Environmental liabilities and elderly clients

Steve Matthews is an engineering geologist and technical director of environmental consultants Silkstone Environmental. He provides a broad outline of some often ignored environmental issues, which can affect properties owned for many years by older or now deceased clients.

The old lady owned a petrol station, so what?

‘Green’ or environmental legislation has been shaping our lives for many years. The pace has increased dramatically in recent years and now no business can afford to be unaware of the legislation. Examples of environmental constraints on businesses abound. At one time it was perfectly legal to build a factory that emitted unrestricted amounts of sulphurous gas to the air and dumped harmful chemical waste into the nearest river. Those who sat through endless Victorian cases on the law of tort /nuisance at University or the College of Law will recall any number of bizarre cases such as the doctor’s surgery shaken to bits by a strangely vibrating local biscuit factory. And as for sewage, well that was just ‘natural’. It would be impossible to build such a Victorian style or even an early Elizabethan factory today. Times have changed and we all now expect at least clean air and water.

The Environment Agency (EA) is the leading public body for protecting and improving the environment. It is no paper tiger, with enforcement and access powers to rival the police in some circumstances. Neither is it a bunch of bureaucrats in an ivory tower. EA employees are out every day, inspecting installations, sampling water quality and fulfilling many other such tasks. They are not the only entity with an interest in the environment – other bodies such as local councils and English Nature are concerned with the preservation and enhancement of the environment, while various voluntary groups focus on particular issues.

Grandma as polluter

Most modern businesses are conscious of their environmental duties. The main problem for established businesses is that contamination may have occurred either by neglect, omission or accident, or even deliberately at some point in the past when it was legal. Irrespective of the cause of the pollution or the point in time when it occurred (and some pollutants can stay in the ground for many years), the EA can insist that the entity responsible for the pollution must clean it up (known as remediation) or act to contain or stabilise it.

This principle is known as ‘the polluter pays’. It is designed to prevent liabilities being passed on or sold off either with or without the knowledge of the new owner of the property concerned. A group at special risk of polluter liabilities are elderly clients who have owned or been involved with companies whose business involved contaminative or potentially contaminative processes. It is entirely possible that, having closed such a business on retirement, the Environment Agency could potentially seek financial redress from an elderly client’s personal funds or their estate for the clean-up costs of a contaminated site.

For years, many of us believed that in working for a company or partnership, the business would absorb the costs of any action against it in the future. In the worst case, the insurers would pay. But in the case of Merrett v Babb, the Court of Appeal (The Times, February 2001) ruled that a professional person (a surveyor in that case) who made a mistake in their work was personally liable to pay the damages and costs, as the company he was working for at the time he made the mistake had gone out of business and the insurance cover had been cancelled at that time.

The implication of the Merrett case, not, incidentally, an environmental case, would therefore appear to be that individuals can be held personally liable for actions taken while employees, even after they have left the employment of the company, and the more so if they are owners. In the context of environmental issues, the costs of a pollution incident could potentially come back to haunt the affairs and indeed estate of an elderly client many years after it occurred and after any relevant company or other business had ceased trading.

You can be sure of…

A good example may be drawn from the case of petrol stations. You may have noticed many petrol stations closed and for sale recently. Heavy taxation and price cutting by supermarkets has forced many smaller operators out of business. Even bigger chains have cut back on sites that are not large enough to support a retailing operation. However, there was a time when most petrol stations were privately owned and operated and many ran profitably for years. Now many of these stations are coming onto the market, and the ‘footprint’ makes them ideal for small housing or flats, light industrial or retail development. There are also many containing half-built houses, which have not been worked on for years, but have a crater-like hole sat next to them.

The problem with these sites is that they are often contaminated, from operational spillages, tank leaks, and, as many combined fuel retail with vehicle maintenance when it was deemed acceptable just to dump waste oil, heavier dangerous hydrocarbons and metals as well. All of these can soak through the ground over time, forming what are known as ‘plumes’, spreading from the point of origin and eventually reaching clean water sources such as streams where fish and plant life die off, or polluting ground water that eventually becomes part of our domestic supply. When this happens, the Environment Agency becomes involved. It is expert at tracing pollution back to its source. Hence the very big holes.

When fuel stations are shut down now, it is common practice for the owner to decommission the site prior to sale to prevent later repercussions. But you can be sure that just as you thought it was safe…

Grandad as the polluter who pays

Let’s construct an imaginary case concerning an elderly client called John, who in the early fifties invested in a patch of land next to a major road and built a petrol station on it. The business was successful and John bought two more garage cum petrol stations and ran them successfully until 1990. John had known for some time that small petrol stations were becoming uneconomic so he held little hope of selling out to petrol retailers. He was delighted, however, to sell his sites very quickly to the Fast Buck Paper Widget company, purveyors of low-cost widgets direct to the public. John then settled down to a happy retirement, mostly fly fishing in a small stream close to the home he bought not far from his first petrol station.

Meanwhile Fast Buck Paper Widget has hit trouble. The public refuse to be beguiled by the appeal of direct paper widgets and remain solidly behind higher quality plastic items supplied via the trade. The company fails to submit accounts and the two directors – Mike Fast and Jethro Buck – leave the country. The receivers are called in.

Old John knows nothing of this and indeed there is little going on for the next six months while the receivers sort out the labyrinthine affairs of friends Fast and Buck. The first sign of trouble occurs one overcast autumn morning as John approaches his favourite spot on the stream. He notices a fine rainbow coloured film of oil on the surface of the stream. Over the next few weeks this continues and plants and fish start to die. A clued-up dog walker reports this to the Environment Agency, which sends a field officer to investigate. The EA quickly traces the oil back to John’s first petrol station. John had a steel tank installed for the petrol in 1951, which has over the years become corroded from the outside. Eventually, it rotted through sometime in the late 1970s and although John believes the tanks were empty when he left, there was actually a contamination plume already, slowly but surely spreading out beneath his station. The losses were insignificant in terms of John’s throughput, so went unnoticed. They have, however, accumulated over time.

The EA trace the current owners – the receivers – but since the FBPWC are bust and anyway were not responsible for the contamination, their focus inevitably shifts to John.

The clean up of the site will likely involve complete removal of the tanks and the excavation of much of the contaminated material. The cost will run into tens of thousands of pounds. If the EA can prove that John was in breach of legislation while he ran the stations – knowingly or unknowingly – and he has the resources to pay – he could end up in court and landed with a hefty bill.

A story with a moral

Be aware of environmental factors in any transaction involving commercial property and ask about the nature of former business interests. Don’t believe it only applies to large industrial premises and ‘obvious’ cases such as petrol stations, because many smaller businesses are potentially contaminative as well, for instance, dry cleaners, butchers, paint makers and abattoirs.

When clients retire from potentially contaminative businesses, it is particularly important that the question of liability is addressed should the issue arise in the future. It may be wise to commission an investigation from a professional environmental engineering consultancy to check for contamination and, if it exists, carry out remedial action prior to sale. Otherwise it can be taken account of in the sale price of the property, or specifically mentioned in the sale so that it is clear that the purchaser has knowledge of the contamination. Be warned: this provision does not fully protect the vendor, because if the purchaser cannot be pursued for clean-up costs later, the EA may decide that the vendor is still liable. This situation exists because when the legislation was drawn up it was thought that companies wishing to dump property that was an environmental liability might do so by forming smaller companies specifically for the purpose.

Some hope

Finally, to dispel a little of the doom and gloom, there is hope for all contaminated sites. Government policy is designed to make full use of all previously used sites (known collectively as ‘brownfield’ sites) rather than building on previously undeveloped land (‘greenfield’ sites) and, therefore, it is much easier to obtain planning permission and grants for developing it than it would be for a greenfield site. Also, an environmental investigation on a suspected contaminated site may in fact confirm that the site has little or no contamination evident, therefore actually increasing its value. Even where contamination exists there are a number of techniques available to remediate the site.

It is clear that wherever professionals are involved with potentially contaminated sites, the recommended course of action should be to address the problem and not ignore it: contamination very rarely just goes away on its own.

As I write, a client has had to delay building work, already in progress, on an extension to his workshop because he ignored a stipulation to carry out an environmental investigation that was included in his planning permission. Imagine the cost and inconvenience incurred. There could not be a better illustration of the consequences of ignoring environmental factors.

Steve Matthews is an engineering geologist and technical director at Silkstone Environmental. For more information, the website address is www.silkstoneenvironmental.co.uk