The Revised European Community Civil Liability for Damage From Waste Proposal

Turner T. Smith Jr. and Roszell D. Hunter

Editors' Summary: With its long history of industrialization and high population density, Europe faces serious environmental problems. Initiatives developed by the European Community (EC) are serving as catalysts and frameworks for addressing these problems. One initiative that the EC is currently considering is the proposed Directive on Civil Liability for Damage from Waste. This proposed directive would create a far-reaching toxic tort and cleanup liability regime. It would hold waste producers strictly and jointly and severally liable for injuries caused by their waste until the waste is turned over to a licensed waste disposal or recycling facility. If the producer cannot be identified, the owner of the land where the waste is located would be deemed the producer and be held strictly liable. The scope of the proposed directive's liability would differ, in some ways, from that of American counterparts such as CERCLA. Nevertheless, like CERCLA it would in practice impose liability on past conduct.

The authors first present an overview of the proposal's current version and examine in detail some of its most significant aspects. They then make recommendations on coping with the civil liability risks that the directive would create. Finally, noting that the proposed directive is only part of a greater trend toward more rigorous environmental liability provisions, they warn that businesses operating in Europe need to carefully consider the environmental consequences of their actions and must be sensitive to the increasing effect of environmental law on their transactions and operations.

Mr. Smith, who has practiced environmental law for 20 years, is the managing partner of the Brussels office of Hunton & Williams; Mr. Hunter is an associate in that office. Their practices focus primarily on advice concerning the effect of environmental law on business transactions and operations in Europe.

[21 ELR 10718]

The Industrial Revolution and its noxious by-products came earlier to Western Europe than to the United States, and the density of development of Western Europe surpasses that of the United States. This combination of historical and intense industrialization has inevitably left a legacy of serious environmental contamination. Europeans, at both the national and European Community (EC or Community) levels, are now beginning to address these environmental problems, with Community initiatives serving as a catalyst and framework. The proposed Directive on Civil Liability for Damage from Waste is one of the most important of the initiatives, in part because of the implications of the strict liability regime it would create and in part because of its role in engendering similar proposals at the national level.

The proposed directive has been under consideration in the EC since 1989, when the European Commission first submitted it to the European Parliament and Council of Ministers.¹ The Parliament issued its opinion² on the proposed directive in November 1990, and, in response to the Parliament's criticisms, the Commission revised its proposal.³ The amended proposal for a Directive on Civil Liability for Damage from Waste, much like the original version, would create a potentially far-reaching toxic tort and cleanup liability regime. It would hold waste "producers" strictly and jointly and severally liable for injuries caused by their waste until the waste is turned over to a licensed waste disposal or recycling facility. If the producer cannot be identified, the person in "actual control" (e.g., the owner of the land where the waste is located) would be deemed to be the producer and would be held strictly liable. In short, the proposed liability regime would present many of the same kinds of business risks raised in the United States by the combination of state law on toxic torts and cleanup liability under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund).⁴

This Article briefly describes the current version of the proposed Civil Liability for Damage from Waste Directive. [21 ELR 10719] It then examines in closer detail particular aspects of the proposal, such as its scope and retroactivity. Finally, it makes recommendations on coping with the civil liability risks that would be created by the proposed directive.

The European Commission's Amended Proposal

The proposed directive, based on the "polluter pays" principle, is intended to create a uniform system of liability to "ensure, firstly, that victims of damage caused by waste receive fair compensation and, secondly, that industry's waste-related costs resulting from environmental damage are reflected in the price of the product or service giving rise to the waste."⁵ To achieve these goals of compensation and, in economic parlance, cost-internalization, the European Commission has proposed a directive that would create both toxic tort (analogous to the multifarious American State law on the subject) and cleanup (analogous to Superfund) liability.

The amended proposed directive would create strict and joint and several liability for personal injuries, property damage, and "impairment of the environment" caused by "waste."⁶ The proposed directive, which purports to be prospective in application,⁷ would seek to hold waste generators or "producers" strictly liable for injuries caused by the waste, until the waste is lawfully turned over to a licensed waste elimination facility. Upon the transfer of the waste, the licensed eliminator would become the "deemed producer" and would assume the risk of liability.⁸ At that moment (and this is to be contrasted with the result under American law), the producer would be relieved of the risk of liability. The proposed directive makes other provision for instances where the producer cannot be found. It treats as the "deemed producer" the person in "actual control" of the waste at the time of the incident giving rise to liability, unless he can identify the producer within a reasonable period.⁹ Additionally, the proposed directive provides that in cases where the Convention on Civil Liability for Damage Caused During Carriage of Dangerous Goods¹⁰ applies, the waste carrier would also be liable "within the limits" of the Convention.¹¹

The proposed directive sets out the possible plaintiffs and remedies, but makes an important bow to national sovereignty in leaving to national law the actual determination of who may bring an action and for which remedies. The proposed directive contemplates actions for injunctive relief and compensation in the case of personal injury or property damage, and actions to compel cleanup or obtain reimbursement of cleanup costs in the case of environmental impairment. There is, strictly speaking, no natural resource damages provision. The possible plaintiffs in personal injury and propertydamage actions could be the injured party and, oddly enough, "common interest groups." The possible plaintiffs in environmental impairment actions could be the government and, again, common interest groups. The proposal would also allow national law to determine the conditions under which common interest groups may bring actions for personal injury, property damage, and environmental impairment.

The proposed directive next sets forth several defenses to or limits on liability. It would create, in addition to a force majeure defense, a defense of contributory negligence: an otherwise liable party may be relieved of liability in whole or in part if he can prove that the harm has been "caused in whole or in part by the injured party or by any employee or agent of the said party."¹² The proposed directive also provides for temporal limits on liability: it prescribes a three-year statute of limitations running from the time the plaintiff has or should have had knowledge of the harm,¹³ and it would extinguish the right to commence legal action thirty years after the occurrence of the incident giving rise to the environmental injury.¹⁴

There are a couple of other provisions that are potentially important to the way businesses would manage the risks created by the proposed directive. First, as under Superfund, a person would not be able to limit or exclude by contract his liability under the proposed directive.¹⁵ Second, waste producers and eliminators would be required to obtain insurance or other financial security covering the liability under the proposed directive.

Scope of Liability

Though the proposed directive raises many issues familiar in U.S. environmental law, and especially in the context of Superfund, the scope of the proposed directive's liability would be different, and in some ways more expansive, than that of the American analogues. The proposed directive would create liability for harms from "waste," not just [21 ELR 10720] "hazardous substances," as under Superfund. Also, parties that would be liable under the proposed directive differ somewhat from those liable under Superfund. Though the proposed directive is intended to avoid the boundless retroactivity of Superfund, it would in practice impose liability on past conduct.

Harms Caused by Waste. The proposed directive would impose liability for harms caused by "waste," which it defines as "any substance or object defined as waste in Council Directive 75/442/EEC."¹⁶ Under Directive 75/442 on Waste, which has recently been amended¹⁷ in order to achieve a more uniformly applied definition of waste, waste is a substance appearing on a list to be prepared by the Commission and that "the holder discards or intends or is required to discard."¹⁸ In preparing the list of wastes, the Commission is to nominate specific materials, whether hazardous or not, from broad categories provided in an annex to amended Directive 75/442 on Waste. The categories from which the Commission may draw include the following inter alia: (1) production residues; (2) off-specification products; (3) substances that no longer "perform satisfactorily"; (4) spilled materials; and (5) a residual category for "[a]ny materials, substances or products which are not contained in the [other] categories."¹⁹ Thus, the field of application of the proposed civil liability directive will be determined by the Commission through the listing process of Directive 75/442 on Waste.²⁰

The field of application of the proposed civil liability directive may actually be broader than Directive 75/442 on Waste. The proposed directive is intended to apply to waste as "defined" in Directive 75/442 on Waste. Article 1 of Directive 75/442 on Waste provides the definition of waste. However, Article 2 of Directive 75/442 on Waste excludes from its scope operating emissions to air and water.²¹ The proposed directive's specific reference to wastes as "defined" in Directive 75/442 might be thought to pertain only to the definition in Article 1, and not to the exclusions of Article 2. Although it is presumably not the intent, this drafting could result in extending civil liability to harms caused by waste even where that waste constitutes normal operating discharges pursuant to a permit.

Liable Parties. The directive's structure of liability can be recapitulated briefly. Strict liability for harms arising from waste extends to a producer of waste, where one can be identified, until the producer lawfully transfers the waste to a licensed eliminator.²² At that transfer, the eliminator becomes the "deemed producer" and assumes the risk of liability. Where the producer cannot be identified, the person in "actual control" of the waste at the time of the incident giving rise to harm may instead be held strictly liable as the deemed producer. Lastly, the proposed directive acknowledges the potential liability of waste carriers in stating that they may also be held liable, but only insofar as they are liable under the Convention on Civil Liability for Damage Caused During Carriage of Dangerous Goods. There would thus be four principal categories of liable parties:²³ (1) producers; (2) licensed eliminators; (3) persons in actual control of waste; and (4) carriers.

Producer Liability. The proposed directive seeks to put the "producer pays" principle into force by holding producers of waste liable for harms arising from the waste. The liability risk runs from the waste's creation until its lawful transfer²⁴ to a licensed eliminator; at the moment of transfer, the producer is relieved of liability risks.²⁵

The scope of the term "producer of waste" is broad and includes two kinds of producers. The first class of producers could be called original producers, specifically anyone "who, in the course of a commercial or industrial activity, produces waste."²⁶ Accordingly, under this prong of the producer definition, practically any economic actor that generates a listed substance runs the risk of liability. The second class of producers consists of those one might call secondary producers, which includes "anyone who carries [21 ELR 10721] out pre-processing, mixing or other operations resulting in a change in the nature or composition of the waste."²⁷ These secondary producers thus include anyone handling waste, whose actions affect the waste's "nature or composition." For example, where wastes from several sources are mixed by a carrier during transport, the carrier may himself run the risk of full liability as a secondary producer, despite otherwise applicable carrier liability limits.

Eliminator Liability — Liability Risk Release for Producers. A producer may relieve himself of the risk of liability under the proposed directive by transferring the waste to a facility "licensed pursuant to Article 8 of Directive 75/442/EEC, Article 6 of Directive 75/439/EEC or Article 9 of Directive 78/319/EEC, or approved pursuant to Article 6 of directive 76/403/EEC."²⁸ Upon transfer, the licensed facility, which may be a disposer or recycler, assumes from the producer the strict liability risk. This liability transfer would occur only where the facility is properly licensed and the transfer is lawful. Thus, if the eliminator is unlicensed, the producer remains exposed to the risk of liability. Conversely and, for that matter, perversely, the unlicensed facility would escape liability under the proposed directive, unless it was otherwise liable as (1) a producer because it carried out an operation resulting in a change in the waste's nature, or (2) a person in "actual control" unable to identify the producer.²⁹

Control Liability — Landowners and Lenders. Where the producer cannot be "identified," the person in "actual control" of the waste at the time of the "incident" giving rise to harm would be held strictly liable. The term "identity" is not defined, but suggests that the person in actual control of the waste need only point to the producer, whether the producer continues to exist or not, and the liability risk will shift.³⁰ The term "actual control" is not defined either. It appears to suggest some notion of power over the waste and to extend to instances where control exists, but has not yet been exercised.³¹ Accordingly, owners or operators of property containing waste could be at risk of liability under the proposed directive even if they had no part in the creation of the contamination. Indeed, a corporate parent might even face liability as a party exercising "actual control," notwithstanding established principles of corporate limited liability.

Control liability could also extend to lenders. A foreclosing lender that assumes ownership of a piece of property, and thus exercises "actual control" over it, could be found liable if an "incident" occurred during this period of control. Or, if the lender exercises control in some other manner, by, for example, participating in the management of a debtor, and an "incident" occurs during the participation, a court might deem the lender to be in actual control and thus liable. Concern over this expansive lender liability has led the British banking industry to lobby vigorously (though thus far unsuccessfully) for an explicit lender liability exemption.

Carrier Liability. The proposal provides that in cases where the Convention on Civil Liability for Damage Caused During Carriage of Dangerous Goods applies, the carrier is also liable within the limits of the Convention.³² Under the Convention, a carrier is liable for "damage caused by any dangerous goods during their carriage by road, rail or inland navigation vessel."³³ Thus, if the harm occurs during shipment and is caused by "dangerous goods," as defined in the Convention,³⁴ the carrier may be liable, along with the producer, up to the monetary limits prescribed in the Convention.³⁵ In short, the [21 ELR 10722] proposed directive would arguably not create liability for the carrier, but would simply recognize the liability provided for in the Convention. The result would be that, to the extent there is carrier liability under the Convention, the carrier and the producer would be jointly and severally liable; above the limits of the Convention, the producer alone would be liable.

Retroactive Reach of Liability. The proposed directive states that it would apply only to harms arising from an "incident" occurring after its implementation.³⁶ Though this temporal limitation on liability is intended to avoid the unrestrained retroactivity of Superfund, the proposed directive, as drafted, would nonetheless create liability for past conduct. This retroactivity is caused by the use of an "incident," rather than the creation of the waste, as the moment for determining whether a legal action is permissible. The retroactivity of the proposed directive may well be exacerbated by the directive's failure to specify what constitutes an "incident."

So long as the "incident" giving rise to harm occurs after implementation, the waste producer would be strictly liable for the harm. A producer could thus be liable for harms arising after implementation from waste that was produced years ago and over which the producer has no control. The proposed directive could thus make producers liable for conduct undertaken at any time in the past, even though that conduct may at the time have been legal and thought to have been good business practice.

This retroactive regime may prevent the incentives that the proposed directive seeks to establish. Since the producer, not the one controlling the waste, would be liable, there is a dangerous divergence between liability and the ability to control the waste. The producer may well have no idea where the waste is and no ability to control environmental harm from it. Nonetheless, he would remain liable for harms that the waste may cause. Meanwhile, the one best situated to avert the harm, the person controlling the waste, would be able to escape liability so long as he can identify the producer.³⁷ Thus, persons in actual control of waste who could identify the waste's producer would, under the proposed directive at least, be able to handle the waste with impunity.

These retroactive liability worries are compounded by the absence of a definition of "incident," the term on which liability turns. The construction given the term will greatly affect the reach of the proposed directive's liability — for producers and most particularly for those in "actual control," such as landowners. A cursory reading might suggest that "incident" refers simply to the initial deposit of waste ultimately causing harm, or perhaps the first release of pollutants from that waste into the soil or groundwater. If so, a producer's liability would be limited to liability for harms caused by initial releases that occur after implementation of the proposal into national law. Conversely, harms from waste deposited or first leaching prior to implementation would be excluded from the liability regime, which would prevent the creation of liability for most soil and groundwater contamination existing as of implementation. In this situation, the retroactive reach would be limited to wastes produced before implementation and released into the environment after implementation.

If "incident" is more broadly construed to include the continued leaching of the deposited waste into groundwater, the scope of liability will be greatly expanded. A producer could be liable for harms arising from waste that was long before released into the environment and that continues to leach into soil or groundwater. Each imperceptible instance of leaching would constitute an "incident." The producer would then be liable for harm from any such leaching occurring after implementation. As a practical matter, if one is held responsible for the post-implementation leaching, cleaning up the contamination caused by the post-implementation leaching and arresting further damage from continuing leaching would require cleanup of all of the contamination.

While this broad construction seems, at first glance, unlikely to many Europeans, it should be noted that this is the construction that analogous terms ("discharge" and "release") in American environmental law have received. Perhaps more to the point, the Council of Europe's draft liability rules on compensation for damage resulting from dangerous activities defines "incident" to include any "leak or emission or any series of occurrences having the same origin, which causes damage or creates a grave and imminent threat of causing damage."³⁸ This definition may well include continued leaching. A national legislature during implementation or a national court in a case before it might well rely on this definition to construe "incident" in the proposed directive. The result could be the dilation of exposure to retroactive cleanup liability similar to that which has occurred under U.S. environmental law.³⁹

[21 ELR 10723]

These issues concerning the meaning of "incident" would have even greater consequences for the liability of landowners and others who may be deemed to have "actual control" of waste. Where the narrower meaning of "incident" (i.e., initial release only) is adopted, a person taking interest in land subsequent to the "incident" would not be subject to liability for harms arising from that incident. Under that construction, liability risks under the proposed directive would arise principally from any wastes on the site at the time of purchase or leasing that subsequently give rise to an "incident" (e.g., a drum of chemical waste that leaks after the acquisition and produces an "incident"). Where a broader construction of "incident" including continued leaching of the deposited waste into groundwater is used, the liability risks would be much greater. There the holder of the subsequent interest could be vulnerable to liability for continuing harms arising from the initial release of contaminants into the environment, even though the initial release occurred before the holder's ownership and control.

Even with a narrow definition of "incident," purchasers or lessees of land or of businesses holding or leasing land (and their lenders) would need to conduct due diligence investigations to identify potential contamination — that is, to identify wastes on the site being purchased or leased that might give rise to an "incident" during their actual control. If a broader construction including continued leaching is adopted, thorough due diligence investigations of the sort conducted in the United States for actual and potential contamination would be necessary.

These investigations would be all the more important because of the likely practical operation of the "deemed-producer" provisions. Despite the stated intention that primary responsibility for harms from waste be borne by the producer, the person in control at the time of the incident will often be the defendant of first resort, the one holding the "smoking gun" and the one to whom the government and other plaintiffs will look first. It would then fall on the person in control at the time of the incident to shift the liability to the producer. There would in all likelihood be many cases in which the producer cannot be identified, particularly where gradual or continued forms of waste damage are at issue. In such cases, the person in actual control would bear the liability. In other cases, the producer may be identifiable, but only after extensive research into a hazy past. There, to avoid being held liable, the person in control would be compelled to track down the producer.

Liability for Damage and Impairment of the Environment

The proposed directive would allow actions for two kinds of harm; "damage" and "impairment of the environment." Damage is defined in a circular fashion as (1) "damage resulting from death or physical injury," and (2) "damage to property."⁴⁰ "Impairment of the environment" is defined as "any significant physical, chemical or biological deterioration of the environment insofar as this is not considered to be damage…."⁴¹

The Commission's original proposal used a different term, "injury to the environment," which was defined as "significant and persistent interference in the environment caused by a modification of the physical, chemical, or biological conditions of water, soil and/or air insofar as these are not considered to be damage…."⁴² Significantly, the original proposal used the concept of "interference" in the environment as opposed to "adverse effect" or some other concept of harm. This test in the original proposal was analogous to the neutral concept of "change" in physical, chemical, or biological conditions used in some American environmental legislation. The amended proposal, however, narrows the concept of environmental impairment by using the negative concept of "deterioration." Presumably, the use of this term would limit environmental impairments to instances of adverse change. On the other hand, the amended proposal removed the persistency requirement in the original proposal.

Plaintiffs and Remedies

While the proposal envisions a far-reaching strict liability regime for these harms, it would allow the member states a wide ambit in determining who may sue for which remedies and hence in determining the practical significance of the liability regime. The proposal states that national law shall determine "who may bring a legal action in the event of damage to or impairment of the environment caused or about to be caused by waste."⁴³ National law shall also determine "the remedies available to such persons which shall include" the following:

For personal injuries and property damage,

an injunction prohibiting the act or requiring correction of the omission that has caused or may cause damage, and

[21 ELR 10724]

* compensation for damage; and

For environmental impairment,

* an injunction prohibiting the act or requiring correction of the omission that has caused or may cause impairment of the environment,

* an injunction ordering reinstatement of the environment and execution of preventative measures, and

* reimbursement of costs incurred in reinstating the environment and in taking preventative measures.

Common Interest Groups. The proposed directive would allow common interest groups, under the "conditions" determined by national law, to seek any remedy provided under the proposed directive.⁴⁴ Thus, oddly enough, common interest groups would be able to seek injunctive measures and compensation for damage, even though such rights of action are typically the sole perogative of the injured party.⁴⁵ Similarly, common interest groups may be able to seek cleanup orders and compensation for cleanup measures they have undertaken.⁴⁶

The proposed directive would not structure common interest group participation in the cleanup process. Presumably, even if the government is undertaking cleanup pursuant to the proposed directive, a common interest group could carry out its own measures or seek an injunction requiring such measures. If the government were to determine that other sites were more important to clean up before that site, or that a certain part of a large site was more important to clean up first, this priority determination would not prevent or affect the timing of a cleanup action (or of litigation to force cleanup) brought by a common interest group.⁴⁷

Level of Cleanup — Uncontrolled Costs. Though the proposed directive creates the remedy of "reinstatement of the environment" where there has been environmental impairment, it gives no indication of what "reinstatement" means or what level of cleanup shall be required. The U.S. experience demonstrates that deciding how clean a cleanup must be can have a direct and dramatic effect on the cost of liability. As the proposed directive does not address this issue directly, it would apparently be left to the ad hoc decisions of governments, common interest groups, and landowners as they seek, and courts as they adjudicate, cleanup orders and reimbursement.⁴⁸

This ad hoc decision process and the resulting costs of cleanup would be controlled only by the proposed directive's curious two-pronged cost limitation device. Under this provision, the plaintiff may obtain reinstatement or reimbursement for reinstatement, except where (1) "the costs substantially exceed the benefit arising for the environment from such reinstatement" and (2) "other alternative measures to the reinstatement of the environment may be undertaken at a substantially lower cost."⁴⁹

In the first prong, the concept of environmental benefit is not defined. Nonetheless, the proposed directive supposes a comparison between the costs of repairing the environment and this unquantified environmental benefit. Given the vagueness of this benefit concept, it seems unlikely that courts would frequently conclude that a plaintiff's reinstatement costs "substantially" exceed the benefit.

After establishing the first prong, the defendant would then need to demonstrate that there are "other alternative measures to the reinstatement of the environment [that] may be undertaken at a substantially lower cost." Oddly, this second prong does not explicitly require that the alternative measures be as beneficial or nearly as beneficial as the [21 ELR 10725] plaintiff's preferred measures. These alternative measures must be "substantially" less expensive than the plaintiff's.

It seems that the proposed directive does not contemplate the possibility that there would be some instances in which the costs of any measures (or of any measures as effective as those originally proposed, if that turns out to be the meaning of "alternative measures") would outweigh the benefits and that it would be more prudent to devote society's limited resources elsewhere. The possibilities of inaction and investment in the environment elsewhere do not seem to fall within the meaning of "other alternative measures to reinstatement of the environment." Yet, those familiar with the U.S. experience of trying to determine how clean a cleanup must be know that there are many cases in which the costs of any "qualifying" measures outweigh the benefits. Thus, the proposed directive's cost/benefit test could well impose little constraint in many cases in which the costs of the measures proposed outweigh the benefits.

In short, the use of an unquantified concept on one side of the scale in the first prong and the use of the adverb "substantially" in both prongs, would likely enable governments and common interest groups to drive the cleanup process without significant cost/benefit analysis control. This lack of cost control, particularly when combined with the unfettered ability of common interest groups to participate in the cleanup process, threatens to create an unstructured and inefficient environmental cleanup program.

Defenses

The proposed directive provides for some defenses and for temporal limits on liability. It provides that no liability will attach to an otherwise liable party if it proves that, in the absence of fault on its part, the harm was caused by (1) a force majeure or (2) an act or omission of a third party with the intent to cause the harm.⁵⁰ The proposed directive also provides a contributory negligence defense. It states that the liability of an otherwise liable party may be wholly or partially "waived" if it can prove that the harm was caused in whole or in part by the injured party or by the injured party's agent.⁵¹

The proposed directive further provides for a three-year statute of limitations running from the time the plaintiff becomes aware or should have become aware of the harm,⁵² and for the extinction of the right of action thirty years after the date of the incident giving rise to the harm.⁵³

Insurance or Other Financial Security

The amended proposal would require that the liability under the directive of the "producer, who in the course of a commercial or industrial activity produces waste, and of the eliminator shall be covered by insurance or any other financial security."⁵⁴ The requirement of insurance or other financial security, if the wording of the proposed directive is heeded, would extend to anyone producing waste in the course of a commercial or industrial activity. Large, established manufacturers would have to obtain insurance or security, but so would small businesses such as dry cleaners and gas stations. Even professionals such as bankers and accountants would appear to fall within the scope of this requirement.⁵⁵

It is not clear that insurance will in fact be available. Though the proposed directive may create a demand for insurance coverage, insurers may well fail to reciprocate by providing the supply (or a supply at an affordable price). Although insurance coverage may be available in Europe for sudden and accidental environmental damage, it is becoming increasingly difficult to obtain for environmental harms caused by gradual pollution. The British Insurers Association has stated, "The current availability of cover for gradual pollution is being rapidly eroded and is unlikely to be generally available under a strict liability regime."⁵⁶ Other financial security may be available, but the cost is not certain, especially given the uncertain extent of liability (in terms of retroactivity and cleanup costs) and the American experience. Moreover, financial security issues formany small businesses in the United States (as in the regulation of underground storage tanks) has proved to be one of the most intractable environmental law problems.

Coping With the Civil Liability Directive

As with U.S. environmental law, and most notoriously the Superfund statute, the substantial environmental liabilities created by the proposed directive may have a disruptive effect on European business transactions and operations. The costs arising under the directive would, because of the nature of the harms and the difficulty of cleanup, be substantial — in the United States liability for cleanup costs can run into millions of dollars. And, as the course of this discussion makes plain, there is substantial unpredictability as to who will bear the liability. Businesses operating in Europe will accordingly need to be wary of the directive's potential pitfalls.

For example, a waste producer should consider whether to track down its past waste and, if possible, regain control of it or insure that it is lawfully turned over to a licensed eliminator. Regaining control of past waste is particularly important because, as explained above, the retroactivity provision is triggered by the time of the "incident," not creation of the waste. Thus, under the proposed directive a person could be liable for waste produced decades ago, if [21 ELR 10726] the "incident" resulting in damage or environmental injury occurs after implementation. And finding waste may prove more difficult if present holders respond to the directive's misguided incentives and try to pass the "hot potato" to some other party prior to an "incident." A producer should also immediately assume control over the destiny of currently produced waste and ensure its delivery to a licensed waste eliminator.

A person who was not the producer but who has ownership or control of waste should take measures to avoid an incident, and should trace any waste to its producer. Further, as explained earlier, the directive creates an incentive for a nonproducer possessor of waste to transfer ownership or control, whether it be to a licensed eliminator or someone else.

Perhaps those most at risk under this directive are persons possessing or taking an interest in land. They will need to investigate whether they have or will be acquiring "actual control" of any waste, and, if so, who produced that waste. This will require thorough site investigations of the sort often conducted in the United States. A person already possessing an interest in real property containing waste of course will need to prevent any "incidents," but, should an "incident" occur, may try to shift the liability to the producer. A site investigation would be necessary to establish the precise kinds of wastes over which a person acquiring an interest in real property may be assuming control. The information revealed by the investigation may also have an impact on the price of the property and may even convince the would-be purchaser or lessee not to go forward with the transaction because of the amount of on-site waste or extent of contamination. Further, the person acquiring an interest in real property will probably want an indemnity for any unidentified waste that may later cause an "incident." Although the value of an indemnity is limited by the financial strength of the party providing it, it can be useful in inducing that party to make full disclosure.

Conclusion

The proposed Civil Liability for Damage from Waste Directive promises to have far-reaching effects on business transactions and operations in the Community — in fact, its effects are already being felt. The civil liability directive might not appear as draconian as the American Superfund legislation in its retroactivity, for example. But its scope is much wider — it applies to harms from all kinds of wastes, not just those that are hazardous, and it provides for toxic tort actions. Also, although the proposed directive is not intended to be retroactive, there remains substantial uncertainty about its retroactive reach in light of the absence of a definition of "incident." Further, as producers may be liable for harms arising from wastes produced years ago and over which they have not had control since before implementation, the scheme is retroactive — producers can be liable for pre-implementation conduct.

Although the proposed directive has not yet been adopted and would take several years to be implemented throughout the Community, businesses operating or having assets in Europe will have to respond to it now. They would do well to study the proposed directive carefully and to make their views known to Community and national authorities as it is adopted and implemented. They should take precautions now to avert or at least mitigate future liability, since their preimplementation conduct may have significant consequences for liability under the directive.

Quite apart from the Community's proposed Civil Liability for Damage from Waste Directive, member states across the Community have been venturing into the domain of civil liability for environmental harms. Environmental legislation imposing strict liability has existed since the mid-seventies in Belgium. Environmental legislation has recently been adopted and implemented in the Netherlands and Germany. France is at present considering a water preotection law that would impose cleanup liability. In addition, Europeans are coming to recognize that existing civil code and police code provisions in many instances already cover environmental harms.⁵⁷ Further, the Council of Europe is currently considering rules on compensation for damage to the environment resulting from dangerous activities. In short, the proposed Civil Liability for Waste Directive is just part of a greater trend toward more rigorous environmental liability provisions. Accordingly, businesses operating in Europe need to consider carefully the environmental consequences of their actions and must be sensitive to the increasing effect of environmental law on their transactions and operations.

1. Proposal for a Directive on civil liability for damage caused by waste, 32 O.J. EUR. COMM. (No. C 251) 3 (1989) [hereinafter, Original Proposal] (submitted under the cooperation legislative procedure (two readings in the Parliament and majority voting in the Council)). For analyses of the Original Proposal, see Smith & Hunter, Civil Liability for Damage From Waste: Previewing EC's Proposed Directive, CROSSLAND'S EUR. ENVTL. BULL. (Supp. 1990), and Freeman & McSlarrow, The Proposed European Community Directive on Civil Liability for Waste — the Implications for U.S. Superfund Reauthorization in 1991, 46 BUS. LAW. 1 (1990).

2. 33 O.J. EUR. COMM. (No. C 324) 248 (1990). The Parliament rendered its first reading opinion on the proposal in November 1990. That opinion differed from the Commission's initial proposal in that it would have (1) relieved producers of a portion of their liability when they turned their waste over to a registered or authorized carrier, (2) modified the remedies sections, and (3) included a requirement of insurance or other financial security. On the basis of the Parliament's opinion, the Commission has now prepared the amended version of the proposed civil liability directive.

3. Amended proposal for a Directive on civil liability for damage caused by waste, 34 O.J. EUR. COMM. (No. C 192) 6 (1991) [hereinafter Amended Proposal].

4. CERCLA §§ 101-405, 42 U.S.C. §§ 9601-9675, ELR STAT. CERCLA 007-075.

5. Explanatory Memorandum accompanying Proposed Directive on Civil Liability for Waste, COM(89) 282 final — SYN 217 (89/C251/04), at 1 (Sept. 15, 1989).

6. Amended Proposal, supra note 3, arts. 3 and 5. Issues of contribution between jointly and severally liable parties would be left to member state determination.

7. Id. art. 13 (stating that the proposed directive does "not apply to damage or impairment of the environment arising from an incident that occurred before the date on which its provisions are implemented").

8. Id. art. 2, para. 2(c).

9. Id. art. 2, para. 2(b) ("incident" is not defined, which gives rise to the difficulties discussed infra notes 36-39). Where waste is imported, the importer becomes the "deemed producer" and hence bears the risk of liability. Id. art. 2, para. 2(a).

10. Convention on Civil Liability for Damage Caused During Carriage of Dangerous Goods by Road, Rail and Inland Navigation Vessels, Inland Transport Committee, Economic Commission for Europe of the United Nations (Oct. 10, 1989) [hereinafter Convention on Civil Liability for Damage Caused During Carriage].

11. Amended Proposal, supra note 3, art. 3, para. 1.

12. Id. art. 7, para. 2.

13. Id. art. 9, para. 1.

14. Id. art. 10.

15. The proposed directive provides, "The liability of any person arising from this Directive may not be limited or excluded by any contractual provision limiting his liability or exempting him from liability." Id. art. 8. The analogous Superfund provision states, "No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer from the owner or operator of any vessel or facility or from any person who may be liable for a release or threat of release under this section, to any other person the liability imposed under this section." CERCLA § 107(e)(1), 42 U.S.C. § 9607(e)(1), ELR STAT. CERCLA 026. But Superfund goes further than the proposed directive to state explicitly that "[n]othing in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under this section." Id. While this latter provision of Superfund may be a result of the hypertrophy of American environmental law, it might be well to incorporate a similar provision in the proposed directive, so as to make clear that parties to a business transaction can negotiate and enforce such contractual provisions.

16. Amended Proposal, supra note 3, art. 2, para. 1(b).

17. Directive 75/442 on waste, 18 O.J. EUR. COMM. (No. L 194) 39 (1975) [hereinafter Directive 75/442 on waste], as amended by Directive 91/156 amending Directive 75/442 on waste, 34 O.J. EUR. COMM. (No. L 78) 32 (1991). It should be noted, however, that the Commission has brought an action before the Court of Justice seeking the annulment of the amendments to Directive 75/442 on Waste. See Commission v. Council, Case 155/1991, O.J. C 189/12 (July 20, 1991).

18. Directive 75/442 on waste, supra note 17, art. 1.

19. Id. Annex I.

20. See id. art. 18 (creating a "committee procedure" under which the Commission, assisted by member state representatives, can list substances).

21. Id. art. 2 (excluding from Directive 75/442 on Waste's scope "gaseous effluents emitted to the atmosphere" and "waste waters, with the exception of waste in liquid form").

22. The proposed directive creates the defined term "eliminator," meaning a person carrying out the disposal or recycling operations listed in the annexes to Directive 75/442 on Waste. Amended Proposal, supra note 3, art. 2, para. 1(f). Under articles 9 and 10 of amended Directive 75/442, persons carrying out those operations must be licensed or registered. As discussed infra note 27, the proposed directive oddly does not then use the term "eliminator" in the liability provisions (arts. 3 and 2, para. 2). Instead, without using the defined term, the proposed directive would make liable licensed persons carrying out these listed recycling and disposal operations. Amended Proposal, supra note 3, art. 2, para. 2(c). For the sake of simplicity and clarity, the term "eliminator" is used in this Article.

23. As discussed supra note 9, a person who imports waste into the Community may also be liable as a "deemed producer." Amended Proposal, supra note 3, art. 2, para. 2(a).

24. The critical term "lawful transfer," the term on which liability pivots, is not defined.

25. The producer, while relieved of the risk of liability under the proposed directive, may nonetheless be liable under other laws. For example, in Belgium, the Law of July 22, 1974, on Toxic Wastes, art. 7, MONITOR BELGE (Mar. 1, 1975), holds strictly liable the producer of toxic wastes for "all damages" those wastes may cause, even during "destruction, neutralisation ou elimination." The Belgian law also grants the government the authority to undertake cleanup of a contaminated site and to seek reimbursement. Id. arts. 11 and 15. Thus, in Belgium it would be possible for a toxic waste producer to bear toxic tort and cleanup liability for harms caused by the waste even after it has been turned over to a licensed disposal facility.

26. Amended Proposal, supra note 3, art. 2, para. 1(a). There being no exemption for governments, they too could be producers for liability purposes when they produce waste "in the course of a commercial or industrial activity." But apparently governments would not be liable when they are not engaged in "commercial or industrial" activities or pre-processing, mixing or other operation changing the nature or composition of the waste. The distinction of what is and is not a "commercial or industrial" activity when carried on by a government may not always be obvious. In any event, one could cite the Eastern European experience for the imprudence of exempting governments of responsibility for the environmental consequences of all their actions.

27. Id.

28. Id. art. 2, para. 2(c). The relevant fact for shifting liability is whether the eliminator has a required license, not whether the eliminator is actually capable of handling the waste. Producers would thus need to assure themselves that disposers have the appropriate documentation, but apparently would not need, by reason of this proposal, to go further in investigating the management, environmental law compliance, and environmental performance of disposers — of course, prudent producers (especially those familiar with the American experience) would do so in any case, particularly as liability may arise under other, national liability regimes. Given the poor performance of some member states in implementing Community environmental legislation, it may be difficult in some instances to find a suitable eliminator that is appropriately licensed under Community law.

29. This peculiar situation of unlicensed eliminators escaping liability arises from the operation of the deemed producer provision, which makes licensed eliminators liable in place of the producer after a lawful transfer of the waste. Id. This liability shift does not occur if the transfer of waste was not lawful or the eliminator not properly licensed. An unlicensed, illegal eliminator would always have an incentive to lie about its legal status so that it may attract business while avoiding the burdens of regulatory control. As the proposed directive is drafted, that illegal status becomes all the more attractive and may create an enhanced incentive for an eliminator to lie about its status, for it would be aware that it would not assume a liability risk under the directive for waste it receives. Large, sophisticated waste producers might not find it difficult to avoid these unlicensed, "high risk" eliminators, but the situation would be very different for smaller enterprises (e.g., gas stations and dry cleaners). They would be less likely to know all the intricacies of liability and licensing regimes and may be easily duped by an unscrupulous unlicensed eliminator.

The solution would be to make all eliminators strictly liable for harms from waste they receive, but to allow (as is now the case) liability to shift completely from the producer to the eliminator if the transfer was lawful and the eliminator properly licensed. This change would eliminate the incentive for eliminators to be unlicensed, yet maintain the liability release incentive for producers to patronize appropriately licensed eliminators.

30. It is also unclear what would happen under the proposed directive when an inseparable harm has been caused by several different wastes, and the person in actual control is able to identify some but not all of the producers. While it may not have been the drafters' intent, under the proposed directive, the person in control would apparently be jointly and severally liable with the identified producers. The proposed directive states that the person in actual control of the waste is liable as the "deemed producer" unless the producer can be identified. Thus, for each waste the person has control over and for which he does not identity the producer, he is the "deemed producer." The directive further states that when "two or more persons are liable for the same [harm], they shall be liable jointly and severally." Id. art. 5, para. 1. Hence, as will typically be the case with contaminated sites, whenever the person in control (e.g., the landowner) is not able to identify the producer for each and every waste causing an inseparable harm, the person in control will be jointly and severally liable with all of the identified producers.

31. As the proposed directive speaks in terms of "the person who had actual control of the waste" at the time of the incident, it might create liability for managers, officers, and directors. The reasoning would be that, even if the waste were on a company's site, the manager, individually, had power over or "actual control" of the waste, and could consequently be a liable party.

32. Id. art. 5, para. 1.

33. Convention on Civil Liability for Damage Caused During Carriage, supra note 10, art. 5, para. 1.

34. Amended Proposal, supra note 3, art. 1, para. 9 (defining "dangerous goods" as "any substance or article which is either listed in the classes, or covered by a collective heading of the classes of the European Agreement concerning the International Carriage of Dangerous Goods by Road (ADR) or is subject to that Agreement").

35. One could argue, however, that "within the limits" means the Convention's quantitative liability limits, not all of the other restrictions on liability, such as the statute of limitations. If that were so, the proposed directive might be creating liability, not simply recognizing existing liability. As a result, the carrier could be liable under the proposed directive even in instances not covered by the Convention, or even in a member state where the Convention has not been ratified and incorporated into national law.

36. Id. art. 13 ("[t]his Directive shall not apply to damage or impairment of the environment arising from an incident which occurred before the date on which its provisions are implemented").

37. The retroactivity problems are heightened (inadvertently, it would seem) by the wording of the provision that enables the transfer of liability from a producer to a licensed disposer. That provision states that a waste eliminator may be deemed to be the producer, for purposes of liability, in the place of the waste producer if the eliminator is "licensed pursuant to Article 8 of Directive 75/442/EEC, Article 6 of Directive 75/439/EEC or Article 9 of Directive 78/319/EEC, or approved pursuant to Article 6 of Directive 76/403/EEC." Id. art. 2, para. 2(c) (citations omitted). Where the transfer is to a disposer that is not licensed pursuant to these directives, liability does not shift, but rests with the producer. This wording creates the prospect of waste transfers that would not qualify for this liability transfer because they occurred before adoption of the directives — liability would presumably rest with the producer even if the disposer subsequently obtained appropriate licenses. A similar result might occur if a member state failed to implement properly the licensing directives by the time of the waste transfer. In such a case, the eliminator could not possibly be licensed pursuant to Community law, and liability would apparently not shift. In both cases, the producer would be strictly liable for the harms arising from post-implementation "incidents."

38. Draft Convention on Damage Resulting from Activities Dangerous to the Environment, DIR/JUR (91) 1, at 4 (Jan. 23, 1991). See also Convention on Civil Liability for Damage Caused During Carriage supra note 10, art. 5, para. 2 (" 'Incident' means any occurrence or series of occurrences having the same origin, which causes damage or creates a grave and imminent threat of causing damage").

But note that article 13 of the German version of the proposed directive uses the term Handlung, thereby suggesting the more affirmative notion of a human act causing damage or impairment. The use of this term would appear, in the German version at least, to constrain liability.

39. As the definition of "incident" will be determined at the national level, definitions of this critical term, and hence the scope of liability, would probably vary significantly among member states.

40. Amended Proposal, supra note 3, art. 2, para. 1(c).

41. Id. art. 2, para. 1(d). The relationship between the definitions of "damage" and "impairment of the environment" is confusing. It would be preferable to make the two definitions independent of each other, while recognizing that the same contamination can result in liability for cleanup under the environmental impairment theory and for compensation under a "damage" theory.

42. Original Proposal, supra note 1, art. 2, para. 1(d).

43. Amended Proposal, supra note 3, art. 4, para. 1(a).

Arguably, the Original Proposal required that a right of action be granted to the enumerated plaintiffs. However, it provided that where national law affords "common-interest groups the right to bring an action as plaintiff, they may seek only the prohibition or cessation of the act giving rise to the injury to the environment." Original Proposal, supra note 1, art. 4, para. 4. Thus, while the Amended Proposal appears to grant to the member states the power to decide who may bring which kinds of actions, the Original Proposal would have made these rights of action more certain. Apparently, this change is the result of member state pressure. Commission staff, though compelled to make concessions on the question of who can sue, may have lessened the effect of this change by including a "whereas" clause suggesting that the member states must grant the enumerated rights of action to anyone they authorize to sue. See Amended Proposal, supra note; 3, recital 18 ("Whereas in the interest of a high level of protection for the interests of the injured parties and of the environment, the Member States must offer the persons who may bring a legal action the possibility of requesting measures to prevent, suspend and/or compensate for the act or omission which caused or may cause damage to or impairment of the environment") (emphasis added). The thought is that if a member state does not grant all of the rights envisioned by the proposed directive, the Commission could bring a case in the European Court of Justice and argue that the legislative intent was that such rights be granted, and that, in any event, where rights are created under Community law, national law must give effect to those rights by supplying legal remedies.

44. Id. art. 4, para. 3. The provision states, "Common interest groups or associations, which have as their object the protection of nature and the environment, shall have the right either to seek any remedy [under the directive] or to join in legal proceedings that have already been brought. The conditions under which the interest groups or associations … may bring an action before the competent authorities shall be laid down by national legislation." It is thus not entirely clear whether member states would be able not to allow these groups to sue; while the proposal states that member states may determine who can bring an action and can determine the conditions under which common interest groups can bring actions, it also states that these groups "shall have the right … to seek any remedy."

45. This right to bring or intervene in a damage action seems to enable a common interest group to prosecute an action that the injured party does not want to pursue.

46. These remedies go far beyond what is provided in Superfund. Under Superfund, as under the proposed directive, both the government and third parties may seek to recover cleanup costs. CERCLA § 107(a), 42 U.S.C. § 9607(a), ELR STAT. CERCLA 024 (also imposing important limitations on cost recovery actions with respect to whether the cleanup actions were "consistent" or "not inconsistent" with the national contingency plan prepared by the Environmental Protection Agency). As a practical matter, however, the right to recover costs is of little significance without an ability to go on a site and undertake cleanup actions. Under Superfund, the government also has the right to bring a legalaction to "secure such relief as may be necessary" in order to abate "an imminent and substantial endangerment to the public health or welfare or the environment because of an actual or threatened release of a hazardous substance…." CERCLA § 106(a), 42 U.S.C. § 9606(a), ELR STAT. CERCLA 024. Under Superfund, the government alone may typically obtain injunctive relief requiring a site owner to undertake corrective measures or obtain the right to enter the private premises, despite ordinary trespass law principles. Under the proposed directive, by contrast, not just the government but also common interest groups may, depending on national law, have the right to seek an injunction ordering reinstatement of the environment and execution of preventative measures. This right in the hands of common interest groups threatens to result in an undisciplined, inefficient cleanup process.

47. Perhaps a more sensible approach would be in the place of common interest group actions, for each member state to entrust to a special environmental trustee or ombudsman the task of representing the public interest with regard to environmental impairment, and to grant to this ombudsman alone the standing to initiate legal procedures with respect to environmental impairment.

48. It would be preferable for the proposed directive to include clear numerical criteria for the relevant contaminants, for determining when soil or groundwater is deemed "contaminated" and must be cleaned up, and for determining the level (subject to proper derogation mechanisms) to which the cleanup would be required. These criteria should be legally binding and community-wide, and should preclude differing national standards As a second-best alternative, the proposed directive could incorporate a requirement that remedial actions be undertaken only in accordance with approved local or national contingency plans.

49. Amended Proposal, supra note 3, art. 4, para. 2 (emphasis added) (where that test is satisfied, the plaintiff may seek "the implementation of these other [alternative] measures or the reimbursement of the expenditure incurred to this end").

50. Id. art. 6, para. 1.

51. Id. art. 7, para. 2.

52. Id. art. 9 (also providing that "[t]his Directive shall not affect Member States' provisions on the suspension or interruption of the limitation period").

53. Id. art. 10. As discussed supra notes 37-39 and accompanying text, the proposed directive does not make clear whether "incident" includes only the first of a series of continuing occurrences. If it does not, the running of the 30-year limit may, in many cases, be effectively tolled.

54. Id. art. 11, para. 1. See also id. art. 3, para. 2 ("[t]he producer shall include in his annual report the name of his insurers for civil liability purposes").

55. Presumably, however, this requirement would not also apply to carriers and persons in "actual control" of waste. While these other parties could at times be deemed producers, and thus liable under the directive, they would not usually be producing waste. This would not be the case where, for instance, a carrier mixes waste or otherwise changes its nature. In that case, it would become a producer in its own right and would fall within the reach of the insurance or financial security requirement.

56. Report of the House Lords Select Committee on the European Communities, "Paying for Pollution: Civil Liability for Damage Caused by Waste," Session 1989-90, 25th Report, HL Paper 84-1, at 24 (Oct. 16, 1990).

57. See,e.g., Commission Working Paper, "Civil Liability for Damage Caused by Waste" accompanying draft proposed Directive on Civil Liability for Waste (Aug. 2, 1989).