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Environmental Clean-Up Costs - Who Pays?
For almost 10 years, the Irish courts have set aside limited liability protection in order to impose personal liability on company officers to pay for environmental clean-up, if the company cannot pay. In March 2011 the protection of limited liability was reinstated by the High Court in Environmental Protection Agency v Neiphin Trading Ltd & Ors. As a result of this decision, it appears that directors, other company officers, and shareholders, may no longer be held personally liable for clean up costs by this mechanism, unless Parliament amends Irish waste and other environmental legislation to specifically allow for this.
Fall-back orders – the beginning
Since 2002, the Irish High Court has made what are called “fall-back orders”, imposing personal liability on those who “controlled” and benefited from an activity to pay for environmental clean-up costs. These orders were designed as a “fall-back” if the limited company did not have adequate funds to pay. The regulators who sought the costs did not rely on any specific Irish legislative provision allowing for this tearing aside of limited liability, but the Court took this approach by applying the “polluter pays” principle in the EU Treaty.
The first fall-back orders were controversially imposed by Judge O’Sullivan in Wicklow County Council v Fenton & Others. His statement of willingness to set aside limited liability was far-reaching. Judge O’Sullivan’s view of the polluter pays principle was that those “indirectly responsible” for causing environmental pollution, such as “individual directors and/or shareholders”, should pay for clean up rather than innocent parties, such as the state, the public or the community.
The Fenton decision was subsequently followed in a number of High Court cases. Although the case law was concentrated in the waste sector, there were concerns that it could spread to other industries because it was based on the over-arching European principle of “polluter pays”. There were also concerns that the liability might not stop at directors, company officers or shareholders, but could be imposed on others who might be judged to be “indirectly responsible”.
Fall-back orders – the end of the line?
In a welcome High Court judgment in March 2011, the judge refused to remove the company's limited liability protection to impose clean-up costs on directors personally. In this high-profile case regarding a landfill polluting the surrounding area, the Irish Environmental Protection Agency (the “EPA”) sought “fallback orders” against the directors of the company. The Irish Attorney General supported the EPA’s position. High Court Judge Edwards refused to set aside the limited liability of the company, overturning the Fenton decision - a decision of a Court of equal jurisdiction. No appeal has been lodged in this case, and some doubt may remain over the definitive position unless and until the matter is resolved through legislation or comes before the Supreme Court.
Parliament may choose to amend Irish waste and other environmental legislation to allow for the making of fall-back orders. Until that time it appears that directors, shareholders and other officers may not be held personally liable for clean up costs under fall-back orders.
Given the increasing number of insolvencies in Ireland, which means that limited liability vehicles may not be able to pay for clean-up, the decision of Judge Edwards has added significance.
A final word
Ireland’s more than three hundred pieces of environmental legislation provide other potential routes to impose liability for clean-up on those who control or manage activities. With the shutting of the door to court-imposed fall-back orders, regulators may turn to these legislative possibilities, which are largely untested. Directors and shareholders should take specific advice where operating in polluting industries, and should insure against potential civil liability. Directors and other officers should also note that most Irish environmental legislation expressly provides for the imposition of criminal sanctions for pollution on directors and other officers. A minority of Irish legislation also provides the possibility of imposing criminal sanctions on shareholders who manage the company.