Environmental Protection Act 1990 - Part IIA Contaminated Land: statutory guidance edition 2

PART 5: Exclusion of Members of a Class A Liability Group

D.40 The guidance in this Part is issued under section 78F(6) and, with respect to effect of the exclusion tests on apportionment (see paragraph D.43 below in particular), under section 78F(7). It sets out the tests for determining whether to exclude from liability a person who would otherwise be a Class A person (that is, a person who has been identified as responsible for remediation costs by reason of his having "caused or knowingly permitted" the presence of a significant pollutant). The tests are intended to establish whether, in relation to other members of the liability group, it is fair that he should bear any part of that responsibility.

D.41 The exclusion tests in this Part are subject to the following overriding guidance:

(a) the exclusions that the enforcing authority should make are solely in respect of the significant pollutant linkage giving rise to the liability of the liability group in question; an exclusion in respect of one significant pollutant linkage has no necessary implication in respect to any other such linkage, and a person who has been excluded with respect to one linkage may still be liable to meet all or part of the cost of carrying out a remediation action by reason of his membership of another liability group;

(b) the tests should be applied in the sequence in which they are set out; and

(c) if the result of applying a test would be to exclude all of the members of the liability group who remain after any exclusions resulting from previous tests, that further test should not be applied, and consequently the related exclusions should not be made.

D.42 The effect of any exclusion made under Test 1, or Tests 4 to 6 below should be to remove completely any liability that would otherwise have fallen on the person benefiting from the exclusion. Where the enforcing authority makes any exclusion under one of these tests, it should therefore apply any subsequent exclusion tests, and make any apportionment within the liability group, in the same way as it would have done if the excluded person had never been a member of the liability group.

D.43 The effect of any exclusion made under Test 2 ("Payments Made for Remediation") or Test 3 ("Sold with Information"), on the other hand, is intended to be that the person who received the payment or bought the land, as the case may be, (the "payee or buyer") should bear the liability of the person excluded (the "payer or seller") in addition to any liability which he is to bear in respect of his own actions or omissions. To achieve this, the enforcing authority should:

(a) complete the application of the other exclusion tests and then apportion liability between the members of the liability group, as if the payer or seller were not excluded as a result of Test 2 or Test 3; and

(b) then apportion any liability of the payer or seller, calculated on this hypothetical basis, to the payee or buyer, in addition to the liability (if any) that the payee or buyer has in respect of his own actions or omissions; this should be done even if the payee or buyer would otherwise have been excluded from the liability group by one of the other exclusion tests.

Related Companies

D.44 Before applying any of the exclusion tests, the enforcing authority should establish whether two or more of the members of the liability group are, or were at the "relevant date", "related companies".

D.45 Where this is the case, for the purposes of applying the exclusion tests and making any exclusions, the enforcing authority should treat the related companies as if they were a single person.

D.46 For these purposes, the terms "relevant date" and "related companies" have the following meanings:

(a) the "relevant date" is that on which the enforcing authority first served on anyone a notice under section 78B(3) identifying the land as contaminated land; and

(b) "related companies" are those which are members of a group of companies consisting of a "holding company" and its "subsidiaries", where these terms have the same meaning as in section 736 of the Companies Act 1985.

The Exclusion Tests for Class A Persons

TEST 1 - "EXCLUDED ACTIVITIES"

D.47 The purpose of this test is to exclude those who have been identified as having caused or knowingly permitted the land to be contaminated land solely by reason of having carried out certain activities. The activities are ones which, in the Scottish Executive's view, carry such limited responsibility, if any, that exclusion would be justified even where the activity is held to amount to "causing or knowingly permitting" under Part IIA. It does not imply that the carrying out of such activities necessarily amounts to "causing or knowingly permitting".

D.48 In applying this test with respect to any appropriate person, the enforcing authority should consider whether the person in question is a member of a liability group solely by reason of one or more of the following activities (not including any associated activity outside these descriptions):

(a) providing financial assistance to another person (whether or not that other person is a member of the liability group), in the form of any one or more of the following:

(i) making a grant,

(ii) making a loan or providing any other form of credit, including instalment credit, leasing arrangements and mortgages,

(iii) guaranteeing the performance of a person's obligations,

(iv) indemnifying a person in respect of any loss, liability or damage,

(v) investing in the undertaking of a body corporate by acquiring share capital or loan capital of that body without thereby acquiring such control as a "holding company" has over a "subsidiary" as defined in section 736 of the Companies Act 1985, or

(vi) providing a person with any other financial benefit (including the remission in whole or in part of any financial liability or obligation);

(b) withholding financial assistance of any of the forms identified in sub-paragraph (a) above;

(c) underwriting an insurance policy under which another person was insured in respect of any occurrence, condition or omission by reason of which that other person has been held to have caused or knowingly permitted the significant pollutant to be in, on or under the land in question; for the purposes of this subparagraph:

(i) underwriting an insurance policy is to be taken to include imposing any conditions on the person insured, for example relating to the manner in which he carries out the insured activity, and

(ii) it is irrelevant whether or not the insured person can now be found;

(d) carrying out any action for the purpose of deciding whether or not to underwrite any such insurance policy; this sub-paragraph does not apply to the carrying out of any intrusive investigation in respect of the land in question for the purpose of the underwriting where:

(i) the carrying out of that investigation is itself a cause of the existence, nature or continuance of the significant pollutant linkage in question, and

(ii) the person who applied for the insurance is not a member of the liability group;

(e) consigning as waste, and meeting the duty of care requirements in consigning waste, to another person the substance which is now a significant pollutant, under a contract under which that other person knowingly took over responsibility for its proper disposal or other management on a site not under the control of the person seeking to be excluded from liability; (for the purpose of this sub-paragraph, it is irrelevant whether or not the person to whom the waste was consigned can now be found);

(f) creating at any time a tenancy over the land in question in favour of another person who has subsequently caused or knowingly permitted the presence of the significant pollutant linkage in question (whether or not the tenant can now be found);

(g) as owner of the land in question, licensing at any time its occupation by another person who has subsequently caused or knowingly permitted the presence of the significant pollutant in question (whether or not the licensee can now be found); this test does not apply in a case where the person granting the licence operated the land as a site for the disposal or storage of waste at the time of the grant of the licence;

(h) issuing any statutory permission, licence or consent required for any action or omission by reason of which some other person appears to the enforcing authority to have caused or knowingly permitted the presence of the significant pollutant in question (whether or not that other person can now be found); this test does not apply in the case of statutory undertakers granting permission for their contractors to carry out works;

(i) taking, or not taking, any statutory enforcement action:

(i) with respect to the land, or

(ii) against some other person who appears to the enforcing authority to have caused or knowingly permitted the presence of the significant pollutant in question, whether or not that other person can now be found;

(j) providing legal, financial, engineering, scientific or technical advice to (or design, contract management or works management services for) another person (the "client"), whether or not that other person can now be found:

(i) in relation to an action or omission (or a series of actions and/or omissions) by reason of which the client has been held to have caused or knowingly permitted the presence of the significant pollutant,

(ii) for the purpose of assessing the condition of the land, for example whether it might be contaminated, or

(iii) for the purpose of establishing what might be done to the land by way of remediation;

(k) carrying out any intrusive investigation in respect of the land in question in the course of preparing advice (or providing design, contract management or works management services) in the circumstances set out in the preceding sub-paragraph, except where:

(i) the investigation is itself a cause of the existence, nature or continuance of the significant pollutant linkage in question; and

(ii) the client is not a member of the liability group; or

(l) performing any contract by providing a service (whether the contract is a contract of service (employment), or a contract for services) or by supplying goods, where the contract is made with another person who is also a member of the liability group in question; for the purposes of this sub-paragraph and paragraph D.49 below, the person providing the service or supplying the goods is referred to as the "contractor" and the other party as the "employer"; this sub-paragraph applies to subcontracts where either the ultimate employer or an intermediate contractor is a member of the liability group; this sub-paragraph does not apply where:

(i) the activity under the contract is of a kind referred to in a previous subparagraph of this paragraph,

(ii) the action or omission by the contractor by virtue of which he has been identified as an appropriate person was not in accordance with the terms of the contract, or

(iii) the circumstances in paragraph D.49 below apply.

D.49 The circumstances referred to in paragraph D.48(l)(iii) are:

(a) the employer is a body corporate;

(b) the contractor was a director, manager, secretary or other similar officer of the body corporate, or a person purporting to act in any such capacity, at the time when the contract was performed; and

(c) the action or omissions by virtue of which the employer has been identified as an appropriate person were carried out or made with the consent or connivance of the contractor, or were attributable to any neglect on his part.

D.50 If any of the circumstances in paragraph D.48 above apply, the enforcing authority should exclude the person in question.

TEST 2 - "PAYMENTS MADE FOR REMEDIATION"

D.51 The purpose of this test is to exclude from liability those who have already, in effect, met their responsibilities by making certain kinds of payment to some other member of the liability group, which would have been sufficient to pay for adequate remediation.

D.52 In applying this test, the enforcing authority should consider whether all the following circumstances exist:

(a) one of the members of the liability group has made a payment to another member of that liability group for the purpose of carrying out particular remediation on the land in question; only payments of the kinds set out in paragraph D.53 below are to be taken into account;

(b) that payment would have been sufficient at the date when it was made to pay for the remediation in question;

(c) if the remediation for which the payment was intended had been carried out effectively, the land in question would not now be in such a condition that it has been identified as contaminated land by reason of the significant pollutant linkage in question; and

(d) the remediation in question was not carried out or was not carried out effectively.

D.53 Payments of the following kinds alone should be taken into account:

(a) a payment made voluntarily, or to meet a contractual obligation, in response to a claim for the cost of the particular remediation;

(b) a payment made in the course of a civil legal action, or arbitration, mediation or dispute resolution procedure, covering the cost of the particular remediation, whether paid as part of an out-of-court settlement, or paid under the terms of a court order; or

(c) a payment as part of a contract (including a group of interlinked contracts) for the transfer of ownership of the land in question which is either specifically provided for in the contract to meet the cost of carrying out the particular remediation or which consists of a reduction in the contract price explicitly stated in the contract to be for that purpose.

D.54 For the purposes of this test, payments include consideration of any form.

D.55 However, no payment should be taken into account where the person making the payment retained any control after the date of the payment over the condition of the land in question (that is, over whether or not the substances by reason of which the land is regarded as contaminated land were permitted to be in, on or under the land). For this purpose, neither of the following should be regarded as retaining control over the condition of the land:

(a) holding contractual rights to ensure the proper carrying out of the remediation for which the payment was made; nor

(b) holding an interest or right of any of the following kinds:

(i) servitudes for the benefit of other land, where the contaminated land in question is the servient tenement, and statutory rights of an equivalent nature,

(ii) rights of statutory undertakers to carry out works or install equipment,

(iii) reversions upon expiry or termination of a lease, or

(iv) the benefit of restrictive covenants or equivalent statutory agreements.

D.56 If all of the circumstances set out in paragraph D.52 above apply, the enforcing authority should exclude the person who made the payment in respect of the remediation action in question. (See paragraph D.43 above for guidance on how this exclusion should be made.)

TEST 3 - "SOLD WITH INFORMATION"

D.57 The purpose of this test is to exclude from liability those who, although they have caused or knowingly permitted the presence of a significant pollutant in, on or under some land, have disposed of that land in circumstances where it is reasonable that another member of a liability group, who has acquired the land from them, should bear the liability for remediation of the land.

D.58 In applying this test, the enforcing authority should consider whether all the following circumstances exist:

(a) one of the members of the liability group (the "seller") has sold the land in question to a person who is also a member of the liability group (the "buyer");

(b) the sale took place at arms' length (that is, on terms which could be expected in a sale on the open market between a willing seller and a willing buyer);

(c) before the sale became binding, the buyer had information that would reasonably allow that particular person to be aware of the presence on the land of the pollutant identified in the significant pollutant linkage in question, and the broad measure of that presence; and the seller did nothing material to misrepresent the implications of that presence; and

(d) after the date of the sale, the seller did not retain any interest in the land in question or any rights to occupy or use that land.

D.59 In determining whether these circumstances exist:

(a) a sale of land should be regarded as being either the transfer of the ownership of the land or the grant or assignment of a lease;

(b) the question of whether persons are members of a liability group should be decided on the circumstances as they exist at the time of the determination (and not as they might have been at the time of the sale of the land);

(c) where there is a group of transactions or a wider agreement (such as the sale of a company or business) including a sale of land, that sale of land should be taken to have been at arms' length where the person seeking to be excluded can show that the net effect of the group of transactions or the agreement as a whole was a sale at arms' length;

(d) in transactions since 1 January 1990 where the buyer, at the time of the transaction, is a large commercial organisation or public body, permission from the seller for the buyer to carry out his own investigations of the condition of the land should normally be taken as sufficient indication that the buyer had the information referred to in paragraph D.58(c) above; and

(e) for the purposes of paragraph D.58(d) above, the following rights should be disregarded in deciding whether the seller has retained an interest in the contaminated land in question or rights to occupy or use it:

(i) servitudes for the benefit of other land, where the contaminated land in question is the servient tenement, and statutory rights of an equivalent nature,

(ii) rights of statutory undertakers to carry out works or install equipment,

(iii) reversions upon expiry or termination of a long lease, and

(iv) the benefit of restrictive covenants or equivalent statutory agreements.

D.60 If all of the circumstances in paragraph D.58 above apply, the enforcing authority should exclude the seller. (See paragraph D.43 above for guidance on how this exclusion should be made.)

D.61 This test does not imply that the receipt by the buyer of the information referred to in paragraph D.58(c) above necessarily means that the buyer has "caused or knowingly permitted" the presence of the significant pollutant in, on or under the land.

TEST 4 - "CHANGES TO SUBSTANCES"

D.62 The purpose of this test is to exclude from liability those who are members of a liability group solely because they caused or knowingly permitted the presence in, on or under the land of a substance which has only led to the creation of a significant pollutant linkage because of its interaction with another substance which was later introduced to the land by another person.

D.63 In applying this test, the enforcing authority should consider whether all the following circumstances exist:

(a) the substance forming part of the significant pollutant linkage in question is present, or has become a significant pollutant, only as the result of a chemical reaction, biological process or other change (the "intervening change") involving:

(i) both a substance (the "earlier substance") which would not have formed part of the significant pollutant linkage if the intervening change had not occurred, and

(ii) one or more other substances (the "later substances");

(b) the intervening change would not have occurred in the absence of the later substances;

(c) a person (the "first person") is a member of the liability group because he caused or knowingly permitted the presence in, on or under the land of the earlier substance, but he did not cause or knowingly permit the presence of any of the later substances;

(d) one or more other persons are members of the liability group because they caused or knowingly permitted the later substances to be in, on or under the land;

(e) before the date when the later substances started to be introduced in, on or under the land, the first person:

(i) could not reasonably have foreseen that the later substances would be introduced onto the land,

(ii) could not reasonably have foreseen that, if they were, the intervening change would be likely to happen, or

(iii) took what, at that date, were reasonable precautions to prevent the introduction of the later substances or the occurrence of the intervening change, even though those precautions have, in the event, proved to be inadequate; and

(f) after that date, the first person did not:

(i) cause or knowingly permit any more of the earlier substance to be in, on or under the land in question,

(ii) do anything which has contributed to the conditions that brought about the intervening change, or

(iii) fail to do something which he could reasonably have been expected to do to prevent the intervening change happening.

D.64 If all of the circumstances in paragraph D.63 above apply, the enforcing authority should exclude the first person (or persons, if more than one member of the liability group meets this description).

TEST 5 - "ESCAPED SUBSTANCES"

D.65 The purpose of this test is to exclude from liability those who would otherwise be liable for the remediation of contaminated land which has become contaminated as a result of the escape of substances from other land, where it can be shown that another member of the liability group was actually responsible for that escape.

D.66 In applying this test, the enforcing authority should consider whether all the following circumstances exist:

(a) a significant pollutant is present in, on or under the contaminated land in question wholly or partly as a result of its escape from other land;

(b) a member of the liability group for the significant pollutant linkage of which that pollutant forms part:

(i) caused or knowingly permitted the pollutant to be present in, on or under that other land (that is, he is a member, of that liability group by reason of section 78K(1)), and

(ii) is a member of that liability group solely for that reason; and

(c) one or more other members of that liability group caused or knowingly permitted the significant pollutant to escape from that other land and its escape would not have happened but for their actions or omissions.

D.67 If all of the circumstances in paragraph D.66 above apply, the enforcing authority should exclude any person meeting the description in paragraph D.66(b) above.

TEST 6 - "INTRODUCTION OF PATHWAYS OR RECEPTORS"

D.68 The purpose of this test is to exclude from liability those who would otherwise be liable solely because of the subsequent introduction by others of the relevant pathways or receptors (as defined in Chapter A) in the significant pollutant linkage.

D.69 In applying this test, the enforcing authority should consider whether all the following circumstances exist:

(a) one or more members of the liability group have carried out a relevant action, and/or made a relevant omission ("the later actions"), either

(i) as part of the series of actions and/or omissions which amount to their having caused or knowingly permitted the presence of the pollutant in a significant pollutant linkage, or

(ii) in addition to that series of actions and/or omissions;

(b) the effect of the later actions has been to introduce the pathway or the receptor which form part of the significant pollutant linkage in question;

(c) if those later actions had not been carried out or made, the significant pollutant linkage would either not have existed, or would not have been a significant pollutant linkage, because of the absence of a pathway or of a receptor; and

(d) a person is a member of the liability group in question solely by reason of his carrying out other actions or making other omissions ("the earlier actions") which were completed before any of the later actions were carried out or made.

D.70 For the purpose of this test:

(a) a "relevant action" means:

(i) the carrying out at any time of building, engineering, mining investigative/monitoring action or other operations in, on, over or under the land in question, and/or

(ii) the making of any material change in the use of the land in question for which a specific application for planning permission was required to be made (as opposed to permission being granted, or deemed to be granted, by general legislation or by virtue of a development order, the adoption of a simplified planning zone or the designation of an enterprise zone) at the time when the change in use was made; and

(b) a "relevant omission" means:

(i) in the course of a relevant action, failing to take a step which would have ensured that a significant pollutant linkage was not brought into existence as a result of that action, and/or

(ii) unreasonably failing to maintain or operate a system installed for the purpose of reducing or managing the risk associated with the presence on the land in question of the significant pollutant in the significant pollutant linkage in question.

D.71 This test applies only with respect to developments on, or changes in the use of, the contaminated land itself; it does not apply where the relevant acts or omissions take place on other land, even if they have the effect of introducing pathways or receptors.

D.72 If all of the circumstances in paragraph D.69 above apply, the enforcing authority should exclude any person meeting the description at paragraph D.69(d) above.