CIVIL ENFORCEMENT: PAYING FOR THE PAST
MEIJENFELDT, HUGO G. VON
Deputy Manager Soil Clean-up Division, Ministry of Housing, Physical Planning and Environment, P.O. Box 450, 2260 MB Leidschendam (from 1993: P.O. Box 30945, 2500 GX Den Haag), The Netherlands.
1 INTRODUCTION
In the United States and to a lesser extent in the European Community, environmental law is not only being enforced through public law (compliance with regulations, penalties imposed under criminal law, etc) but also through the civil law. The latter leads to legal actions which result in the following judicial rulings:
an injunction prohibiting behavior which threatens the environment;
an injunction enforcing behavior which protects the environment;
a judgement that recovery must be made for any damage to the environment.
Public law enforcement is successful mainly because it demands compliance with environmental standards. Civil law enforcement, because of its association with property rights, is mainly associated with a subject to which companies and private citizens attach prime importance - money: they feel the financial consequences of their environmental behavior directly in their pockets.
When putting civil law into effect, a clear distinction must be made between environmental damage which has occurred in the past - often a mortgage on which neither interest nor principal appear to have been paid - and the threat of environmental damage in the future. It is obvious that of the two it is remedying inherited pollution which poses the greatest problem. Because the Netherlands has gained more experience in this area than other Western European countries, this will be the topic of this paper.
I shall first give an explanation of the policy based on the principle "the polluter pays" and how this policy has been implemented. I shall then go into the legal aspects of cost recovery based on court proceedings with regard to tort and unlawful enrichment, as well as the obligations of polluters and land owners to undertake clean-up operations themselves or to give a guarantee that clean-up will be carried out. Finally, I shall look at the extent to which this set of instruments can be applied in countries without financial-economic resources.
2 POLICY
The initial reaction to the discovery of an environmental legacy of catastrophic size appears to be the same in every country, namely emphasis on joint responsibility for both the causes of, and the solutions to, the problem. In 1980, in both the United States (after Love Canal) and in the Netherlands (after Lekkerkerk), this resulted in large sums of tax payers' money being spent on cleaning up serious soil contamination. More than ten years later, this is the reaction prevailing in Central and Eastern Europe. It should be noted that the tax burden on business and population is being spread out due to loans from the West. The European Bank for Reconstruction and Development in London has already taken the necessary initiatives.
The attitude that the causes of past environmental damage is a joint responsibility warrants a critical reception. In the West, the damage to the environment is the consequence of industrial processes, which have occurred in the context of a free market economy. As long as there were subsequent (considerable) profits, it was strictly maintained that these were strictly the responsibility of the individual companies. Now that losses are being incurred, one cynically notes that industry, in particular, is suddenly advocating collective solutions.
The reasoning of Western companies surprisingly fits in with the situation in Central and Eastern Europe and also the standpoint of the developing countries at the UNCED congress in June this year. They point to the dreadful conditions at the end of the World War II. There was a miraculous reconstruction of Western European industry which finally brought prosperity to everyone. Everyone should therefore contribute to the clean-up of the accompanying pollution.
These collective solutions mostly conflict with the principle applied to environment policy that the polluter should pay. Even taxes on industry will often apply to companies which have not themselves contributed to environmental damage. This was the reason why in 1982 the Dutch parliament rejected the government's proposals for taxes on industry for soil contamination and advocated recovering costs on an individual basis.
The expectations for successful cost recovery were anything but high that year. Scientists, lawyers and government officials responded to the government's optimistic attitude with reserve, a gloomy outlook and even sarcastic remarks. In 1983, the Netherlands sued the polluters in two of the largest clean-up projects (costing approximately $ 50 million each): Shell in the Gouderak case and Philips-Duphar in the Volgermeerpolder case.
I believe the government's willingness to sue systematically has been rather underestimated. From the very beginning, the stubborn misconception has persisted (notably on the side of industry) that there would be no more than a limited number of principal and large-scale legal actions. The purpose of these legal actions was thought merely to be to force a judicial precedent on the issue of who carries responsibility for the pollution legacy. Moreover, there was speculation about the tradition, ascribed to the Dutch government, to decide on tough measures and then not carry them out but make compromises and tolerate infringements.
Later years show a rapid rise in the number of summonses. The Dutch adoption of what is considered to be the American style of taking legal action came as a surprise to many.
Table 1. Summonses served by the Dutch government
No exception has been made for public organizations (municipalities, regional authorities, provinces, ministries) or companies - partly - owned by the government (Dutch Railways, Dutch State Mines etc). They should on the contrary set an example to industry as a whole. In general this is the case. The Ministry of Defense for instance has its own soil clean-up program worth $ 250 million.
It can be assumed that the increasing number of summonses as well as the legal judgements in favor of the government are the cause of the changed attitude among polluting companies. One must also bear in mind the negative publicity, the high legal bills and the long period of uncertainty before judgement is finally given. Taking these factors into account, companies (and government) prefer to settle out of court.
A settlement might mean that the clean-up costs already incurred or to be incurred would be paid by the government. Instead of or in conjunction with this, companies can investigate and/or clean up current or abandoned sites at their own expense. There are major advantages for companies if they commission the project themselves. For instance, it would be possible to link the timing of the remedial measures with that of other operations, renewal projects for example. Moreover, companies would then have direct control over the costs of their own clean-up project.
Industry's change of attitude has tremendously increased voluntary clean-ups, which are arranged between the company concerned and the local authority (for instance petrol stations). The exact number of clean-ups is not known, but it can be assumed that almost 1000 projects were realized by mid-1992. Only part of these were realized with the intervention of the central government (table 2).
Table 2. Settlements with the Dutch government
Negotiations are never held on the basis of "striking a bargain". Nor can alleged doubt about the legal bases of the claim induce the government to deviate from full payment. Exceptions are made for certain actual conditions. For instance, if more than one polluter is involved. Furthermore, the ability-to-pay principle is applied. In general, the government is willing to guarantee the continuity of a company by reducing the sum claimed, as long as the company is economically and environmentally valid and as long as the legal dispute ends in recognition of liability.
3 ORGANIZATION
The Dutch Minister for the Environment is responsible for recovering costs. He has enlisted the support of the State Attorney in this task. Legal proceedings to recover costs take place in three consecutive stages: finding the perpetrator(s), establishing liability and payment.
At the initial stage, each case of soil contamination where a financial contribution in accordance with the law has been or will be made is subject to fact finding. The facts concerning the perpetration and the actual legal position will mainly come from the relevant local authority, while the facts concerning the soil contamination are dealt with by the province. On the basis of the accumulated facts, together with some additional detective work (for instance in the Trade Register), the State Attorney will advise on the legal procedure.
In cases where costs can be recovered from the beginning, the initiative rests mostly with provincial or local authorities. They negotiate with the polluter or land-owner about surveys and clean-up operations with full payment of costs for their own account.
The second stage involves establishing liability. This stage directly carries out the advice of the State Attorney or is a consequence of the fact that no or no complete agreement has been reached during the negotiations (and thus government money must be spent). The Minister can request the State Attorney to continue negotiating or to initiate legal proceedings.
The third stage is collecting the money. This stage - if no 100 - percent payment is involved - follows on from the second stage. There therefore needs to be a court ruling or an acknowledgement of liability. In other words, the liability question must be answered, before payment can be demanded.
Account is taken of the circumstance that the claims on individual companies and people are usually large in relation to their business or household. The judge has authority to mitigate the claim, if awarding full damages would have unacceptable consequences. Moreover, the above-mentioned ability-to-pay principle applies to settlements.
Not only the costs of the state but also those of the provincial and local authority are recovered. If the total costs remain below the threshold amount of the local authority, the Minister is also authorized - and prepared - to recover costs.
4 LIABILITY BASED ON TORT
In contrast to the United States, where strict liability with retroactive effect applies in law, cost recovery in the Netherlands is based on liability in common law, which is primarily based on tort.
Any person who commits a tort against another person which can be imputed to him is obliged to make good the injury suffered by the other person as a consequence. In this case, tort means: a breach of another's rights (for instance, property) and acting or neglecting to act contrary to a legal duty (a permit for instance) or not complying with an unwritten duty of care, without there being justifiable grounds for doing so.
When answering the question of whether there has been culpable tort, it is particularly important that the matter is judged according to the expertise and the level of knowledge available or should have been available the time about the danger or the hazardous nature of the substances deposited in the environment. The words "should have been available" mean that recognition of the danger or the hazardous nature according to objective norms must be established.
The judicial decisions of the courts and courts of appeal clearly laid down a number of rules
encountering substances in the environment closely related to the local use of the land legally justifies the assumption that the land user is the polluter, unless the latter proves otherwise;
for assessing and tackling the contamination, the Soil Clean-up Guidelines of the Ministry (including the well-known C-values) are the standard criteria;
bringing hazardous substances into the environment and failing to check their harmlessness is an act of negligence;
functionaries within a legal entity who are personally to blame for the contamination are held liable for the damage in person;
being in possession of, or acting in compliance with a government license or permit does not indemnify one from damage claims;
moreover, inadequate government supervision does not qualify as a relevant excuse for contamination.
The Supreme Court of the Netherlands has so far given a ruling on one judicial question, namely if the polluter should have known at the time that he could also be acting unlawfully against the government.
The government considered this a superfluous clause and scrapped this clause in the Act of 1982, but the Supreme Court ruled in 1990 that this was an ambiguous act. The same year, the government had to introduce a bill in parliament to dispose of the ambiguity. This bill was evidently not superfluous because the Supreme Court came to the conclusion this year that the polluter has only needed to know since 1975 that the government could claim damages from him if he contaminated his industrial site. Without this amendment to the law, 25-per-cent of the clean-up costs would have been non-recoverable on the basis of this judgement.
In 65 of 154 court cases, one or more judicial rulings have been given.
Table 3. Judicial rulings
5 LIABILITY OF THE OWNER
The owner or user of property or limited rights to the property can be liable for any environmental contamination connected with it. Not only his behavior but also his capacity are determining factors.
5.1 Sometimes the owner is already strictly liable, for example for collapsing buildings and leaking storage tanks (Civil Code, section 6:17, former section 1405).
5.2 Under common law the owner is responsible for his property, which means the owner is obliged to take steps as soon as he notices that his property is in a dangerous state. Admittedly, those steps cannot be enforced by means of an administrative order as in Germany, but the owner is certainly liable for any damage ensuing as a result of his negligence.
5.3 Based on the Soil Clean-up Interim Act, section 21.2, the costs of survey and clean-up may be recovered, if the owner, user or entity with limited rights unlawfully profits from the clean-up. He profits unlawfully if he could have had knowledge of the damage to the environment.
The entity with rights to the property profits if the property acquires a higher re-sale value after clean-up, a higher practical value or offers higher collateral. The extent of profit gained can be determined by taking the difference between the value of the site before and after clean-up. Neither the actual purchase price, nor rent nor interest rates play a role, only valuation by reasonable parties according to objective criteria. If, for example, a polluted parcel was bought for $ 300,000 in the past, the value before the clean-up is assessed at $ 100,000 and the value after clean-up is assessed at $ 500,000, the profit is not $ 200,000 but $ 400,000. Even if the site had been bought for $ 500,000, the profit would still be $ 400,000.
5.4 With transactions with contaminated real estate, the owner must take account of a serious drop in market value as a result of environmental damage. This also applies to transactions as a consequence of expropriation by the government, since the drop in value has an effect on the compensation awarded.
The lower value is not so much due to fears of health hazards as to fewer possibilities for using the ground. There are then the above-mentioned obligations of the owner, the innumerable obligations under public law to perform surveys and undertake protective measures, as well as an obligation to give a clean-up guarantee at the time of the transaction.
5.5 Industry and the government have made far-reaching arrangements for current industrial sites in order to survey and clean up tens of thousands of sites in the next twenty years. The costs will be borne by the business concerned, usually the owner. Defaulters will be confronted by an administrative order to clean up the soil.
The arrangements also contain many facilities. Owners who can demonstrate that they are innocent can request a financial contribution from the government. Companies can deduct the costs of an approved clean-up plan from tax. They can also obtain government-guaranteed credit facilities from the banks.
6 CONCLUSIONS
I have just outlined policy, organization and legal possibilities for claims for past environmental damage in the Netherlands. Results are achieved on the basis of classic common law rather than on the basis of new tough instruments. The unpaid account from the past is presented systematically and successfully to the original polluter or to the present owner.
The success of this range of instruments assumes that - as is the case in the West - the majority of the businesses will not get into insurmountable financial difficulties as a result. Even so favorable fiscal and credit arrangements are needed by some of the liable companies. Thought must be given to small family businesses (including metal and woodworkers, laundries, petrol stations). Financial and legal regulations are also necessary for vendors and purchasers of polluted sites.
In my opinion, one should not rush to the conclusion that for this reason the individual instrument will not be successful in Central and Eastern Europe. During the reconstruction of the economy in this part of Europe, where collectivization is making way for individual responsibility, creative solutions are needed.
There is a strong argument to indemnify new owners completely - for the sake of a free investment climate - from liabilities arising from existing pollution. It is expected that Western companies, particularly American, but to an increasing extent also Western European businesses, will give this top priority in their investment programs. This was also the major conclusion of the International Conference on Privatization, Foreign Direct Investment and Environmental Liability in Central and Eastern Europe (Warsaw, 19-21 May 1992).
On the other hand, giving an indemnity must at least be based on payment of the full purchase price without any reduction. In Czechoslovakia and Poland the government has already decided to put (part of) the proceeds towards the direct clean-up costs of the site and future clean-up costs (deposited, for instance, in an escrow account or a fund).
A maximum financial contribution to the clean-up as part of the Offset Requirements or Peer Matching need not cause an insurmountable deterioration of the investment climate. Furthermore Western banks can desire that a certain share of the loan be used to restore the environmental quality. Tax facilities can then also be made for this share of the loan (for instance in the case of Environmental Bonds).
It is very important that old or new owners are prepared to undertake clean-up programs on their own initiative. This will be a great need for mild tax rates, credit guaranteed by Western states and possibly a direct contribution from the government. Moreover, ample time must be allowed for clean-ups to take place in stages. The financial risk can be reduced by establishing clear clean-up standards and guidelines for enforcement.