Debtors & dumping: lessons for environmental litigators

On 5 October 2022 a judgment was handed down by the Supreme Court in the case of BTI 2014 LLC v Sequana SA (Sequana) and others.This judgment relates to an insolvency dispute between BTI, the assignee of AWA’s claims, and Sequana. Principally, it concerns which entity should make the payment for an outstanding liability incurred by AWA, arising out of the National Cash Register Company’s (NCR) pollution of the Fox River in Wisconsin. Through a series of restructurings, AWA became liable to indemnify British American Tobacco (BAT) for these costs.

The judgment is important from the insolvency law perspective, but it also raises an interesting fact pattern from an environmental perspective. Although not the focus of the judgment, the details of the underlying claim are particularly pertinent in the context of the UK’s ongoing water pollution crisis. Despite confirmation from the Environmental Agency (EA) that 86% of English rivers do not meet the criteria for ‘good ecological status’ – and that all rivers fall below the threshold for ‘good chemical status’ – there remain significant obstacles in the UK for holding polluters to account.

In the Sequana case, the Fox River had become polluted by highly toxic PCB chemicals, key ingredients used by producers of carbonless copy paper in the region. Throughout the 1990s, the Environmental Protection Agency (EPA) identified a number of companies ‘potentially responsible’ for the contamination, exercising its power under section 107 of the US Comprehensive Environmental Response, Compensation and Liability Act 1980 (CERCLA). Since CERCLA imposes strict liability, AWA had become liable to indemnify BAT for this future expense, designed to cover both novel ‘natural resource damages’ and the cost of bringing the proceedings. Hausfeld’s US office is instructed in similar US litigation against polluters.

Significantly, the existence of CERCLA has no direct parallel in UK statute. Moreover, the robust stance taken by the EPA in enforcing CERCLA against polluters is a world away from the Environment Agency’s approach to the UK’s polluted waterways. Not only are the ecological conditions of rivers continuing to deteriorate in the UK, but recently leaked reports suggest that the EA, for over a decade, has been aware of extensive illegal sewage dumping but has failed, so far, to stop this.

Currently, the right of individuals to bring private actions against river polluters in the UK hangs in the balance. In the United Utilities Water Ltd v The Manchester Ship Canal Company Ltd case, United Utilities have been successful in defending their statutory right to ‘sewage dump’ under the Water Industry Act 1991. While the Court of Appeal has unusually permitted a number of interventions in this case, demonstrating the scale of this problem, the outcome of these challenges is yet to be seen.

The Office for Environmental Protection (OEP) is looking at this issue. Created in November 2021, this new public body – a product of the 2021 Environmental Act – was designed to protect the environment by holding government and public authorities to account. While its first strategy, published in September 2022, set out ambitious plans to monitor and improve water quality, the result of those plans remains to be seen.

Whilst the Sequana judgment offers much needed clarification to litigators and companies involved in insolvency disputes, it also underscores the ocean of difference between the ability of private actors in the UK and the US to hold water-polluters to account, and contrasts the robust and interventionist nature of the EPA with the UK’s toothless EA. The Sequana judgment also highlights the significant cost of pollution clean-up operations which, as it stands in the UK, are either never enforced against private polluters and/or are picked up at the cost of the public purse.

With special thanks to Eleanor Dodds for her assistance on this piece. 

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