Environmental Claims and Insolvency: Two Divergent Regimes
Conor Linehan, Partner, Environmental & Planning Law Unit, William Fry
© Conor Linehan 2011
Environmental Claims and Insolvency: Two Divergent Regimes
© Conor Linehan, Partner Environment and Planning Law Unit, William Fry
Introduction
An important measure of the value placed on environmental protection is how the law
regulates environmental claims and liabilities in the context of financially troubled businesses.
Are environmental claims given any particular status or priority in the wider settlement of
claims? Do insolvency practitioners such as liquidators have to be concerned with
environmental liability issues at all? To the extent that the law envisages circumstances
where liquidators or receivers can incur liability in the discharge of their duties, can this
extend to liability for environmental damage? Can environmental regulatory authorities be
heard in winding-up proceedings?
These questions will increasingly arise in straitened economic times when overall cost cutting
can affect the upkeep of environmental management systems. Companies that have
historically exercised lax environmental standards may well find that this will become
apparent, and that hidden liabilities will emerge, during the environmental exit audit that can
follow a closure enforced by financial distress.
This Paper looks at how environmental regulation and protection laws interact with the rules
and mechanisms for rescuing or dissolving distressed businesses. From an environmental law
perspective the essential question must be: after many years of a growing body of
Environmental Law and of environmental regulatory systems, how exposed are environmental
claims and remediation of environmental damage to an insolvency or business failure? The
topic is approached principally from three perspectives:
Firstly, by looking at what provision environmental regulatory and licensing systems make
for anticipating business failure or cessation of operations, and for protecting and
underwriting resulting environmental claims and liabilities.
Secondly, focussing on insolvency mechanisms, by looking at whether and to what extent
these recognise and accommodate environmental claims such as the claimed cost of an
anticipated or known clean-up obligation. The focus here is principally on the 2005 decision
in Irish Ispat Ltd. (“in vol. liquidation”).
Thirdly, by looking at the environmental/insolvency law interface through a broader lens, by
reviewing the state of the law on some related matters such as directors’ personal liability; the
potential for lender liability and the position as regards receivers and mortgagees in
possession.
The Environmental Liability Directive and Financial Security
Ideally, from an environmental protection perspective, there would always be available
adequate and “ring-fenced” financial guarantees or provision to underwrite environmental risk
and liability.
2
The Environmental Liability Directive 2004 1 has been the focal point for much of the
discussion in the past few years on this issue. To a significant extent, the future direction and
parameters of a comprehensive regime of financial underwriting for environmental liability
will be determined by how the topic evolves under the framework of that Directive.
The principal purpose of the Environmental Liability Directive is to establish a common set of
rules and principles throughout the Community in respect of the prevention and remediation
of environmental damage. 2 It is central to the topic of financial security and underwriting for
two reasons principally: firstly, because of the ongoing process, mandated by the Directive, of
examining the potential for a regime of mandatory financial security to underwrite the
environmental protection and remediation obligations laid down in the Directive; and
secondly, because of the wide range of “occupational activities” covered by that Directive.
When it entered into force on 30 April 2004 the Environmental Liability Directive did not lay
down a requirement for mandatory financial security to support its objectives. Recognising
the need to develop any mandatory regime in parallel with the development and availability of
a realistic suite of financial security products for use within environmental regulation the
Directive made provision for this issue to be kept under review and to be developed further
both at Member State level and, at EU level, by the European Commission. Article 14 of the
Directive deals with this.
Article 14(1) provides that Member States:
“(1) … shall take measures to encourage the development of financial security
instruments and markets by the appropriate economic and financial operators,
including financial mechanisms in case of insolvency, with the aim of enabling
operators to use financial guarantees to cover their responsibilities under this
Directive.”
Article 14(2) then called for the Commission to report by 30 April 2010 on two matters:
firstly, on the “effectiveness of the Directive” (in terms of actual remediation of
1
Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 on
environmental liability with regard to the prevention and remedying of environmental damage.
2
In summary the liability regime involves operators of “occupational activities” being liable for
“environmental damage” caused as a result of the carrying on of those activities. The liability relates to both the
prevention and remediation of environmental damage. “Environmental damage” is a key concept within the
Directive and covers water damage, land damage and damage to protected species and habitats, with each of
those, in turn, defined/explained. Those occupational activities subject, under other European environmental
regimes, to licensing and permitting systems and other environmental controls are set out in Annex III to the
Directive. For the purpose of the liability regime established by the Directive, operators of Annex III activities
are liable for all three kinds of environmental damage mentioned in the Directive – again, water damage, land
damage and damage to protected species and habitats. The liability regime for Annex III activities (as distinct
from non-Annex III activities) is, ostensibly, a strict liability regime. However, in accordance with the Directive,
Members States, in the case of Annex III activities, may opt to allow operators to avail of a “permit compliance
defence” and a “state of the art” (best technology) defence. In respect of operators of non-Annex III activities
the liability regime relates to damage to protected species and habitats and here liability is expressed to be faultbased. Other notable elements of the Environmental Liability Directive regime are that i.e. it does not establish a
system of civil liability i.e. does not confer a third party right of action. There is provision for environmental
NGO’s to make “requests for action” of environmental regulatory authorities; there is a comprehensive Annex II
setting out a common framework to be followed in respect of the most appropriate measures to ensure the
remedying of environmental damage, notably, the Directive’s regime is prospective in effect and does not cover
environmental damage the original cause or source of which occurred prior to 30 April 2007.
3
environmental damage); secondly, on the availability of various types of financial security for
the activities covered by the Directive, with a view to possible future proposals for a system
of harmonised mandatory financial security. 3
In October 2010 the Commission published its Report under Article 14(2). 4 There are two
principal aspects to the Report: firstly, a review of the use of and limitations associated with
insurance in the Environmental Liability Directive context; 5 secondly, a consideration of the
future development of the financial security regime for the Directive’s objectives through a
financial services industry/market response and also arising from the “learning by doing”
experience of those Member States that have, since the Directive, opted for national systems
involving mandatory financial security. 6 There are eight such Member States 7 and their
mandatory financial security systems are due to enter into force at different dates up to 2014
but even in those cases where it was due to come into effect in 2010 (Portugal, Spain and
Greece) this has been delayed. On the basis of the above factors, the Commission Report
deferred any decisions for mandatory financial security to underwrite Operators’ obligations
under the Directive. The Report also discusses briefly the potential for, and the limitations
associated with, the use of alternative types of financial security such as bonds and bank
guarantees with the Report noting in principle the some of these alternative instruments are
easily adaptable from specific areas of overall environmental management such as waste
management, where they are currently in use, to the wider ELD context. Ultimately the
Report concluded with a commitment to re-examine the option of mandatory financial
security again, possibly even ahead of a planned review of the overall workings of the
Directive planned for 2014.
3
Article 14 (2) provided: “The Commission, before 30 April 2010 shall present a report on the
effectiveness of the Directive in terms of actual remediation of environmental damages, on the availability at
reasonable costs and on conditions of insurance and other types of financial security for the activities covered by
Annex III. The report shall also consider in relation to financial security the following aspects: a gradual
approach, a ceiling for the financial guarantee and the exclusion of low-risk activities. In the light of that
report, and of an extended impact assessment, including a cost-benefit analysis, the Commission shall, if
appropriate, submit proposals for a system of harmonised mandatory financial security”.
4
“Report from the Commission to the Council, the European Parliament, the European Economic and Social
Committee and the Committee of the Regions under Article 14(2) of the Directive 2004/35/EC”: Brussels
10.12.2010 – Com (2010) 518 final.
5
On the availability of insurance and other types of financial security for the covered activities the Commission
Report states that there is “a general focus on insurance products as a way to cover ELD liabilities”. It reports on
some of the limitations associated with insurance products currently available, such as the common exclusion of
“gradual” environmental damage and (particularly relevant to the Directive’s) exclusions for some types of
remediation such as compensatory remediation owing to the difficulty of quantification of potential losses in that
regard. Many general insurances, and even some environmental insurance products, do not envisage losses
stemming from measures that can be ordered under the Directive such as habitat restoration or replacement. The
Report expressed the hope that with the increased use of the Environmental Liability Directive in the Courts and
by regulatory authorities and with the practical parameters (and costs) associated with compensatory remediation
orders etc. becoming clearer that such limitations can be resolved as the market gains experience with the
Directive.
6
While the Report, throughout, recognises that the extent to which financial provision is put in place is closely
tied to the availability of products from financial institutions in the market, the Report noted that even those
Member States that have declared their opting for mandatory financial security provision do not yet have their
systems in place with the result that those mandatory approaches cannot yet be evaluated to inform decisionmaking on a harmonised system. The Report noted that ultimately for Environmental Liability Directive
purposes the suitability of financial security instruments will be determined by issues such as their efficiency in
terms of remediation costs covered and their effectiveness in preventing pollution.
7
The Member States in question are: Bulgaria, Portugal, Spain, Greece, Hungary, Slovakia, Czech Republic and
Romania.
4
Ireland transposed the Environmental Liability Directive principally through the European
Communities (Environmental Liability) Regulations 2008. 8 The 2008 Regulations do not
address the Article 14(1) obligation on Member States to “take measures to encourage the
development of financial security instruments …….”, perhaps because of the unspecific nature
of that particular in 2006. However, developments or actions in Ireland that can be
considered to advance that particular objective includes the publication by the Environmental
Protection Agency in 2006 of a comprehensive guidance document in the area of financial
provision for environmental liability and residuals management (Guidance on Environmental
Liability Risk Assessment, Residual Management Plans and Financial Provisions). 9 While
this Guidance is focussed principally on guiding the holders of IPPC and waste licences in
fulfilling the financial provision obligations of those Licences, that particular tranche of
licensees represents, numerically and in terms of level of potential environmental impact and
risk from those installations, an appreciable share of the ELD’s Annex III occupational
activities in Ireland. In addition the Guidance is generally adaptable for use outside of the
IPPC and waste licensed scenarios. While it is not apparent that the Department of
Environment Heritage and Local Government has engaged in extensive direct discussion with
the financial services industry as part of its Article 14(1) obligation, there has been an
important indirect dialogue taking place arising from the publication of the EPA’s 2006
Guidance. This has served to heighten many licensees’ attention in relation to their licence
conditions that are concerned with financial provision (the nature and types of such conditions
is reviewed below) and to review them to reflect the existence of the Guidance. Furthermore
in parallel with the Guidance, there has been a generally heightened attention over the past
few years on the part of the EPA in the area of fulfilment of financial conditions in IPPC in
waste licenses has all served to put this matter more clearly “on the radar” of both licensees
and of the financial services industry. In this regard it is notable that the Irish Banking
Federation was amongst the parties that made a submission to the Department of the
Environment Heritage and Local Government in 2007 in response to the Department’s
screening Regulatory Impact Analysis ahead of transposition of the Environmental Liability
Directive.
Relationship of Environmental Liability Directive to other Directives specifying financial
security for environmental damage
The reference in Article 14(2) of the Environmental Liability Directive to a future report on
the possibility of mandatory financial security is apt to mislead - by suggesting the
environmental law regime outside of the Environmental Liability Directive lacks any such
provision. The position is that certain of the Directive’s Annex III occupational activities are
subject to separate control under other European Directives that call (with varying degrees of
specificity) for Member States’ competent authorities, when licensing the activities in
question, to consider the question of financial provision for environmental risk related to the
carrying on and the cessation of those activities.
8 S.I. No. 547 of 2008. These Regulations transpose most of the provisions of the Environmental Liability
Directive. A number of provisions of the Directive afford a discretion to Member States (for example in the area
of allowing operators to avail of a “permit compliance” defence and a “state of the art” defence and in the area of
extending that class of “environmental damage” comprising damage to European habitats and species to
incorporate, also, Member States national systems of protected areas). Transposition of these optional elements
is to be effected by way of primary legislation. In 2008 a “general scheme” draft Environmental Liability Bill
was published in this regard but so far this has not been finalised.
9
Published by the Office of the Environmental Enforcement, EPA (2006).
5
The principal examples, as far as Ireland is concerned, are activities covered by the Landfill
Directive, the Directive on Waste from the extractive industry and the Directive on Integrated
Pollution Prevention and Control. 10 These Directives (the relevant provisions are reviewed in
the next section) refer Member States to financial security regime with varying degrees of
lattitude and flexibility.
The Environmental Liability Directive as it stands does not displace or affect those
Directives’ provisions. What the Directive does, though, is to put “on the agenda” a potential
mandatory and harmonised financial security regime that would extend beyond the status quo
in a number of important respects. Firstly, it would extend beyond the current limits in terms
of the categories of activities covered. Subject to whatever it decides in respect of “exclusion
of low-risk activities”, 11 the Environmental Liability Directive, through Article 14(1) and (2),
calls for an examination of the possibility of mandatory financial security for all Annex III
activities. Secondly, as the obligations on operators of occupational activities under the
Environmental Liability Directive are not specific to the boundaries and environs of any
particular licensed site but, rather, extend to the environment at large through the liability
obligation to prevent and remediate “environmental damage”, an Environmental Liability
Directive-based mandatory regime is likely to have far wide import and application in terms
of extent of geographic coverage. Thirdly, as will be seen below, of those Directives
mentioned above that already contain provision on financial security in respect of certain
Annex III occupational activities the Directive on Integrated Pollution Prevention and Control
is the most general and least prescriptive as regards what it expects in terms of financial
security and it is likely that the system of harmonised mandatory financial security that is
envisaged in the Environmental Liability Directive will result in much greater all round
application of financial security in the IPPC sectors across member states.
While the outcome of the Environmental Liability Directive’s financial security agenda is as
yet unclear, it has served to place the topic much more to the centre of Europe’s and Ireland’s
environmental protection regime, after many years of (necessary) focus environmental
licensing and standard-setting and on environmental impact assessment. In the meantime the
existing structures in Ireland regarding financial security will be continue to be relevant.
Those structures comprise those parts of other Directives (principally, as mentioned above, in
the areas of landfilling, IPPC licensing and waste from the extractive industry) that are
concerned with financial provision, the national legislation transposing those parts as well as
the approach of Irish licensing authorities in framing licence conditions in this area. The main
features of each of these is reviewed in sequence below.
Other EC Directives’ provisions on Financial security
Outside of the Environmental Liability Directive, at Community level the principal references
to financial security or financial provision to cover environmental risk and damage are
contained in the Landfill Directive, the Directive on Integrated Pollution Prevention and
Control and in the Directive dealing with waste from the extractive industry. Different levels
of prescriptiveness in relation to financial security is evident across all three Directives.
10
Directive 1999/31/EC on the Landfill of Waste; Directive 2006/21/EC on the management of waste from
extractive industries and amending Directive 2004/35/EC; and Directive 2008/1/EC on integrated pollution
prevention and control.
11
See note 3 above.
6
The Directive on Integrated Pollution Prevention and Control (IPPC) 12 lays down a
Community-wide environmental licensing system for a wide range of large industrial or
manufacturing installations across a wide range of sectors such as energy, chemicals,
minerals, metals and intensive agriculture etc. To the extent that this Directive can be said to
call for financial security for the activities it covers, this arises implicity through a
combination of Articles 3 and 9. Under Article 3(1)(f) Member States, via their competent
authorities, must ensure that installations are operated in such a way that “the necessary
measures are taken upon definitive cessation of activities to avoid any pollution risk and
return the site of operation to a satisfactory state” (emphasis added). Article 9 (headed
“conditions of the permit”) requires that installations’ permits include “all necessary
measures for compliance with the requirements of Article 3” (emphasis added).
Somewhat more prescriptively the Landfill Directive specifies that Member States’ competent
authorities must not issue a landfill authorisation unless it is satisfied that “adequate
provision, by way of financial security or other equivalent, on the basis of modalities to be
decided by Member States, has been or will be made by the Applicant prior to the
commencement of disposal operations to ensure that the obligations (including after-care
provisions) arising under the permit…. are discharged and the closure procedures required
are followed”. 13
More recently, and more explicitly still as regards the requirement for and the desired form of
security, the Directive on Waste from the extractive industry, 14 in order to ensure there are
funds available “at any given time” for the rehabilitation of the land affected by the waste
facility, requires that competent authorities “shall, prior to the commencement of any
operations involving the accumulation or deposit of extractive waste in a waste facility,
require a financial guarantee (e.g. in the form of a financial deposit, including industrysponsored mutual guarantee funds) or equivalent, in accordance with procedures to be laid
down by member states…”. The same part of the Directive makes it clear that a seriousness
of approach in relation to the calculation of the guarantee is expected by stipulating that the
calculation of the guarantee shall be made on the basis of, inter alia, “……the assumption that
independent and suitably qualified third parties will assess and perform any rehabilitation
work needed.” 15
12
Directive 2008/1/EC of the 15 January 2008 concerning integrated pollution prevention and control.
The IPPC licensing system was established by Directive 96/61/EC, which was replaced by Directive 2008/1/EC.
13
Directive 1999/31/EC of 26 April 1999 on the landfill of waste (Article 8).
14
Directive 2006/21/EC of 15 March 2006 on the management of waste from extractive industries and
amending Directive 2004/35/EC. The Directive contains various provisions to ensure the proper management of
waste from the extractive industry (including for quarries), including a system of permitting for extractive waste
Management facilities and a requirement for waste management plans. The Directive is implemented in Ireland
by the Waste Management (Management of Waste from the Extractive Industries) Regulations 2009 – S.I. No.
566 of 2009.
15
Supplementing the general criteria in Article 14 of Directive 2006/21/EC is a more recent set of
technical guidelines relating to the establishment of the financial guarantee. The Technical Guidelines are set out
in Commission Decision 2009/335/EC of 20 April 2009. Reflecting the Environmental Liability Directive’s call
for a (possible) “harmonised” approach to financial security for environmental damage generally, Commission
Decision 2009/335/EC the Technical Guidelines were adopted in order to ensure “a common approach between
the Member States” Amongst the matters mentioned in the Guidelines, as criteria, are the future intended use of
the site, likely environmental impact, applicable environmental standards and the estimated timescale of impacts.
7
Irish Law Provisions on Financial Security
In Ireland there are a range of primary law provisions directed, at environmental licensing
authorities, that provide a linkage between the requirements and expectations of the European
Directives mentioned above and the content of the eventual environmental licensing
conditions on financial security.
Firstly, in respect of the two principal environmental licensing systems – namely IPPC
licensing and Waste licensing 16– there is a “fit and proper person” qualification test for the
purpose of being granted, or being allowed to take a transfer of, such licences.17 One element
of the “fit and proper [person]” test is satisfied if “in the opinion of the [EPA], that person is
likely to be a position to meet any financial commitments or liabilities that the [EPA]
reasonably considers have been, or will be entered into or incurred by him in carrying on the
activity to which the licence or revised licence relates or will relate, as the case may be, in
accordance with the terms thereof or in consequence of ceasing to carry on that activity”; 18
Secondly, the EPA must not grant an IPPC license or a waste licence unless it is satisfied that
“necessary measures will be taken upon permanent cessation of the activity…. to return the
site of the activity to a satisfactory state”.19
Thirdly, in relation to the matters the EPA to satisfy itself before exercising the decisionmaking role on licence applications it is provided that the EPA may, before granting or
transferring an IPPC or a waste licence, require the furnishing to it (i) of particulars affecting
the applicant’s or transferee’s ability to meet financial commitments or liabilities related to
the carrying on or the ceasing of the activity and (ii) of evidence of having made financial
provision (including of the entering into of a bond or other form of security) sufficient to
enable it to discharge those financial commitments or liabilities.20
Finally, in respect of the issued licence, the licensing legislation, where it deals with the types
of conditions that the EPA “may” insert in waste and IPPC licences, includes power to
stipulate conditions designed to address the meeting of clean-up or other environmental
16
Waste Licensing, in general terms, covers landfills and the more sizeable or complex waste holding,
recovery or disposal operations.
17
For IPPC Licencing the fit and property person test is referred to in Section 85(5)(x) of the
Environmental Protection Agency Act 1992, as inserted by Section 15 of the Protection of the Environment Act
2003; in relation to waste licensing the requirement is contained in Section 40(4)(d) of the Waste Management
Act 1996 (here the fit and proper person test applies to a person other than a local authority).
18
Section 84(4)(c) of the Environmental Protection Agency Act 1992, as inserted by Section 15 of the
Protection of the Environment Act 2003; see also Section 40(7) of the Waste Management Act 1996. The other
elements of the “fit and proper person” test are, in the case of both IPPC Licensing and Waste Licensing, that the
applicant or proposed transferee for the licence in question have the technical ability to carry on the operation
and also that those persons, and certain relevant connected person, be free from any convictions under specified
environmental laws.
19
Section 83(5)(x) of the Environmental Protection Agency Act 1992, as inserted by Section 15 of the
Protection of the Environment Act 2003; in relation to waste licensing the equivalent provision is in Section
40(4)(i) of the Waste Management Act 1996, as inserted by Section 35 of the Protection of the Environment Act
2003.
20
Section 83(6) of the Environmental Protection Agency Act 1992, as inserted by Section 15 of the
Protection of the Environment Act 2003; see also Section 53 of the Waste Management Act 1996.
8
liabilities. The Waste Management Act 1996 states expressly that the EPA may attach a
condition requiring the making and maintenance of financial provision. 21
Nature and Scope of Irish Licence Conditions concerned with Financial Provision
The Irish EPA came into existence in 1993. A very significant aspect of its role for the first
number of years was put into operation an environmental licensing system for many hundreds
of large-scale industrial, manufacturing energy-related, mining and chemicals operations
throughout the country. The task facing the Agency was to move those facilities away from
the older system of environmental pollution control – typically involving emissions
conditions set under the Water Pollution Acts and the Air Pollution Acts and, in some cases,
under planning permissions – to a more comprehensive, holistic and integrated system of
environmental licensing, namely the Integrated Pollution Control licensing system. The
framework for Integrated Pollution Control Licensing was set out in the same Act that
established the EPA, namely the Environmental Protection Agency Act 1992. Much of the
first decade of the Agency’s existence also coincided with significant overhauling of waste
management infrastructure and planning and related licensing and permitting of significant
waste facilities in Ireland. Much of this was mandated by the Waste Management Act 1996.
That Act required significant waste storage facilities such as landfills, waste transfer stations,
waste-to-energy plants and even (for a number of years) brownfield sites under construction,
to be subject to a waste licensing regime.
The logistical demands of an intense period of licensing many hundreds of facilities, the
application of that licensing system both to new and to existing facilities; and the fact that that
licensing phase had to straddle the introduction of significant legislation such as the Directive
on Integrated Pollution Prevention and Control and the Waste Management Act 1996
resulted, in the period to approximately 1998, in a degree of inconsistency as to what licences
stated on the issue of financial provision for environmental risk and liability.22
In the period 1999-2006 financial provision conditions in Integrated Pollution Prevention and
Control licences (as “integrated pollution control” licences increasingly came to be known),
and in waste licences, became more standardised and modernised. In this phase licensing
activities became more directly influenced by the provisions of the Landfill Directive and by
21
Section 42(2)(b)(xii) of the Waste Management Act 1996. While there is no corresponding section in
relation to the IPPC licensing regime there is a requirement on the Agency to attach a condition to an IPPC
licence specifying the measures to be taken on permanent cessation: Section 86(1)(a)(vii) of the Environmental
Protection Agency Act 1992, as inserted by Section 15 of the Protection of the Environment Act 2003.
22
That period can be seen in terms of a first phase approach to requirements in IPC Licences regarding
identifying environmental risk/liability and underwriting that risk/liability through licence conditions. To the
extent that environmental risks and liabilities were, under licence condition, required to be identified and
documented in a formal plan, this focused mainly on post-closure-decommissioning (known and easily
anticipated liabilities related to closure). It was typical, if not standard, not to include a condition requiring the
putting in place of financial provision. This approach was a direct and indirect function of a number of things. It
reflected to some extent perhaps a cultural lack of preparedness here for the hard step of putting in place
financial provision. It reflected the reality that financial indemnity and underwriting would prove, in some cases
difficult, and in other cases impossible, for many of the installations licensed in this early phase – given that
many facilities were existing installations in operation for many decades with, in all likelihood, poor pollution
abatement technology and with significant existing levels of associated pollution damage. It reflected to some
extent at least the focus of the EPA – in the midst of what was logistically a huge licensing operation countrywide – in getting facilities under the remit of a licence focused on the application of emission limit values,
controlling emission points and stipulating periodic monitoring and reporting.
9
the Directive on Integrated Pollution Prevention and Control.
provisions dealing with financial provision, as seen above. 23
Both Directives included
The end result of this phase of licensing activity was that for a considerable number of waste
licensed facilities and IPPC licensed facilities the conditions on financial provision were
generally more elaborate and, across the full range of installations, more standardised than
had previously been the case. As regards the body of licences covered by the IPPC Licensing
system – again covering hundreds of large-scale chemicals, pharmaceutical intensive
agriculture, energy and other industrial-scale facilities across the country – conditions in such
licences concerned with financial provision generally featured, towards the end of the 19992006 licensing phase, the following elements:
o
a requirement to plan ahead for cessation of operations and decommissioning:
this involved the requirement to prepare a Residuals Management Plan (RMP)
to be submitted to the EPA (generally within six months of the commencement
of activities/grant of the Licence);
o
a requirement for the RMP to be reviewed annually;
o
a requirement to identify and cost environmental liabilities through the
preparation by an independent consultant of an Environmental Liability Risk
Assessment (ELRA) for the site operations, identifying liabilities from past and
present activities (generally to be submitted to the EPA within six months of
the commencement of activity/grant of the Licence);
o
a requirement for financial provision: this involved the making of “financial
provision” in a form acceptable to the Agency to cover
decommissioning/residuals management obligations and liabilities identified
the ELRA (generally to be put in place within nine months of the
commencement/grant of the Licence);
o
a requirement for annual review of this financial provision;
o
as something that began to feature later in this phase (and evidencing an
increased emphasis by the EPA in ensuring licensees “followed through” on
their obligations to put financial provision in place) there was typically the
23
The IPPC Directive (1996) introduced a harmonised EC-wide approach to installation-based pollution
control for many of the same sectors then covered by the Irish IPC licensing and it necessitated Irish IPC licenses
being updated in various respects for compliance with the Directive’s requirements. The Directive on IPPC was
not formally transposed into Irish law until 2003 – by the Protection of the Environment Act 2003. Even before
transposition of the IPPC Directive in 2003, when licensing newly opened facilities or when reviewing or
updating existing IPC licences in the normal course (e.g. to reflect physical or operational changes of already
licensed facilities) the EPA in many cases did so in anticipation of the formal transposition of that Directive.
Then, after formal transposition of that Directive after 2003 the EPA embarked on a systematic programme of
reviewing licences for conformity with the IPPC Directive. While this review programme was not confined by
any means to the issue of identifying and underwriting environmental risk and liabilities, it incorporated that
element. It should be noted however that at one level Irish licensing arrangements moved ahead of the
requirements of the IPPC Directive in that the IPPC Directive, as has been noted above, was not particularly
prescriptive as regards financial provision in licence conditions, whereas for some time before the formal
transposition of the IPCC Directive in Ireland IPC licences contained forms of financial underwriting conditions.
10
requirement to furnish to the EPA proof of financial provision within two
weeks of its purchase of renewal or revision.
The above summarises the typical content of a financial provision condition for an IPPC
licensed facility in Ireland. As regards large-scale waste facilities holding licence from the
EPA both the structure and content are broadly the same, with the financial provision
requirement also typically incorporated into, or related to, wider requirements regarding
closure, aftercare and the identification of liabilities through an environmental liabilities risk
assessment for the licensed site. 24
As mentioned above, in the context of the Environmental Liability Directive’s Articles 14(1)
obligation on Member States to take measures to encourage the development of financial
security instruments, in 2006 the Irish EPA published a comprehensive guidance document
titled “Guidance on Environmental Liability Risk Assessment, Residual Management Plans
and Financial Provisions”. 25 This publication reflected the added importance being afforded
in relation to risk identification and financial underwriting for waste and IPPC Licensed
facilities. It can also be seen as a response to the perceived need for licensees to understand
better, for compliance purposes, the practicalities of this aspect of environmental licensing for example in terms of what choice of financial instrument(s) to select in the market.
The 2006 Guidance Document “… presents a systematic approach to the assessment and
management of environmental liabilities in order to comply with IPPC and Waste Licence
conditions for Environmental Liability Risk Assessment (ELRA); Residual Management
Planning (RMP) and Financial Provisions (FP).” There are sections in the Guidance on
quantifying the financial amounts of environmental liabilities; selecting appropriate financial
instruments to underwrite those liabilities; explanations on how to report to the EPA on
financial provision already in place; a discussion of what kinds of financial instruments are
appropriate for the various kinds of known and unknown liabilities; and case study examples
of what combinations of financial instruments to select from as regards plants of varying
environmental sensitivities. In the Guidance licensees are given details on the appropriate
application of, and on the respective advantages and disadvantages of, for example, cash
deposits, accumulating cash funds, escrow accounts, environmental insurance, bonds, letters
of credit and parent company guarantees etc. 26
More recently still – since 2006 – reflecting again both the implementation of the
Environmental Liability Directive and the existence of the EPA Guidance, licences granted or
reviewed since, roughly, 2006 will typically have the following additional features:
o a requirement for regular and periodic communication by licensees with the
EPA on financial provision: The typically entails the requirement to include
24
Certain waste licences appear to afford generally longer timeframes than IPPC Licences for the
provision of the costed Environmental Liabilities Risk Assessment and for the putting in place of the financial
provision.
25
Published by the EPA’s Office of Environmental Enforcement (2006).
26 An important aspect of the Guidance, in response to the practice of applying standard financial licence
conditions across IPPC Licenced facilities of varying degrees of size, complexity and environmental risk, is “a
Risk Assessment Methodology… (initial screening) that reduces the number of IPPC and Waste Licence
facilities that will be required to complete full ELRA and RMP Reports and make Financial Provisions” (Section
1.1).
11
details of financial provision as part of a Site’s overall Annual Environmental
Report (AER) to the Agency; 27
o A review, at least annually, of the amount of that financial provision, again to
be included with the AER;
o Finally, incorporated into these conditions, a requirement obliging the licensee
to “have regard to” the 2006 Guidance Document when implementing the
conditions on ELRA and Financial Provision etc.
An important effect of these latest elements is to ensure that the requirements for initial
financial provision and for periodic review of the levels of financial provision, remain
regularly “on the radar” of licensing authorities and licensees. Furthermore it seems clear that
since 2006 heightened attention is being given at EPA level to compliance with these licence
conditions - evidenced by a programme of systematic letter writing in the past few years to all
licensees reminding them of their license conditions on financial provisions and of the
existence of the Guidance document, together with an increased level of direct engagement
with licencees generally on compliance with financial provision conditions.
The Irish Ispat Case: The Background
There is little history here of liquidators becoming enmeshed in environmental enforcement
action. The 2005 case of Minister for the Environment and Local Government and Ors -vIrish Ispat Limited (in vol. liquidation) and Anor28 - while it is a Case with some limits as to
its wider precedent value owing to its particular factual background - is instructive as regards
the circumstances in which company law and insolvency law on the one hand can clash with
environmental law on the other hand; and for highlighting the specific features and
provisions of insolvency law that can impede the resolution or satisfaction of environmental
claims.
The case has its origins in the long-running effort to remediate the site of the former Steel
Plant at Haulbowline Island, Cobh, Co. Cork. The site had been operated by the State-owned
Company, Irish Steel Holdings, for many decades until 1996 when the State, through the
Minister for Enterprise and Employment, sold its shares in the Company to Ispat Mexicana
SA de CV. This Company in effect subsequently became Irish Ispat Limited. In addition to
the share sale, the transaction involved the making of property and foreshore leases to the
acquiring Company to occupy the site. 29 In 1996, when these events occurred, the
environmental condition of the site was very already extremely poor. The site was heavily
contaminated and there were huge deposits of above-ground waste material, slag, waste oils,
sludges, and heavy metals. At that point, in 1996, the Plant was not yet subject to the direct
control of the EPA.
27
With the Financial Provision detail to be included in the “Annual Statement of Measures” section of the
AER. The “Annual Statement of Measures” refers, in the main, to measures adopted to prevent environmental
damage in compliance with the requirements of the Environmental Liability Directive.
28
2005 I.R. 338.
29
The property lease and the foreshore lease were made, respectively, by the Minister for Finance and the
Minister for the Marine. These leases, in particular the property leases (which were for terms of 35 years), with
seven-year “break clauses” had, as will be seen, an important influence on the outcome of the case.
12
By 2001 the Steel Plant fell to be licensed under the “Integrated Pollution Control” licensing
system being operated by the EPA under the Environmental Protection Agency Act 1992. 30
The Plant had made its application for an IPC Licence and was being assessed by the EPA for
that purpose. By 2001 also, the Company had been trading very unsuccessfully and had an
accumulated deficit as regards creditors of nearly €37m (equivalent). Both issues – the
licensing issue and the trading position of the Company – converged in June 2001. On 15
June 2001 the Company issued notices to all creditors to convene the statutory meeting to
commence a winding up. That meeting was held on 22 June 2001. On the same day, the
Company was issued with its IPC Licence by the EPA. The Licence was subject to fifteen
conditions, including a Condition regarding clean-up or “residuals management” on cessation
of the licensed activity; a condition requiring the preparation of an Environmental Liabilities
Risk Assessment identifying liabilities and a condition regarding the making of financial
provision in a form acceptable to the Agency to cover any liabilities incurred by the Licensee
as a consequence of environmental pollution arising at the site.
A year later, in June 2002, during the liquidation, the Liquidator brought a Court application
seeking leave to disclaim as “onerous property” firstly, the leases and, secondly, the IPC
Licence. The application to disclaim was brought under Section 290 of the Companies Act
1963.31 In February 2003 proceedings were brought against the Company and against the
Liquidator by various Ministers concerned with the site and with Haulbowline Island - the
Minister for the Environment, the Minister for Communications Marine and Natural
Resources and the Minister for Defence. Those proceedings were brought under Section 58 of
the Waste Management Act 1996. Section 58 enables the High Court to order a person who is
holding (or has held) waste in a manner that is causing or is likely to cause environmental
pollution to discontinue the holding of the waste and to order certain works and to make
orders for the mitigation or remedying of the effects of the holding of waste.
It is important to note that under both Section 290 of the 1963 Act and Section 58 of the 1996
Act any orders made or relief granted is done on the basis of the exercise of the Court’s
discretion. In May 2003, as a further “twist”, just as the liquidation was concluding, and as
the proceedings were waiting to be heard, the Liquidator notified the State Lessors that he
intended to operate the (seven-year) break-clauses in the Leases and he duly vacated the
property. Both sets of proceedings – the Section 58 proceedings and the Section 290
proceedings - were heard consecutively in the High Court by Carroll J. in November 2003.
Irish Ispat: the Proceedings under Section 58 of the Waste Management Act 1996
In these proceedings the Court was in effect called on to apply certain environmental law
concepts and principles, such as that of “holder” of waste, and the “polluter pays principle”, to
30
The “IPC Licensing” system – with IPC standing for Integrated Pollution Control – was one of the main
functions designated for the EPA on the establishment of that Agency under the EPA Act 1992. The system
covered intensive agriculture, power generation, chemicals manufacturing, minerals manufacture and a range of
other large-scale, environmentally sensitive, industries. In essence installations within each of these sectors
became, commencing in about 1993, subject to a requirement to apply for and to hold an environmental (IPC)
licence, with various installation-specific conditions attached to the licences relating to emissions control and
overall environmental management.
31
Section 290 (1) of the 1963 Act provides that where any part of the property of the company being
wound up is “unsaleable or not readily saleable by reason of binding the possessor to the performance of any
onerous act or to the payment of any sum of money” the Liquidator may, with the leave of the Court, in writing,
and within twelve months of the commencement of winding up (or any extended period allowed by the Court)
“disclaim” that property.
13
a liquidation scenario. The principle questions and findings on that aspect of the case may be
summarised as follows:
(a)
The status of the Company and of the Liquidator as a “Holder” of the waste on the
site: Section 58 clean-up orders can be made against the “holder” of waste or against
a former holder and the Applicant Ministers had claimed an order “[T]hat the
company and liquidator discontinue the holding, recovery or disposal of waste on
lands being leased by the company and in the control of the liquidator and to carry
out [“certain listed works”]. The Liquidator argued that no order could be made
against him personally – that any holding of waste was by the Company in
liquidation and not by him.
The Judge determined this by ruling:
“This relief cannot be granted because neither the company nor the liquidator
holds, recovers or disposes of waste. The company no longer leases the lands and
the liquidator is not in control of the lands.” 32
It seems reasonably clear from this (and from other parts of the Judgment) that the
Judge relied on the exercise of the Lease’s break clause by the Liquidator on behalf
of the Company as the principal reason why the Company could not be deemed to be
holding the waste – because the Company was then currently holding the lands under
a lease. Even though Section 58 empowers the Court to make an order against the
person that is holding, or that has held, waste, the reliefs formally sought against the
Company and the Liquidator by the State in its Section 58 proceedings referred only
to the “holding” of waste. This combination of events - involving the operation of
the break clause - was sufficient to obviate the need for an order against the
Company. What remains less clear is whether this operation of the break clause was
also the reason why the Liquidator could not, in the Judge’s view, be considered to
be holding the waste or to be in control of the lands i.e. whether, as a matter of wider
principle, the Court held that a Liquidator following purely from the exercise of his
role, could not be considered to be “in control of” lands for the purpose of the Waste
Management Act 1996 or whether, in the particular circumstances of this case, he
was not in control be virtue of the exercise of the break clause by the Company.
(b)
The Section 58 proceedings purported to be a claim for priority in the winding up:
Section 281 of the Companies Act 1963 provides that all costs, charges and expense
properly incurred in a winding up, including the remuneration of the Liquidator, shall
be payable out of the assets of the Company in priority to all other claims. The Court
held that, in seeking clean-up orders under Section 58 in a liquidation scenario, and
ahead of other claimants, the Minsters were purporting to represent the claim as a
charge or expense under Section 281 of the Companies Act 1963. Applying In Re A.
Noyek & Sons Ltd 33 in relation to the meaning of “charges and expenses” for the
purpose of Section 281, Carroll J. held that the costs of mitigating the environmental
damage could not be considered to be costs or charges contemplated by that Section.
While it is perhaps more accurate to confine this part of her Judgement to one
concerned with the precise meaning of Section 281, there are, in this part of the
judgment, some comments that suggest that in the view of the Judge a liquidator
32
At page 367
1988 I.R. 772.
33
14
exercising that role ought to be immune from the implications of environmental
enforcement in this kind of scenario. At page 367 the Judge stated:
“the purpose of a winding up is to get in the assets and distribute the money
realised in accordance with company law”.
Elsewhere in that part of the Judgment Carroll J. added:
“while a liquidator is not a trustee in a voluntary winding up, he has a
statutory duty towards the creditors and contributories, including the
administration of a fund (the assets of the company) impressed with the trust
for them and if he neglects those duties he may be held personally liable by the
party prejudiced (see Palmer’s Company Law, para.15.123).” 34
(c)
The outstanding cost of environmental clean up was no cause to disregard the status
of intra-Company loans/debts in the winding up: The State highlighted the existence
of large shareholder loans owing by the Company to its parent company. The
suggestion here was that these loans should be treated differently from other loans or
liabilities of the Company – that they were not somehow real debts and that the money
that the Liquidator would otherwise apply towards satisfying these debts to the parent
company should be made available for the environmental clean-up. The Judge
dismissed that suggestion in a manner that, again, appeared to prefer the more specific
and longer established provisions and principles of insolvency law priorities to the
more recent, and more general, waste management provisions. At page 368, she
stated:
“Under s.283 all debts which are admissible to proof against the Company are
set out. Under s.275 (subject to preferential claims) the property of a
Company on its winding up should be applied in satisfaction of its liabilities
pari passu. I know of no principle of law which would permit some debts
which have been proved in the winding up to be excluded from benefitting from
the pari passu rule and be diverted to another purpose. Nor has any basis
been suggested”.
(d)
The factors determining the exercise of the Court’s discretion under S.58 of the Waste
Management Act 1996: The issues set out at (a), (b) and (c) above were all determined
in favour of the insolvent estate and the Liquidator. The Judge considered whether,
nevertheless, the residual discretion vested in her under Section 58 provided a basis to
order the cost of clean up to be paid out of the assets of the Company in liquidation.35
In approaching the exercise of her discretion, the Judge considered principally the
timing of the issuing of the IPC Licence, as well as whether, in practical terms, any
real effect could be given to the polluter pays principle in the context of the
liquidation.
34
At pages 367 and 368.
“The question arises whether the provisions of the Act of 1996 should be applied in priority to the
provisions of the Act of 1963. In the Directive, recital 1 refers to the objectives and principles of the community
environment polices consisting of preventing, reducing and, as far as possible, eliminating pollution by giving
priority to intervention at source and ensuring prudent management of natural resources in compliance with the
““polluter pays”” principle and the principle of pollution prevention”(at page 368).
35
15
In declining to order the Company to clean up the site the Judge gave as a principal
reason the fact that the IPC Licence had effectively been granted after the Company
ceased the production of steel. Whilst noting that, the Liquidator did finish off some
work in progress, some of that, the Judge noted, had been work that had been
commenced prior to the issuing of the IPC Licence. The Conditions in the Licence
could not, according to the Judge, be applied retrospectively. She indicated that it was
also a factor affecting her judgment that the amount of waste attributable to the time
the Liquidator was on site “must be infinitesimally small in relation to the general
pollution caused over the fifty and sixty year period when the Company was owned by
the State up to 1996 after which it was taken over by a foreign shareholder”. 36
As regards the role of the “Polluter Pays” Principle (this had been relied on by the
State) how did Carroll J. – again in the context in the exercise of her discretion under
Section 58 – deal with this? In essence she said that that Principle cannot apply – that
it can only apply where the Polluter can pay without compromising the position of
creditors:
“In this case the Polluter (i.e. the company) has no assets. The State is not
seeking to lift the corporate veil which was the approach adopted by
O’Sullivan J. in Wicklow County Council v. Fenton (No. 2) [2002] 4. I.R. 44.
But most importantly of all, the assets in the hands of the liquidator available
for distribution are impressed with a trust for the creditors. There is nothing
over for the contributories. The principle of the “polluter pays” as far as the
company is concerned cannot be achieved.
This is a view supported by Morritt L. J. in re Celtic Extraction Limited [2001]
Ch.475 at p. 490 where he said:
“there is nothing in the Directive to suggest that the ‘polluter pays’
principle is to be applied to cases where the polluter cannot pay so as to
require that the unsecured creditors of the polluter should pay to the extent
of the assets available for distribution among them”
36
At page 369. This part of the Judgment (the exercise of the Section 58 discretion) draws on the context and
timing of the granting of the IPC Licence perhaps to an undue degree, given especially that the Judge, at an
earlier point in her decision, had clearly separated out the claim under Section 58 of the Waste Management Act
1996 on the one hand, from, on the other hand, the application to disclaim the IPC Licence under Section 290 of
the Companies Act 1963. At page 366 of the judgement Carroll J. stated (in deciding to deal in her judgment
firstly with the State’s Section 58 application, rather than with the Liquidator’s application to disclaim the IPC
Licence under Section 290 of the Companies Act 1963, stated “[T]he Act of 1996 is independent of the
Integrated Pollution Control Licence. The application under Section 58 does not depend on the existence or not
of the Integrated Pollution Control Licence nor whether the licensee is bound by the conditions and terms of the
licence. The Act of 1996 was brought in to implement various Community directives relating to environmental
matters and, in particular, waste.” In addition, to the extent that the exercise of the discretion focused on the
comparative amounts of waste generated under the Liquidator’s “watch” as compared to that generated by the
State, this analysis does not, perhaps, sufficiently acknowledge that the Steel Plant had been acquired from the
State in 1996 and, as far as the private generation of waste in the five-year period up to 2001 is concerned (a
period of time which is not immaterial in the overall context, and which saw a significant amount of additional
environmental mismanagement occur at the site, production increased dramatically and the Plant’s
environmental compliance record was extremely poor and, in the same five-year period, the Plant generated and
deposited on the site almost 100,000 of hazardous waste.
16
A further Directive No. 75/442/EEC (O.J. 1975 L194/39) on waste cited by the
State is also based on the “polluter pays” principle which cannot apply here.
For these reasons I will not exercise the discretion under s.58 to order the
liquidator to expend money which is available for distribution amongst the
creditors in mitigating or remedying pollution in Haulbowline Island.” 37
While this is, again, quite an emphatic expression of the Judge’s view as to the limits of the
“polluter pays” principle in the face of the clear and well established purpose of the
insolvency mechanism, it is notable also for the reference to the State having failed to apply to
“lift the corporate veil”. The failure to do so in the proceedings relating to Irish Ispat may be
explained by the fact for much of time that waste and the environmental contamination had
been accumulating as a result of that Company’s activities the polluter was a State Company.
As to the possibility of success in an appropriate case via a claim for relief seeking the lifting
of the corporate veil it should be noted that, as things stand presently, such a claim would be
unlikely to succeed. This is as a result of the recent decision of the High Court in Neiphin
Trading, which, in effect, found that Sections 57 and 58 of the Waste Management Act 1996,
based on their current wording, do not empower the Court, in order to give effect to the
polluter pays principle, to lift the corporate veil in enforcement proceedings under the Waste
Management Acts. 38
Irish Ispat: the Proceedings under Section 290 of the Companies Act 1963
Section 290 allows a liquidator in a winding-up, with the leave of the Court, to disclaim
“onerous property” of the company.39 Relying on In Re Celtic Extraction Limited [1999] 4 All
E.R. 684, in which the Court of Appeal reversed a decision of the Company Court Judge and
declared that an official receiver was entitled to disclaim a waste management licence, the
Liquidator of Irish Ispat Ltd applied in the proceedings to disclaim the Company’s IPC
Licence. 40 The principal issues and findings on that aspect of the case can be summarised as
follows:
(a)
Was the IPC Licence “onerous property” within the meaning of Section 290?: The
Liquidator argued that the Company’s interest in the Licence constituted property that
was, within the meaning of S.290, either “unsaleable or not readily saleable by reason
of binding the Company to the performance of onerous conditions”.41 The EPA
37
At pages 369 and 370.
Environmental Protection Agency v Neiphin Trading Limited and Others – The High Court (Edwards J.) –
judgement delivered on 3 March 2011. This decision is considered later in this Paper – in the Section on the
environmental liability of directors and managers.
39
Section 290 (1) of the 1963 Act provides as follows: “Subject to subsections (2) and (5), where any
part of the property of a company which is being wound up consists of land of any tenure burdened with onerous
covenants, or shares or stock in companies, of unprofitable contracts, or of other property which is unsaleable
or not readily saleable by reason of its binding the possessor thereof to the performance of any onerous act or of
the payment to any sum of money, the liquidator of the company, notwithstanding that he has endeavoured to sell
or has taken possession of the property or exercised any act of ownership in relation thereto, may, with the leave
of the Court and subject to the provisions of this section, by writing signed by him, at any time within 12 months
after the commencement of the winding up or such extended period as may be allowed by Court, disclaim the
property.”
40
Because of the cost of compliance with Conditions 14 and 15 of the Licence which required the
Company, following cessation of operations, to decommission and render the site safe and remove all waste and
contaminated soils and sub-soils.
41
See note 39 above.
38
17
argued that an IPC Licence was a creature of regulatory law and did not amount to
property – that it merely regulated the existence of whatever rights the holder had to
carry on the activity – without creating or confirming such rights. The EPA argued
that Section 290 had no application to the context of an IPC Licence. It argued that, in
any event, within the meaning of Section 290 property had, firstly, to be saleable
before it could be “unsaleable by virtue of onerous conditions”. According to the
EPA the IPC Licence was never saleable in the first place – it could not be sold or
transferred simpliciter. It was something that the Company was required to have in
order to carry on its activities.
While Carroll J. ultimately allowed the disclaimer, she did so without addressing the
specific issue of whether the IPC Licence of itself was property within the meaning of
the Section 290. In summary she relied on the statutory provisions then in force
regarding the relationship between an IPC Licence and the site to which the Licence
related; as well as on her view of “property” for the purpose of Section 290 as
covering property transferable by operation of law (as distinct from transfer only by
separate act of parties).
Carroll J. noted that Section 290 itself contained no explanation or definition of the
term “Property”. The Liquidator argued that in those circumstances the definition in
Section 3 of the Bankruptcy Act 1988 should be applied.42 In finding that “property”
for the purpose of Section 290 did not have to be property that was separately
transferable by act of the parties but could cover property transferable only by
operation of the law Carroll J. focused particularly on the relevant statutory
provisions, then current, relating to the transfer of IPC Licensed sites or business. At
the date of the Irish Ispat Decision Section 91(1) of the Environmental Protection
Agency Act 1992 (titled “change of ownership of activity”) provided as follows:
“(1) Where a Licence or revised Licence is granted under this Part, the
grant of the licence of revised licence shall, except as may be otherwise
provided by the licence or revised licence, enure for the benefit of the
activity and of all persons interested for the time being therein”.
The Judge noted that in effect this meant the transfer of rights under the licence was by
operation of the law.43 The fact that the sale of the business would have to include the
transfer of the site to which the licence related meant, according to the Judge, “that the
premises, the activity and the interest under the licence together were capable of
constituting ‘saleable property’ ”.44 She concluded:
42
Section 3 of the Bankruptcy Act 1988 provides as follows: “property” includes, goods, things in action,
land and every description of property, whether real or personal … also obligations, easements ….. arising out
of or incident to property as defined above.” Carroll J. also reviewed the legal authorities that dealt with whether
property rights could be conferred by licences in the nature of intoxicating liquor licences or other licences such
as taxi licences: Hempenstall v Minister for the Environment [1994] 2 I.R. 20 (dealing with taxi licenses);
Maher v Minister for Agriculture [2001] 2 I.R. 139 (discussing whether planning permissions and licences for
the sale of alcohol constitute property rights); The State (Pheasantry Limited) -v- Donnelly (1982) I.L.R.M. 512
(intoxicating liquor licences).
43
She observed that while in the case of Irish Ispat Ltd the business was not profitable, if the licensed activity
happened to be profitable, it was open to the liquidator to sell the business as a going concern, the value of which
business would be enhanced by the existence of the licence (in the same way, the Judge noted, that the existence
of the licensed premises derives a large part of its value from the existence of a liquor licence attached thereto).
44
At p. 372.
18
“[I] am satisfied that taken together, the premises, the rights under the licence
and the activity authorised by the licence constituted property within meaning
of Section 290”. 45
Owing to a statutory change since Irish Ispat, specifically in the area of transfer of
IPC/IPPC Licences, it must now be questionable whether the High Court’s line of
reasoning in Irish Ispat – specifically on the issue of permitting a disclaimer of such a
licence - still endures. Part IV of the Environmental Protection Agency Act 1992
(concerned with Integrated Pollution Control licensing) has been significantly revised.
It has been replaced by a new Part IV. 46 While the new Part IV reiterates that an
IPC/IPPC Licence shall “....(enure) for the benefit of the activity and of all persons for
the time being interested therein” this is now subject to a new Section 94 (titled
“transfer of licences”). Section 94 sets out a mechanism for the transfer for an
IPC/IPPC Licence which involves a joint prior application in advance to the EPA by
the holder of the Licence and the proposed transferee and it is clear that the prior
consent of the EPA is now required. On that basis it is questionable whether an IPPC
Licence now transfers by operation of the law on the transfer of a site or of an interest
in the licensed business.
(b)
How was the discretion under Section 290 exercised?: Having held that the IPC
Licence was capable of being disclaimed the Judge proceeded to exercise her
discretion under Section 290 in favour of permitting the disclaimer. The Judge
emphasised that the Company had “operated legally without conditions” until the
grant of the IPC Licence by the EPA in 2001.47 She noted that the Licence was only
granted effectively after the Company had given up production and had given notice to
the creditors. She applied Tempany v Royal Liver Trustees Limited [1984] I.L.R.M.
273 which requires the Court to take account of the interests of all parties in the
liquidation when considering whether a Liquidator should be permitted to disclaim. In
light of Tempany Carroll J. noted:
“… there are the Creditors whose money this is and who would be most affected if
there is no disclaimer of the licence.” 48
Environmental Liability of Directors, Managers and Members etc.
The largest installations will almost always be held and operated under a corporate structure.
Thus, when considering the status, and routes to realising the settlement of, environmental
45
At p.372. This basis for the Judge allowing the disclaimer of the IPC Licence – that the licence should
be considered to be tied to the business activity and tied to the property – was not, she held, affected by the
operation of the break clause in the Lease. Reviewing the sequence of events, she considered that the disclaimer
of the IPC Licence came first in time. In this regard she relied on Tempany v Royal Liver Trustees Limited
[1984] I.L.R.M. 273 (Keane J.) in which the question of when an application to disclaim can be considered to
have been made and in Tempany it was held that critical juncture for the purpose of the application to disclaim
was when notice of the intention to disclaim was given. Carroll J. noted that in the Irish Ispat liquidation was
notice of the application to disclaim pre-dated the operation of the break clause and therefore “the licence did
not suffer infirmity of being separated from the premises”, Page 372.
46
Inserted by Section 15 of the Protection of the Environment Act 2003.
47
This is somewhat questionable in that the limits of the Foreshore Leases had been breached by the
occupiers of the site. An important 1977 planning condition regarding the building of a retaining wall for one of
the Site’s waste tips had never been observed.
48
At p.373.
19
claims in insolvency and business failure, the rules regarding directors’ liabilities and the
lifting of the corporate veil and their application to environmental law scenarios falls for
consideration.
As regards criminal proceedings the position is relatively clear in that all of the main
environmental statutes contain similar provisions whereby criminal liability can be extended
to company officers where they have contributed materially to the commission of an
environmental offence.49
As regards civil liability of Directors, while the general principle is that, in civil law, the
directors and other representatives of a company are not liable for the wrongs of that company
there are a number of important qualifications. The Courts exercise a general and residual
power to “lift the corporate veil” where corporate structures are found to be a sham or a
vehicle for fraud or where they are used to frustrate or abuse the process of the Court itself.
In 2002 the High Court identified a specifically environmental law basis for lifting the
corporate veil and extending the liability to company directors. While the decision in
question – Wicklow County Council v Fenton and Others (No.2) 50 has effectively been very
recently reversed, the reasoning of the Court in Fenton (No.2) is still instructive as regards
illustrating the somewhat uncomfortable interface between environmental law and
corporate/insolvency law principles; and as regards appreciating the reasoning in the recent
decision which reversed Fenton (No.2).
In Fenton (No.2) the Applicant County Council sought relief under Sections 57 and 58 of the
Waste Management Act 1996 preventing the continuation of illegal dumping and requiring
the Respondents (who included the waste management Company at whose Dublin premises
the waste had been stored prior to dumping, and two Directors of the Company) to remedy the
environmental pollution at the illegal dumping site in Co. Wicklow. The High Court traced
the origin and development of the “polluter pays” principle within European Community
environmental policy and law – starting with the original reference to the Principle in Council
Recommendation 75/436/EURATOM/ECSC/EEC as well as the references to the Principle
within the successive Treaty instruments. O’Sullivan J. found that the principle had been
ultimately incorporated into the various European Waste Directives, including into the Waste
Framework Directive (75/442/EEC, as amended) which the Waste Management Act 1996
sought to give effect to. O’Sullivan J., having thus connected the “polluter pays” principle
with the Waste Framework Directive and with the 1996 Act, then – as a basis for holding that
if the clean-up costs in the case before him were not met by the waste management company
that he could make a “fall back” order fixing the individual directors with those costs – relied
in that regard on the original EC definition of “polluter” (for the purpose of the polluter pays
principle). He noted that it was defined to mean anybody who “directly or indirectly created
the conditions leading to environmental pollution” (according to Council Recommendation
75/436/EURATOM/ECSC/EEC). O’Sullivan J. emphasised that that definition was capable
of covering the individual directors in the case before him based on their state of knowledge
of the wrongdoing.
49
The Environmental Protection Agency Acts, the Waste Management Acts and the Water Pollution Acts
all provide that where an offence under those Acts has been committed by a body corporate, and is proved to
have been committed with “…the consent or connivance of, or to be attributable to any neglect on the part of…
a Director, Manager, Secretary or other similar officer…that person as well as the body corporate shall be
guilty an offence and liable to be proceeded against…”.
50
2002 4 I.R. 44
20
O’Sullivan J. in Fenton (No.2) ultimately found that the limited liability rule had to yield to
the imperatives of the polluter pays principle which, as he had held, had been incorporated
into the Waste Framework Directive which the 1996 Act was passed to give effect to. The
kernel of his Judgement in this regard is contained at page 68:
The domestic law in relation to limited liability of companies would, in my opinion,
frustrate or at least fail fully to implement the objectives of the relevant Directives if it
precluded the making of an order against Directors in circumstances where the
company in question, having first been directed by the court to comply with such
orders, was not in a position for financial or other reasons so to do. In my view, in
order to ensure the full application of the “polluter pays” principle, whereby those
responsible even indirectly for causing environmental pollution should pay for it
rather than leave it to an innocent party or the community to do so, the courts must be
in a position to make orders directly against directors in such circumstances, and the
domestic company law of limited liability should be suspended and the veil of
incorporation lifted in order to ensure the full application of this principle and other
objectives of the European waste directives. To hold otherwise would, in my opinion,
mean that innocent parties (local authorities or the public) would have to “pay”( if
only by accepting pollution of their environment without remedy), whereas those
individuals who are at least indirectly responsible for it would be beyond the reach of
Irish domestic law. That is not, in my opinion, a transposition into the Irish law of the
European Directives. Accordingly, a “fall-back” order may be made against
individual directors and/or shareholders where a company cannot comply with a
primary order.
O’Sullivan J’s judgement in Fenton (No.2) was subsequently followed and applied in Cork
County Council v O’Regan [2005] IEHC 208; in Laois County Council v Scully [2006] IEHC
2; and in Wicklow County Council v O’Reilly and Others [2006] IEHC 265. However, in a
relatively rare departure from the stare decisis convention, Fenton (No.2) has recently been
effectively departed from. In Environmental Protection Agency v Neiphin Trading Ltd and
Others, High Court (Edwards J.) - Judgement delivered on 3 March 2011 - the High Court
found Fenton (No.2) to have been wrongly decided specifically on the basis that, whatever
about the primacy of the “polluter pays” principle over national rules regarding limited
liability (and Edwards J., in Neiphin Trading, expressed himself satisfied that O’Sullivan J.
was correct to the extent of concluding that there could be circumstances where limited
liability could be suspended in order to ensure the “polluter pays” principle was not
frustrated) nevertheless found that Section 57 of the Waste Management Act 1996 (under
which “fall-back” orders were being sought in the case before him) simply could not, based
on the specific wording of Section 57, and in light of the rules of statutory interpretation and
construction, be considered to be capable of bearing a meaning authorising or envisaging the
making of “fall-back” orders. Nowhere in Section 57 according to Edwards J., was there any
express or implied reference to or basis for the making of a “fall-back” order against
individual directors of companies.51
51
In Neiphin Trading the Court’s reasons included the following: the very limited reference to the
“polluter pays” principle in the 1996 Act (while Section 5 defined the “polluter pays” principle, Edwards J. noted
that the only substantive references to the Principle in the Act itself were in Section 22 (dealing with waste
management planning) and in Section 26 (dealing with hazardous waste management planning); Edwards J.
noted that apart from the Section 22 and Section 26 of 1996 Act and some “incidental references” in secondary
legislation that the Waste Management Acts 1996-2010 “are otherwise silent with respect to the polluters pays
21
Edwards J. stated that “although the principle of separate corporate personality is not set in
stone” its fundamental nature and the wider interests of legal certainty meant that “in the
absence of an express statutory abridgement of that (separate corporate personality)
principle” the Court should lean against an interpretation permitting the corporate veil to be
pierced. (Page 92). Edwards J. found that in Fenton (No.2) O’Sullivan J. had taken an
incorrect approach to the interpretation of Section 57 and 58 of the Waste Management Act
1996. While acknowledging that O’Sullivan J. “was certainly entitled to take into account the
fact that the (Waste Management) Act was enacted inter alia, for the purpose of giving effect
to the Waste Framework Directive, and (that) he was entitled to have regard to the objectives
of that Directive,” Edwards J. found that O’Sullivan J. was “nonetheless still obliged to
consider what was the ostensible intention of the Oireachtas in enacting s.57 and s.58 in the
terms in which it did and to endeavour to ascertain the legislator’s intention from a
consideration of the Act as a whole” (emphasis added). In this regard he found that while,
again, O’Sullivan J. was correct in taking the purposive and teleological approach (as regards
seeking to interpret Sections 57 and 58 in a manner consistent with the Waste Framework
Directive) that, based on the clear and unambiguous wording of those Sections, and in light of
the complete absence therein of any express or implied reference to or basis for making “fallback” orders, there were no grounds to depart from the rule of literal interpretation that was to
be, in the circumstances, to be applied to a reading of Sections 57 and 58. There was no basis,
based on the clear wording of Sections 57 and 58, to consider that the “polluter pays”
principle was to be given effect to through the specific enforcement mechanisms in Sections
57 and 58 and therefore, to the extent that the Waste Management Act 1996 and Sections 57
and 58 was legislation seeking to transpose the Waste Framework Directive, there had been
inadequate transposition in that regard.
Lender Liability for Environmental Damage?
Most businesses of any size operate only because they have initial and ongoing capital and
funding for their operations from lenders and other financiers. The range of interactions that
banks can have with their borrowers’ operations, 52 ever-increasing social and policy
expectations that environmental damage must be rectified, the typically wide definitions and
trigger terms that can be encountered in environmental law, 53 as well as calls internationally
by advocacy groups to assign liability to funders 54 are all factors that have focused attention
on the role of lenders in the evolving regime of environmental protection.
principle”. He noted particularly that there was no specific reference to the Principle in Sections 57 and 58. He
also found it difficult to reconcile Section 9 of the Waste Management Act 1996 (which sets out a specific basis
upon which individual Directors may incur criminal liability) with the silence of Sections 57 and 58 as regards
Directors’ civil liability.
52
This can range from providing a rolling facility; to specific project finance; to having a director on the board;
to advising from the background; to exercising control over the borrowers assets e.g. appointing a receiver; to
acquiring the borrower’s assets and property through enforcement of its security.
53
As examples, concepts and terms such as “control” and “occupier for the time being” are frequently
employed in environmental legislation.
54
Movements advocating corporate social responsibility and socially responsible investment argue that
assigning liability to financiers would modify their behaviour and promote more environmentally sustainable
lending practices. They argue for liability, especially where financiers have advance knowledge of
environmentally risky developments being capitalised. There are differing views as egards the efficacy, and the
role, of voluntary sustainable lending criteria adopted and applied by the banking sector such as the Equator
Principles. As against that, others advocating sustainability imperatives for the financing sector acknowledge that
a blanket imposition of environmental liability on lending could well be unwise and in addition to changing
lending practices to industry and manufacturing generally could actively impede sustainability objectives
22
In this Country, as in many other common law jurisdictions, merely providing finance is
generally not sufficient to incur environmental liability and consequently lenders have not, as
a matter of law, had to concern themselves with the environmental consequences of their
loans. In relation to the liability position of banks merely as lenders, with little or no
operational input or control into the borrowers’ activities, this issue has arisen as a serious
concern only in the U.S. – arising from the Fleet Factors case. In United States-v-Fleet
Factors Corporation 55 the Court of Appeals found the lender liable for environmental
damage incurred during the foreclosure process. In the particular facts of that case the
defendant financial institution, Fleet Factors, had become heavily involved in the day-to-day
management of the borrower company during foreclosure, and its agents had actually
disposed of industrial waste. However, what gave rise to considerable alarm on the part of the
banking sector in the U.S. was that the Court’s finding of liability against the lending
institution was not apparently confined to the facts of that particular case but, instead, the
Court of Appeals’ comments appeared to have much wider application. The Court considered
that the lender’s involvement in the financial management of the borrower gave it the
potential and the “capacity to influence the corporation’s treatment of hazardous waste”. As
to when any particular lender might incur liability, the Court of Appeals made the observation
that:
“A secured creditor will be liable if its involvement with the management of the
facility is sufficiently broad to support the inference that it could affect hazardous
waste disposal decisions if it chose to.” 56
The Court’s ruling was delivered in a case involving the Comprehensive Environmental
Response, Compensation, and Liability Act 1980 (also known as the “CERCLA”, or
“Superfund”, legislation). The Act established a clean-up fund for contaminated sites and a
regime identifying persons primarily and secondarily liable for clean-up. CERCLA
authorised the U.S. Environmental Protection Agency, or any other party that incurs clean-up
costs, to engage in Court proceedings to recover costs from various parties other than the
current owners. Prior to the Fleet Factors decision, lenders considered themselves immune
from being targeted for clean up costs in this way by virtue of an exemption designed
apparently to protect secured creditors acting as no more than notional owners of
contaminated property.
The effect of the Fleet Factors decision was to suggest that a lender would not be entitled to
invoke that exemption if had a wide-ranging financial management role – sufficient to give it
the capacity to influence the management of waste disposal, or even to create the impression
or give rise to the inference that it had that capacity. CERCLA contained joint and several
liability provisions and Fleet Factors was predictably followed by a range of cases in the U.S.
seeking to target lenders as the deepest pockets. There was a diverse range of rulings in these
through diverting financing activities away from brownfield re-development which, in turn, could increase
pressure for greenfield development. Some banks are responding by proactively engaging in “safe lending
practices” scrutinising their borrowers to ensure their environmental records are satisfactory; targeting financing
to businesses demonstrating superior environmental performance and even making provision for subsidised
loans to those entities. Other lending institutions remain more conscious of perceived risks in this, concerned that
this conduct could be characterised as participation in the control over the borrowers’ businesses. See, generally,
“Socially Responsible Investment Law: Regulating the Unseen Polluters” Benjamin J. Richardson, OUP (2008).
55
1990 - 901 F. 2d. 1550 (11th Cir.).
56
At page 1557.
23
cases with, it should be noted, not all decisions following Fleet Factors. 57 The uncertainty
engendered by Fleet Factors and later decisions caused drastic alterations in lending practices
in the U.S., as well as escalating premiums for environmental liability insurance and, in some
cases, retraction of coverage in relation to contaminated lands. Ultimately, following a
campaign of lobbing by the banking sector, the CERCLA legislation was changed by
Congress in 1996 in order to clarify the involvement that a lender may have without
becoming liable as an owner of contaminated property.58 The amendment clarifies the term
“participation in management” and essentially specifies that actual participation in the
management or operational affairs of a facility is required and that liability will not attach as
long as the lender holds the property only as a security interest.
Some other jurisdictions, including OECD countries, when introducing new legislative
regimes relating to contaminated land and toxic substances management, have responded to
the Fleet Factors controversy by ensuring specific exceptions and protection to shield secured
creditors not involved in corporate operations. As regards recent EC Environmental
Legislation, the term “Operator” has been much used but in all cases without specific or
express reference to an exclusion or qualification in respect of banks or lenders etc.59
As a further, separate point in relation to lenders, a company in financial difficulty will often
be in regular contact with its banks and in the habit of following banks’ advice in that context.
Here banks may end up unwittingly influencing the environmental malpractice of companies
they advise. Most common law jurisdictions, including Britain, Australia and New Zealand,
have Companies Legislation containing provisions on “shadow directors”. Ireland’s
provisions on shadow directors are contained in the Companies Act 1990. 60 Albeit outside of
the context of environmental management, there have been cases in other jurisdictions where
57
In re Bergsoe Metal Corp, (1990) 910 F. 2d. 668 (9th Circ.) did not follow Fleet Factors and held that a
substantially higher level of creditor participation in management was required in order for lender liability to
apply under the Superfund legislation; in Bancamerica Commercial Corp.v.Trinity Industries Inc., (1995) 900 F.
Supp. 1427 (D. Kan.) it was held that for lender liability to apply there should be some actual management of the
relevant facility and that the secured lender is not to be held to participate in the management of a facility merely
by taking actions related to that facility’s financial operations.
58
Asset Conservation, Lender Liability and Deposit Insurance Protection Act, 1996. USC Public Law
No. 104-208.
59
Similar definitions of “Operator” are used in Directive 2010/75/EU on industrial emissions; in Directive
2008/1/EC concerning integrated pollution prevention and control and in the Environmental Liability Directive –
Directive 2004/35/EC. In the latter, “Operator” is defined as meaning “any natural or legal, private or public
person who operates or controls the occupational activity or, where this is provided for in national legislation,
to whom decisive economic power over the technical functioning of such an activity has been delegated,
including the holder of a permit or authorisation for such an activity or the person registering or notifying such
an activity”. Based on this, any potential inclusion or exclusion of banks or lenders is likely to focus on,
respectively, the references to “decisive economic power” and to “technical functioning”. There is little in the
definition to suggest it is addressing itself to the issue of the position of lenders. Intentional or otherwise, it is
notable that the Irish Regulations that transpose most of the Environmental Liability Directive – the European
Communities (Environmental Liability) Regulations 2008 – omit reference to “technical functioning”. Article 2
of the Irish Regulations provides as follows: “Operator” means, in relation to an occupational activity, the
person (a) who operates and controls it, or (b) the person to whom decisive economic power of the activity has
been delegated, including, where an enactment or other rule of law applies to the occupational activity, the
holder of a permit or authorisation for such an activity or the person registering or notifying such an activity
pursuant to the enactment or other rule of law as the case may be, …”
60
Section 27(1) provides: “Subject to Sub-Section (2), a person in accordance with whose directions or
instructions the directors of a company are accustomed to act (in this Act referred to as “a shadow director”)
shall be treated for the purposes of this Part as a director of the company unless the directors are accustomed so
to act by reason only that they do so on advice given by him in a professional capacity.
24
the Courts have regarded banks as shadow directors through asserting influence, mostly
through instructing the management of a business, perhaps as an alternative to appointing a
receiver.
Mortgagees in Possession, Receivers etc.
Where a lender, as a mortgagee or debenture holder, physically enters into possession,
different considerations apply. There is a reasonably well-established line of authority from
other jurisdictions to the effect that (even given the limited context of the taking of possession
simply for the purpose of sale) a change of occupation can arise and the mortgagee or its
agent may become liable for environmental damage as an occupier of the premises.61
Again environmental law definitions create some degree of risk here. The common use of
“occupier” in relation to the targets of local authority statutory notices is an example, as well
as definitions commonly used in respect of ownership, with “Owner” often defined as
excluding “mortgagees not in possession” thereby, possibly by implication, including
mortgagees in possession. A UK enforcement case – not reported in the law reports, but
widely cited, involved Midland Bank (now HSBC) becoming directly liable for a clean up of
a site it had repossessed. The use of the site prior to repossession had resulted in it becoming
heavily contaminated with oil. Once it got possession the Bank was served with a
remediation notice from the regulatory authority to remove the source of the contamination
and restore the site. 62 Irish Banks’ consciousness of even the potential for attracting liability
in this area is evidenced by the submission made by the Irish Banking Federation (IBF) to the
Department of the Environment Heritage and Local Government in 2007 requesting that the
Department, in its transposition of the Environmental Liability Directive, clarify (through its
wording of the definition of “Operator”) that Banks may not incur liability through taking
control of a facility under insolvency provisions.63
In relation to the position of Receiver, the stronger line of authority traditionally has relied on
the technical position of Receiver (in almost all cases) as an agent of the defaulting
mortgagor.64 This has the effect, generally, of precluding a change of occupation arising on
61
City of Westminster v Haymarket Publishing [1981] 2 All E.R. 555; Re Forest Trust; Trustees
Executors and Agency Company Limited v Anson Limited [1953] V.L.R. 246.
62
Case referred to in Bank Lending and Environmental Liability, Robert Lee and Tamara Egede,
published in the UK in 2005 by the Centre for Business Relationships, Accountability, Sustainability and Society
(BRASS). Case also referred to in “Lender Liability; Environmental Risk Management” published by Lovells;
Business Restructuring and Insolvency (2000). The circumstances of that enforcement case may depend on the
UK’s contaminated land regimes’ provisions, particularly those in respect of persons or parties primarily and
secondarily liable for the remediation of contaminated land.
63
“The IBF suggested that, in defining operator, it should be made clear that banks could not be
classified, expressly or by implication, as operators liable for damage to the environment where they take
control of a facility under insolvency provisions. Their view was that liability should rest with the entity (or
insolvency estate) that would otherwise be classified as the operator. IBEC considered that the temptation to
expand the operator definition to include deep pocket entities should be avoided” – extract from “Screening
Regulatory Impact Analysis – Environmental Liability Directive - Summary of Responses (Environment Policy
Section, DoEHLG – December 2007). If anything, the eventual definition of “Operator” in the European
Communities (Environmental Liability) Regulations 2008 marginally increased, rather than decreased, the
prospect of banks and their agents incurring a liability – as a result of the omission of the reference to “technical
functioning” in the definition of “Operator”. See note 59 above.
64
For a consideration on the role of receiver in Ireland se Bula Ltd (in Receivership) & Ors –v- Crowley
Anor. [2003] IEHC 28.
25
the appointment of the Receiver pursuant to an express power in the mortgage or debenture.65
To emphasise, though, the caution against being too definitive in this area there are cases that
point in the other direction in relation to Receivers. 66 The view has been expressed that the
increasing prominence of environmental protection as a policy consideration, coupled with
occasional caselaw supporting the notion of a fresh occupation arising on the appointment of
a Receiver, may provide a route to lender liability for environmental damage in some cases. 67
The direction that each receivership takes must be considered. A lender may be treated as an
occupier if it actively directs a Receiver in the course of the receivership. 68 A Receiver’s
exposure may increase where appointed over all or many of the assets of a business under a
floating charge. Legislation covering Receivers’ powers and functions, and documentation
relating to Receivers’ appointments, can envisage a wide range of management and control
powers for Receivers. 69
Even the Receiver’s original agency – generally that of agent for the mortgagor – may be
deemed to change to that of principal or to agent of the mortgagee in the event that the
mortgagor company goes into liquidation. In those circumstances a change of agency may
carry with it a change in occupation. 70
Conclusion
Environmental Law and Insolvency Law are two bodies of law that have developed largely
independently of each other. While many environmental claims or liabilities will not be fully
established or determined, much less secured, when an insolvency arises, a matrix of factors
can interact so as to bring such environmental claims or liabilities into contact with the legal
mechanisms for rescuing or dissolving distressed businesses. For example:
·
An insolvency, or an impending insolvency, may itself be the factor that prompts
environmental regulatory authorities to move – the State may wish to avoid being
saddled with an expensive clean-up;
65
Granger v South Wales Electric Power Distribution Company [1931] 1.CH. 551. See also Australian
Mutual Provident Society v George Myers & Co. Limited (in liquidation) [1931] 47 C.L.R. 65. In the latter
case, in distraint proceedings, the company sought to argue that it was no longer in occupation of the subject
premises because its bank had appointed a receiver. It argued that there had been a change of occupation by
virtue of the appointment. The High Court (Dixon J) said: “The true effect of the Deed in this case was to render
the receiver the agent of the Company and leaves its occupation or possession of its property in point of law
undisturbed by his entry and by his assumption of control.”
66
In Meigh v Wickenden [1942] 2 KB 160 the receiver even though expressed to be an agent of the
mortgagor company, was held to be a new “occupier” for the purpose of liability for workmens injuries under the
Factories Act 1937 (UK). However, that case may depend to some degree upon the level of control the receiver
exercised over the operations.
67
“Lender Liability” James O’Donovan; Sweet and Maxwell (2005) at page 608.
68
Standard Chartered Bank v Walker [1982] 1 W.L.R. 1410 at 1416; American Express International
Banking Corp v Hurley [1985] 3 All E.R. 564.
69
The receiver therefore, where he does not already have an indemnity (or one covering liability for
breach of environmental law), would be well advised to secure one from the party appointing him where there is
an environmentally sensitive or risky business involved. This heightens the need for a proper prior understanding
of the environmental risk and liability position of the business to which the receiver’s appointment relates. It
may, in appropriate cases, be in order for the receiver to agree to act on the basis of excluding certain potentially
risky assets or property.
70
A contrary view in these circumstances is that the Receiver’s original agency (in respect of the
mortgagor) is not terminated but simply adjusted to be consistent with the winding up.
26
·
Environmental regulatory authorities are equipped with a range of emergency and
other flexible remedies and reliefs that raise the prospect of “winning the race to
court” to secure court orders quickly and thus transform the status and priority of such
claims;
·
Much environmental damage, while historic in origin, can be ongoing and can
continue into the insolvency phase, thereby increasing the risk of a liquidator being
fixed with liability;
·
Many of the key environmental law definitions and trigger terms, such as “holder” of
waste, are potentially broad enough to capture insolvency practitioners in certain
circumstances.
While Environmental Law is evolving very quickly it has, problematically, not always
addressed itself with sufficient precision and foresight to longer established bodies of law, and
its relationship with insolvency law is a case in point. Well-established concepts and
principles of European environmental law - such as the “polluter pays” principle and, in
relation to waste law, the general principle that whoever is, for the time being, the “holder”
(or even a past holder) of waste may be subject to regulatory enforcement action - while they
find expression in European Directives (and thereby take on an appreciable degree of
normative value) nevertheless, in their adoption into national law, do not anticipate. address
or nuance themselves adequately to the longer established rules and principles of company
and insolvency law such as the rule regarding separate corporate personality and the rules
regarding the specific role and functions of insolvency practitioners.
Resolving these issues will not be easy. At one level it is possible to view the finding in
Neiphin Trading - that Section 57 of the Waste Management Act 1996 does not empower the
High Court to make “fall-back” orders against directors - as a finding merely of inadequate
transposition of the Waste Framework Directive. At another level it is much more. Resolving
the issue raised by Neiphin Trading now calls for the Irish legislature to confront, in a much
more direct way, and almost as a matter of principle, whether environmental considerations
and pollution clean-up warrant, without the traditional requirement for or abuse of the benefits
of incorporation, the veil of incorporation being lifted in Irish law. An express statutory
provision dealing with that would represent a significant shift in the Irish economic and legal
relationship with environmental considerations. It will therefore be very interesting to see
what the response to the decision Neiphin Trading will be.
Similarly, approaching an attempted resolution of the environmental law/insolvency law
interface from the perspective of adapting core insolvency law to accommodate environmental
claims and considerations such as pollution remediation is likely to be fraught with
difficulties. Many jurisdictions’ insolvency regimes, like Ireland’s, revolve around the core
consideration of maximising creditors’ positions but also yielding to other policy
considerations – examples include the status in insolvency afforded to employees’ payments
and, in some jurisdictions, to “involuntary creditors” such as the victims of the insolvent
company as tortfeasor. There are particular difficulties though in affording a specific
insolvency priority to environmental issues. Meeting even a modest environmental claim or
liability can, in cost terms, be immense; establishing the existence or the extent of an
environmental claim and clean-up, and its cost, will often involve huge issues of causation
and will carry the potential to undermine the insolvency mechanism though uncertainty and
delay; certain jurisdictions have recognised a significant priority status for environmental
27
issues over competing claims through, for example, giving environmental claims a “super
lien” status but this carries concerns for lending practices, in addition to the other difficulties
just outlined.
These are all reasons why the “third way” pointed to by the Environmental Liability
Directive’s focus on a harmonised mandatory system of financial security for environmental
risk and liability carries such importance.
WF-3061306-v24
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