Member Article

The liability to remedy contamination is not limited in time but is only limited by the Environmental Code’s transitional rules, where a business operator can be held liable to take remedial actions if the actual operation of the business has been carried out after 30 June 1969. Further, a business operator can be held liable to take remedial actions if the operator has acquired contaminated property after 1 January 1999.

In the Environmental Code there is an allocation rule which becomes applicable when a business operator or a property owner has taken remedial actions for all of the contamination, despite the fact that they are only jointly and severally liable for the remedial actions. The allocation rule is necessary since a supervisory authority can impose demands on a business operator or a property owner even though there have been several polluters or liable property owners. The party which has been ordered to take actions thus has a legal opportunity, after the actions have been carried out, to divide the costs incurred between the parties liable. The most important basis for the cost allocation is each business operator’s contribution to the contamination, alternatively what the property owner knew, or should have known, regarding the contamination in conjunction with the acquisition of the contaminated property. However, the basis for the allocation can be difficult to prove for the party which has taken the remedying actions. In this part it should also be mentioned that the burden of proof in matters regarding contamination is reversed, which means that it is entirely the company which the supervisory authority deems to be liable which has to show the limitations of the company’s liability.

The possibility of a right of recourse for a company which has taken remedial actions due to contamination becomes even more problematic when the company is neither a jointly and severally liable business operator nor a property owner, i.e. when the allocation rules are not applicable. If a company, which has not caused all or parts of a contamination, has taken remedial actions, alternatively if the actions have been taken by a property owner despite the fact that there are primarily liable business operators, there is no regulation in the Environmental Code concerning how the company which has remedied the contamination is to be compensated for its costs.

From a construction law perspective, it is of great importance that no immediate actions are taken if unforeseen contamination is discovered in conjunction with construction work, but that all work ceases. The supervisory authority must be informed of the contamination discovered, after which the authority will conduct a investigation of liability in order to clarify which party is to be held liable to take remedial actions. When the duty to inform the supervisory authority of contamination also falls upon a temporary user of the property, the liability also comprises the contractor carrying out work on the property. Since there are several parties which have a duty to inform the supervisory authority, it is advisable to regulate the issue of this duty clearly in the contractual documents between clients and contractor.

If the construction work is not terminated when contamination is discovered it may create conditions which mean that it becomes very hard for the party which has carried out the remedial action to get compensation for its costs through recourse. Further, the construction work can cause the contamination to create further damage and the risk is that the client (as well as previous business operators or property owners) or the contractor may be deemed business operators and thereby liable for the contamination due to the risk that the contamination is spreading in conjunction with the continuing work. It shall also be added that actions to remedy the contamination are deemed to be environmentally hazardous activities and that the statutes regulating such activities therefore become applicable.

The information procedures and the subsequent investigations before the supervisory authority can order the liable party to take remedial actions may be time consuming, which entails costs as well as practical difficulties for the construction. These shall, however, be weighed against the above-mentioned risk that the party which, on its own initiative, carries out remedial actions may find it difficult to receive compensation from the party which is liable under the regulations in the Environmental Code. In this context, it should be emphasised that the reversed burden of proof in the Environmental Code regarding the responsibility to remedy a contamination does not apply when the issue of liability must be processed within the framework of the civil dispute rules. The burden of proof rule in the Environmental Code only applies to the supervisory authority’s order on remedial actions, if any. In civil disputes regarding compensation for actions carried out, it is thus the party which has taken the actions which has the burden of proof, not the party which is claimed to have caused the contamination.

The existence of contamination does mean, as regards the on-going construction work, an impediment for the continuation of the work, completely or partly. A consequence hereof is first and foremost adjustments to the timetable and the costs. The regulation of these issues is mainly covered by the general terms for building, construction and installation work which are usually applied in conjunction with construction work on properties, i.e. ABT06 and AB04. The special construction law problems which may arise in the case of contamination should however, as far as possible, be considered already when preparing the contractual documents. Here, the principles for a cost settlement, time extension and other issues which are possible consequences of a contamination be decided and adjusted for the specific construction. This means that the general terms are adjusted by entering new text in the administrative provisions under each code and heading. It may further be advisable to divide the construction work into main parts in order to create the possibility to carry on work in certain parts than the ones affected by the contamination. In the event the contamination is of such magnitude that further construction work cannot reasonably be carried out, there arises an issue of the possibility of cancelling or rescinding. It is also advisable to consider these issues in advance within the framework of the preparation of the contractual documents.

Another issue, which unfortunately does not have an obvious answer but definitely deserves to be discussed, is the liability issue when a contractor is deemed liable for the contamination due to the contractor’s own actions when carrying out the work. The Environmental Code prescribes, as mentioned above, a liability allocation between property owners and business operators and the liability is not limited in time. However, the regulations in the general terms for construction work provide a limitation in liability between client and contractor, regarding liability and warranty periods. Then the question is whether the client and/or property owner which is enjoined to restore contaminated areas have right of recourse to the contractor after the time period has lapsed under the general terms. Do the rules in the Environmental Code prevail over the general terms? If that is the case, how should it be regulated in the contractual documents and what are the insurance possibilities? The answer is probably that the limitation in liability under the general terms applies and to waive or insure against this risk would likely face obvious financial problems which can hardly be overcome. Therefore it becomes increasingly important for the client/property owner, before and/or in conjunction with the construction work on the property, to check and record how the work is carried out as well as the property itself, and also adjacent properties. This way, at least the risk for future liabilities can be reduced.

In conclusion, there are several connections between the Environmental Code’s regulation of the liability to remedy contamination and the construction law regulations in ABT06 and AB04. Since there is no regulation regarding the relation between environmental law and construction law, it is of great importance that the client has sufficient knowledge of the connections between the sets of rules in order to create, under civil law, clear division of liabilities and thereby the prerequisites to avoid potential disputes due to contamination which, as experience show us, may come to light in construction work.

By Erica Nobel och Stefan Olsson, Partners