1995]
R. BROOKS & D. FARNSWORTH – ENVIRONMENTAL LIABILITY
Environmental Liability and Participation: The
Second-Best Solution
Gretta Goldenman et al., Environmental Liability and Privatization in Central and
Eastern Europe. London: Graham & Trotman/Martinus Nijhoff, 1994. Pp. xviii,
242 [$90.00 (U.S.)].
Reviewed by Richard Brooks and David Farnsworth*
The authors use their review of Enviromnental Li-
ability and Privatization in Central and Eastern Europe
as a vehicle to discuss environmental liability in Central
and Eastern Europe. In their view, one of the major dif-
ficulties facing Central and Eastern European countries
is the simultaneous restoration of their environments and
their economies.
In their discussion of this challenge, the authors
question whether privatization is the proper entry point
from which to embark upon environmental cleanup.
They discuss the current comparative risk debate in the
United States, and ultimately dismiss a comparative risk
analysis as the solution for Central and Eastern Europe
because it could favour the prevention of future pollu-
tion over the cleanup of past pollution.
The authors then elucidate the failure of the
American system to efficiently clean up hazardous sites
and point to the German model as a more useful exam-
ple for Central and Eastern Europe. They conclude that
the current economic situation in Central and Eastern
Europe will probably only allow for the securing of haz-
ardous sites and modest improvements to current tech-
nology.
Cette chronique bibliographique portant sur le Ii-
vre intituld Environmental Liability and Privatization in
Central and Eastent Europe, foumit aux auteurs
l’occasion de traiter du sujet de ]a responsabilitd envi-
ronnementale en Europe centrale et en Europe de l’Est.
tant de
Selon ceux-ci,
l’6conomie que de l’environnement constitue l’un des
problmes les plus importants auxquels doivent faire
face les pays d’Europe centrale et de I’Est.
la restauration simultande
A la lumire du d6bat qui sdvit actuellement aux
ttats-Unis relativement h la question du risque compa-
ratif, les auteurs se demandent si ]a privatisation consti-
tue le point de depart iddal de ce nettoyage environne-
mental. Ils rejettent l’analyse comparative du risque
comme solution pour l’Europe centrale et l’Europe de
l’Est parce qu’elle risque de favoriser la prdvention
contre la nouvelle pollution an detriment de la lutte con-
tre la pollution ddj4 existante.
Par Ia suite, les auteurs expliquent pourquoi le
systbme amdricain n’a pas pennis de rdgler efficacement
le probl~me des sites de ddchets dangereux et concluent
que le module allemand constitue sans doute un exem-
les pays
pie fort utile duquel devraient s’inspirer
d’Europe centrale et d’Europe de ‘Est. Finalement, ils
concluent que la situation dconomique qui prvvaut ac-
tuellement dans ces pays ne permettra probablement que
d’assurer la sdcuritd des sites de ddchets dangereux et de
procder A de modestes amelioration de la technologie
actuelle.
. Richard Brooks, Professor of Law, Vermont Law School; David Farnsworth, M.A. (U. Maine at
Orono); J.D. and M.S.L. (Vermont Law School) Policy Analyst, Royalton Research Associates, South
Royalton, Vermont, currently serving as law clerk, Vermont Public Service Board.
McGill Law Journal 1995
Revue de droit de McGill
To be cited as: (1995) 40 McGill 1,. 805
Mode de rdfdrence: (1995) 40 R.D. McGill 805
MCGILL LAW JOURNAL/REVUE DE DROIT DE MCGILL
[Vol. 40
Synopsis
Introduction
I. The Warsaw Conference
H. Choosing the Proper Entry Point
III. The United States Experience
A. Base Closure and Environmental Liability
B. United States Superfund
C. The United States Bankruptcy Code
Conclusion
19951
R. BROOKS & D. FARNSWORTH – ENVIRONMENTAL LIABILITY
Introduction
Eastern Europe and Russia are privatizing their industries.’ In the course of their
transformation to a market regime, these nations face the problem of restoring their
environments and developing sustainable economies for the future. Environmental Lia-
bility and Privatization in Central and Eastern Europe is one of several recent works
reporting on this difficult transition period and recommending future courses of action.
2.
In one sense, Western Europe and the United States share the environmental
problems of Central and Eastern Europe (C.E.E.), since these nations also face
mammoth cleanup responsibilities for contaminated industrial and defence industry
sites.’ In another sense, Eastern Europe and Russia face the more difficult task of
simultaneously restoring both their economies and their environments. Such a pre-
dicament raises the fundamental question whether significant environmental pirotection
is possible in the early stages of these nations’ efforts at economic development. A
review of Environmental Liability reveals that environmental protection during
privatization
to arise as a second-best solution, promising neither
comprehensive nor adequate cleanup and control. Since neither the international
community, the centralized governments of these states, nor the market will fully
protect citizens from environmental hazards, these citizens may need to rely upon the
forms of civic participation which recently secured their independence from the
U.S.S.R. and their freedom from communist rule.
likely
is
I. The Warsaw Conference
In Environmental Liability, Gretta Goldenman has assembled the findings of an
international conference on privatization, foreign direct investment, and environmental
liability which took place in Warsaw, Poland in 1992.4 Environmental Liability seeks to
‘ See e.g. R. Frydman et aL, The Privatization Process in Central Europe (London: Oxford Uni-
versity Press, 1993).
2 G. Goldenman et aL., Environmental Liability and Privatization in Central and Eastern Europe
(London: Graham, TrotmanlMartinus Nijhoff, 1994). The book is one of a series of supporting docu-
ments for the Environmental Action Programme for Central and Eastern Europe endorsed at the
Ministerial Conference in Luceme, Switzerland in April 1993. The general editor of the series is S.P.
Johnson. Advisory editor is G. Handl.
3 See Parts 111.B and III.C, below.
4 The conference was sponsored by the World Bank, the Organization for Economic Cooperation
and Development, and the European Bank for Reconstruction and Development. The government of
Poland hosted the conference, which was attended by government officials responsible for privatiza-
tion and environmental protection in Albania, Belarus, Bulgaria, the Czech and Slovak Federal Re-
publics, Estonia, Germany, Hungary, Latvia, Lithuania, Poland, Romania, the Russian Federation, and
the Ukraine. The Warsaw Conference was convened to establish solutions to environmental problems
which arise in the context of privatization. It sought to (i) assess the role of environmental liability in
the context of privatization and direct investment; (ii) survey and assess the usefulness in Central and
Eastern Europe of the environmental liability regimes of other industrialized countries; (iii) under-
MCGILL LAw JOURNAL/REVUE DE DROITDE MCGILL
[Vol. 40
shed light on privatization issues arising from the economic transformation of Central
and Eastern Europe, and its implications with respect to liability for and cleanup of past
environmental harm. The book warns that the risk of derailing urgently needed
privatization may be too great to justify fully integrated privatization/environmental
protection programs. Instead, the authors recommend a “less cumbersome” means of
addressing past pollution
effective current environmental
management.5 For example, the authors suggest that such alternatives
include
“[p]arallel environmental programs aimed at ensuring that regulatory frameworks are
appropriate for the new economic conditions, along with educating enterprise
managers about the implementation of compliance requirements.”‘
and establishing
Three years have passed since the Warsaw Conference, but policy makers still face
the problem of reconciling rapid privatization and liability for past environmental
damage. The initial dilemma may be simply stated. The success of the restructuring of
the C.E.E. economies depends on the substantial foreign investment necessary to
develop up-to-date technical and managerial capability. However, foreign investment is
currently restrained, due especially to a lack of clearly defined liability schemes for
past pollution.
In spite of being somewhat dated,8 Environmental Liability does a remarkable job
of presenting a comprehensive picture of privatization activity and environmental
liability in C.E.E.9 This book is divided into two parts. The first discusses and
characterizes the framework in which privatization takes place in both C.E.E. and other
parts of the world. Of greatest interest are the authors’ discussions of the legal issues
associated with environmental liability; the economic impacts on privatization of
environmental problems; the privatization process itself and how it affects enterprises
with environmental problems; the role played by liability in environmental cleanup in
other industrialized countries; and the issue of cost containment, in other words, how
investors and governments can manage environmental problems during property
transfer.
The second part of Environmental Liability presents short studies of privatization
in practice. In addition to focusing on different countries, each of these sections
stand the practical techniques used by the public and private sectors to manage environmental risks
arising in the transfer of industrial property; and (iv) consider appropriate legislative and policy
frameworks which define environmental liability in C.E.E. (Goldenman et aL, supra note 2 at ix).
5 Ibid. at 41.
6Ibid.
‘ The authors also express concem for the absence of well-established and enforced control pro-
grams for ongoing pollution.
‘ According to one of the authors, actual legal requirements and procedures described in this book
have changed since 1992 (see e.g. with respect to the Czech Republic). In fact, the law in all of these
nations has been modified since 1992 (telephone interview with P. Tillinghast, Hogan & Hartson (1
February 1995) Washington, D.C.).
9 While the implications of this study are meant to apply broadly to all C.E.E. countries and to the
Russian Federation, the book draws most of its examples from Hungary, Poland, and the Czech and
Slovak Republics.
1995]
R. BROOKS & D. FARNSWORTH – ENVIRONMENTAL LIABILITY
reviews selected aspects of the larger subject, for example: preparing an enterprise for
privatization in Poland; developing legislation on environmental liability in Hungary;
in
coping with environmental risks
privatization
to
environmental liability adopted in Hungary, Poland, and the Czech and Slovak Federal
Republics.
through due diligence and other means
approaches
transactins;
and examining
the various
legal
Privatization and environmental cleanup must be viewed in light of the full range
of environmental disasters plaguing Eastern Europe. Although numerous accounts of
these environmental conditions have been prepared, no systematic descriptions are
available.’0
II. Choosing the Proper Entry Point
Given the level of environmental degradation in Central and Eastern Europe,
Environmental Liability asks whether privatization is a proper entry point for issues
such as the cleanup of past pollution, compensation for past pollution harms, and the
establishment of future environmental controls. The current comparative risk debate in
the United States sheds light on this question. The Environmental Protection Agency
(E.P.A.) and selected American states have undertaken to rank the relative seriousness
of environmental risks in order to allocate scarce resources for cleanup or for
prevention.” The United States Congress is currently considering new statutes to
require this type of comparative risk analysis. 2
If a similar comparative risk evaluation scheme were to be employed in Central
and Eastern Europe, the results might be surprising. Although United States
government officials rank environmental health threats from hazardous pollutants as an
important class of risks, they accord a higher priority to other risks such as pesticides,
indoor radon, and global ecosystem threats. Administrators have given some hazardous
sites lower priority partly because these sites present a lower risk of public exposure
than do other kinds of pollution. Studies suggest, however, that the American public
remains deeply concerned about hazardous waste sites and a detailed review of the
“0 Environmental Liability is based upon the World Resources Institute Report, World Resources
1992-93 (New York: Oxford University Press, 1992), which is the most comprehensive account to
date; however, a completely comprehensive account does not yet exist.
” Environmental Protection Agency, Unfinished Business: A Comparative Assessment of Environ-
mental Problems, Overview Report (Washington, D.C.: Office of Policy Analysis, Office of Policy,
Planning and Evaluation, February 1987).
The Northeast Center for Comparative Risk at Vermont Law School has both promoted and
evaluated state comparative risk projects (see Northeast Center for Comparative Risk, State Com-
parative Risk Projects: A Force for Change by R. Minard, K. Jones & C. Patterson (South Royalton,
Vermont: Vermont Law School, 15 March 1993) [unpublished]).
2 See A. Finkel & D. Golding, eds., Worst Things First? The Debate Over Risk-Based National
Environmental Priorities (Washington, D.C.: Resources for the Future, 1994).
MCGILL LAW JOURNAL/REVUE DE DROIT DE MCGILL
[Vol. 40
literature indicates significant public exposure in some instances. 3 We suspect the
existence of a similar split between official and public opinion in Central and Eastern
Europe.
If priority is accorded to hazardous waste sites, whether in the United States or in
Central and Eastern Europe, presumably those sites with significant populations ex-
posed to serious pollution should be selected. Unfortunately, selecting sites on the basis
of privatization does not take into account the level of threat posed by the pollution.
That is, privatization as the basis for cleanup is a hit and miss proposition. It may result
in sites which do not pose serious risks being cleaned, while many non-privatized sites
which pose serious risks are ignored. For example, many of the district sites which are
held in public ownership in C.E.E. will not be reviewed in the privatization process.
A comparative risk approach also raises serious questions about the relative im-
portance of allocating funds for the cleanup of past sites, as opposed to the prevention
and control of future pollution. It is important to remember that past and future
pollution problems are often, but not always, separable. Comparative risk assessment
may reveal pollution prevention to be more important than are cleanup efforts.
Technology adopted for the purpose of new economic production may prevent future
pollution but do little about past pollution. Whether due to a lack of information or the
orientation of the Warsaw Conference, Environmental Liability offers no general
comparative risk evaluation of using privatization as a tool for environmental cleanup
and preservation.
There may, however, be good reason for ignoring a comparative risk evaluation.
Privatization becomes the inevitable and required choice for Central and Eastern
European environmental cleanup and for the prevention of future abuses. Foreign
purchasers and international lenders accustomed to the environmental laws of North
America and Western Europe –
hoist the
environmental warning flag before buying companies. Hence, one rationale for C.E.E.
to undertake environmental cleanup during the privatization process is to remove the
environmental obstacle to privatization. In this context, environmental protection is
viewed as a regrettable necessity on the road to free markets. Of course, raising
environmental issues at the time of privatization may mobilize outside environmental
resources to help in any cleanup effort; however, it may also scare away investments
and reduce sale prices.
and hence wary of future liabilities –
A government-owned enterprise must first become privatized before
that
government can divest itself of the property. The authors of Environmental Liability
have observed
that C.E.E. policy makers have experimented with different
privatization programs, which they divide into two groups. The most common method
is “transformation” whereby the legal structure of the enterprise is changed. The
alternate is “liquidation” which involves the winding up of a public entity and the
“3 National Research Council, Environmental Epidemiology: Public Health and Hazardous Waste
(Washington, D.C.: Natural Academy Press, 1991).
R. BROOKS & D. FARNSWORTH – ENVIRONMENTAL LIABILiTY
1995]
transfer of its assets.’ 4
The first step of transformation
is “corporatization” whereby the company
originally organized under a public law instrument becomes a private law company. In
some cases this change is effected by general legislation or decree. 5 Other countries
corporatize in an ad hoc manner, company by company.’ 6 The legal form of the new
company is determined by each country’s commercial code, and the state retains
ownership until the company is formally divested.” Privatization in Hungary, the
Czech Republic, and Slovak Republic also calls for a “privatization plan” or “project
proposar’ for each enterprise. These documents contain information regarding the
company’s assets, liabilities, the legal form which the company has taken, any scheme
for worker participation in ownership, and also environmental information. 8
The alternate method, liquidation, allows for a state-owned enterprise to be broken
into pieces and for those pieces to be sold or leased. The advantage of liquidation is
that especially large enterprises can be dismantled into more workable units, allowing
for certain assets to be transferred free of liability, and for other liabilities to be retained
by the state. Bankruptcy is related to this overall liquidation process, which involves
the winding up of no longer economically viable businesses and the liquidation of the
remaining assets.’9
Whether transformation or liquidation is involved, both are precursors to “divesti-
ture”, the actual valuation and transfer of the property to private ownership. For
purposes of assignment of liability and ultimate valuation of the property, “[t]he
environment-related issues at the time of divestiture is [sic] how responsibility for
environmental problems will be allocated between the buyer and the government sell-
ing the property, and if such problems will affect the price of transferability of the
” Goldenman et al., supra note 2 at 28; see also ch. IV generally. Joint venture is another corporate
form which can give rise to a private-public partnership. Note also that liability for past environ-
mental damage is, of course, not the only concern of privatization officials. One author has argued
that beyond promoting market economies, the central goal of privatization laws is to redress takings
by deposed governments (see A. Gelpem, “The Laws and Politics of Reprivatization in East-Central
Europe: A Comparison” (1993) 14 U. Pa. J. Int’l Bus. L. 315).
” This transformation occurs differently in different countries: in Germany, the Czech Republic,
Slovak Republic, and in Russia, this change was effected by mandatory legislation or by decree
(Goldenman et al., ibid. at 35-40).
” See e.g. the discussions of Poland and Hungary (ibid at notes 67-68, p. 93).
‘7 Ibid.
“Ibid.
“At the time the materials for Environmental Liability were developed, bankruptcy procedures in
C.E.E. and in the former Soviet Union were not yet in place (ibid. at 31). For more current informa-
tion on bankruptcy options, see M. Balfour & C. Crise, “A Privatization Test: The Czech Republic,
Slovakia and Poland” (1993) 17 Fordham Int’l LJ. 84. The Czech Republic’s bankruptcy law came
into effect in April 1993; the Slovak government also made significant amendments to its own bank-
ruptcy law at approximately the same time; Poland, an exception, has had a bankruptcy law since
1934 which it revised in 1990 (ibid at 88-89, 118).
MCGILL LAW JOURNAL/REVUE DE DROIT DE MCGILL
[Vol. 40
.
22
1
21
company.” 20 Divestiture can take various forms such as an individually negotiated
sale, mass privatization, or a worker/management takeover.’* Due to extensive
the absence of national
negotiations over potential environmental liability and
guidelines on the allocation of pie-privatization pollution, individual sales tend to be
long and cumbersome. The additional time required can also be attributed to the fact
that nearly all foreign investors perform environmental audits to determine the
environmental condition of the enterprise.24
Where C.E.E. enterprises are involved in transformation from state to private
ownership, all enterprise assets and liabilities typically move from the former to the
new owner. This is referred to as the rule of “general succession”.”2″ Under this
scenario, the successor private.company would become liable for the cleanup of past
contamination. 6 The purchaser in this situation, however, is not liable for previously
undetected environmental problems which surface after the required due diligence
investigation.
The great strength of Environmental Liability is its thoughtful assessment of C.E.E.
laws which link liability for past environmental damages to property transfer in the
privatization context. The authors’ assessment is based on four options:
(a)
(b)
(c)
(d)
Investor pays less but assumes all liability for past contamination;
Government uses some of the purchase funds for cleanup;
Government indemnifies investors and assumes responsibility for
past pollution;
Combinations of the above options. 7
20 Goldenman etal., ibid. at 31.
2! This may involve a bidding process whereby the bid valuation considers environment liability
(see ibid. at 32, discussing Poland’s use of environmental considerations in negotiations).
2 This procedure has been used in the Russian Federation, and in the Slovak and Czech Republics.
To create a demand for shares in the company, vouchers are given or sold to citizens, who in turn use
them to purchase shares. Apparently these voucher-based mass privatization programs involved little
disclosure of environmental information (ibid. at 33-34; Balfour & Crise, supra note 19 at 85).
2″ This list is not exhaustive. Enviromnental Liability explores other methods and also suggests that
a number of these methods may be combined in practice. Poland, for instance, adopted a scheme
which combined liquidation and a voucher system (Goldenman et aL, ibid.).
24 Ibid. at 32.
” This is the case in Hungary and Poland (ibid. at 11).
26 It should be noted that the civil codes in some countries allow a buyer and seller to arrive at a dif-
ferent allocation of assets and liabilities. For example, in Poland buyers assume liability; however, the
buyer becomes “jointly and severally liable with the former owner for all liabilities arising from the
conduct of the enterprise prior to its sale, up to the value of the enterprise at the time of purchase”
(ibid. at 12).
” Ibid. at xv.
1995]
R. BROOKS & D. FARNSWORTH – ENVIRONMENTAL LIABILITY
the authors found the
Although some of the nations opt for the first two alternatives,
third alternative the most cost effective.29 Indemnification neither scares off potential
purchasers nor encourages them to consider costly restoration, with a consequent
reduction in the purchase price. Government assumption of responsibility for past
pollution may speed the privatization process and permit a more rational approach to
the general pollution problem. However, such an approach depends upon the adequacy
of these nations’ environmental laws and the possibility of government-sponsored
cleanups. Studies of environmental laws in Central and Eastern Europe reveal the
anticipated pattern of non-enforcement. 0 If we seriously consider the option of
government-funded initiatives, the prospects of significant environmental restoration
are dim. Environmental Liability’s review of the abysmal record of cleanup in Central
and Eastern Europe and North America supports this pessimistic assumption. For
instance, in its characterization of various privatization and cleanup experiences in
England and Germany the book points out that the primary concern for policy makers
was to balance the concerns of both investors and environmentalists. 31
III. The United States Experience
The United States is experiencing challenges similar to those faced by Western
for
European and C.E.E. countries dealing with privatization and
environmental damage. In situations involving military base closures, Superfund
liability, and bankruptcy proceedings generally, environmental liability has created
unusual problems requiring unique solutions.
liability
A. Base Closure and Environmental Liability
As part of the overall plan to reduce the size of the American military, the Defense
Base Closure and Realigmnent Act of 1990 “prescribes the closing and realignment of
a substantial number of domestic military bases. 32 Selling the real property on which
the facilities are located would permit the government to recover costs related to
closing and relocation, and also to relocate personnel to other bases and help rebuild
For example, Poland and the Czech Republic (see E.M. Zechenter, “The Socio-Economic Trans-
formation of Poland: Privatization and the Future of Environmental Protection” (1993) 6 Georgetown
Int’l Env. L. Rev. 99).
9 Goldemnan et al., supra note 2 at xv.
” For an overview of selected environmental laws in Eastern Europe, see D.M. Goldberg, A Com-
parison of Seven Environmental Impact Assessment Regimes (Washington, D.C.: Center for Interna-
tional Environmental Law, 1993).
3′ Goldenman et aL, supra note 2 at 35.
2 Pub. L. No. 101-510, 104 Stat. 1808 (1990) (codified at 10 U.S.C. 2687 (Supp. HI 1991). For a
full discussion of base closure and federal facility liability, see D.C. Steppick, “A Military Mess:
C.E.R.C.L.A. Liability and the Base Closure and Realignment Act” (1994) 59 J. Air L. & Commerce
449; S. Darmody, “Hazardous Waste Law for the Federal Employee After the Federal Facility Com-
pliance Act of 1992: An Analysis of the Legal Framework” (1993) 40 Fed. Bar News & J. 650.
MCGILL LAW JOURNAL/REVUE DE DROITDE MCGILL
[Vol. 40
local economies historically reliant on the government facility.3 However, the plans to
transfer the real property at these sites to municipal and private control have been
“severely impaired by thousands of environmental hazards left behind by military
operations. Environmental cleanup at these sites may delay cost recovery and
redevelopment for decades.”‘ This effectively turned the government’s expected
“peace dividend”
liability which, under existing American
environmental law, has brought to a halt any hopes of a quick closure.
into environmental
The sheer amount of cleanup required at American federal facilities is staggering. 5
According to Steven A. Herman, the Assistant Administrator for Enforcement at the
E.P.A., it will cost hundreds of billions of dollars “and require decades of studies and
remedial action” to right environmental wrongs.” In response to the enormity of the
task, efforts have been made to accelerate the typically slow pace of base closures.”:
B. United States Superfund
The Comprehensive Environmental Response, Compensation, and Liability Act of
19808 (Superfund or C.E.R.C.L.A.) provides a mechanism for waste site cleanup and
for an emergency response to spills. The C.E.R.C.L.A. is a restitution-based remedial
statute which establishes a framework for response, liability, and compensation.
3 3Steppick, ibid at 450.
Ibid. at note 8, p. 450, quoting K. Schneider, ‘Toxic Pollution Stalls Transfer of Military Sites”
The New York Tnes (29 June 1991) 3A.
S.A. Herman, “Environmental Cleanup and Compliance at Federal Facilities: An E.P.A. Perspec-
ive” (1994) 24 Env. L. 1097.
‘ In the United States and elsewhere, the Department of Defense is undertaking cleanups at ap-
proximately 1,800 bases; the Department of Energy’s Environmental Management Program is clean-
ing up 137 sites and facilities; and the Department of Interior and Agriculture may be faced with the
cleanup of hundreds or thousands of abandoned mines (ibid. at 1099).
” According to Assistant Administrator Herman, the Department of Defense provided the E.P.A.
with funding to hire 100 additional E.P.A. staffers to assist with the acceleration of environmental
cleanups at closing bases (ibid. at 1103).
‘ 42 U.S.C. 9601-9675 (1980); reauthorized and amended by the Superfund Amendinents and
Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (1986) [hereinafter S.A.R.A.).
S.A.R.A. provided for more stringent cleanup standards, produced another regulatory program called
the Emergency Planning and Connunity Right-to-Know Act, 42 U.S.C. 11001-11050 (1986)
[hereinafter E.PC.R.A.], and codified several court decisions. Generally speaking, the C.E.R.C.L.A.
provides that where there is a release or threatened release of a hazardous substance or any pollutant
or contaminant that poses imminent threat to public health or welfare, the executive (i.e. the E.P.A.) is
authorized to act, consistent with the National Contingency Plan, to remove or arrange for the re-
moval of the released material (42 U.S.C. 9604(a)(1)(A),(B) (1980)). The major C.E.R.C.L.A.
regulations, known as the National Oil Hazardous Substances Pollution Contingency Plan (National
Contingency Plan or N.C.P.), establish criteria governing responses to releases and threatened releases
and also oversee the development of appropriate remedies (55 Fed. Reg. 8666 (1990) (codified at 40
C.FR. Part 300ff (1990)).
19951
R. BROOKS & D. FARNSWORTH – ENVIRONMENTAL LIABILITY
Liability under the C.E.R.C.L.A. is strict, joint and several; thus a plaintiff does not
need to prove negligence. Also, if more than one party has contributed to harm, each
and every party can be held individually liable for the entire cost of cleanup.39 Courts,
however, are able to allocate cleanup costs among defendants. Liability under the
C.E.R.C.L.A. is also retroactive and thus applies to past acts that have contributed to
current environmental damage.
There are, however, certain defences to liability under the C.E.R.C.L.A.:
the
innocent landowner defense; the government’s limited waiver of sovereign immunity
to suit under the C.E.R.C.L.A.;4′ a notice requirement for sale of government land;42
statutorily mandated deed covenants;43 contractual
indemnity for environmental
liability;” and potential indemnity from the government.45
Potentially responsible parties in a C.E.R.C.L.A. case are frequently insolvent or
face insolvency due to liability. Because actions for cost recovery brought under the
C.E.R.C.L.A. “run into the millions of dollars,” it has been argued that enterprises will
use bankruptcy as a “haven for relief’. 46 As a result, the Superfund law has largely
failed to date. The reasons for that failure are complex, but one. significant factor may
be the law’s stringent cleanup standards.
39 The C.E.R.C.L.A. lists general categories of liable parties: present or past owners or operators of
a site where a release has occurred; persons who have arranged for disposal of hazardous waste at a
site (ie. “generators”); and transporters of that waste (42 U.S.C. 9607(a)(1)-(4) (1980)).
4′ Requiring a defendant to prove by a preponderance of the evidence that: 1) the hazardous release
was caused by others; 2) the defendant and those parties had no relationship; 3) the defendant had no
knowledge or reason to know of the release at the time the defendant purchased the property; and 4)
the defendant exercised due care with respect to the site (Steppick, supra note 32 at notes 124-28, pp.
515-16; T.L. Garrett, “Superfund Liability and Defenses: A 1992 Primer” (1992) 6:3 Natural Re-
sources & Env’t 3 at 6).
4 This waiver applies when the government is not acting in a regulatory capacity.
42 The C.E.R.C.L.A. contains a scheme which requires the identification and the cleanup of envi-
ronmental contamination at federal facilities, and also imposes notice and covenant requirements on
the federal government when it transfers contaminated real property (42 U.S.C. 9620(h) (1988)).
3 The covenant must warrant that all necessary remedial action has been taken and that any addi-
tional measures required shall be taken by the United States government.
” In spite of being subject to liability separately, private parties to a real estate transaction can agree
to indemnify one another by contract (A.D. Weber, “Misery Loves Company: Spreading the Costs of
C.E.R.C.L.A. Cleanup” (1989) 42 Vand. L. Rev. 1469 at 1493-94).
4′ Steppick, supra note 32 at notes 219-58, pp. 529-36.
46j.C. Ryland, “When Policies Collide: The Conflict Between the Bankruptcy Code and
C.E.R.C.L.A.” (1994) 24 Memphis State U. L. Rev. 739 at 740. Ryland argues against dischargeabil-
ity issues such as: the “abusive use of bankruptcy as a means for those responsible for environmental
degradation to transfer their liability to the taxpayers of this country” in the context of the automatic
stay; the trustee’s power of abandonment; and the administrative expense priority. See also R.E.
Phelan & M.L. Hood, “Dancing the Toxic ‘wo-Step, Part II: Environmental Problems in Bankruptcy
Cases” (1994) 41 Fed. Bar News & J. 282. With respect to the right of contribution and the priority of
environmental claims, the authors draw a parallel between the conflicts in policies found in environ-
mental laws and those found in the Bankruptcy Code.
MCGILL LAW JOURNAL/REVUE DE DROITDE MCGILL
[Vol. 40
C. The United States Bankruptcy Code
The Bankruptcy Code provides debtors with a “fresh start”.47 One of the
Bankruptcy Code’s underlying purposes is the “equitable distribution of the bankrupt’s
estate among creditors holding just demands.”48 Under the Code the debtor, depending
on the circumstances, must liquidate49 or develop and follow a reorganization plan.”
Unfortunately, the Code’s “fresh start” policy conflicts with the need for cleanup
resources. The relationship between the C.E.R.C.L.A. and bankruptcy, and between
environmental law and bankruptcy generally, is still evolving, with no imminent
resolution of the conflicts between their policies in sight.”
The complete failure of the American C.E.R.C.L.A. law and the dim prospects for
its complete reform in the near future suggest that the American approach to cleanup of
hazardous sites is hardly exemplary.” A more likely model for Central and Eastern
Europe is the Liinder experience in Germany, which is characterized by the local
assessment of problems and joint cleanup efforts between businesses,
local
communities, and the landowners of contaminated sites. These cleanup efforts are
often jointly financed and managed.53
Conclusion
The most likely environmental scenario in Central and Eastern Europe is minimal
cleanup of past pollution and modest control of present and future polluting activities.
Rescue by the much-heralded arrival of Green technology –
the “clean” technology
which presumably will replace current polluting activities –
does not appear imminent
in this region.-4
‘7 In Local Loan Co. v. Hunt, 292 U.S. 234,78 L. Ed. 1230 (1934) [hereinafter Hunt cited to U.S.],
the United States Supreme Court described the fresh start principle as
of public as well as private interest, in that it gives to the honest but unfortunate debtor
who surrenders for distribution the property which he owns … a new opportunity in life
and a clear field for future effort, unhampered by the pressure and discouragement of
preexisting debt (Hunt, ibidL at 244).
48 Kothe v. R.C. Taylor Trust, 280 U.S. 224 at 227,74 L. Ed. 382 (1930).
4’ 11 U.S.C. 701-766 (1978).
0 11 U.S.C. 1101-1174 (1978).
M, A.E. Mirsky, RJ. Conway & G.G. Humphrey, ‘Te Interface Between Bankruptcy and Environ-
mental Laws” (1991)46 Bus. L. 623.
52Environmental Law Center of Vermont Law School & Keystone Center, “Final Consensus Report
on the National Commission on Superfund” (Keystone, Colorado and South Royalton, Vermont, I
March 1994).
53 Goldenman et aL, supra note 2 at 55-59. The term “Liinder” is used here to mean regional, local,
and municipal levels of govemment, Le. non-federal.
See R.B. Stewart, “Environmental Regulation and International Competitiveness” (1993) 102
Yale LJ. 2039; J.G. Speth, “E.RA. Must Help Lead an Environmental Rdvolution in Technology”
(1991) 21 Env. L. 1425; G.R. Heaton, R. Repetto & R. Sobin, Technological hnovations
(Washington, D.C.: World Resources Institute, 1991). See also World Bank, “Romania Environment
19951
R. BROOKS & D. FARNSWORTH – ENViRONMENTAL LIABILITY
Without the equivalent of a Marshall Plan to mobilize resources for cleanup, a
“second-best” solution to Central and Eastern Europe’s problems is likely. This creates
a situation where these nations simply “secure” their hazardous waste sites and make
modest improvements in some of their current technology.
The reason for this dismal conclusion is fairly simple. Residents of Central and
Eastern Europe face the dilemma of seeking to promote simultaneous economic
development and environmental protection. These nations do not have the structural
benefits of Western Europe and North America, where current environmental
protection efforts are supported by previous decades of economic growth.”
Environmental Liability focuses on the practical problems of privatization and en-
vironmental protection. The resulting picture primarily demonstrates the emergence of
centralized regulatory states and the movement towards a market society. The historical
civil law tradition and the presence of a formal centralized environmental law regime
56
in several of the countries appears to support the predominance of national regulation.
However, the recent history of these nations is marked by a civic revolution
challenging the fundamental role of the centralized state.17 Solidarity in Poland and the
civic forum in the former Czechoslovakia stood for something other than a regulatory
state. The ideology of a civic society which emphasizes not only the role of markets
and individual rights, but also the importance of mediating institutions, such as
churches, unions, local districts, and other groups, should not be forgotten.
58
–
The United States is currently undergoing its own brand of political upheaval. Part
of that upheaval is a mistaken backlash against all federal environmental regulation.
Yet, the movement accurately recognizes important federal regulatory failures and
9 Decentralized, citizen-based
seeks to promote a new “civic environmentalism.
institutions which would replace or supplement centralized regulation are now being
Strategy Paper” (31 July 1992), for the argument for modest reform and the limits of “Green Tech-
nology”.
51 One admittedly idealistic alternative not explored here would be the adoption by Central and
Eastern Europe of the West’s advanced technology.
” See S.S. Cummings, “Environmental Protection and Privatization: The Allocation of Environ-
mental Responsibility and Liability in Sale Transactions of State-Owned Companies in Poland”
(1989) 17 Hastings Int’l & Comp. L. Rev. 551.
-” R.J. Crampton, Eastern Europe in the Twentieth Century (London: Routledge, 1994).
5’ For a full discussion of the theory of civil society, see J. Cohen & A. Arato, Civil Society and
Political Theory (Cambridge, Mass.: MIT Press, 1994). For a discussion of possible decentralization
in the context of selected Eastern European nations, see D.B. Hunter & M.B. Bowman, “An Over-
view of the Environmental Community in the Czech and Slovak Federal Republic” (Washington,
D.C.: Center for International Environmental Law, August 1991); World Bank, Poland: Decentrali-
zation, and Reform of the State (Washington, D.C.: World Bank, 1992).
‘9 J. Dewitt, Civic Environmentalism: Alternatives to Regulation in States and Communities
(Washington, D.C.: Congressional Quarterly Press, 1993). Whether civic environmentalism can be
successful may be questioned in light of the findings in D. Vogel, National Styles of Regulation: Envi-
ronmental Policy in Great Britain and the United States (Ithaca: Cornell University Press, 1986).
818
MCGiLL LAW JOURNAL! REVUE DE DROITDE MCGILL
[Vol. 40
considered viable alternatives.
In the rush towards privatization, C.E.E. countries have to “try on” liberal
regulatory regimes before recognizing their shortcomings. To be sure, it is difficult to
imagine anything but a centralized government presiding over the transformation to a
market economy. However, decentralization can take place once the initial steps of
privatization are accomplished. Future environmental scholars might review
the
privatization experience and the environmental problems of Central and Eastern
Europe
in a more civic-minded
environmentalism. At the very least, the strengthening of decentralized groups in
Central and Eastern Europe can promote more effective enforcement of the national
environmental laws and offer citizens exposed to these pollutants an opportunity to
implement innovative means of avoiding, or at least mitigating, their impacts.
this recent western
interest
in
light of
