the Accounting Act. The joint liability can, for instance, be supported if the turnover of one party is dependent on the other party's activities. In addition, according to the Accounting Act, a company has financial control over an object undertaking where, inter alia, the company controls the majority of the shareholders' or members' voting rights in the object undertaking.

However, the construction firm operating as a contractor mostly is an independent company in regard to the developer and not, for instance, the company owned and controlled by the developer, unless it concerns the so-called speculative development (fi: grynderirakentaminen) which is a specific form of construction contract in Finland. Furthermore, the developer and the contractor do not usually have any common property or any other kind of movables that the parties share or use together. Moreover, the developer does not generally have any pecuniary interest in its contractor's activities. As a rule, a building contract is basically a commission agreement. The financial relationship mainly stands out in those building contracts to which the ceiling price or the target price contract applies.

The third factor in assessing the comparability is the profit that the developer seeks from the activity. The developer does not usually get any direct monetary benefit from renovation or new development, except in speculative development, but the benefit is mostly of another kind, i.e. the actual benefit of having the contract done. However, according to the strict liability for hazardous activities as developed by legal practice, it counts whether actions were taken as a part of the entity's business or for some other reasons when assessing the liability. Therefore, the Supreme Court has excluded consumer-developers from strict liability. However, whether this trend will continue is unclear because the Court has not ruled on any case concerning the consumers' liability after the Act came into effect.

Conclusion

The developer's liability in accordance with the Act seems to be unclear. It is hard to infer any consistent interpretation of the developer's liability from the legal practice. The Supreme Court has not been able to apply the concept of comparable operator to the developer in the way the law requires and, therefore, the Court has, after a 3-2 vote, held the contractor solely liable for environmental damage. Prior to the Act, the developer and the contractor were jointly liable for environmental damage arising from hazardous activities. This change of legal status can be explained especially by the competence precondition required by the Act.

The current legal status is not ideal. Because the Act is not applicable to all environmental damages which arise from construction works, the liability of the contractor is purely dependent on the applicable damage mechanism. For instance, the damage arising from blasting has been regarded to some extent as falling outside the scope of the Act. If the damage arises from noise, dust or vibration, the Act applies. However, if the damage arises from debris caused by the blasting—which does not fall under the Act's scope, both the developer and the contractor are jointly liable. Therefore, the applicable damage mechanism does matter in the assessment whether the developer's liability exists.

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