There are three main categories of persons who may be found liable: parent companies, directors and officers, and a broader category of ‘related persons’.
Parent companies
There may be instances in which a parent company (i.e. the corporate shareholder) of an operator may be held liable for environmental liabilities. Prior to discussion of these, two fundamental principles of corporate law, present in many if not most jurisdictions, must be emphasised. First, upon incorporation, each company is treated as a separate legal person to its shareholders (e.g. its parent company). This means that the shareholders cannot, in ordinary circumstances, be held liable for the company’s debts and obligations. Second, shareholders (e.g. parent companies) benefit from limited liability, meaning that should the company become insolvent, they need only contribute the amount, if any, unpaid on the shares which they hold in the company. The extent to which these two principles are respected within a legal jurisdiction will depend on its legal tradition. For instance, some jurisdictions will disregard the principle of separate legal personality more readily than others.
If a parent company is to be held liable, its liability will usually arise in two circumstances. First, where, upon an interpretation of legislation, the parent is found to be the ‘responsible person’. This often is termed ‘direct’ liability. For instance, where the responsible person is deemed to be the person who ‘operates’ or ‘controls’ the relevant activity (e.g. the EU ELD), a parent company that is found to have ‘operated’ or ‘controlled’ the activity will be the responsible person. Case law from the United States Supreme Court (United States v Bestfoods, 524 U.S. 51 (1998)) states that, under US law, there are circumstances under which a parent company could be deemed to ‘operate’ the facility of its subsidiary. But these circumstances are restrictive and have been interpreted narrowly by subsequent courts.
Secondly, the parent company may be held liable for the debts and liabilities of its subsidiary. This is often termed ‘indirect’ or ‘derivative’ liability. It must be noted that this form of liability is quite different to the first category where the parent is held liable for its own actions. Indirect (or derivative) liability could arise where the ‘corporate veil’ of the subsidiary was pierced or lifted. In corporate law, the phrase ‘corporate veil’ is a metaphorical term for the principle that once incorporated, a company is a legal person separate to its shareholders with rights and liabilities of its own. When the ‘corporate veil’ is ‘pierced’ or ‘lifted’, the courts will disregard the separate legal personality of the subsidiary, imposing its debts on its parent company (or its shareholders more generally). Again, the extent to which this is possible will be determined by the legal tradition of the particular jurisdiction. However, some jurisdictions specifically provide for such liability if a subsidiary becomes insolvent or bankrupt. An example is the Grenelle 2 legislation that was enacted in France in 2010. The legislation includes provisions that can require the parent of a subsidiary that faces liquidation to pay part or all of the costs of remediating environmental damage at specified facilities if the parent’s negligence contributed to the subsidiary’s loss of assets.
Directors and officers
As with parent companies, directors and officers may, in some jurisdictions, also be subject to direct or indirect (or derivative) liability for remediating environmental damage.
Perhaps the best-known case is Northstar Aerospace (Canada) Inc., which operated a helicopter and aircraft parts manufacturing facility in Cambridge, Ontario, from 1981 to 2010. Following the company’s bankruptcy in 2012, the Ontario Ministry of Environment ordered 12 former directors and officers of Northstar to carry out measures to remediate trichloroethylene and hexavalent chromium in groundwater that was migrating from the facility to a residential area. The regulator had previously required Northstar to carry out the remediation. The case was eventually settled for C$4.75 million.
There is also case law from the High Court of Ireland on both the direct (Ronan v Clean Build Ltd. and Cork CC v O’Regan) and indirect (or derivative) (Wicklow CC v Fenton and Environmental Protection Agency v Neiphin Trading Ltd) liability of directors.
There may also be opportunities to pursue directors personally under insolvency or winding-up law provisions in circumstances where they have been negligent or in breach of their duties to the company, such as the provisions in the UK in section 212 of the Insolvency Act 1996.
Related persons
In 2016, the Government of Queensland, Australia, amended the Environmental Protection Act 1994 (Qld) to authorise the Department of Environment and Heritage Protection to order ‘related persons’ to remediate environmental damage if the operator enters into formal insolvency proceedings (administration, liquidation or receivership) and thus cannot pay to remediate environmental damage for which it is responsible.
‘Related persons’ under the ‘chain of responsibility’ amendments are: a holding company (i.e. its parent company) of the operator; an associated company that owns land on which the operator is carrying, or has carried, out specified activities such as mining; or another person who is carrying, or has carried, out activities under an environmental permit that are causing, or are likely to cause, environmental damage.