Opportunities to transfer the liability risk for soil pollutions

Recent practice shows that businesses can often transfer their liability under the Dutch Soil Pollution Act to a public authority. This new development provides considerable legal certainty for businesses faced with contamination risks in the Netherlands.

Recent developments in the Netherlands

We would like to bring to your attention certain recent developments that may limit the exposure of your business to soil pollution risks. Increasingly more often, Dutch public authorities are making use of an integrated approach (gebiedsgerichte aanpak) for the management of soil pollution risks in the Netherlands. The integrated approach provides the possibility for land owners, project developers, and operators of industrial sites confronted with soil pollution risks to transfer their responsibility under the Dutch Soil Protection Act (Wet Bodembescherming) to a public authority.

Traditional approach towards soil pollutions

The Dutch Soil Protection Act requires public authorities to determine whether (i) there is a case of serious soil pollution (geval van ernstige verontreiniging) and whether (ii) the use of the soil, or the possible migration of the soil pollution, constitutes such an adverse effect on public health, plant life or animal life that the swift decontamination of the site is necessary. As a result of this determination, land owners, project developers and operators of industrial sites  are often required to perform expensive decontamination works to mitigate the effects of soil pollutions. Even if no decontamination works are immediately necessary, public authorities often require private companies to perform detailed soil investigations and adopt elaborate monitoring schemes. Such measures are generally limited to one particular site and do not provide genuine possibilities to address large crossborder soil pollutions.

The new integrated approach

Recognising these difficulties, public authorities may decide to apply the new integrated approach for the management of cross-border soil pollutions that cannot be properly addressed on the basis of the traditional instruments under the Dutch Soil Protection Act. The new approach allows public authorities to design an integrated programme and take responsibility for the management of soil pollutions that may negatively affect sensitive parts of the soil (such as groundwater extraction areas). The scope of the programme is usually limited to a particular area and contains monitoring and decontamination measures that specifically concern the protection of sensitive areas from cross-border soil pollutions. While public authorities are formally responsible for the financial implications of the monitoring and decontamination measures contained in the integrated programme, the authorities usually approach private companies in an effort to raise funds for the implementation of the programme. In return, public authorities may offer to take over the responsibility for the management of a particular soil pollution from private companies. This new practice allows private companies to benefit from the voluntary participation with the integrated programme, especially when faced with cross-border soil pollution risks that cannot be properly managed on the basis of the more traditional instruments.

Public authorities can take over the responsibility for the management of soil pollutions in accordance with the procedural requirements contained in the Dutch Soil Protection Act. The responsibility is transferred on the basis of a formal decision of the public authority to include a particular soil pollution in the integrated programme. Once the decision becomes irrevocable, public authorities can no longer make use of their traditional powers under the Dutch Soil Protection Act, including the competence to require private companies to perform decontamination works.

Transfer agreement

The public authority and the private company typically enter into a transfer agreement that contains the commercial terms of the proposed transfer of soil pollution risk. While the transfer agreement shall of course address general terms such as the amount of the transfer fee and the delineation of the soil pollutions that shall be transferred to the public authority, we have experienced that several important legal issues require the negotiation of tailormade provisions in the transfer agreement. One of the issues that should be addressed concerns the timing of both the payment of the transfer fee and the adoption of the public authority’s decision to take over the responsibility for the management of the relevant soil pollutions. Public authorities shall usually demand that the transfer fee is paid before the public decision-making process is initiated. This is primarily due to the fact that the responsibility for the relevant soil pollutions shall be taken-over automatically by application of law once the decision of the public authority becomes irrevocable. The public authority shall therefore seek to secure the actual payment of the transfer fee before the decision-making process for the adoption of the relevant soil pollutions in the integrated programme is initiated.

Private companies that agree to the prior payment of the transfer fee, may in return demand firm assurances from the public authority that the public decision-making process shall be completed before a specific moment in time. Private companies should also realise that third parties could in theory challenged the validity of the decision of the public authority before the administrative courts. Since the responsibility for the particular soil pollutions shall only be transferred to the public authority after the finalisation of any such legal proceedings, private companies may wish to include tailor-made termination provisions in the transfer agreement and require the repayment of the transfer fee in case the transfer of risk would be substantially delayed during the political decision-making process or any subsequent court proceedings. Another issue that should be addressed in the transfer agreement concerns the company’s liability under private law for damages caused to neighbouring sites. The decision of the public authority to take over the responsibility for soil pollutions only prevents the public authority from using its powers under the Dutch Soil Protection Act. The decision does therefore not affect any liability under private law for damages caused by the migration of soil pollutions. Private companies may therefore only be willing to pay the transfer fee if the public authority provides a contractual indemnity for any third-party claims related to the soil pollutions that shall be included in the integrated programme. These liability issues may affect the commercial terms for the proposed transaction and should be clearly addressed in the transfer agreement.

The new integrated approach may provide an innovative solution for private companies faced with soil pollution risks. In our experience, the new approach provides a large degree of legal certainty that can be of particular importance for businesses faced with uncertain cross-border soil pollution risks. We are of course available to discuss whether this new mechanism could also provide possibilities for your business to address any soil pollution risk you may face.