ECJ confirms onus on polluter to prove not liable in first ELD ruling

The European Court of Justice (ECJ) has passed down its first judgements on pollution cases under the Environmental Liability Directive (ELD), which have backed up the ‘polluter pays’ principle enshrined in the new regime and could have far reaching consequences for industry. This ruling comes as a European Commission source says it is ‘quite optimistic’ on the outlook for the ELD insurance market as it prepares to report on the effectiveness of the regime and related financial security issues. But, the source suggests that it will need more time to fully consider how effective the market is and make any recommendations on whether mandatory financial guarantees will be required for ELD liabilities. The judgments handed down by the ECJ on the March 9, in the cases C-378/08, C-379/08 and C-380/08, relate to a petrochemical site, situated by Augusta harbour in the Priolo Gargallo Region in Sicily, Italy.hideThe site has been affected by recurring incidents of environmental pollution dating back to the 1960s and some of the current operators, namely Raffinerie Mediterranee (ERG) SpA, Polimeri Europa SpA, Syndial SpA and ENI SpA appealed to the Italian courts against clean up measures imposed upon them by the relevant Italian authorities. The operators argued that since there had been no formal investigation into the pollution, no causal link between the contamination and their activities had been established and, as such, authorities could not show that they were liable for remediation costs. The Tribunale amministrativo regionale, the Regional Adminstrative Court in Sicily, Italy, which will rule in these cases, referred a number of questions to the ECJ for a preliminary ruling about the application of the ‘polluter pays’ principle. In particular the Italian court tried to decide whether the ‘polluter pays’ principle in the ELD and the Treaty of Lisbon allows authorities to impose measures to remedy environmental damage on operators because their installations are located close to a polluted area, ‘without first carrying out an investigation into the occurrence of the contamination or establishing fault on the part of the operators or any causal link between those factors and the pollution found’. The ECJ concluded that, under the ELD, the competent authority can deem an operator liable ‘on the presumption that there is a causal link’ between it and the pollution found because its operations are located close to the polluted area. In accordance with the ‘polluter pays’ principle the authority needs only ‘plausible’ evidence to justify its presumption such as the fact that the operator’s installation is located close to the polluted area and has used a substance that has been identified at a contaminated site, the ECJ ruled. It is then up to the operator to rebut that presumption by proving that it did not cause the contamination. In a further worrying move for industry, the court stressed that the competent authority is not required to establish fault on the part of the operators whose activities are held responsible for the environmental damage because, in this case, those activities were carried out under E.U. legislation listed in Annex III of the ELD. The ECJ also found that the competent authority can ‘alter substantially’ the terms of any clean-up measures that were initially chosen on a consultative basis with the operators, if it decides they are required, even after an operator has started implementing them. The court also concluded that the ELD does not preclude a competent authority from stating that an operator cannot use its land unless it carries out environmental remedial works required on adjacent land. This can apply even if the operator’s land is not affected by those works because it has already been decontaminated or never been polluted. “A judgment by the ECJ applies across the entire E.U. so it has huge implications for everyone as it lays down the rules,” said Valerie Fogleman, Consultant at Stevens & Bolton LLP and Professor of Law at Cardiff University. “The judgments have knocked on the head the argument that authorities can’t require an operator to clean up a site with multi-source contamination, because it is diffuse. This is a key point. The ECJ are simply saying you can establish the link with ‘plausible’ evidence. So if an operator uses a particular substance and it has been found at the contaminated site, the link is established unless the operator can prove otherwise. It doesn’t seem to be a very strong causal link so it is a significant judgment with a knock on effect for operators in the E.U.,” she said. The ECJ also stated that the ELD applies as of April 30, 2007. This raises questions over environmental damage and liabilities in countries which transposed the directive at a later date. In England, for example, the directive was only transposed on March 1, 2009 and the government said that they were only going to enforce the ELD under regulations from this date. “So that obviously leaves a gap and what happens to the environmental damage and pollution caused between those two periods—it is certainly an issue that is going to come up. Because if there was any damage, and we don’t know if simply because the competent authorities didn’t have the power to investigate, it still falls under the ELD,” explained Mrs. Fogleman. Meanwhile, a report by the E.U. commission entitled ‘Reporting obligations under the provisions of Article 14 of the ELD—Report about the effectiveness and financial security issues’, that was due out by the end of April, will now most likely report in May or June, said a Commission source. The source did not comment directly on the findings of the report, but, they did say that it was positive about the state of the market. The source said that because of delays in transposition it needed more time to fully consider the market response and effectiveness of the ELD and suggested that it may be too early to consider effectively the role of mandatory financial guarantees for ELD liabilities. “We can say that the market is prepared, we can say that already we have some ELD cases, we can say that progress has been made and that mandatory [financial guarantees] have been chosen for some countries and we will address if it is working better there or not in the future. So you can make some sound judgements out of all of these elements on what the report will contain,” said the source. “We will report on whatever information we have available and maybe pick up the issue of effectiveness of the Directive with another report, which is foreseen already in 2014, on transposition. So whatever we cannot address now we will revisit with the follow-up report,” the source explained. But, in 2010, the market has picked up, she said. This followed a delay in the market’s development because of the credit crisis, which caused some reduction in capacity and a reluctance of operators to take up additional insurance contracts and incur more expense. SERIOUS UPTAKE The European Commission source said that it has now observed that operators are starting to become more interested in ELD cover. She added that the EC has gathered some reports from key insurance companies that they have experienced an increase in contact from operators of around 20-25% in the first three months of this year compared to 2009. All member states have now transposed the directive and so there is more information from member state authorities and more legal clarity on the ELD, the source noted. Operators are more aware that the legislation is in place and of their need to comply. Previously it was difficult for operators to comply and buy financial security products because they didn’t know the legal background, the source added. The Commission also reports that governments are increasingly using the ELD for environmental damage, said the source. “We expect each year to have at least something like 50 cases because member states have reported back to us around two or three cases each, so 50 may even be a low estimate,” the source added. “So as it [the ELD] starts being implemented by the member states, progressively the two factors—transposition and legal clarity plus insurance/financial products in the market—will start moving the market and so we can see some progress and the situation looks quite optimistic,” the source added. For useful information from the European Commission on the Environmental Liability Directive, including a Nov. 2009 study on the implementation effectiveness of the ELD and related financial security issues, go to http://ec.europa.eu/environment/enveco/liability/index.htm. The ECJ also stated that the ELD applies as of April 30, 2007. This raises questions over environmental damage and liabilities in countries which transposed the directive at a later date.In England, for example, the directive was only transposed on March 1, 2009 and the government said that they were only going to enforce the ELD under regulations from this date.“So that obviously leaves a gap and what happens to the environmental damage and pollution caused between those two periods—it is certainly an issue that is going to come up. Because if there was any damage, and we don’t know if simply because the competent authorities didn’t have the power to investigate, it still falls under the ELD,” explained Mrs. Fogleman. Meanwhile, a report by the E.U. commission entitled ‘Reporting obligations under the provisions of Article 14 of the ELD—Report about the effectiveness and financial security issues’, that was due out by the end of April, will now most likely report in May or June, said a Commission source. The source did not comment directly on the findings of the report, but, they did say that it was positive about the state of the market. The source said that because of delays in transposition it needed more time to fully consider the market response and effectiveness of the ELD and suggested that it may be too early to consider effectively the role of mandatory financial guarantees for ELD liabilities.“We can say that the market is prepared, we can say that already we have some ELD cases, we can say that progress has been made and that mandatory [financial guarantees] have been chosen for some countries and we will address if it is working better there or not in the future. So you can make some sound judgements out of all of these elements on what the report will contain,” said the source.“We will report on whatever information we have available and maybe pick up the issue of effectiveness of the Directive with another report, which is foreseen already in 2014, on transposition. So whatever we cannot address now we will revisit with the follow-up report,” the source explained. But, in 2010, the market has picked up, she said. This followed a delay in the market’s development because of the credit crisis, which caused some reduction in capacity and a reluctance of operators to take up additional insurance contracts and incur more expense. SERIOUS UPTAKEThe European Commission source said that it has now observed that operators are starting to become more interested in ELD cover. She added that the EC has gathered some reports from key insurance companies that they have experienced an increase in contact from operators of around 20-25% in the first three months of this year compared to 2009.All member states have now transposed the directive and so there is more information from member state authorities and more legal clarity on the ELD, the source noted. Operators are more aware that the legislation is in place and of their need to comply. Previously it was difficult for operators to comply and buy financial security products because they didn’t know the legal background, the source added.The Commission also reports that governments are increasingly using the ELD for environmental damage, said the source. “We expect each year to have at least something like 50 cases because member states have reported back to us around two or three cases each, so 50 may even be a low estimate,” the source added. “So as it [the ELD] starts being implemented by the member states, progressively the two factors—transposition and legal clarity plus insurance/financial products in the market—will start moving the market and so we can see some progress and the situation looks quite optimistic,” the source added.-- For useful information from the European Commission on the Environmental Liability Directive, including a Nov. 2009 study on the implementation effectiveness of the ELD and related financial security issues, go to http://ec.europa.eu/environment/enveco/liability/index.htm

ECJ confirms onus on polluter to prove not liable in first ELD ruling

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