Environmental contamination – no such thing as a “Teflon” defence

One of the top trending films on Amazon at the moment is “Dark Waters”, the hard hitting exposé of the DuPont toxic chemical case in the US.

The scandal saw thousands of residents of Parkersburg, West Virginia, poisoned by decades of unsafe emissions from DuPont’s nearby Teflon-producing facility. So far DuPont have been found liable for over half a billion pounds in damages.

Such instances of mass contamination are fortunately rare in the UK, however anyone who has dealt with a brownfield site or a petrol filling station will know that the potential for migrating contamination can never be discounted entirely.

The film caused me to reflect on the fact that landowners are often under the impression that once a property is sold, they have a Teflon-like defence to any future environmental claims which may arise.

A widely held belief is that such claims (along with any liability) can simply be passed straight on to a purchaser without a second thought. Usually this is not the case.

While the standard form of sale contract does seek to transfer environmental liability from a seller to a purchaser (also known as an “agreement on liabilities”), this only applies to liability under the UK's Contaminated Land Regime - the statutory framework under which local authorities can investigate (and raise enforcement action for) environmental breaches.

Without bespoke drafting, the standard form of sale contract does not transfer liability for claims brought by third parties, or indeed liabilities under other environmental legislation/regimes (such as the Control of Asbestos Regulations), all of which could potentially result in a claim against a former owner at a later date.

Even with an agreement on liabilities in place, there is no guarantee that a prosecuting authority will actually give effect to the provisions of a sale contract. These can be disregarded in a number of different circumstances.

So if an agreement on liabilities is neither Teflon nor cast iron, how as a seller can you seek to protect yourself from a future environmental claim relating to your period of ownership?

Much will depend on the risk of contamination and how well you know your site.  Ideally a seller would want to pass liability to a purchaser to the fullest extent possible, with a contractual agreement to that effect.

One of the best protections is for that agreement to be backed up by a robust indemnity from the purchaser, covering all environmental claims - not just those relating to the Contaminated Land Regime.

Indemnities such as this are a frequent source of dispute during negotiations and will inevitably depend on the bargaining power of each party. Environmental liability insurance is becoming much more common, either as a means to plug any indemnity gaps or simply enhance the overall liability shield for a seller. Prices will vary according to the contamination risk.

The Contaminated Land Regime and environmental liability transfers are both complex areas of law. They could also be one of the most damaging elements of a sale / purchase transaction if they are not dealt with correctly, and specialist advice should be sought at the outset if there is even a hint that a site may be contaminated.

One thing is for sure – environmental issues can create major drama during contract negotiations.

Despite what parties may try to agree, the principle of “polluter pays” is (rightly) still hard to escape from.

To avoid becoming the next “based on a true story” movie, make sure your contract has the correct protections.