Industry, RiskOctober 2, 2022

Agriculture & Environmental Liability

Agriculture & Environmental Liability

South African environmental legislation is some of the most comprehensive in the world, and ensures our right to an environment that is not harmful to our health or wellbeing and protects this right for present and future generations.

To give credence and relevance in this regard, our National Environmental Management Act (NEMA) and the Acts and Regulations, such as the National Environmental Management: Waste Act
(NEMWA), National Water Act (NWA), and National Environmental Management: Air Quality Act (NEMAQA), draw from global best practices.

Some of the principles embedded into our law are:

• The Polluter Pays principle: if pollution has occurred, and you are responsible, you must bear the cost of any negative effects on the
environment and public health.
• The Preventative principle: everyone must try to minimise environmental damage by requiring that action be taken to
prevent, minimize and remediate environmental damage, i.e. the
“reasonable measures”.
• The Precautionary principle: Because there is a shortfall in our
knowledge, and we are not aware of many long-term effects which our actions have, a risk-averse and cautious approach is applied, which considers the limits of current knowledge about the consequences of decisions and actions.
• The principle of cradle-to-grave responsibility for
producers: the principle that people retain responsibility for their waste, notwithstanding the lawful transfer of the waste. This is amplified in the extended producer responsibility provisions which attach to certain products.
• Criminal Liability: Unlawful polluting is a crime, attracting fines, penalties, possible jail time, as well as costs to remedy the pollution, and potentially civil damages due to third parties.

The question the arises: how does environmental liability arise?

Consider your typical business activity including but not limited to the handling of agri-chemicals, fuel above-ground storage tanks, underground storage tanks/bowsers, workshops, waste disposal,
silos, loading and offloading, etc.

Insurance can be used to protect a responsible person from having to bear all the costs of remediation and cleaning up pollution, and the damages flowing from environmental and health damage caused by pollution.

— Carel van der Merwe


Cause and Control: NEMA imposes an obligation of various people who cause significant pollution or are linked to property on which it occurs to prevent significant pollution from occurring or to
minimize and rectify such.

In essence, you will be liable for clean-up costs, damages and loss caused to third parties (i.e., the environment itself like rivers, plus
other users of the environment such as neighbours or communities).

You may also be found criminally guilty if you unlawfully and intentionally or negligently caused significant pollution, directly or
indirectly, or fail to carry out the necessary rehabilitation and remediation measures.

Even if you are authorised through a permit to harm the environment (for instance through a license to release or handle emissions, waste, or hazardous substances), or the pollution cannot reasonably be avoided, the duty to minimise and rectify such pollution or environmental degradation remains.

This duty cannot be transferred but may be financed through an appropriate insurance product.

Timing: It is no defence to say that the pollution is historic or happened
before the inception date of a regulation or legislation – the responsibility to take reasonable steps remains with the person who
caused the pollution regardless of when the pollution happened.

This also applies if you own or control the land and even if the pollution was caused by a previous owner or user. It also applies if you don’t know when it happened, or what happened to cause it, or even if the cause was indirect, like a seismic tremor which caused a pipe to leak on your property.

Personal Liability: Any person who is or was responsible, even partially
or indirectly, faces the possibility of personal liability for the full clean-up costs and any damages incurred by the authorities or third parties, as well as criminal sanctions (i.e., up to R10 million or 10 years in prison or both) even where they acted in their capacity as employees, managers, agents, and directors. In addition, directors may face damages claims by companies for losses or damages suffered by such
companies because of the directors’ conduct, should they not have fulfilled their fiduciary duties to the company.

Directors, managers, agents and employees may face personal criminal
liability equal to companies’ liability if they are involved in the wrong-doing (or, in the case of the director, if they were directors at the time that the incident occurred, and they did not take all reasonable steps to prevent the commission of the offence).

Civil liability to third parties: If the pollution causes damages to a third
party, you may also be liable for their loss (i.e. if the third party’s cattle die from contaminated water, or pollution spills onto the third party’s land and they are required to incur clean-up costs). There is a possibility that directors could be civilly liable to the companies upon whose behalf they acted in certain circumstances.

Transfer of (potentially) contaminated land: Any seller, buyer, lessor, or lessee who is in control of contaminated land has obligations to remedy such contamination. You are also obliged to report such contamination, which may trigger inspections by government, who
may make remediation orders. This contamination status may need to be registered against the title deed and must be disclosed to any future potential purchasers until remediation is certified as complete.

The state will always have recourse against the seller of property who owned/controlled such property during the period in which the contamination occurred, whether the property was sold or not.

Third parties and purchasers may claim against a seller of contaminated land in delict for damages in respect of damage to moveable and immoveable property (or the value thereof), clean-up costs,
and other damages. However, these risks could potentially be mitigated through contractual indemnification, including potentially through insurance policies.

Role of Insurance
From an insurance perspective, many businesses have tended to rely upon the limited pollution coverage provided by general liability and property policies to manage their environmental risks.

Insurance can, however, be used to protect a responsible person from having to bear all the costs of remediation and cleaning up pollution, and the damages flowing from environmental and health damage caused by pollution:

• Insurance products can indemnify the insured for specified liability or costs should an uncertain future event occur, or an unknown historic
event is uncovered. Insurers will also step into the shoes of the insured, in any litigation proceedings launched by the state or a third party.
• Insurers typically embed clean-up costs of both foreseeable and unforeseeable events, which if used correctly mitigates the risk of civil liability, and statutorily imposed responsibility and the consequent costs of complying with same.
• Legal liability attaches to both gradual and historic pollution, as well as to sudden and accidental pollution. The risks of both could be mitigated by the responsible person through an appropriate insurance
policy which covers potential liability arising from both forms of pollution.