Liability for contaminated land under the German Federal Soil Protection Act

Introduction

When the Environment Act 1995 enacted the new provisions on contaminated land in Part IIA of the Environmental Protection Act 1990 many saw the UK as having developed a leading example of specific contaminated land legislation. In the UK, however, we still await the entry into force of that legislation while other EU Member States such as Germany have been working systems of their own.

The German Federal Soil Protection Act ("Act") (Bundes-Bodenschutzgesetz1) finally came into force on March 1st, 1999. Like the equivalent UK legislation it underwent long years of drafting by the Federal Government and fierce debates in both chambers of the German legislature. It is the first federal act on soil protection which Germany has produced. Previously all legal rules with regard to soil protection, including liability for contaminated land, were contained in laws made by the states. Since most states did not have contaminated land legislation, the local authorities had to use the general administrative laws of the relevant state to impose a notice requiring remediation. This diversity in the legislation being applied across Germany naturally led to difficulties in establishing which law to apply. This was especially a problem for foreign companies planning to engage in property related business in more than one state. The problem was alleviated to some extent by the administrative courts which developed some basic rules for soil protection and environment liability which apply nationally.

The Act should bring many of these problems to an end. It supersedes all contradictory laws of the states and only leaves a small amount of room for states to enact supplementary legislation. This article gives an overview over this system and points out some similarities and differences to the new English system of liability as contained in Part IIA of the Environmental Protection Act 1990.

Scope of Soil Protection

The purpose of the Act is to secure or reinstate the functions of the soil by preventing harmful changes to the soil, to achieve cleaning up of contaminated soil and water (if the water contamination was caused by soil contamination, otherwise it would fall under the scope of the Water Management Act) and to take precautions against negative impacts on the soil2.

General Duties

Under the Act every person who affects the soil is legally obliged to prevent harmful changes to the soil3. Owners and occupiers of property are under a duty to take measures aimed at preventing all harmful changes to the soil arising from their property4.

In addition where work is carried out on a property the owner and the occupier of that property and the person who carries out the work on the property are also legally obliged to take precautionary measures against harmful changes to the soil which may be caused by that work5.

Responsibility for Clean-Up Measures

The Act provides a more detailed series of categories of potentially liable person than the UK equivalent. The following persons are potentially responsible for discovery and clean-up measures under the Act:

• The polluter;
• The universal successor of the polluter;
• The owner of property;
• the occupier of property6;
• The former owner of property after dereliction of title;
• The person who, under German company law, acts as guarantor for a legal person, which is owner of contaminated land7;
• The former owner of property, where the transfer of title took place after 1st March 1999 and at that time the contamination was either known to him or ought to have been known to him, except where he can show that he relied on the property not being contaminated at the time of his acquisition, and that reliance merits protection8.

The responsibility of the first four groups of persons mentioned above is very similar to the equivalent categories in the equivalent UK system9. The last three groups in particular may, however, require some further explanation.

(1) In Germany it is possible to denounce and walk away from property rights. By expressly providing that a former owner of a property after such dereliction of title can be liable for contaminated land under the Act the German legislature is seeking to prevent property owners and occupiers from using this legal mechanism to avoid liability for contaminated land.

(2) The responsibility of a guarantor of a person who owns contaminated land is not new in Germany. The civil courts, especially the Federal Court of Justice (Bundesgerichtshof), have for some time been establishing several lines of cases, under which a company may be responsible for damages caused by another company with which it is connected in company law10. It is generally acknowledged that these rulings can also be applied in administrative law11. However, this fact was not generally known to the local authorities in charge of soil protection. Therefore, the German legislation decided to strengthen the awareness of the local authorities of their powers to make other persons than the polluter, the owner and the occupier responsible by explicitly mentioning this fact in the Act.

It is not possible to state all cases, where one company may be responsible for another company under company law. This is because the relevant law is open to further judicial interpretation. At present, two main case groups exist, where this "piercing of the corporate veil" may occur. These are intended to prevent misuse of corporate structures to avoid liability.

The first situation involves liability for a "controlled" company. Under German law a company is considered to be a controlled company if either a formal agreement (a control agreement or an agreement to transfer profits) or de facto control exists, whereby the control is exercised to the serious disadvantage of the controlled company. It is beyond the scope of this article to examine this issue in detail. Suffice it to say that it should be remembered that a controlling company can be liable for the clean-up of contaminated land owned by a controlled company even if it was neither the polluter nor the owner or occupier of the property.

The second situation involves liability of the shareholders of a company where that company owns a seriously under-capitalised dependent company and the shareholders knew or should have known about the contamination12. This is aimed a preventing a parent company from leaving liability for contaminated land in a shell company with no assets.

Critics of the Act have argued that this aspect of company law is much too difficult for local authorities to enforce13. In addition local authorities will often not have access to sufficient information about the background of a company to be aware of such a control situation. However, the authors take the view that if dealing with serious contamination where no other potentially liable persons are available local authorities will certainly be willing to deal with the legal and factual problems of trying to impose this type of responsibility. Local authorities will otherwise have to bear the costs of the clean-up themselves.

(3) Liability of the former owner of property is completely new to German law. Before the Federal Soil Protection Act came into force, the responsibility of the owner of contaminated land ended with the transfer of title to a new owner (unless the former owner was also the polluter, in which case he would have been responsible in that capacity).

The economic consequences of this "eternal responsibility" are far-reaching. Before the Act came into force the owner, who was not the polluter, could escape all administrative and civil liability by selling the contaminated land to a buyer with information. This is no longer the case. A former owner who has transferred title after 1st March 1999 must always fear being determined as the liable person especially if, for example, the buyer becomes insolvent (in which case any contractual indemnity given by the buyer would also be worthless).

As a result of these consequences, the constitutionality of the concept of "eternal responsibility" of every former owner of contaminated land (where the transfer took place after 1st March 1999) was questioned by legal writers14. It seems likely that this dispute will become an issue before an administrative court in the near future and will go all the way up to the Federal Constitutional Court (Bundesverfassungsgericht).

Determination of the Liable Person and Enforcement

The local authority has the right to carry out investigations to discover the relevant facts. If there are concrete clues giving rise to a sufficient indication of soil contamination, the local authority may also determine a potentially liable person to carry out the necessary investigations15. Whether a local authority can serve a clean up order will depend on the level of contamination. Various threshold levels of contaminants setting levels at which the local authority can take action are set out in the Federal Soil Protection Regulations.

Unlike its UK equivalent the Act does not oblige the local authority to seek to make a polluter responsible before turning to other persons potentially liable (the current owner or occupier in the UK)16. Instead, the local authority is required to determine the person that is in the best position to clean-up the contamination as soon and as effectively as possible. Its duty is to require that person to clean up. If the polluter is known and solvent, most local authorities will nevertheless make it liable. There is, however, no legal obligation of the local authority to do so and in many cases (especially if the polluter is unknown or obviously insolvent) it will seek to impose liability on another potentially liable person without further research (most likely the owner or occupier of the property).

The local authority may also determine more than one potentially liable person. This is a situation which the UK legislation seeks to avoid. Where it does so the Act also differs from the UK system in that the local authority in Germany is not required not to determine the proportions of liability between the potentially liable persons. The German local authorities will in most cases simply issue an order to only one potentially liable person and leave it to that person to seek contribution from others.

The wording of the Act makes it clear that the Act imposes duties on potentially liable persons with regard to contaminated land regardless of whether they have been served with a notice requiring remediation. Service by a local authority of a notice requiring clean up merely determines or reiterates an existing duty. However, failure to comply with these duties under the Act is not alone an offence17. Failure to comply with a local authority order is, however, an administrative offence for which a maximum fine of DM1000,000 may be imposed. This distinction is rather academic as most responsible persons will not take any action before they have been determined as the liable person by the local authority as until then they need not fear any administrative fine. In cases of serious and obvious soil contamination, however, the responsible persons may have to take action before the issue of a clean-up order to prevent criminal liability under the environmental section of the German Criminal Code (Strafgesetzbuch)18.

Scope of Clean-Up Measures

Where the natural functions of the soil are not impaired clean-up orders must take into account the existing admissible use of the property under planning law. Therefore, property in an industrial area must not meet the standards for agricultural or housing use19. This is essentially the same approach as under the UK system, however, if the contamination occurred after 1st March 1999 (the day the Act came into force) and it is proportionate with regard to any prior contamination of the property then all pollutants have to be removed from the soil. This goes beyond the UK approach which applies the suitable for use approach to all contaminated land under Part IIA of the Environmental Protection Act 1990.

Compensation Claims of a person determined as the Liable Person against other Potentially Liable Persons

As mentioned above, the local authorities are not obliged to determine proportions of responsibility if they identify more than one liable person. Until now, the owner or occupier of contaminated land who was ordered to carry out investigation or clean-up measures could not claim contribution from the polluter. German law did not provide any basis for such a claim. Although this was generally regarded as a major loophole, the German Federal Court stated on various occasions that it is the task of the legislature to fill that gap20. This was finally done in the Act, stating that persons determined as liable persons by the local authority may claim compensation from other potentially responsible persons. In the absence of other agreements (this being a reference to the possibility of making private agreements about liability between parties such as owner/occupier or vendor/purchaser) the obligation to pay compensation depends on the proportion of causation21. This means that a person who did not cause the contamination, but was nevertheless determined as a liable person will regularly have a claim against the polluter and, if the polluter is unknown or insolvent, also against other non-polluting responsible persons. The polluter will on the other hand only have a compensation claim against other polluters.

The claim for compensation will be statute-barred three years after the local authority enforced the payment of any costs against the liable person or, if earlier, three years after the liable person knew about the identity of the person against whom he has a claim. Regardless of this knowledge claims are subject to a 30 year longstop limitation period22.

Any claim for compensation falls under the jurisdiction of the civil courts (whereas all other legal issues with regard to the Act fall under the jurisdiction of the administrative courts)23.

Conclusion

The Act has introduced a uniform system of liability for contaminated land for the whole of Germany, thereby bringing an end to the rather complex and non-uniform system of different state laws.

The Act extends the range of potentially responsible persons considerably in particular by fostering the awareness of local authorities of the potential responsibility of a dominating company using mechanisms of company law.

Depending on the options open to the local authorities they are likely to try and apply difficult legal principles rather than pay for necessary clean-up measures themselves.

The Act has a large number of parallels with the UK legislation which dates from the Environment Act 1995 but is yet to come into force. By the time the UK legislation enters into force the German system is likely to have been in place for at least a year and it may be possible to learn useful lessons from its application in practice.

For further information on this topic, please contact Daniel Chappell at dmc@cms-cmck.com or on (+44) (0)20 7367 3000.