In this latest Environmental Law News Update, Charles Morgan, Christopher Badger and Mark Davies consider the question of environmental obligations in insolvency cases, the extension of the single-use plastic bag charge in England and a vision for the future as set out by the water industry.
Priority of environmental obligations in insolvency: definitely not the last word
In Re Doonin Plant Hire Ltd (in liquidation)  CSOH 89 the Scottish Outer House of the Court of Session (Lord Doherty) had to consider where liabilities under s.59 of the Environmental Protection Act 1990 ranked in priority on the liquidation of an occupier of land upon which waste had been unlawfully deposited. This is the first consideration of that question in either Scotland or England.
The courts of the two countries had already chosen to differ upon the approach to the treatment of environmental liabilities within the insolvency régime, even though both were interpreting essentially similar legislation (their respective versions of the Environmental Protection Act 1990 and the Insolvency Act 1996 and rules thereunder). In England, in the case of Re Celtic Extraction Ltd  Ch 475 the Court of Appeal had held that a waste management licence was ‘property’ which was capable of being disclaimed by a liquidator if viewed as onerous in nature. This was founded upon the deep-rooted pari passu principle i.e. that the property of insolvents should be divided equally amongst their unsecured creditors, which was later strongly reaffirmed by the Supreme Court in Re Nortel GmbH  UKSC 52;  AC 209 (a case not concerning environmental liabilities, in which indeed its effect upon them was ignored in the judgments though raised in argument). In Scotland, in the case of Scottish Environmental Protection Agency v Joint Liquidators of the Scottish Coal Co Ltd 2014 SLT 259 the Second Division nevertheless held that a company’s environmental obligations under licences to discharge trade effluent could not be avoided by abandonment (there being no positive right of disclaimer of onerous property in Scots law), the effect of which would have been to vest the land in the Crown as bona vacantia. The court held that the company’s environmental obligations would be treated as liquidation expenses (and thus rank ahead of its debts). It regarded the pari passu principle as much “attenuated” anyway and in effect ‘trumped’ by the principles of environmental protection to be gleaned from the Scottish regulations and the Water Framework Directive which they implemented.
In the Doonin case, Lord Doherty held firstly that the potential liability under section 59(6) to meet SEPA’s own costs of removal was not a contingent debt, given that SEPA had a clear policy that it would not exercise its power of removal (having no funds to do so). More importantly, he held that expenditure in discharging the obligations arising under two notices served under section 59(1) (one pre-liquidation and the other post-liquidation) requiring the removal of waste would be a liquidation expense, in view of “the nature of the liability imposed by a section 59(1) notice through the prism of the directive which Part II of the EPA was intended to implement” (i.e. the Waste Framework Directive), thus following the decision in Scottish Coal. “Otherwise it is very likely that polluters who become insolvent would frequently escape paying for the damage to the environment which their conduct has caused.” He considered the continuing liability of the company in liquidation to be mandated by the ‘polluter pays’ principle, a result which he considered could be arrived at legitimately as a matter of statutory construction rather than (potentially illegitimately) by the application of some wider perceived policy of maximising environmental protection (although he felt that such an approach might equally well “have carried the day”): He thus concluded that: “ … the exercise upon which I am engaged does not involve weighing the relative importance of protection of the environment on the one hand and the expeditious and equal distribution of available assets on the other. The exercise involves the proper characterisation of section 59(1) notice liabilities in an insolvency.”
Lord Doherty also held that such liquidation expenses would rank behind the liquidators’ remuneration, so liquidators need not fear accepting appointments in respect of companies subject to environmental obligations.
In reaching his primary conclusion Lord Doherty expressly declined to follow the reasoning in Re Celtic, in particular Chadwick LJ’s proposition that: “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.” In Lord Doherty’s view, the polluter would still be paying (albeit probably not in full). He thus essentially followed the approach in Scottish Coal.
This reflects an interesting but unfortunate dichotomy of approach. In many aspects of commercial law a difference between two jurisdictions is simply another interesting channel for cross-border practitioners to navigate. However environmental law is meant to embody general principles of environmental protection which should be consistently and coherently applied everywhere – and certainly across the internal borders of the UK. If the wider reasoning in the Celtic decision is adopted in a similar case in England and supremacy afforded to the pari passu principle then there would be clear practical consequences: a waste site blighted by insolvency of its owner would be significantly more likely to be cleaned up if it were situated in Eyemouth rather than in Berwick-upon-Tweed, 9 miles to the south. Conversely, unsecured creditors of the owner in Eyemouth would be far less likely to recover any dividend in such circumstances. The question is ripe for consideration by the Supreme Court. The Scottish approach is good for the environment, but relies upon a very strong application of the ‘polluter pays’ principle in order to reach the conclusion that unsecured creditors should in effect be treated as if they were themselves polluters in a way that the public generally was not, merely because they have elected to give credit to a waste company. Further, it might be said that the ‘polluter pays’ principle is in truth expressed at such a high degree of abstraction that its application by a court in any particular set of circumstances is indeed the very exercise in the weighing of factors which Lord Doherty disavowed as a potentially illegitimate judicial technique.
It will surely not be long before these issues arise before an English court.
Extension of the single-use plastic bag charge in England
Hot on the heels of the Government publishing the responses to the consultation, ‘Tackling the plastic problem’, DEFRA announced plans on 30 August to extend the single-use plastic bag charge to all retailers and to increase the minimum charge to 10p, subject to consultation.
The ban, introduced in 2015, has seen a drop of 86% in plastic bag sales in major supermarkets. That drop equates to a reduction from 140 bags per person to just 19 per person in 2016/17.
Under the current regulations, the 5p charge must be levied on all single use plastic bags sold in England by businesses with more than 250 employees. Extending it to all retailers would therefore mean having to remember to take a bag with you when you pop to the local convenience store for a pint of milk and the other bits and pieces you forgot to get with your weekly shop (which doesn’t sound too difficult). Admittedly that may not mean a change in behaviour for all of us with 42% of independent retailers reportedly having voluntarily introduced a charge on plastic bags in their stores.
Rather shamefully, if you are English, the plastic bag charge already applies to all businesses in Wales and Scotland. Given that the Future of the Sea report states that plastic in the ocean is projected to treble between 2015 and 2025, the revised and extended single-use plastic bag charge surely cannot come soon enough.
The announcement regarding the charge may be found here
Water companies set out vision for the future
On 3 September 2018 the water industry published a ‘Manifesto for Water’ at the same time as the respective water companies submitted their business plans for 2020-2025 to Ofwat for approval.
It is proposed that water companies will increase their level of investment by £6 billion or 13% compared to the current 5-year period, equating to more than £50 billion for 2020-25. It is proposed that efficiency improvements will be introduced in order to avoid the need to increase bills.
On leakage, the manifesto identifies that water companies are proposing to reduce leakage by 461 million litres every day over the 2020-25 period, more than a 16% reduction. We are told that this represents the most ambitious programme to fix leaks in 20 years.
Part of the difficulty is the sheer size of infrastructure operated by water companies. Severn Trent, in its business plan submitted for 2020-2025, identifies that its wastewater system consists of over 94,000km of sewers and drains, 4400 pumping stations and 1010 treatment works. Pressures that feed into the need to improve performance include climate change, population growth, European standards on water quality and customer expectations. Severn Trent’s approach appear to be to attempt to characterise the most significant problems in each of its particular catchments, before undertaking options development and appraisal in order to understand both current and future risks. This will lead to the development of a Drainage and Wastewater Management Plan.
Thames Water’s 2020-2025 plan aims to reduce network pollutions by 18% between 2020-2025 and achieve 100% treatment works compliance, spending £1.496 billion to run base operations and £1.142 billion in extra investment. The extra investment is broken down into a number of different areas, including £319 million on reducing pollutions and £157 million on ensuring treatment works comply with legislation. At the same time, the plan aims for a 15% reduction in leakage by 2025. According to the plan, Thames Water set its pollution target after consulting with its customers. The company reports that 70% of customers supported a target of between 24 and 26 pollutions per 10,000km per year. Thames Water has identified that it intends to go beyond this and target 23 pollutions per 10,000km by 2025.
It should be noted that the plans have only recently been submitted to Ofwat and have not been approved.
Water UK’s publication ‘Manifesto for Water’ can be found here
Severn Trent’s 2020-2025 plan can be found here
Thames Water’s 2020-2025 plan can be found here
We published August’s Environmental Law Podcast recently – a monthly round-up of the latest developments in environmental law.