On 21 December 2021, the Land and Environment Court of Appeal (“MÖD”) handed down a judgment in Case No M 13115-20. The case was what is referred to as an action under a right of recourse in accordance with Chapter 10, section 6 of the Environmental Code (1998:808) (“MB”) . An action under a right of recourse means that an operator in accordance with Chapter 10, section 2 MB brings an action against one or more other liable operators regarding the allocation of costs for remediation of damage from pollution.
The judgment serves to clarify a number of interesting questions relating to liability for remediation and allocation of costs between operators who are jointly and severally liable. The judgment provides, among other things, further guidance on the question of lifting the corporate veil in the field of environmental law, the handling of limitation in recourse claims between operators and the importance of the parties’ contractual regulation in the allocation of liability for costs of remediation.
Background to case No M 13115-20
In the ruling with which we are concerned, a property company (“the Property Company”) had voluntarily taken remedial action due to development for residential purposes of a property that had previously been used for bus operations. However, the plaintiff in the recourse claim considered that part of the cost of remediation should be paid by previous operators and therefore sued the municipality (“the Municipality”) which owned shares in the company that carried out the polluting bus operations and a company that also owned shares in the company that carried out the polluting operations (“the County Company”) for a period.
According to the Property Company, the pollution damage alleged in the case had arisen from bus operations carried out on property A from 1952 to 2012. The bus operations were carried out between 1952 and 1990 by a transport company (“the Transport Company”). The Transport Company was wholly-owned by the Municipality between 1952 and 1988. The County Company acquired all the shares in the Transport Company in 1988. In 1990, all operations and staff at the Transport Company were transferred to a company that was also a wholly-owned subsidiary of the County Company. After that, the bus operations continued to be carried out on the property by different companies that were partly owned by the the County Company until the operations were finally wound up in 2012.
The Transport Company subsequently became part of the Property Company through two different mergers.
With regard to the operation of public passenger transport in the county in question, there was a collaboration between the county council and the county’s municipalities which led to the formation of the County Company, which was co-owned by the county council and the municipalities. There was an agreement between the parties that governed each party’s liability.
There was a development agreement between the Property Company and the Municipality that stated, among other things, that the Property Company would build residential apartments on the property. According to paragraph 10 of the development agreement, the Property Company was responsible for carrying out and paying for all measures required to enable the development site to be built on and used in accordance with the provisions of the local development plan. In accordance with the development agreement, the Property Company also was mainly responsible for paying for remediation of any pollutants in public spaces.
The Property Company found pollutants on the property in 2017 and 2018. According to the Property Company, these were previously unknown oil pollutants. After notification to the supervisory authority, the Property Company took remedial action. According to the Property Company, the costs for this, after a deduction for what may be considered to constitute an improvement of the area from industrial purposes to residential purposes, amounted to almost SEK 16 million.
Outcome in the courts
Both the Land and Environment Court (“MMD”) and the MÖD dismissed the Property Company’s action, with the higher court largely sharing the lower court’s assessment. Below we go through the parts of the judgment that we consider most interesting.
Assessment of the operator’s liability
The pollution damage that the Property Company remedied was considered to have occurred as a result of the bus operations carried out on the property from 1952 to 2009.
Primary operator’s liability existed for the Property Company as a result of the fact that the Property Company had absorbed the Transport Company (i.e. the company that carried out the bus operations that polluted the property) by means of mergers.
The Municipality was considered to be an operator through its ownership of shares in the Transport Company and through financial contributions provided to the Transport Company. That was because the Municipality’s ownership and funding meant that the Municipality was able to influence how the business was run and the Municipality thereby had a legal as well as an actual ability to intervene.
The County Company was not considered to be an operator because mere shareholding in the Transport Company did not mean that the County Company had the actual and legal ability required for operator’s liability. Nor, in the court’s opinion, was the County Company’s agreed mandatorship for the Transport Company, which applied before the acquisition of the shares, such that it alone resulted in operator’s liability under environmental law. That is because the mandatorship primarily entails administrative liability and did not therefore entail any operator’s liability under environmental law.
In its findings, the MÖD emphasises that the fact that a municipal operation is carried out in the form of a company does not in itself mean that the municipality is cut off from liability for any environmental damage that may arise in the operations. According to the court, the question of whether operator’s liability exists may be decided in each individual case and taking into consideration the Municipality’s actual and legal ability to intervene in the operations.
Can costs for remediation that are assumed voluntarily form the basis for an action under a right of recourse?
According to the MÖD’s assessment, no action by the supervisory authority is required to enable an action brought by an operator to be subject to Chapter 10, section 6 MB. The MÖD referred to NJA 2020 p. 997 and stated that, in its examination of that case, the Supreme Court had been unable to adopt a position on the question of a preclusion in the case in question without first prejudicially taking the view that the plaintiff’s action should be regarded as an action under a right of recourse in accordance with the MB.
Are claims as a result of voluntary remediation covered by exemptions from limitation in accordance with Chapter 10, section 8 MB?
The recourse claim in question was exempt from the requirement for limitation in accordance with Chapter 10, section 8 MB. The MÖD referred to NJA 2020 p. 997 in its findings. The HD’s decision did relate to the question of preclusion but, according to the MÖD, the question of preclusion could not have been assessed without taking into consideration the rules applying to limitation of such recourse claims. With reference to paragraph 30 NJA 2020 p. 997, which states that the Statute of Limitations Act (1981:130) does not apply to recourse claims in accordance with Chapter 10 MB, the courts considered that the Property Company’s claim had not become subject to statute of limitation.
Can a court impose a joint and several payment liability for the recourse claim on the respondents in an action under a right of recourse in accordance with Chapter 10 MB?
The Property Company’s first petition in the case had been presented as an obligation regarding a joint and several payment liability for respondents in the recourse claim. Nevertheless, the courts considered that this was not possible because an action under a right of recourse in accordance with Chapter 10, section 6 MB cannot relate to anything other than allocation of the joint and several liability.
According to the MMD, the question of liability towards the public cannot be examined in a recourse case. However, the MÖD did not share that assessment and stated that objections relating to the extent of the joint and several liability towards the public can and must also be examined in a recourse case between the liable operators. Questions of whether the remediation was necessary may then also be examined within the framework of the recourse dispute.
The allocation of liability for costs between the Property Company and the Municipality
Both the MMD and the MÖD found that the entire cost for remediation should be paid by the Property Company. That is because the Property Company was the main liable operator and caused the pollution to a significantly greater extent than the Municipality. According to the courts’ assessment, the regulation by the parties in the development agreement also favoured that conclusion.
The parties’ arguments and evidence regarding the interpretation of the development agreement were extensive and consisted, inter alia, of examination of witnesses involving persons from both sides who took part in the work on the local development plan. However, the MMD, whose assessment was shared by the higher court, found that the wording of paragraph 10 of the development agreement and the knowledge that the Property Company must have had concerning the likelihood of the existence of soil pollutants on the property could not be understood in any way other than as governing the liability for remediation for all soil pollutants.
It was not considered that the higher value of the property could form a basis for the allocation of the costs of remediation. The reason was that the investigation in the case did not provide any support for the notion that the rise in value was due to the Property Company’s remedial measures.
The MÖD’s ruling provides further guidance on the matter of lifting the corporate veil in the field of environmental law. The decisive factor in the question of lifting the corporate veil still appears to be financing and mere shareholding does not therefore provide grounds for lifting the corporate veil.
The ruling also demonstrates the importance of clear regulation by the parties when it comes to liability for remediation. For example, if an undertaking only covers known pollutants, it is important for that to be expressly stated in the parties’ agreements.
It also follows from the judgment that costs that a property owner or an operator incurred for voluntarily fulfilling its responsibilities in accordance with Chapter 10 MB can be the subject of an action under a right of recourse in accordance with Chapter 10, section 6 MB. That means that recourse claims are also exempt from the provisions of the Statute of Limitations Act and that claims can therefore be filed even if ten years have passed since the claim arose.
Another clarification that is important in practical terms is that an action under a right of recourse in accordance with Chapter 10, section 6 MB cannot relate to anything other than the allocation of the joint and several liability. That means that a plaintiff in a recourse action that brings an action against multiple respondents, as the Property Company did, cannot obtain assent to those liable being required to jointly and severally compensate the plaintiff.
The judgment also makes it clear that there is scope, including in the case of an action under a right of recourse, for raising objections relating to the joint and several liability towards the public. This also applies where an operator has voluntarily undertaken to carry out remedial actions. Even objections that remediation was not necessary can be examined within the framework of a recourse dispute.