Pollution solution

Environmental impact is becoming an increasingly crucial legal issue in the EU, and Spain and Portugal are preparing to toe the line. Jesus Velez and Alex Guillamont report

The incorporation into local law of EU Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental damage is one of the most important obligations of the Spanish and Portuguese governments during the current parliamentary year.

The directive was enacted in April 2004, but gave EU member states until 30 April 2007 to bring into force local regulations necessary to comply with it. The directive is not concerned with third-party claims, but with the perceived need for a Europe-wide system of liability for environmental disasters based on the principle of imposing on polluting operators the obligation to prevent, or make good, damage caused to the environment. With the new regime, who pollutes pays.

In Spain, a draft ley de responsabilidad medioambiental has been in the public domain for the past year. Few modifications can be expected now that it is about to be discussed at intra-governmental and, subsequently, parliamentary level.

In Portugal, the directive has not been transposed to local law yet either. It appears that a decree-law is being prepared by the Ministry of the Environment, but in earlier drafting stages than its Spanish counterpart, as it has not been made public. Congress approval and subsequent publication is not expected until September 2007, missing the 30 April 2007 deadline. If an incident arises in the meantime, the argument could be made that the directive applies from that date regardless of whether Portugal or other member states have incorporated it into local law.

This may not cause great difficulties in Portugal, as the principle of imposing objective liability on operators causing significant damage to the environment was already provided by BLE-Law number 11/87. However, such law has not been widely utilised, possibly because, although it could be directly applied in some instances, it needed to be developed through secondary legislation to be fully effective. It is possible, and recommendable, that the Portuguese government transposes the directive and develops law 11/87 as soon as possible. This would avoid conflicting legislation and ensure compliance with European requirements.

Directive requirementsThe directive provides for a dual system of strict or negligence/fault-based liability, depending on whether damages or imminent threats have been caused to the environment or to protected species and habitats, and whether these arise from occupational activities, as set out in Annex III or otherwise. The directive only sets minimum requirements which can be topped up by member states by adopting more stringent provisions in relation to the prevention and remedying of environmental damage.

The emphasis is on having operators take protective action when such damage is threatened as this is the best way to keep a healthy environment. However, the need for operators to take remedial action if damage has occurred has also been regulated even if it is much more difficult to restore an environment that has been heavily polluted. The operator is also under a duty to inform the competent authority of all relevant aspects of the situation.

Member states have the freedom to designate the competent authority in charge of supervising operators and adopting relevant preventive or remedial measures.

In the Spanish draft law, central government has passed on such responsibility to the regional administrations. We would expect the central government to provide for effective coordination among the 17 regional administrations to ensure that the new system is not interpreted arbitrarily or opportunistically by the regions.

In Portugal, the competent authority in charge of supervising operators and adapting the relevant preventive or remedial measures will continued #+ continuedprobably be the Instituto do Ambiente, a public entity under the Ministry of the Environment. Regarding the two Portuguese autonomous regions, Madeira and the Azores, local governments will probably be considered competent for such purposes. However, final coordination will probably be ensured by Instituto do Ambiente.

This is particularly important as the competent authorities may take the matter into their own hands and take the necessary preventive or remedial measures themselves. In principle, the costs of the competent authority are recoverable from the operator in any case of Annex III occupational activities or if the operator was negligent or at fault in the case of damage arising from other activities. However, there are exceptions based on the circumstances of the operator and on the type of damaged caused.

Financial securityArticle 14 of the directive provides that member states shall take measures to encourage the development of financial security instruments and markets by the appropriate economic and financial operators, including mechanisms in case of insolvency, with the aim of enabling operators to use financial guarantees to cover their responsibilities under this directive. The Spanish law is more stringent in that operators are not encouraged, but required, to demonstrate that they are in possession of such financial security. Operators are given the choice of taking out insurance, obtaining a bank guarantee from a financial institution trading in Spain, or setting up a technical reserve backed up with ad hoc funds.

The imposition of such obligation has been criticised by the insurance industry and government figures such as the Minister of Economy and the director of the Insurance Compensation Consortium.

Critics argue that it is premature to ask operators to take out insurance when the directive provides that the European Commission will present a report in 2010 on the availability of proper insurance at reasonable costs and in the light of such report, including a cost-benefit analysis, the Commission shall, if appropriate, submit proposals for a system of harmonised mandatory financial security.

The main problem, they argue, is that there is no determination or experience yet on the parameters that each competent authority will use in order to set the amount of the potential preventive or remedial costs of each operator. Without such information, it is difficult for insurers to estimate the premium.

The same reaction could be expected in Portugal by the Instituto de Seguros de Portugal and private sector insurers. At least those insuring Portuguese operators have had plenty of warning on this issue, as law 11/87 provides for mandatory insurance cover for operators engaged in high risk activities. However, this was not taken too seriously as high-risk activities were never defined by secondary legislation. This could change with incorporation of the directive, and its Annex III, into local law.

In accordance with the directive, the Consorcio in Spain and the Instituto in Portugal will be responsible for setting up funds for preventive or remedial expenses unrecoverable from operators.

The directive is not retroactive. It only applies to damage caused by events taking place after 30 April 2007. In any case, operators will not face the cost of preventing or remedying damages arising more than 30 years after the originating event, as these are time-barred.

Jesus Velez and Alex Guillamont are partners at Kennedys. They were assisted by partners Paulo Almeida and Augusto Athayde