Article by Karen Price, Partner and Jason Welsh, Senior Associate
GM LIABILITY AND RISK MANAGEMENT
The Royal Commission on Genetic Modification was established to report to Government on, amongst other things, options available to address the issue of genetic modification and whether any changes to the legal regime were required. Having received more than 10,000 written submissions, holding 13 weeks of hearings and preparing a report of over 1,000 pages in length, the Royal Commission concluded:
"As technology advanced with ever-increasing pace throughout the 20th Century, the common law … showed it was well able to mould new remedies for novel situations. Parliamentary intervention has rarely been needed in this area. From a legal liability perspective we have not been persuaded there is anything so radically different in genetic modification as to require new or special remedies."1
Despite that conclusion, the debate has continued unabated as to whether a new and unique liability framework for genetic modification is required. That debate was largely fuelled by the release of "Who Bears the Risk? Genetic Modification and Liability"2 The authors advocated that the existing liability regime is not suited to the issues associated with genetic modification, and that a system of strict liability coupled with compulsory insurance, should be introduced.
Since that time, the Law Commission has released its report3 largely finding that the matter of GM liability is a policy issue for Government rather than a legal matter, and that a "new liability regime […] and its content should not be left solely to lawyers." In an effort to seek views from a wider audience, the Ministry for the Environment has recently released its Public Discussion Paper4.
This article draws upon our experience advising and acting for a variety of corporates involved in the biotechnology industry. During our conference presentation we will illustrate our conclusion that a system of strict liability, coupled with compulsory insurance, is undesirable and would be an unwarranted deterrent to innovation, investment and technical progress in New Zealand.
LIABILITY FOR WHAT?
"We will not be driven by fear into an age of unreason"
Edward R Murrow
Before examining whether a new and unique liability regime for GM is warranted, one must first step back and objectively ask, liability for what?
Many of the submissions the Royal Commission heard focussed on concerns about who would bear the responsibility for environmental damage, effects on biodiversity, potential health effects, damage to property and economic loss, and ethical and spiritual concerns associated with GM. Without embarking on a scientific review in a legal setting on the effects (both actual and potential) which arise (or may arise) from GM, it is at this stage fair to say that many of those concerns stem from fear of the unknown and that potential environmental and health effects will be the subject of ongoing debate. It is perhaps not surprising therefore that Terry et al use emphasis of the threat of "unexpected adverse effects" to argue for a new GM liability regime.
Various examples of potential ("unexpected") damage provided to the Royal Commission included:
- animal pathogen being passed to humans;
- reactivation or mutation causing injury to health;
- resistance to herbicides by GM plants and resultant development of superweed strains;
- allergic reaction to GM food or drugs;
- GM plants/animals which are harmful to other plants/animals/insects and which may reduce biodiversity;
- financial loss to adjoining property owners such as organic farmers whose land has been "infected" by GM crops.
There are therefore two distinct types of potential harm – harm caused to the environment (including people), and that which results in economic loss to a third party.
The Royal Commission concluded that any effects from GM are expected to:
- be likely to manifest only in the long term;
- be diffuse in nature;
- involve difficulties and expense in establishing proof of cause, nature and extent of any damage.
Given the characteristics of the potential effects associated with GM identified by the Royal Commission, a precautionary approach is warranted. However, we stop well short of suggesting a new liability regime on the basis of potential, but unknown, effects.
GM LIABILITY: WHAT WAS SAID?
Although a fundamental proposition put forward by Terry et al is that GM poses a significant environmental and anthropogenic risk (a concern shared by many consumers and the public generally), the findings of the Royal Commission on the matter remain the most authoritative review of the risks posed by GM. The Royal Commission stated:
"There is clearly a high level of concern about the environmental impacts of genetic modification, not just among the public but also among some members of the scientific community. Much of the evidence we heard about the risks of genetic modification, although properly drawing attention to possible hazards and risk pathways of genetic modification, is however the subject of ongoing debate, and we heard evidence from other witnesses, particularly scientific witnesses, that the risks of adverse impact could be assessed and managed. Some of the claims of possible environmental and health damage were exaggerated or based on inconclusive research data or on unproven hypotheses."5
ROYAL COMMISSION – PROCEED WITH CAUTION
On the issue of legal liability, the Royal Commission firmly recommended that new or special remedies for GM were not warranted, particularly those associated with a strict liability regime. In respect of the latter, the Royal Commission found that strict liability would act as a barrier to innovation and progress, and that the weight of international precedent was against setting up such a regime. In adopting a "steady as she goes" approach, the Royal Commission was mindful of the potential for some socialisation of unforeseen or unanticipated loss or damage, but considered such a consequence as appropriate. The Royal Commission acknowledged potential difficulties associated with the existing legal liability regime, but in the end was influenced by the fact that difficulties with matters such as causation will be inherent in any liability regime adopted – strict or otherwise.
On the issue of compulsory insurance and bonds, the Royal Commission did not make any definitive recommendations, but noted that "for the insurance industry, genetic modification is potentially one of the most exposed technologies of the future"6. The Royal Commission anticipated that policies would exclude cover for harm caused by GM, as not enough is known about the degree and extent of widespread consequences. That prediction has proved correct, and in our view will not provide a salve for those that suffer damage.
The Royal Commission therefore recommended the Government refer the matter of legal liability to the Law Commission for more in-depth reviews and analysis.
Law Commission: A Matter of Policy
The Law Commission’s report found substantial policy choices from which varying legal consequences would flow. As such, the Commission’s view was that Government should decide whether and how responsibility for any risks of the new technology should be apportioned among the industry, individuals and the State. In reaching its ultimate conclusion that the GM liability issue is for politicians and not lawyers, the Law Commission identified both a number of potential difficulties with the existing liability regime and several fundamental flaws in a strict liability framework.
The Law Commission found that it was unable to identify any liability regime that could ensure that all damage that might be caused by GMOs would be compensated. In its view, GMOs could cause damage, the nature of which is of low probability, potentially catastrophic and very slow to appear. In those circumstances, it concluded that no existing mechanism could compensate for catastrophic or irreversible damage, and that losses should either lie where they fall or that the Government would need to step in.
Notwithstanding these difficulties, the Commission did not favour establishing a new liability regime, and concluded that a strict liability regime would not necessarily achieve the goals that Terry et al argue will follow. In particular, the Commission noted it was debatable that a strict liability regime would provide an incentive to take preventative measures to avoid causing damage and that costs would be internalised.
On internalisation of costs by industry, the Commission found that given that the potential for, or likely costs of damage caused by GMOs is difficult to predict, the industry has no means to internalise these costs through higher product prices.
The Commission also considered the difficulties faced by potential claimants with respect to causation, and concluded that those difficulties may not be any greater than those faced by other non-GM claimants. In doing so, it concurred with the Royal Commission by also finding that devising a new form of liability will not resolve the difficulty of establishing causation as this is inherent in whatever kind of liability regime is adopted. While strict liability could make a plaintiff’s case easier by removing the need to establish fault or foreseeability, causation difficulties would remain.
The Law Commission also considered the second component of the strict liability regime advocated by Terry et al, that of compulsory insurance. The Commission questioned whether such cover existed and would ever be available in the future. On the assumption that cover was available, it identified the following difficulties:
- if damage caused by GMOs remained latent for years, difficulties would arise when pursuing a claim years later (even if one assumes that the insurance company from which the insured had cover continued, and that a policy remained in force);
- cover for catastrophic damage is unlikely;
- some projects would obtain cover while others would not, even though the project might have otherwise obtained ERMA approval;
- assessment by the insurance industry of GMOs risk is problematic given the limited knowledge of the likelihood of risk and magnitude of damage; and
- risks are independent and not identically distributed, which makes the task of quantifying risk difficult.
As a result, the Commission concluded that if there is a desire for the GM industry to develop, at least some projects would need to proceed without insurance. We concur with the difficulties identified by the Law Commission on the suggestion of compulsory insurance as a component of a strict liability regime and discuss the reasons for that later in the article.
EXISTING LIABILITY REGIME
Liability for GMO damage can arise under both our public and civil law systems. That compartmentalisation is not unusual. A feature of our system is that the civil law provides remedies in contract or tort for individual harm or loss, while public law seeks to provide for wider social responses and protection. It is the type of harm that determines whether the appropriate recourse is through the civil or public law systems. If damage to property occurs, then the appropriate venue for hearing such claims is in the civil courts under the common law. If the environment is affected, the existing regulatory agencies acting under current legislation can respond. In New Zealand, if personal harm occurs, then ACC should provide cover.
Unlike the common law, a statutory regime does not have as its focus the compensation of individuals for harm caused to them. Rather, statutes such as the Hazardous Substances and New Organisms Act 1996, the Resource Management Act 1991 and the Biosecurity Act 1993 provide for a framework of preventing and managing adverse effects on the environment of, amongst other things, new organisms. Such Acts are ill-suited to compensating individuals. Rather, individuals rely upon tortious action for compensation. This is why our system of law provides civil remedies and the relevant Acts set out above do not attempt to codify those causes of action. Although there are difficulties for individuals seeking recompense for economic loss or harm under this system, the Acts nevertheless play an important role in managing risk and adverse effects and mitigating unforeseen consequences for the environment. For example, the main thrust of HSNO is for risks to be identified and controlled up front via the ERMA approval process. In our view, Terry et al have undervalued that statutory risk management role favouring a goal of ensuring individuals do not suffer economic loss, rather than the protection of the environment.
Turning now to a brief analysis of the existing legislative framework.
HAZARDOUS SUBSTANCES AND NEW ORGANISMS ACT 1996 (HSNO)
The purpose of HSNO is to protect the environment and the health and safety of people and communities by preventing or managing the adverse effects of hazardous substances and new organisms. In order to achieve this, an assessment and regulatory approvals process run by ERMA was established. Detailed consideration of relevant provisions is beyond the scope of this article and instead this section addresses HSNO’s offence and hence liability provisions.
Potential liability for those who act in a manner contrary to the Act is set out in the offence provisions of HSNO. Briefly, section 109 provides that it is an offence to:
- develop in field tests and knowingly import or release a new organism in contravention of the Act;
- knowingly, recklessly or negligently manufacture, import, use or dispose of a new organism in contravention of the Act or where any approval is suspended;
- fail to comply with a compliance order;
- fail to report any significant new information of any adverse effect associated with an approved GMO.
The penalties under HSNO are significant in the context of environmental legislation and include a term of imprisonment not exceeding three months or a fine not exceeding $500,000. (Until recently, these were far in excess of any potential penalty under the Health and Safety in Employment Act.) Liability is strict, in the sense that intention or fault is not a prerequisite for liability. However, there are a number of defences, including:
- an action/event was necessary to save or protect life or health, prevention of serious damage to property or avoid adverse effects on the environment; and reasonable mitigation of the action or event was undertaken;
- an action/event was due to an event beyond the defendant’s control (eg sabotage) and was not foreseeable, and reasonable mitigation of the effects of the action occurred;
- if the action/event was within the control of the defendant, all reasonable steps to prevent the event and reasonable mitigation of the effects occurred.
As is evident from the offence provisions, the Act does not control new organisms once they have been approved for release into the environment and consequently no liability attaches to a person from that point. The Act is further limited in its application as its focus is on regulatory approvals rather than setting a regime to deal with unintentional releases. As we will discuss in our conference presentation a recent GMO incident has highlighted the need to reconsider and clarify some aspects of HSNO and regulatory agency responsibilities.
To date, HSNO has been an effective tool in assessing risk, potential effects and in allowing a detailed consideration of GM. It has to be acknowledged, however, that its real test will come with the lifting of the moratorium.
RESOURCE MANAGEMENT ACT 1991 (RMA)
The Royal and Law Commissions have stated that it may be possible for environmental damage caused by GMOs to be dealt with under the Resource Management Act 1991. The RMA contains enforcement provisions including issuance of abatement notices and enforcement orders requiring the cessation of anything likely to be noxious, dangerous, offensive or objectionable such as to give rise to an adverse effect on the environment. However, application of those powers to GMOs would represent a significant extension of the traditional powers and jurisdiction of regional and district councils and the Environment Court. The Environment Court has at times shown a willingness to deal with novel matters where effects on the environment may occur and where legislative gaps exist. Whilst the wording of the RMA’s enforcement provisions may be sufficiently wide to apply to the GMO, several counter arguments exist. First, the RMA was never intended to be employed in this fashion, and it is highly questionable whether Parliament turned its mind to GM issues when enacting the legislation in 1991. Secondly, it is doubtful that district and regional councils possess the expertise to assess and respond to GM issues, particularly when recent reviews of the central government agencies, MAF and ERMA, have raised concerns as to whether even they have the necessary skills and personnel. Thirdly, enforcement action is inherently a public law response to an issue, and because it is limited to effects on the environment, is of no assistance or application where individual harm or economic loss are at issue.
Having said that, to criticise the RMA because it is limited to effects on the environment and does not extend to property damage, is to fall into the same trap as Terry et al, in that if protection of the environment is the ultimate aim, such a limitation is not significant. It should also be noted that as for HSNO, liability under the RMA is strict. Enforcement orders can be issued to require a person under section 314(1)(da) to do something that is necessary to avoid, remedy or mitigate any actual or likely adverse effect on the environment relating to any land which the person owns or occupies.
Compensation for individual harm or loss is recoverable under our civil system in contract or in tort. Circumstances where harm is likely to arise from GM are less likely where there is a contractual relationship. Without such a relationship an intended claimant is required to rely upon tortious actions – such as negligence, nuisance and the rule in Rylands v Fletcher. In the following sections, we very briefly consider the elements necessary for a claimant to establish a tort has occurred.
In order for any negligence action to succeed, it is necessary for a plaintiff to establish that:
- the defendant owed a legal duty of care to the plaintiff;
- the defendant breached the duty owed;
- loss was suffered by the plaintiff as a result of that breach; and
- the loss suffered was not too remote to be foreseeable.
It is also necessary for the plaintiff to establish that the conduct of the defendant gave rise to a foreseeable risk of damage to the plaintiff, ie. both the harm to the defendant and the particular damage must be foreseeable. Professor Todd’s opinion to the Royal Commission stated that "any difficulty … will not necessarily be greater than that faced by plaintiffs in negligence actions in other circumstances"7.
A plaintiff may allege the tort of nuisance in circumstances where his or her land is affected by a use or activity carried out by a neighbour that causes something that is harmful or offensive to affect their enjoyment of the land. As such, physical damage to the land is not a prerequisite, but rather, the tort arises if one’s enjoyment of the land is unreasonably interfered with.
Liability of the tortfeasor is strict in that proof of negligence or fault is not required, nor is it a defence that the tortfeasor took all reasonable precautions to avoid the wrong. What may be difficult to establish in a GM situation is that the harm caused by the nuisance must have been foreseeable8. As illustrated by the "poison tomato" case of Hamilton v Papakura District Council, establishing foreseeability together with causation can be an insurmountable obstacle. Indeed, establishing causation alone in "toxic torts" cases can be insurmountable, as demonstrated by the recent High Court Decision in Appleton v Attorney-General.9
Rule in Rylands v Fletcher
Nuisance principles tend to apply in circumstances where there is a continuing or intermittent harm. However, where there is an isolated escape, liability may arise under the rule in Rylands v Fletcher10. The rule is now considered to be an extension or subset of the law of nuisance, and applies where there has been an isolated escape of something which is harmful to the plaintiff’s land which has been caused by the defendant collecting and keeping that thing (and which amounts to a "non-natural" use of their land).
As with nuisance, liability is strict and foreseeability of harm is required. However, unlike nuisance a plaintiff would also need to establish that producing or using GMOs is a non-natural use of land, and as noted by the Law Commission, courts may be reluctant to make such a finding as it goes to the heart of the GM debate.
Below we highlight a number of difficulties which a claimant would face should they wish to rely upon these tortious causes of action.
A DIFFICULT PROBLEM
There can be no denying that a potential claimant for GM damage will face considerable difficulties in successfully pursuing an action. But are these difficulties enough for a new and specific liability regime to be introduced, and do they otherwise outweigh the reasonable expectations and rights of GM industry participants?
The principal difficulties faced by a claimant are:
- costs of litigation;
- evidential problems, particularly causation;
- latency period for harm both in terms of limitation periods and solvency of defendants in the future;
- damage may be catastrophic or irreversible;
- damage may be widespread or diffuse;
- person responsible for the damage may no longer exist.
In our view, such favourable and unique treatment for GM damage is not warranted, given many well-deserving plaintiffs may also deserve compensation, but face similar legal obstacles. For example, those persons who suffer from asbestosis, those whose land has been contaminated by migrating contaminants, or those whose tomato crops had been affected by herbicide must take their chances with the common law.
Even if a strict liability regime were available, in our view, a plaintiff seeking to rely upon the polluter pays regime advocated by Terry et al will still face difficulties pursuing a successful claim. For example, they will still need to identify a defendant, quantify damages and establish a causal nexus between the defendant’s acts or omissions and the plaintiff’s loss. Furthermore, as Todd noted, where damage is widespread and diffuse and the possible sources and their contribution to the damage uncertain, finding a remedy is no longer a matter for dispute between citizens.
The fundamental feature of the common law is its ability to adapt to ever-changing situations which at the time are novel and full of uncertainty. The common law has witnessed new technology and its resultant effects, for example, the motor vehicle, electricity, asbestos, and tobacco.
While GM does raise some complex difficulties, it is our view that in time the common law is sufficiently robust to face those problems. Already in Australia, for example, the High Court of Australia has found that a seed supplier who supplied seeds contaminated with bacterial wilt to another farm in the area was liable for the lost organic certification of the farmer11. The Court found that the organic farmer was entitled to damages for his pure economic loss suffered.
Another example of the common law recognising its own inherent limitations and seeking to adjust to the modern situation is the recent House of Lords decision of Fairchild v Glenhaven Funeral Services12, in which employees developed mesothelioma by exposure to asbestos dust by several employers. Given the difficulty in identifying exactly which employer caused the illness, a modified proof of causation was held by the House of Lords to be justified and it concluded that the employers’ wrongdoing had increased the risk to the employee of contracting the disease and this was sufficient to satisfy the causal link.
A CASE FOR REFORM?
In "Who Bears the Risk?", the authors advocate a new liability principle for those who cause property damage as a result of using or selling GMOs as:
"Anyone who sells or uses any genetically modified organism is subject to liability for physical harm, damage or economic loss to property caused by that organism."
The now famous words of Justice Cardozo in Ultra Mares Corporation v Touche13 spring to mind. Such a standard would immediately expose defendants to "an indeterminate amount for an indeterminate time to an indeterminate class."
Under this principle, Terry et al argue that both sellers and users of GMOs (although the latter is undefined and it is unclear as to who would constitute a "user") are potentially liable. As such both must have insurance cover. A third liable party identified by the authors is ERMA, although they suggest the extent of its liability should be defined by statute. Again, the extent of liability is unclear.
Liability would extend to exemplary damage for "egregiously wrong or reckless use of GMOs"14. Under the principle, a plaintiff could choose which of the two potential defendants to pursue and the courts would be left with the task of determining contribution between the two defendants. Even so, given that the industry takes inordinate care with research, trials and implementation of GM technology, it is difficult to see how liability could be established. "Reckless" use of GMOs must mean such acts as the unauthorised, but intentional release of rabbit calicivirus by South Island farmers.
The principle suggested by Terry et al would be subject to a defence of contributory negligence, although exactly how this would apply to a strict liability regime and to the matter of GMOs is not made clear by the authors. The only absolute defence under the proposed regime is suggested to be the (contractual) concept of force majeure. It is assumed what is intended is that a natural disaster or sabotage would break the causal nexus between the use of a GMO and the damage, thereby providing a defence.
The second principal feature of the authors’ proposed new regime is mandatory insurance for any GMO-related approval given by ERMA. The authors argue that the risk assessment procedures should be undertaken at the front end and tied to questions of liability and the polluter pays principle at the liability end. With mandatory insurance they argue that applicants will be financially accountable for their projects, incentivising firms to take due care while the insurance ensures that those harmed will receive compensation.
The authors do acknowledge that compulsory insurance provides for deep pockets without which strict liability offers no protection and would result in companies being subject to supervision by commercial insurers. Of concern, however, is their view that if a company cannot secure adequate cover, the project should not receive approval from ERMA. This will inevitably result in multinationals with deeper pockets self-insuring or obtaining cover to the detriment of smaller industry players.
THE ARGUMENT AGAINST STRICT LIABILITY AND COMPULSORY INSURANCE
Throughout this article we have noted a number of reasons why a strict liability system coupled with compulsory insurance is not favoured. In our conference session we will draw together those reasons which we consider demonstrate that the system advocated by Terry will stifle innovation and will lead to an industry in New Zealand in which only the large multinationals will risk participation.
We consider that the strict liability standard proposed by Terry et al raises more questions than it answers, including:
- Why not treat like with like?
- How could a system based on individual rights of action assist in any catastrophic environmental damage?
- What would happen when a defendant or the insurance company is no longer solvent or there is no longer cover under which to make a claim?
- What would happen when the defendant or insurance company no longer exists?
- If a compensation fund is established, how would it be protected from the US "Superfund" experience?
- Who should fund such a compensation fund?
- How could a compensation fund possibly cover all potential claims on it?
- What compelling policy reasons are there to warrant GM plaintiffs being relieved of establishing fundamental legal elements of their claims when other well-deserving claimants are not?
- How does one internalise costs when the risks are unknown and unforeseen?
- Why should commercial insurance determine which biotech ventures are approved or not?
- What about other activities that involve different processes (ie. no GMOs) but have the same possibility of environmental damage, eg. chemical contamination?
- If the likely harm is not foreseeable, how does strict liability have an advantage over a fault-based liability standard?
- How would a plaintiff’s difficulty in overcoming causation be achieved?
- If a bond or insurance cover is required until a GMO poses no danger (and the time in which that is determined may be considerable), is the bond or insurance considered a fee/penalty?
- How would one set the level of the bond / cover to ensure it was adequate for all unforeseen consequences?
- If a company cannot secure a bond / cover, is it reasonable for that project to proceed?
- How could the strict liability system assist with irreversible effects?
A version of this article was presented at the LexisNexis Biotechnology Law Conference in Auckland on 20 February 2003
1 Royal Commission on Genetic Modification "Report of the Royal Commission on Genetic Modification"; 2001, 328
2 2 ed Chen Palmer & Partners and Simon Terry Associates Limited, 2001
3 "Liability for Loss Resulting from the Development, Supply or Use of Genetically Modified Organisms"
4 MFE, "Improving the Operation of the HSNO Act for New Organisms – Including Proposals in Response to Recommendations of the Royal Commission on Genetic Modification" September 2002
5 See 1, p73
6 See 1, p321
7 "Liability issues involved or likely to be involved now or in the future, in relation to the use, in New Zealand, of genetically modified organisms and products." Undated opinion to the Royal Commission.
8 Hamilton v Papakura District Council  3 NZLR 308 (PC). In that case, a hydroponic tomato grower unsuccessfully sought redress for damage allegedly caused by spraying herbicides too near the town water supply it drew upon to grown its tomatoes.
9 CP 8198
10 (1866) LR 1 EX 265 (Ex Ch)
11 see Perre v Arpand Pty Limited (1999) ALJR 1190
12  3 WLR 89
13 (1931) 255 NY 170
14 See 3, p91