A recent High Court decision has raised some serious questions as to how the courts will interpret the contaminated land regime. Circular Facilities (London) Ltd v Sevenoaks District Council [2005] was the first case to be decided on the contaminated land regime.

The case was initially heard in the Sevenoaks Magistrates’ Court in June 2004, where it was held that a developer that built a housing estate on a site that had been contaminated by a third party could be liable for remediation costs.

It was decided that the developer should be liable even though it denied having any actual knowledge of the contamination at the time of the development. Circular Facilities (London) Ltd (CFL) sought to appeal the decision and, in a surprising turn of events, the decision was overturned in the High Court and the case sent back for a re-trial. However, the saga has unfolded once more, as the decision of the High Court is being appealed by Sevenoaks District Council.

Background: the contaminated land regime

The contaminated land regime came into force on 1 April 2000. It was introduced through the Environment Act 1995, which amended the Environmental Protection Act 1990 (EPA 1990) by inserting a new Part IIA.

Section 78A of the EPA 1990 defines contaminated land as:

… any land which appears to the local authority in whose area it is situated to be in such a condition, by reason of substances in, on or under the land, that –

(a) significant harm is being caused or there is a significant possibility of such harm being caused; or

(b) pollution of controlled waters is being, or is likely to be caused.’

For land to be ‘contaminated’, a pollutant linkage or ‘pathway’ must connect the ‘source’ of contamination with a ‘receptor’ capable of being harmed by the contamination. For example, hexavalent chromium in the soil of a garden would be a source of pollution, the receptor could be a child and the pathway could be the child playing in the garden and ingesting the soil.

These concepts of source, pathway and receptor mean that the cost of remediation can fall on a party which was not responsible for the initial pollution, provided that the relevant party has knowledge of the substance being in the land or introduced a pathway and/or a receptor.

Under s78F of the EPA 1990, the ‘appropriate person’ (a person who is considered responsible for the contaminated state of the land) will be liable for the remediation. An appropriate person is defined as:

… any person… who caused or knowingly permitted the substances, or any of the substances, by reason of which the contaminated land in question is such land to be in, on or under that land.

The Circular Facilities case focused on who can be treated as a ‘knowing permitter’ and, in particular, what type of knowledge the ‘knowing permitter’ should possess.

The facts

In February 1965, permission was granted to a Mr Kinchen-Goldsmith to infill former clay pits at a site in Tonbridge with inert organic material. The process of infilling was carried on until 1970. In 1976, Mr Scott (not then the owner of the site) obtained planning permission to build houses on the site and continued the process of infilling in preparation for the development. Flytipping also occurred on the site.

In 1978, Mr Scott purchased the site and commissioned a soil investigation. Five trial pits were dug with a JCB digger and the results from the extracted soil revealed ‘gases bubbling through water’ and the presence of ‘black organic matter’.

This report was supplied to Sevenoaks District Council in 1980 in connection with another planning application for a housing development on the site. The report was placed on the planning register and should therefore have been available for public viewing.

In 1979, Mr Scott sold the site to CFL, a company under the control of Mr Ketteringham. CFL and Mr Scott developed the site under an arrangement that was described to the court as an ‘informal partnership’.

In the early part of 1980, the site was developed for housing by CFL under Mr Ketteringham’s control, with the assistance of Mr Scott. The last house was sold in 1985. CFL and Mr Ketteringham claimed that at this stage they were still unaware of contamination at the site.

In 1991, the Council investigated the site as part of the first government drive to identify landfill sites that contained potentially hazardous gases, and discovered significant quantities of methane and carbon dioxide in the land. The Council was sufficiently concerned to take remedial and protective steps in the houses that had been built on the site.

Several years later, the Environment Agency notified the Council of changing conditions at the site. In 2000, after the introduction of the contaminated land regime, the Council hired Weeks, an environmental consultancy, to investigate the site, which found that there were still dangerously high levels of methane and carbon dioxide present.

In November 2002, the Council served a remediation notice on CFL requiring it to clean up the site in accordance with specified measures. The Council reasoned that the development by CFL of the housing estate had introduced a pathway (the housing estate) and a receptor (the inhabitants of the housing estate) and that a significant pollutant linkage had thereby been created. Therefore, CFL was considered to be the appropriate person to carry out the remediation works. CFL decided to appeal against the notice.

However, the Council considered that the inhabitants of the housing estate were in imminent danger of significant harm being caused to them as a result of the presence of the gases. Therefore, it decided to enter the site and carry out the remediation works itself rather than delay them while waiting for the appeal to be heard.

The Council gave notice to CFL that it planned to carry out such remediation works and that it would seek to recover the costs of these works from CFL.

The cost of the works amounted to £46,000, which the Council then sought to reclaim from CFL. The Council argued that CFL was the appropriate person to bear the liability for the cost of remediation because it had knowingly permitted the contamination to occur.

However, CFL said it had not become aware of the 1978 soil investigation report or its findings until 2002, even though it was a public document, and therefore it could not be considered a knowing permitter. The case threw up certain evidential difficulties because Mr Scott, who co-ordinated the development and knew more about it than anyone else, was now dead.

The original ruling

In the Sevenoaks Magistrates’ Court, two issues were raised:

• whether the Council was able to demand payment of the remediation costs after the works had already been carried out; and
• whether the Council had wrongly imposed liability on CFL when it should have been imposed on Mr Kinchen-Goldsmith, the original polluter, or on Mr Scott, who knew of the contents of the 1978 report but still continued with the development of the housing estate without addressing the issues raised.

In response to the first point, it was decided that the Council was able to obtain payment from CFL for works which had already been carried out. Indeed, Circular 2/2000, which accompanies EPA 1990, envisages that the appropriate regulatory authority should undertake remedial work where there is an imminent risk of serious harm (as the Council had done in this case), and then recover the reasonable costs incurred in doing so from the appropriate person. Therefore, there was no question of the proceedings being ‘sterile’ because the Council had already taken the necessary remedial action.

On the second point, District Judge Kelly held that the 1978 report:

… was available on the planning register and must have been available to Circular Facilities. I believe that Circular Facilities must have considered the risks of investing in land for development which had consisted of old clay pits and in assessing the risk the soil inspection report must have been considered. The company, in my view, must have been aware of the organic material and the gas and ought to have been aware of the risk posed by landfill sites such as this.

He went on to say:

I accept that the failure of Circular Facilities to deal with the gas is the same as permitting its presence.

District Judge Kelly therefore held that the development by CFL was carried out with the knowledge that the site was contaminated. This made CFL a knowing permitter of the contaminating substances at the site and rendered it liable for the costs of remediating the site.

The appeal

CFL took the case to the High Court, where, on 10 May 2005, Newman J upheld CFL’s appeal. The main thrust of the appeal was based on the fact that District Judge Kelly had not given adequate reasons for his decision that CFL was a knowing permitter of the contamination. In particular, he did not determine whether or not Mr Ketteringham, and therefore CFL(Mr Ketteringham was considered the ‘controlling mind’ of CFL), knew of the presence of methane and carbon dioxide gases.

In addition, at no stage had the judge suggested that Mr Ketteringham was lying when he said he had no knowledge of the report. Furthermore, according to the High Court, District Judge Kelly also failed to set out whether or not he was imputing the knowledge of Mr Scott to Mr Ketteringham and CFL and, if so, on what basis this imputation was made. In the High Court, Newman J stated that:

If the judge was to impute Mr Scott’s knowledge to CFL then the legal basis for so doing should have been explored and disclosed.

This is not the end of the story. Newman J felt that, given the evidence and the legal principle at stake, the case should be sent back to the Magistrates’ Court for a retrial before another judge and CFL may yet be found liable for the cost of remediation works.

What are the implications?

The key issue in relation to this case is the level of knowledge that is required to become a knowing permitter. The courts must decide whether actual knowledge of the contamination is required or whether constructive knowledge suffices.

The case concerning CFL is potentially more complex still, as CFL could be imputed with Mr Scott’s actual knowledge either as an agent or as an informal partner of Mr Ketteringham and CFL.

Restricting the knowledge required of a knowing permitter to actual knowledge could mean that it will be easier to escape liability by claiming ignorance. This might be so, even where the risk of contamination had already been highlighted in a report (and even where documents detailing contamination on development land are available for public scrutiny).

Furthermore, there is a risk that developers could be encouraged not to take active steps to investigate whether or not the site is contaminated, so that they could later claim they had no actual knowledge and therefore avoid liability.

In the event that the courts decide that constructive knowledge is not a sufficient basis for a remediation notice, then the whole basis of liability under the contaminated land regime becomes even less clear than before the Circular Facilities case.

This could lead to a succession of cases being paraded through the courts to prove actual knowledge, which is not something the legislators could have intended.

A further twist in the saga is that, subsequent to a retrial being ordered, Newman J’s decision has been appealed to the Court of Appeal and is expected to be heard at the beginning of December. The outcome of the appeal is being eagerly awaited by lawyers and developers alike.

Circular Facilities (London) Ltd v Sevenoaks District Council [2005] EWHC 865 (Admin)

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