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WALES, DEVOLUTION, BREXIT AND ENVIRONMENTAL LAW:

The constitutional clash between the governments of the United Kingdom, Scotland and Wales over Brexit legislation may be heading for resolution in the Supreme Court unless continuing negotiations between the governments are successful, according to announcements by the UK government on 17 April 2018.

The immediate cause is the passage in March 2018 by the Parliaments in Cardiff and Edinburgh of their own “Continuity” legislation, which may or may not be within the legislative competence of each devolved Parliament, but which certainly clashes with the intended framework of the UK government’s European Union (Withdrawal) Bill. The UK government has said that it will challenge these Bills in the Supreme Court, unless agreement is reached in negotiations which may result in this devolved legislation being withdrawn.

Threatened litigation in the Supreme Court brings to a head two conflicting trends, first the strong measures to devolve really significant further powers to Wales and Scotland; and secondly, the destination of powers being repatriated to the UK from Brussels after Brexit.

The governments of Wales and Scotland argue that these powers should be returned directly to them where they relate to devolved areas. The UK government had intended that such powers should first be returned to the UK government, with a view to their being re-allocated to the devolved parliaments in devolved areas, but with restrictions and limitations that would ensure that in key areas, the UK remains a single market, with consistent rules, rather than risking fragmentation which will make future trade agreements even more complicated than at present.

Responsibility for legislation on the environment was one of the first matters to be transferred to the legislative competence of the Welsh Assembly under the original devolution legislation in 1998.  Environmental legislation in Wales continues to develop with significant differences from the rest of the United Kingdom and England. However, environmental laws in Wales raise many of the same questions on fundamental issues, such as how they are to be enforced effectively, once Brexit happens and the European Commission and Court of Justice of the European Union are no longer available as part of the enforcement picture.

Original devolution settlement and development of environmental law in Wales

Responsibility for legislation on the environment, and also, very importantly for Wales, the related areas of agriculture, fisheries and food, was part of the original devolution settlement of powers on the then Welsh Assembly under the original Government of Wales Act 1998.

Devolution of further powers has continued at some pace, and the trend is for remaining restrictions on the exercise of relevant powers, for example over water supplies from Wales to areas of England, to be removed, or re-cast in favour of jurisdiction in Cardiff. In the Government of Wales Act 2006, ‘Assembly Measures’ included agriculture, fisheries, food and rural development and the environment.

Following the 2011 referendum and the Silk Commission Report, the National Assembly for Wales was given further financial powers under the Wales Act 2014,  which will see it able to exercise income-tax varying powers from 2019.

The second part of the Silk Commission Report dealt with proposed changes to the Assembly’s legislative powers, and resulted in the Wales Act 2017. The fundamental change introduced by the Wales Act 2017, which came fully into force on 1 April 2018, was the move to a “reserved powers’ model. In other words, and more like the Scottish Parliament, the National Assembly for Wales can now legislate in any area which is not specifically reserved to the UK Parliament. This is a change of great constitutional significance, and represents a major shift in the balance of power between London and Cardiff.

Meanwhile, the environment has remained squarely within the National Assembly’s remit, and it has begun to enact a series of specifically Welsh pieces of legislation relating to the environment and associated topics. These include, most notably the Planning (Wales) Act 2015, the Well-Being of Future Generations (Wales) Act 2015 and the Environment (Wales) Act 2016, which sets out a framework for Natural Resources Wales and for Sustainable Natural Resource Management.

European Union (Withdrawal) Bill

The UK government published the European Union (Withdrawal) Bill in 2017, and it began its tortuous process through Parliament, supported by a government with a wafer-thin majority when combined with the votes of the DUP. The express aims of the Bill include the repeal of the European Communities Act 1972, as the basis for all European Union law in the UK, and the withdrawal of the UK from the jurisdiction of the Court of Justice of the European Union, with all European Union law being brought into UK law as an interim measure.

It soon became clear that there were at least two major fault lines in this flagship Bill from the Brexit legislative programme. First, in seeking to transfer to ‘UK law’ the entire acquis communautaire or body of European Union law, the Bill took very wide and very controversial powers to correct “deficiencies” in EU law transferred in this way. These now famous ‘Henry VIII clauses’ allowing Ministers very wide scope to make changes to legislation through regulations, (see clauses 7, 9 and 17 of the Bill), have set up a clash between Parliament and the executive over whether this is a fair and proportionate use of delegated powers, or an unacceptable way or circumventing Parliamentary oversight.

Secondly, the European Union (Withdrawal) Bill runs straight into the headwinds of devolution, by seeking to enact very wide and equally controversial restrictions on the way in which devolved Parliaments can amend “retained EU law”. The way in which these clauses were drafted may have been legally effective but politically provocative. In any event, they were not welcomed by the First Ministers of Wales and Scotland Carwyn Jones and Nicola Sturgeon. They made a joint statement on 13 July 2017 describing the European Union (Withdrawal) Bill as a “naked power grab” by the Westminster government, which they could not support as it stood. Perhaps ironically, this statement was issued from Brussels, where the two leaders were paying their own visit to the EU chief negotiator Michel Barnier.

Welsh and Scottish “Continuity” Bills

Initially, the UK government’s negotiations with the EU were supposed to be informed by a committee involving representatives of all the devolved administrations, with close coordination throughout. However, there were many complaints of a lack of real consultation, and complaints by some of those close to the process of a breakdown in trust in what has been, by any measure, a fractious and continually controversial negotiating process.

This distrust resulted in both the National Assembly for Wales and the Scottish Parliament tabling and then enacting, on 21 March 2018, their own “Continuity” Bills, which give them powers to enact and amend ‘returning’ EU legislation in devolved areas in their own Parliaments in the absence of agreement with the UK Parliament about how this will be done under its European Union (Withdrawal) Bill.

There is considerable uncertainty as to whether these “Continuity” Bills are within the legislative competence of the National Assembly for Wales and the Scottish Parliament respectively. The Scottish Bill was actually accompanied by a formal statement from the Presiding Officer of the Scottish Parliament  expressing his view that the Bill was not within the legislative competence of that parliament.

Supreme Court Challenge?

Building upon those doubts, UK government Ministers announced on 17 April 2018 that they would refer the two  “Continuity” Bills to the Supreme Court for a legal view on whether they were properly within the devolved legislative competence of the two Parliaments in Wales and Scotland. However, both Welsh and UK government Ministers have given some indications that negotiations may result in this further case before the Supreme Court being withdrawn.

Future developments: what is at issue

Following Brexit, there are some signs that the Welsh government will embark on a major codification of Welsh law, and this could result in a Welsh Environmental Code. The UK Parliament, meanwhile, can realistically expect to be busy for years to come with the enactment and re-enactment of environmental legislation, which will be competing for Parliamentary time with every other sort of legislation affected by Brexit.

What these debates have shown and underlined, is the very large extent to which powers have been devolved over the environment, and many very important related subjects in Wales, including agriculture, fisheries, food, forestry, most forms of energy, rural development and so on. All major businesses in Wales are affected by devolution and have to accommodate the new legal and legislative realities, from Horizon Nuclear Power in Anglesey,  Airbus’ wing manufacturing plant in North Wales, to BAE Systems in South Wales. Devolution is also going to be a major issue for every piece of Brexit legislation, from control and allocation of fisheries quotas and the  proposed Fisheries Bill, to the devolved administrations’ policies on a customs union, to the vexed question of the Irish border with Northern Ireland, and the impact this could have on the whole Withdrawal Agreement.

What is also becoming clear is that with devolved power comes much more devolved responsibility, and environmental law is a case in point.  If there will no longer be recourse to the European Commission and the Court of Justice for the European Union for issues of enforcement of EU law after Brexit, the question of what will replace that form of enforcement is not simply a question for the Westminster Parliament, but also for the Senedd in Cardiff. It will have to decide how the Welsh Government itself will be held to account if it fails or refuses to enforce environmental law; whether to continue to rely upon criminal law or to extend the use of civil and administrative law; how to hold regulators to account; which legal principles to include in environmental laws and how to apply them. Enforcement of environmental law is a major topic in itself, and will be the subject of a future article in this series.

There will also be a pressing need, once the UK and devolved administrations have had their arguments, negotiations or perhaps their day in court, to make a reality of the “common frameworks” to which each of them is committed. It is not going to help make any part of the UK an attractive place in which to do business if environmental laws are uncoordinated and strikingly different across the UK, not would that help promote trade with the EU or other countries.

William Wilson, Prospect Law Ltd

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm, as well as running his own environmental policy consultancies. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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OIL & GAS: VOLATILITY – ATTENTION TO DETAIL – THE KEY TO SUSTAINABILITY, PART I

In the following series of articles Alex Bakhshov will examine the challenges that come with negotiating key legal and contractual terms and managing legal risks across infrastructure operations comprising major oil and gas projects (Projects) in developing oil and gas markets and in turn a means through which to mitigate the impact of inflated barrel production costs (Barrel Price) by Independent Oil Companies (IOC), Oil Field Service Providers (OFP) and other market participants seeking to make strategic decisions relating to foreign direct investment (FDI).

Introduction:

Alex Bakhshov will seek to contrast the contractual challenges for both IOC’s and OFP’s delivering goods and services in those markets, providing examples where relevant of how savings were made in respect of Barrel Price.

In the first three of this series of introductory articles, Alex will seek to identify the key challenges faced by market participants seeking to invest in developing markets, focusing on the common barriers and determinants for FDI.  Each Project and jurisdiction presents its own challenges and further guidance will be addressed in subsequent articles dealing separately with each of the key contractual terms and legal risks identified in the third article of this introductory series.

Having attained over ten years of experience of working on Projects in markets as diverse as Latin America, Middle East and North Africa (MENA), sub-Saharan Africa (SSA) and Asia Pacific during a period of oil price volatility, Alex hopes to demonstrate the benefits of giving careful consideration to legal as well as fiscal risks at the inception of a Project.

Need for Internal Controls & Corporate Governance

Controls for legal risk factors should also be implemented at the outset, adopting a collaborative approach with domestic policy makers (Regulators) and local content requirements (LCR) as it can contribute to ensuring effective crisis management in the event of dispute, political upheaval or environmental catastrophe. Additionally, for listed companies, a joined up approach should be adopted as part of the internal controls for the purposes of governance, reporting requirements and greater transparency for capital market participants – this should also ensure corporate level engagement and ownership and thus confidence for third party investors and other market participants.

The importance of having robust internal controls and a rigorous interface for corporate governance in developing countries cannot be stressed enough where the Project requires engagement with LCR’s. Issues hampering development of the private sector of some developing countries frequently include the absence of a comprehensive credit reporting system, which “compromises banks’ ability to distinguish good from poor performers and makes them reluctant to lend in the absence of collateral” per World Bank’s biannual ‘Mozambique Economic Update’ report dated July 2017. The Report also states “Similarly, equity finance is constrained by a corporate governance regime that provides few incentives for firms to make financial information and audited reports of their activities available. As a result, investors are hesitant to invest because they cannot assess the viability of firms seeking finance.”

Financial Controls:

For listed companies, financial controls in some developing countries are essential for compliance with anti bribery legislation, which in many cases now imposes strict liability on corporations as well as partners, agents, suppliers and indeed throughout the supply chain irrespective of whether the company itself has fallen foul of the anti-bribery legislation.  Under regulations, for example, large and EU-listed, UK-registered oil and gas companies must report their payments to governments worldwide annually for financial years starting from January 2015, country-by-country and Project by Project. At times of oil price volatility when profit margins are threatened, the pressure to cut capital expenditure can impact the risk of non- compliance with anti–bribery regulations  – robust controls and governance can ensure that this risk is mitigated. Risks of anti-corruption non-compliance and exposure are a significant barrier to FDI.

Foreign Direct Investment (FDI):

FDI may include mergers and acquisitions, the building of new facilities and the expansion of existing production capacity. FDI usually involves control or participation in management, joint venture, management expertise and technology transfers. It excludes investment through purchase of securities or foreign portfolio investment, a passive investment in the securities of another country such as shares and bonds.

There are three main types of FDI contracts in the upstream oil and gas sector:

  1. concessions or licenses;
  2. production sharing contracts or agreements (PSCs or PSAs); and
  3. risk-service contracts.

Although legal risks are often addressed upfront through ‘stabilization clauses’, these, though advisable, provide limited comfort.  Preference should be given to pursuing a collaborative strategy with Regulators to help support the roll out of infrastructure, as well as active pursuit of a joint strategy for transfer of knowledge and technology. This approach will not only mitigate Barrel Price and thus profitability but also promote an environment for sustainable business growth. Any meaningful engagement with the Regulator in this regard early in the assessment process can also help support a competitive bid.

Large proven reserves, relatively modest Barrel Prices and attractive concessions for FDI can mean that, in periods of oil price volatility, market participants can reap benefits by focusing their resources in developing markets.

FDI Investment in the Oil Sector:

With high oil and gas dependent economies, many developing countries have historically provided opportunities for IOCs to spearhead oil exploration and production activities, and to acquire interests in fields with unexplored economic potential. As an example, the oil and gas sector has been the largest beneficiary of FDI in most oil exporting Arab countries. In Oman for instance, around 50 per cent of FDI is invested in the oil sector.

As manufacturing and service export bases remain limited in many of these countries, specialization and entrances in a specific segment of the global production chain could also benefit from FDI, while also improving export quality, sophistication and accelerating technology and knowledge transfers, specifically in the form of FDI. Improving the climate for FDI in non-oil industries may involve lowering entry requirements, creating investment promotion intermediaries, and streamlining tax structures. (See International Monetary Fund, Economic Diversification in Oil-Exporting Arab Countries (2016) 7-8 available here)

The common determinants for FDI in oil and gas markets and by implication components of the Barrel Price are chiefly fiscal in nature, such as oil price volatility, infrastructure reliability, political uncertainty (e.g. risks of expropriation and ownership) and openness of the economy such as foreign exchange controls and tax laws; this can have an impact on expatriation of profits and transactional costs and in many cases the oil executive will typically be interested in the proven reserves and the fiscal terms as against the prevailing and forecast oil price as the basis for making a decision relating to FDI.

In the next article in this series, a particularly challenging jurisdiction, sub- Saharan Africa, shall be explored to illustrate some of the issues experienced by the international investment community and how they have responded to the barriers to FDI.

Alex Bakhshov is a commercial barrister that specialises in project and infrastructure work, having attained experience of major projects in Africa, Asia, the North Sea, South America and Australia. Alex has advised on mergers and acquisitions, joint ventures, construction, regulatory, contracting and procurement strategies, and possesses significant experience in construction, the marine sector, shipyard disputes, shipping (both wet and dry) and offshore Oil & Gas projects in the North Sea, West Africa and Brazil.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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BREXIT, EURATOM AND NUCLEAR LIABILITIES: PROSPECT LAW AT THE WM SYMPOSIA 2018 IN PHOENIX, ARIZONA PART III:

The following series of articles is written further to Jonathan Leech’s attendance at the Waste Management Symposia 2018 in Phoenix, Arizona, on 22nd March, and examines the UK’s impending exit from EURATOM and responsibility for international nuclear safeguards.

See link to Jonathan Leech’s presenter profileList of exhibitors and Conference Program

The third part of this series examines the nuclear cooperation agreements the UK has entered into over the past fifty years.

Nuclear cooperation agreements

Nuclear trade between the UK and other Euratom members relies on cooperation provisions within the Euratom treaty and common Euratom safeguarding arrangements.

Nuclear trade between the UK and other countries relies on either Euratom nuclear cooperation agreements, or bilateral nuclear cooperation agreements, the majority of which are predicated on continued UK participation in Euratom safeguards.

Of the circa 50 bilateral nuclear cooperation agreements the UK has entered since 1956, over 30 specifically recite and rely upon UK participation in Euratom safeguards. Without demonstrably adequate safeguards and replacement nuclear cooperation agreements key countries will, where their domestic law or policies require, cease trade with the UK in nuclear materials, components, technology and know-how. The relationship with the US is well understood. Absence of a ‘Section 123 Agreement’ would prevent supply of key components for both the planned Hitachi-GE ABWR and Westinghouse AP1000 reactors, and would disrupt supply of components and equipment required by Sellafield. Absence of a nuclear cooperation agreement with Australia would cut off a key source of uranium imports.

The UK Government has identified development of replacement nuclear cooperation agreements with USA, Canada, Australia and Japan as key milestones within the Euratom exit programme, including negotiation up to Q4 of 2018 and finalisation in Q1 of 2019 “to enter into force on Day 1 of Exit”. Notably there is no mention of South Korea. Written evidence from Sellafield to the BEIS Committee also identifies Kazakhstan and China as key counterparties.

Establishing the UK safeguarding regime to be in place on Euratom exit will be a pre-condition to finalising any new nuclear cooperation agreement. In each case the acceptability of any new regime will be a matter for each counterparty. As noted above, the current Safeguards Bill is merely a first step in enabling development of a domestic safeguarding regime. Whilst there are relatively few states that require nuclear cooperation agreements as a strict legal or policy requirement, for those that do the need to finalise a safeguarding regime first will add to the challenge presented by the timetable. For example, taking into account the minimum 90-day Congressional review period for a new Section 123 Agreement, any replacement UK safeguarding regime will need to be established by the end of 2018 at the latest if the agreement is to take effect immediately on the current Euratom exit date.

Update on nuclear liabilities conventions

The global nuclear liabilities landscape is changing. The last 3 years have seen significant developments, with the Convention on Supplementary Compensation finally entering into force on 15 April 2015 and significant progress towards ratification of the 2004 Protocols to the Paris and Brussels Conventions. These changes are to be welcomed as beneficial to international cooperation, but also bring changes to liabilities risks associated with the international movement of nuclear materials.

The attached global nuclear liabilities map shows the current geographic extent of the Paris Convention, Brussels Supplementary Convention, Vienna Convention, Joint Protocol and Convention on Supplementary Compensation.

Convention on Supplementary Compensation

The latest change is to the status of Canada. Following major revisions to domestic nuclear liabilities legislation, Canada ratified the Convention on Supplementary Compensation on 6 June 2017 and the convention took effect in Canada on 4 September 2017. This ensures consistent allocation of jurisdiction between the US and Canada in the event of a nuclear incident.

Paris / Brussels Conventions: Ratification of 2004 Protocols

Ratification of the 2004 Protocols by EU member states (including the UK) is now expected to take place around the middle of 2019 at the earliest.

The changes will substantially reduce risks of nuclear liabilities within Paris / Brussels jurisdictions falling outside the convention regime. Limited risks of cross-border liabilities in non-Paris / Brussels jurisdictions remain.

The UK Nuclear Installations (Liability for Damage) Order 2016 sets out extensive changes to the Nuclear Installations Act 1965. Those changes will take effect when the UK ratifies the 2004 Protocols and the Protocols enter into force.

This article is not intended to constitute legal advice and Prospect Law and Prospect Energy accepts no responsibility for loss or damage incurred as a result of reliance on its content. Specific legal advice should be taken in relation to any issues or concerns of readers which are raised by this article.

Jonathan Leech is a solicitor specialising in project and infrastructure work, with particular emphasis on the energy, nuclear and utility sectors. His work includes advising on legal and contracting strategies and regulatory issues associated with major nuclear development, decommissioning, waste and reprocessing projects, energy infrastructure and other utility and infrastructure related projects.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Jonathan Leech on 020 7947 5354 or by email on: jrl@prospectlaw.co.uk.

For a PDF of this blog click here

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BREXIT, EURATOM AND NUCLEAR LIABILITIES: PROSPECT LAW AT THE WM SYMPOSIA 2018 IN PHOENIX, ARIZONA PART II:

The following series of articles is written further to Jonathan Leech’s attendance at the Waste Management Symposia 2018 in Phoenix, Arizona, on 22nd March, and examines the UK’s impending exit from EURATOM and responsibility for international nuclear safeguards.

See link to Jonathan Leech’s presenter profileList of exhibitors and Conference Program

The second part of this series examines the UK’s nuclear cooperation agreements and post-exit relationship with EURATOM.

Future Relationship with Euratom

Phase 1 negotiations have focused on separation issues (such as ownership of special fissile materials). Phase 2 will move onto the future relationship between the UK and Euratom.

The UK Government’s aim is to remain as close as possible to existing arrangements, achieving maximum continuity without actually remaining as a full member of Euratom (recognising that Euratom membership is comprised exclusively of EU member states). Aside from the badge of membership, there is nothing at all about the UK’s relationship with Euratom that the UK Government would like to change.

There is no established model for the form of close association the Government seeks. The solution will be bespoke. It seems that anything is now open to negotiation. Even recognition of some on-going jurisdiction for the European Court of Justice, previously seen as a red line, may now form part of a future relationship. Government is confident that “there is a sensible solution, which may involve the ECJ …”. This would be a victory for pragmatism. Government has not found any ECJ case on Euratom affecting the UK in all the time it has existed. “It may be a point of principle for some people, but in practice as an appellate jurisdiction it has not even been needed.

In essence, Government is seeking an arrangement that has all the benefits and obligations of membership, but without actually being a member of Euratom.

Transitional period

Government has stated that there should be a time-limited transitional period of “about 2 years”, with the UK “staying in all the EU regulators and agencies during that limited period … [meaning] that companies will only have to prepare for one set of changes as the relationship between Britain and the European Union evolves.” It is not clear whether this or any other transitional period will apply to Euratom.

The BEIS Committee Report published on 13 December 2017 refers to the committee’s assumption that staying in all EU regulators and agencies “includes membership of Euratom” (whilst also noting that “the Government has not said so explicitly). Euratom is neither a regulator nor an agency. It is a community with its own legal identity. This does not mean that that UK cannot remain a full member of Euratom during a transition period, but the position is not clear.

A transitional period during which current arrangements for implementing safeguards within the UK via Euratom monitoring and inspections would alleviate time pressure on establishing domestic safeguarding capability within the UK Office for Nuclear Regulation. Assuming the UK does not remain a full Euratom member, the UK will still need to preserve or re-create existing safeguarding obligations currently enshrined in Euratom regulations.

The UK is only likely to be able to retain the benefit of existing Euratom nuclear cooperation agreements during a transition period if the UK does remain a full Euratom member during the transition period. Each Euratom nuclear cooperation agreements is made between Euratom for the benefit of its members and a third country. It is unlikely that Euratom can unilaterally extend the benefit of any cooperation agreement to a non-member (as the UK would then be) without the agreement of that third country.

Nuclear safeguards and cooperation agreements

Safeguards are essential to international nuclear commerce – verifying for an international audience that nuclear material is where it should be and is used only for its intended purpose. International safeguards are administered by the International Atomic Energy Agency (IAEA) under the Non-Proliferation Treaty (NPT), which requires that non-nuclear-weapon states accept comprehensive safeguards on all nuclear material. Similar arrangements are in place to safeguard civil nuclear material in nuclear weapon states (including the UK) under Voluntary Offer Safeguards Agreements negotiated with the IAEA. Safeguarding requirements applicable to the UK therefore arise from both the IAEA and Euratom. Euratom safeguarding requirements go beyond IAEA requirements, both in relation to quantities of material and nuclear facilities requiring inspection.

Currently the UK satisfies its safeguarding obligations via Euratom, with Euratom inspectors carrying out inspections of UK plant and inventories and submitting reports to the IAEA.

In a written statement made on 14 September 2017 the Secretary of State for Business, Energy and Industrial Strategy provided a clear commitment, recognising that “it is vitally important that the new domestic nuclear safeguards regime, to be run by the Office for Nuclear Regulation, is as comprehensive and robust as that currently provided by Euratom.” The statement confirms the Government’s decision to establish “a domestic regime which will deliver to existing Euratom standards and exceeds the standard that the international community would require from the UK as a member of the IAEA.” Government has no interest in reducing current safeguarding obligations to achieve a commercial advantage.

Government has made clear that it regards the current Safeguards Bill before Parliament as a contingency arrangement, to be used if an appropriate future relationship with Euratom cannot be achieved. The Bill provides enabling powers for development of a domestic safeguarding regime but does not itself make clear whether that regime will be designed to meet obligations under the UK’s replacement Voluntary Offer Safeguards Agreement with the IAEA or to maintain equivalence for current (and possibly future) Euratom safeguarding requirements. To maintain equivalence, Government will need to develop detailed regulations replicating current Euratom commitments.

Delivery of a state system of accounting and control to meet those commitments immediately on Euratom exit will remain a practical challenge. Evidence provided by ONR and others to the BEIS Committee highlights the difficulty in securing, training and mobilising sufficient resource before the current Euratom exit date of 29 March 2019. ONR is confident of meeting IAEA obligations by that date, but additional time will be required “to include all the activities necessary for an assurance regime which is robust and as comprehensive as that of Euratom.” It would be possible for the UK as a non-member during a transition period to continue to rely on Euratom inspections and monitoring (as distinct from Euratom nuclear cooperation agreements as referred to in Paragraph 5.4 above). If would however still be necessary for a safeguarding regime to be set out in UK law in place of current Euratom regulation.

Jonathan Leech is a solicitor specialising in project and infrastructure work, with particular emphasis on the energy, nuclear and utility sectors. His work includes advising on legal and contracting strategies and regulatory issues associated with major nuclear development, decommissioning, waste and reprocessing projects, energy infrastructure and other utility and infrastructure related projects.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Jonathan Leech on 020 7947 5354 or by email on: jrl@prospectlaw.co.uk.

For a PDF of this blog click here

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THE EU ‘REACH’ CHEMICALS REGULATION AND BREXIT NEGOTIATIONS:

The critically important benchmark for many industries is the EU REACH Chemicals Regulation, from chemicals to those dependent on complex international supply chains, including the automotive and aerospace sectors. Compliance with REACH will remain a requirement for businesses exporting to the EU, and REACH is, to an increasing extent, the model for comparable regimes in chemicals regulation elsewhere in the world. UK trade associations have therefore been lobbying hard to ensure that post-Brexit, the UK either retains a system of ‘mutual recognition’ between UK law and REACH, or at least the closest possible ‘equivalence’.

Through 2017, little information was emerging from the negotiating process on the kind of regime that the UK envisaged would follow on from REACH after Brexit. Industry was, at the same time, being told to ensure that registrations of chemical substances were made on time for the 2018 deadline for the lowest tonnage band; and, by postings on the website of the European Chemicals Agency ‘ECHA’ from September 2017 that all such Registrations by UK-based companies would become “non existent” after Brexit.

Pressure from industry bodies resulted in a CBI Report on 21 December 2017 that clearly identified key bodies and regimes, including ECHA for REACH, where close alignment was crucial to business.

The Prime Minister’s Speech on Trade Negotiations:

On 2 March 2018, in her Major Speech on trade negotiations, Prime Minister Theresa May noted these concerns, stating –

We will also want to explore with the EU, the terms on which the UK could remain part of EU agencies such as those that are critical for the chemicals, medicines and aerospace industries: the European Medicines Agency, the European Chemicals Agency, and the European Aviation Safety Agency.

We would, of course, accept that this would mean abiding by the rules of those agencies and making an appropriate financial contribution.”

The Prime Minister listed the advantages of such associate membership, for the UK and the EU, as including products only needing one set of approvals, in one country; UK contributions of technical expertise to the critical role of these agencies in setting and enforcing relevant rules; dispute resolution in national courts rather than the CJEU; and UK capacity in contributing to the regulatory workload and scientific expertise available.

European Council President Donald Tusk, when introducing the EU’s draft negotiating guidelines for the next phase of talks on 7 March 2017, replied –

A pick-and-mix approach for a non-member state is out of the question… The Union will preserve its autonomy as regards its decision-making, which excludes participation of the United Kingdom as a third country to EU institutions, agencies or bodies.”

Prime Minister May anticipated these objections in her own speech, noting that –

The fact is that every Free Trade Agreement has varying market access depending on the respective interests of the countries involved. If this is cherry-picking, then every trade agreement is cherry picking.”

UK-EU Withdrawal Agreement:

Negotiations now move on to finalising the text of the Draft Withdrawal Agreement between the UK and EU, announced on 19 March 2018 and considered at the European Council Meeting of 22 March, and from that to the continuing negotiations on a Trade Agreement.

For the purposes of REACH, the continued validity of REACH Registrations held by UK-based companies for the duration of the Transition Period may be intended to be achieved through Article 4 of the Draft Withdrawal Agreement, but confirmation of that from the UK government and ECHA would be welcome.

As negotiations progress to the next stage of a proposed Trade Agreement between the UK and EU, the question remains of how the UK would deliver, in law, associate membership of the EU agencies that it identifies as being of critical importance.

The European Union (Withdrawal) Bill

The European Union (Withdrawal) Bill, presently going through Parliament, would repeal the European Communities Act 1972 and the basis for supremacy of EU law in the UK; whereas the Prime Minister is proposing that the UK would abide by the same rules as EU Member State participants in ECHA, which are, of course, ultimately enforced by the European Commission and the Court of Justice of the European Union.  Even amendments to the European Union (Withdrawal) Bill to achieve what might be agreed political objectives are anything but straightforward, with the present Parliamentary arithmetic.

If, on the other hand, the UK takes the line that it must be a ‘rule maker’ and not a ‘rule taker’, or if a different agreement on a relationship with ECHA, EASA and the European Medicines Agency is not achieved in the trade negotiations, then the REACH Regulation would need to be re-enacted into UK law to achieve ‘equivalence’.

In such a case it is clear that the general provisions of the European Union (Withdrawal) Bill will not suffice, which would demand a long, complex and politically sensitive Statutory Instrument made with reference to the much debated Henry VIII clauses of the European Union (Withdrawal) Bill, making necessary changes to the REACH Regulation to correct what would otherwise be “deficiencies” in its application in UK law.

This secondary legislation would need to establish the HSE, or some other body, as a UK equivalent to the European Chemicals Agency; to resolve the issues arising from the devolution of powers to make environmental legislation to the devolved Parliaments; and to address how the UK equivalent to REACH would keep track of future developments in the REACH Regulation (and the CLP Regulation and other related chemicals legislation) instead of continuing to diverge from it (which might well in turn have implications for trade agreements with the EU).

William Wilson, Prospect Law Ltd

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm, as well as running his own environmental policy consultancies. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact William Wilson on 020 7947 5354 or by email on: wew@prospectlaw.co.uk.

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BREXIT, EURATOM AND NUCLEAR LIABILITIES: PROSPECT LAW AT THE WM SYMPOSIA 2018 IN PHOENIX, ARIZONA, PART I

The following series of articles is written further to Jonathan Leech’s attendance at the Waste Management Symposia 2018 in Phoenix, Arizona, on 22nd March, and examines the UK’s impending exit from EURATOM and responsibility for international nuclear safeguards.

See link to Jonathan Leech’s presenter profileList of exhibitors and Conference Program

Introduction

The outcome of the UK referendum on withdrawal from the European Union resulted in UK Government confirmation that the UK must also withdraw from the European Atomic Energy Community (Euratom). The UK will automatically exit Euratom on 29 March 2019 unless Euratom members agree an extension, or the UK remains a member under some agreed transitional arrangement. As at the date of the Waste Management Symposia, half of the 2-year period for agreeing terms of exit and putting in place replacement arrangements had passed. This paper describes the position as at December 2017. There will of course be further developments before the Symposia.

Whether Euratom exit was a necessary consequence of withdrawal from the EU is now a matter for academic legal debate only. Certainly, there are good arguments that Euratom exit was not an automatic and immediate consequence of Brexit. Those arguments would have given the UK Government a choice, at least in relation to the timing of Euratom exit. Whether for reasons of legal necessity or political expediency, inclusion of additional notice relating to Euratom withdrawal within the UK’s Article 50 notice on 29 March 2017 has ensured that the same 2-year timetable applies to both EU and Euratom withdrawal.

The Business, Energy and Industrial Strategy Committee report published on 13 December 2017 concludes that leaving Euratom “is a wholly unwanted and potentially unintended consequence of our leaving the European Union” Exit from Euratom will create binary questions of acceptability of nuclear trade and collaboration with the UK, reflecting current reliance on the UK’s status as a Euratom member. This in turn risks disruption of international nuclear cooperation and trade, including provision of resources and know-how in support of the UK waste and decommissioning effort, new build programme and international movement of waste for treatment. The task now is to minimise potential adverse impacts of departure.

Significance of Euratom

Since the UK’s accession to Euratom in 1973 (alongside accession to the EEC, as it then was), the regulation and international acceptability of the UK nuclear industry have been closely entwined with Euratom.

The Euratom Treaty sets out eight areas of activity:
(a) promotion of research;
(b) establishing and policing uniform safety standards;
(c) facilitating investment;
(d) ensuring a regular supply of ores and fuels (via the Euratom Supply Agency);
(e) safeguards;
(f) exercising rights of ownership over “special fissile materials”;
(g) creation of a nuclear common market; and
(h) establishing relations with other countries and international organisation to foster progress in nuclear energy.

Of these areas, safeguards and international relations (in the form of nuclear co-operation agreements) are likely to place the greatest strain on the exit timetable and are considered further below. The UK is reliant on its status as a Euratom member in establishing and implementing acceptable safeguarding requirements; ensuring inclusion of the UK within the scope of existing Euratom nuclear cooperation agreements; and as a basis for current UK bilateral nuclear cooperation agreements.

In terms of safety and security, Euratom is generally not the originator of regulatory standards and requirements. Instead Euratom regulations and directives aim to give consistent effect to international legal frameworks governing nuclear safety and security, including the Joint Convention on the Safety of Spent Fuel Management and the Safety of Radioactive Waste Management, the Convention on the Early Notification of a Nuclear Accident, the Convention on Assistance in the Case of a Nuclear Accident or Radiological Emergency, the Convention on the Physical Protection of Nuclear Material, and the IAEA Action Plan on Nuclear Safety. That international framework of nuclear law will continue to apply to the UK. Withdrawal from Euratom is therefore unlikely to result in significant changes to UK regulatory standards.

UK Euratom exit: status of negotiations

The joint EU and UK report on progress during phase 1 of Brexit negotiations published on 8 December 2017 includes a summary of the position reached on nuclear specific Euratom issues:

“both Parties have agreed principles for addressing the key separation issues relating to the UK’s withdrawal from Euratom. This includes agreement that the UK will be responsible for international nuclear safeguards in the UK and is committed to a future regime that provides coverage and effectiveness equivalent to existing Euratom arrangements. Both sides have also agreed the principles of ownership for special fissile material (save for material held in the UK by EU27 entities) and responsibility for spent fuel and radioactive waste.”

This summary leaves significant scope for clarification and development. Despite the Government’s Safeguards Bill that is intended to provide the basis for a domestic safeguards regime, there is no clear indication as to how the UK’s responsibility for international nuclear safeguards post Euratom exit will be met. Also, commitment to “a future regime that provides coverage and effectiveness equivalent to existing Euratom arrangements” may imply that creation of such a regime is an objective for the future rather than something to have in place on Euratom exit. Reference to “existing” arrangements also suggest that the UK may not maintain equivalence with any future Euratom developments.

Government has also confirmed that bilateral negotiations with the IAEA on a future Voluntary Offer Safeguards Agreement are underway, and that this will be in place by March 2019. The UK’s current Voluntary Offer Safeguards Agreement under the Non-Proliferation Treaty is predicated on Euratom membership.

Jonathan Leech is a solicitor specialising in project and infrastructure work, with particular emphasis on the energy, nuclear and utility sectors. His work includes advising on legal and contracting strategies and regulatory issues associated with major nuclear development, decommissioning, waste and reprocessing projects, energy infrastructure and other utility and infrastructure related projects.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Jonathan Leech on 020 7947 5354 or by email on: jrl@prospectlaw.co.uk.

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WHOLESALE ENERGY PRICES: JANUARY – MARCH 2018:

In this article, Dominic Whittome covers recent changes to wholesale energy prices.

Crude Oil

Crude prices paused for a breather amid confirmation of a surge in North American exports of shale.

US oil production broke through the symbolic 10 m/bd, the first double-digit figure since the early 1990s.  However, this headline event did little to knock the crude market, with prices remaining flat over the period. Its impact was tempered by a rise in compliance levels across other oil producing countries in respect of Wider OPEC’s November 2016 Accord with OPEC itself, exporting 32.25 mb/d which is a ten-month low. The oil market is also being underpinned by heightened geopolitical concerns which are now, if anything, more heightened then they were last year. The final success of the ‘anti-dissident’ crackdown and purge in Saudi Arabia remains far from clear. There seems to be no consensus among analysts and observers as to when or how the ‘end game’ (which is not clear either) will play out or how robust any favourable  outcome will be.

Any flare-up or renewed uncertainty in this respect will immediately rekindle prices. Although, the medium-term oil supply outlook remains comparatively stable otherwise, at least for the time being.

Natural Gas

The gas market saw the curve rising just 1%. Although, spot  prices charged above one pound a therm at one point amid a conflagration of adverse factors all coming together at once. These included import problems at the Nyhamna Gas Terminal Plant serving Langerled pipeline to the UK;  technical issues with Dutch export Balgzand Bacton pipeline itself; a spike in energy demand throughout the North West European corridor amid freezing weather conditions and some market nerves heightened perhaps by enforced N Grid gas curtailments (if only temporary) and an appreciation that the UK finds itself in its first winter without any long-duration gas reserve facility of its own to fall back on.

This follows the closure of Centrica’s Rough offshore storage platform, as discussed in January’s edition of Energy Highlights. Overall, however, the forward gas market looks well-supplied in the medium-term, notably in respect of LNG supplies. That said, the UK’s own long-term import dependency is set to rise, past 90% by 2040 according to the latest National Grid research. Forward gas demand may well be curbed by government legislation restricting domestic gas and space heating use into the next decade.  Moreover, an early demand-call from the power generation sector also looks unlikely. Carbon prices meanwhile rose by over 80% over the past nine months, breaking €10/tonne CO2 at one point.

The unfavourable regulatory outlook for new-build gas-fired power stations could keep a lid on prices. Although government policy could always change; indeed the treatment of specific gas-fired generation is known to be under review in Whitehall circles, even if the question is seldom aired very publicly.

Electricity

Despite the cold snap, the electricity market slipped back. The annual base-load power contract fell by 7%  on the back of improving plant availability and very few reported outages during a critical demand period.

That said, the current state of the wholesale electricity market perhaps belies the impacts pending on prices downstream. In particular, on smaller industrial and commercial customers who have no exemption from the new (somewhat paradoxically-named) ‘Energy Intensive Industries Exemption Surcharge (or EII) that comes into effect in Q2.

The EII will not be introduced as a tax in name, although that is precisely what it is. The EII will instead be introduced as an ‘uplift’ to existing surcharges, namely the Renewables Obligation, absorbing circa 60% of the new levy; the Feed-in-Tariff and the Contract for Difference surcharges, absorbing circa ca. 20% a piece. Most of the energy intensive users’ exemption surcharge will fall on the non-energy intensive users  with no exemption from this (once conceived) ‘carbon tax’. This, combined with other increases in transmission and distribution network charges, as already penned and indexed to inflation, will cause the median commercial electricity bill to rise by circa 25% in just three years from now, according to provisional calculations (my own – happy to compare notes with any reader on that question).

This expected rise in bills also assumes no rise at all in wholesale power prices between now and 2022, which is far from a given. Enhanced efficiency, optimised energy management, embedded generation and possibly electric storage may become more commercial as a consequence, as end users look for ways to side-step potentially significant future price rises.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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THE IMPLICATIONS OF BRENT LONDON BOROUGH COUNCIL v SANJAY SHAH & OTHERS

Prospect have won a landmark ruling on the availability of confiscation proceedings brought under the Proceeds of Crime Act 2002 to convictions for offences involving rogue landlords running overcrowded, unsafe and insanitary Houses in Multiple Occupation under sections 95(2) and 234(3) of the Housing Act 2004.

The attached article by Edmund Robb examines the implications of this ruling in the context of the availability of confiscation pursuant to the Proceeds of Crime Act 2002 in relation to various criminal offences under the Housing Act 2004

Copyright © 2018 by Prospect Law Ltd

All rights reserved. No part of this article may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of Prospect Law Ltd.

Edmund Robb (er@prospectlaw.co.uk) is a public law specialist barrister at Prospect Law with wide experience of planning, environmental and local government case work at public inquiries and at all levels in the Courts.

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WHOLESALE ENERGY PRICES: NOVEMBER – DECEMBER 2017:

In this article, Dominic Whittome covers recent changes to wholesale energy prices.

Oil

The petroleum market continued to charge upwards. Dated Brent prices closed the two month period 19% higher. In the last two years, since the January 2016 Edition of Energy Highlights, world oil prices have risen over 80%. Whilst the so-far successful accord between OPEC and non-OPEC producers has certainly had an impact, shale has yet to have the dampening effect which some in the market had asserted it would.

No one knows how far oil prices may have to run before marginal supplies (i.e. not covered by the Accord, US shale being just one option available) arrive en masse. Whilst prices will not necessarily reach this level, E&P studies suggest that only once oil prices are sustained over $75/bl will significant new developments come online.

The Brent market spiked higher in December amid outages at Statoil’s Troll platform and Forties pipeline, which shut-in over 70 North Sea platforms in total at one stage, including the ETAP, Armada and Buzzard fields along with Forties itself, removing 45% of UK winter supply. While the pipeline is back online now, attention at the turn of the New Year turned towards troubles in Iran, which buoyed Dated Brent cargoes above $65 /bl into the New Year.

Natural Gas

Natural gas prices, on the other hand, took most of last month’s events in their stride, despite much of the upheaval relating to the gas market itself. Day-ahead spot leapt to a 4 year high of 80 p/th at one point amid concern over supply, as the UK entered its first winter with no principal (long duration) gas storage facility following the closure of Rough combined with a major explosion at the sensitive Russian import thoroughfare at Baumgarten in Austria. Yet, this barely affected the forward curve in the end. The Annual Contract rose just 2% over the two periods and gas prices actually fell 4% over the year. This relaxed market might symbolize the abundance of global gas supplies relative to oil, and also national aversion to building new gas power stations, efficiency and de-carbonisation globally.

However, gas prices, through oil-indexed contracts and (to an extent still) fuel substitution, will at some point respond to rising energy commodity prices if that trend continues, even if the indexation-lag is pronged (which it often can be). It remains to be seen whether gas prices will remain so calm, even though the forward supply picture remains robust.

Electricity

Forward power prices rose 5% between November and January to finish the year unchanged at roughly £48/MWh. The spark spread has been rising, although whether this will trigger some of the stalled UK gas generation projects remains unclear, with government policy the most likely determinate there. As regards the wholesale market, the outlook for significant price rises in base-load electricity looks muted still. However, for commercial & industrial markets, the outlook is significantly more bullish, with a cocktail of transmission, distribution tariff, existing surcharge and new energy tax rises in the pipeline. These could increase the annual bills for commercial customers by 30% inside three years, notwithstanding changes to wholesale prices.

Despite rising commodity prices elsewhere, forward curve and prompt market prices were also subdued by sentiment on wind generation. A ‘£57.50/kWh’ headline figure made the news in October (although it doesn’t imply many new wind projects will be commercial at such a price) and high winds across Europe in late December also suppressed the day-ahead market. That said, the take-up of renewables combined with certainly lower costs have surpassed expectations, serving to soften forward prices. A cursory look at the ‘speedometers’ on www.gridwatch.templar.co.uk in recent weeks demonstrates just how significant wind output was, amid several Triad warnings in December itself, frequently testing the 9 GW level. This, together with robust nuclear output, compensated for the sudden and unexpected closure of Drax, the UK’s largest power station, despite the outage continuing into the New Year.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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LIABILITY FOR CONTAMINATED FORMER LOCAL AUTHORITY SITES

Environmental Protection Act 1990

Part 2A of the Environmental Protection Act 1990 imposes a duty on enforcing authorities to require those responsible to remediate contaminated land, i.e. land designated as such which due to substances in it is causing or threatening significant harm or significant water pollution. Whether the ‘significant’ threshold has been reached falls to be determined in accordance with the Statutory Guidance issued under Part 2A (http://www.legislation.gov.uk/ukpga/1990/43/part/IIA).

The persons primarily responsible for remediating contaminated land under Part 2A are ‘Class A’ persons, i.e. those who caused or knowingly permitted the relevant substances to be present.  If no Class A persons remain in existence, liability falls on ‘Class B’ persons, i.e. those who are owners or occupiers at the time when the land is determined to be contaminated for the purposes of Part 2A.  If there is more than one Class A or Class B person, the Statutory Guidance sets out a number of tests designed to exclude from liability those considered less responsible.  If more than one liable person remains after the application of those tests, liability is apportioned in accordance with the Statutory Guidance.

A question has arisen in relation to the liability of a Class A entity which is dissolved by statute and replaced by another statutory body.  Does the successor take on the liability of its predecessor?  There are two issues.

  • First, should the successor be considered as a causer or knowing permitter simply because it has taken over the functions or business of its predecessor?
  • Secondly, does the predecessor have liability under Part 2A which passes to its successor under legislation abolishing the former and creating the latter?

The first question was answered with a resounding negative by the House of Lords (now replaced by the Supreme Court) in R  (National Grid Gas plc) v Environment Agency  [2007] (https://publications.parliament.uk/pa/ld200607/ldjudgmt/jd070627/grid-1.htm). National Grid Gas, the privatised successor company, did not cause or knowingly permit the presence of the contaminants. The land had been sold by its predecessors before the company was formed at the time of privatisation of the gas industry in 1986.  There was nothing in Part 2A which extended the categories of causers and knowing permitters to their successors.

Powys County Council v Price and Hardwick [2017] EWCA Civ 1113

The same issue arose in Powys County Council v Price and Hardwick [2017].  (http://www.bailii.org/ew/cases/EWCA/Civ/2017/1133.html)

A Welsh local authority had operated a landfill over a culverted watercourse which eventually resulted in river pollution. The land had been sold after landfilling stopped and was subsequently designated as contaminated land under Part 2A.  Following statutory reorganisation of the Welsh local authorities, it was widely assumed that the new authorities would simply step into the shoes of their predecessors and assume their liability as causers of the contamination.  The Court of Appeal followed the National Grid decision and held that was not the case.  The emphasis in Part 2A is on the actual polluter: the person who caused or knowingly permitted the pollution.

The second question was whether Part 2A liability passed from the predecessor to the successor body under the provisions of the relevant institutional restructuring legislation. Under the Gas Act 1986 and earlier Gas Acts considered in the National Grid case, liabilities to which the predecessor was subject “immediately before” the statutory transfer date passed to the successor.  The statutory transfer date was 24 August 1986, whereas Part 2A was inserted into the Environmental Protection Act 1990 by the Environment Act 1995 (https://www.legislation.gov.uk/ukpga/1995/25/contents) and only came into force on 1 April 2000 in England and 15 September 2001 in Wales.

In National Grid the House of Lords held that liabilities created by statute in 1995 did not exist immediately before the transfer date in 1986 and therefore could not have been transferred to National Grid Gas as the successor body.

Distinguishing Powys from National Grid:

The position in the Powys case was different in two respects.  First, Article 4 of the Local Government Re-organisation (Wales) (Property etc) Order 1996 (http://www.legislation.gov.uk/cy/uksi/1996/532/body/made/data.xht?wrap=true) simply stated that the ‘liabilities of the old authority shall …. vest in [the]  successor authority’.  However, the Court of Appeal considered that the omission of words such as ‘immediately before’ made no difference.  Following the reasoning of the House of Lords in National Grid, Lord Justice Lloyd Jones held that ‘liabilities’ refers to those to which the predecessor was subject prior to the transfer.  The words ‘immediately before’ merely emphasise that conclusion.  If Parliament intended to transfer liabilities arising subsequently, clear words would be required to achieve that result.  For example, under transfer of liability schemes made under the Water Act 1989 (https://www.legislation.gov.uk/ukpga/1989/15/contents) a body to which liabilities are transferred is to be treated as the same person in law as the authority from which they are  transferred.  That wording has the effect of transferring to the successor liabilities not yet in existence at the time of the transfer.

Secondly, the statutory transfer date under the Welsh local government reorganisation legislation fell after the insertion of Part 2A into the Environmental Protection Act in 1995 but before it came into force in Wales in 2001.  The distinction was unimportant to the decision in National Grid and so, perhaps unsurprisingly, the House of Lords focused on the earlier date.  However, in Powys it was held that the date when the Part 2A  legislation came into force was the relevant time.  The Court of Appeal stated that if Part 2A had been in force on the statutory transfer date, the predecessor authority would have been subject to a contingent liability which passed to the successor authority on that date.  As Part 2A was not then in force, there was no liability under that legislation, contingent or otherwise, which was capable of being passed to the successor.                                                                                                                     

Points to Note

  1. Since there was no Class A person in existence (the predecessor local authority having been dissolved under the local government re-organisation legislation) liability fell on Class B persons, the current owners and occupiers of the land, Mr Price and Mrs Hardwick.  From the perspective of owners of contaminated former local authority land the effect of such legislation may be to eliminate the only other party who may be solely or partly liable for the costs of remediation.  If, unlike Mr Price and Mrs Hardwick, the current owner is a Class A  knowing permitter (e.g. due to failure to remediate when it should have been clear that remediation was necessary) that owner could be made to shoulder the full liability, whereas Part 2A liability may have been shared with the predecessor local authority (if it were still in existence)  under the apportionment provisions of the Statutory Guidance unless that predecessor authority had been excluded from liability under the exclusion tests.
  2. Although not mentioned by the Court of Appeal in Powys, the Part 2A Statutory Guidance enables the enforcing authorities to waive or reduce the liability of both Class A and Class B persons in certain circumstances such as hardship or unfairness to the liable party.  That discretion is exercised in suitable cases.
  3. In cases of statutory reorganisation the precise statutory wording is critical in determining whether Part 2A liability has passed to the successor.  If liabilities are merely expressed to be passed to the successor, Part 2A liability only passes if Part2A came into force before the statutory transfer date.  On the other hand, if the liability transfer legislation states that the successor body is to be treated as the same person as the predecessor, the successor would assume the predecessor’s Part2A liability even if Part 2A came into force after the statutory transfer date.
  4. The Court of Appeal noted that contingent liabilities of the predecessor under existing law (e.g. breaches of a duty of care which had not yet resulted in damage) would have passed to the successor at the statutory transfer date.  It follows that in the Powys case if neighbouring landowners claimed compensation because pollution from the former landfill had migrated to their land, the predecessor local authority’s contingent liability would pass to the successor.  The latter would therefore be liable when the neighbours suffered damage even if that occurred many years after the landfill operation had ceased.
  5. Owners of contaminated former local authority sites are well advised to check their potential liabilities and whether they have been affected  by local government reorganisation legislation. The provisions of the sale contract should also be considered as these may be worded to trigger a transfer of Part 2A liability to the buyer under the exclusion tests in the Statutory Guidance, thereby excluding the seller authority from liability. The issues involved in transferring Part 2A liability and other contaminated land liabilities are complex and require detailed advice.

3rd January 2018, Prospect Law Ltd

Andrew Waite is a solicitor and specialist in environmental, health and safety and public law, advising on regulatory and liability issues for a broad range of industries.  He defends prosecutions for breaches of environmental and health and safety legislation, deals with regulatory appeals, judicial reviews and civil litigation and advises on environmental issues relating to projects and transactions.  He deals with all the main areas of environmental law including waste, energy, nuclear, contaminated land, pollution controls, environmental permitting, water rights, flooding, climate change and nature conservation.

Prospect Law and Prospect Advisory provide legal and business consultancy services for clients involved in the infrastructure, energy and financial sectors.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.     

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