Financial instruments and the environment: Lender liability.
| Autor | Bernat Mullerat |
| Páginas | vLex |
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FOREWORD
It may be difficult to see, at first glance, the relationship between the two topics liased in this paper: financing and the environment. In practice, lawyers involved in finance and commercial transactions are seldom involved in issues concerning environmental protection.
However, there are increasing practical implications of the relationship between both topics, the effect of environmental considerations in commercial transactions and, in particular, how can environmental liability affect the position of banks or other financial institutions.
For instance, in Europe the issue of allocating responsibility to finance the cleanup of polluted sites has not yet been solved. With Governments still hesitating to take the lead and many of the polluters no longer in existance or insolvent, many heads are turning to the 'deep pockets', who, though not owners or operators of contaminated property, may have some type of connection to the property or the contamination process.
On the contrary, about fifteen years ago US legislation adopted a precise standpoint as to lender liability in environmental matters, particularly with regard to hazardous waste. Even though such standpoint contains a number of pitfalls, it is perhaps the most comprehensive approach adopted up to the present.
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LENDER LIABILITY
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Concept
Environmental contamination is a growing concern to lenders because it may:
a) Decrease the value of the collateral;
b) Affect the borrower's ability to pay;
c) Subordinate the lender's lien;
d) Result in direct liability of a lender for the cost of the cleanup[1]; and/or
e) Entail grater loan documentation and additional considerations in the credit decision-making process.
The concept of lender liability may be simply described as the operation of placing environmental liability on an institution which has lent money to a borrower by reason of that borrower's activity.
Under certain circumstances, lenders may be liable for the environmental impairment caused by the borrower and, therefore, may be required either to compensate injured parties or to pay for the remediation costs.
It is true, however, that if lender liability is not taken too far, it may be considered as the natural off-spring of the 'polluter pays' principle[2]. In this sense, lender liability facilitates that, in the event of the borrowers' inability to pay the costs of cleanup, the obligation to meet such costs be placed on the lender, thus avoiding that public funds being used unless no other 'responsible' party is found.
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Strict liability
Environmental contamination is a complex issue, in particular for courts and lawyers. For instance, when a vessel or a facility has contaminated the environment (e.g. by releasing hazardous substances) it is sometimes difficult to determine whether or not such pollution is the result of a negligent conduct.
In that respect, strict liability often facilitates the task of allocating liability. Under strict liability, parties are liable reagardless of the existence of negligence or willful misconduct: if contamination is caused and the polluter is identified, it is not necessary to prove that the polluter did not comply with the necessary duty of care or that it acted negligently.
National and international legislation imposing civil liability for damage are increasingly adopting strict liability rather than fault based liability regimes.
The EC Green Paper on Remedying Environmental Damage summarises the advantages of strict liability as follows:
'A strict liability regime can increase incentives for better risk management and provide legal certainty for those economic enterprises subject to such regime. It can also help implement the 'polluter pays' principle for certain types of economic activities. It means that this system guarantees that the cost of damage caused by an economic activity is borne by the operator'.[3]
It should also be pointed out that the widest possible scope of strict liability may be undesirable. If any activity, whether hazardous or not, were capable of creating strict liability, many problems would arise, including the difficulty of obtaining financial security or insurance for non-risky activities.
In principle, lender liability should under no circumstance be triggered. In our view, it would be unfair -and uneconomical- to impose liability on lenders who either ignore or are not involved in the activities of the borrower.
On the other hand, if environmental impairment arises from the...
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