There has long been a tension between environmental law, and the status of environmental obligations of companies once they fall into insolvency.  Clear case law or legislation on this interaction has been hard to find, with only sporadic and narrow decisions coming out from time to time to offer any guidance.

The "polluter pays" principle, underpinning environmental law in the UK, originating from the EU, is hard to reconcile with insolvency principles and the response that "the polluter can't afford to pay".  What happens then?

This week, Lord Clark in the Court of Session in Edinburgh, delivered an opinion in the case of Dawson International plc & Dawson International Trading Limited [2018] CSOH 52 , ruling that obligations to carry out works required by the Environment Agency (for England & Wales) under a form of enforcement notice following contamination of land, constituted contingent liabilities of a company which had fallen into administration after the contamination occurred.  Lord Clark comments that, by taking control of contaminated land and failing to take reasonable measures to remediate before insolvency occurred, the company came within the regime of environmental legislation which "therefore had some legal effect and put them under some legal duty or into some legal relationship which resulted in them being vulnerable to the specific liability in question" and that "the steps which the companies had taken were sufficient to commit them to a contingent liability" in respect of the ability of the Environment Agency as the responsible authority to issue enforcement notices requiring works to be done.

The Dawson case is continuing, with a number of related questions which remain unanswered.  AG's Business Support & Restructuring teams in Scotland has been monitoring Court of Session developments in this area closely, particularly by Tim Cooper (Partner), Kirsten Fleming (Associate) and David Murphy (Trainee Solicitor) who together are working on a similar case currently making its way through the Court of Session before Lord Doherty.  That case concerns the Scottish Environment Protection Agency (SEPA) and property in Scotland owned by a Scottish company in liquidation, where hazardous substances were alleged to have been deposited on its site before liquidation without remedial action being taken.

These decisions are likely to have important implications both for insolvency practitioners in Scotland as well as England and Wales, and also for specialists in environmental law and practice.  For more information and guidance, contact our BSR specialists working in this important and developing area.