Supreme Court clarifies that relevant contractual provisions can supersede Environmental Code

Facts
Wastewater management
Liability for environmental damages
Prior case law
Supreme Court ruling
Comment

In a case concerning environmental damages (HD T 3191-18, 6 November 2019), the Supreme Court dismissed a claim because of terms in an existing contractual relationship between the parties. The ruling clarifies that relevant contractual provisions can supersede otherwise applicable Environmental Code provisions on liability.

Facts

The respondent operated an airport in southern Sweden. Waste­water from the airport was transferred to the local municipal water treatment plant, which was operated by the claimant.

When the airport became operational in the 1970s, the operator at the time entered into a contract on water delivery and disposal with the claimant. Initially, the claimant made a limited commitment to receive and treat water from the airport's fire drill site. The claimant subsequently agreed to also receive and treat both surface water and wastewater from the fire drill site. In the early 2010s the respondent took over operations and the parties entered into a new agreement on water delivery and disposal. The new agreement similarly provided that the claimant would receive and treat surface water and wastewater from the fire drill site.

Also in the early 2010s, environmental investigations at the site found perfluorooctanesulfonic acid (PFOS) in the ground and water. Traces of the chemical were further detected in bodies of water downstream from the site and in water transferred from the site to the wastewater treatment plant.

The claimant had at that time been collecting sludge from the water treatment plant for several years. In 2013 the County Administrative Board prohibited recycling the sludge as fertiliser due to its reported PFOS levels. The claimant filed for environmental damages based on the additional cost of disposing of the sludge.

Wastewater management

The Public Water Services Act regulates the delivery of drinking water and wastewater management. Besides their mandatory obligations, which mainly concern household needs, municipal service providers may extend further services to industries on a contractual basis. For such additional services, the scope and terms and conditions can be negotiated by the parties.

The Public Water Services Act contains provisions on mutual liability for damages between the parties to such public water services, and the same is normal for contracts regarding additional water services.

Liability for environmental damages

Chapter 32 of the Environmental Code contains provisions on liability for environmental damages. The first section of the chapter establishes liability for "personal damage, property damage and pure economic loss which operations at a real property unit have caused in their surroundings". As a point of departure, operators are liable regardless of fault (strict liability) and various types of nuisance, including all types of pollution, are covered (see mainly Sections 3 and 6). The liability provisions originate from laws which governed the relationship between neighbours and third parties. However, no provisions clarify if and how the code applies between contracting parties.

Prior case law

The Supreme Court previously ruled that Chapter 32, Section 1 of the Environmental Code did not apply between a property owner and its tenant when the tenant's hazardous operations in the area rented to them damaged possessions which the landlord had stored nearby. The ruling emphasised that because the parties' contractual relationship concerned the hazardous operations in question, the effect had not occurred in the operations' surroundings.

Supreme Court ruling

In the present case, the claimant based its damages suit on Chapter 32 of the Environmental Code. Thus, the claim depended on, among other things, the code:

• applying both between the parties and to the events of the case; and
• being able to supersede applicable provisions in the parties' contract, if such were deemed to exist.

The Supreme Court's ruling clarifies that while a contractual relationship between an injured party and a polluter does not per se rule out the applicability of the Environmental Code's liability provisions, the contracting parties can agree on provisions which derogate from and supersede the code's provisions. Where a contract exists between the injured party and the polluter, the contractual provisions must be interpreted to determine whether the injured party may choose to rely on the Environmental Code if they hold that the law provisions are more favourable than the contract. The Supreme Court determined that neither the strictness of the liability provisions in the Environmental Code nor the polluter pays principle should influence the interpretation of the contract.

The Supreme Court emphasised that in the case at hand, receiving and treating wastewater from the airport, including the fire drill site, was one of the claimant's core obligations under the contract. The municipality had been able to:

• choose whether it would accept wastewater from the site;
• assess the risks; and
• negotiate the terms and conditions for the service.

Such terms included:

• specific demands regarding tests;
• measures to reduce pollutants before the wastewater was released;
• pollution limits; and
• damages provisions.

With this in mind, even though the contract did not include provisions which specifically referenced PFOS, the Supreme Court found that the contractual provisions superseded the liability provisions in Chapter 32 of the Environmental Code. Thus, Chapter 32 was not applicable.

Comment

The Supreme Court ruling clarifies that Chapter 32 of the Environmental Code can be applied between contracting parties and that it is possible to derogate from those provisions and even exclude their application through contractual provisions. While the ruling confirms that a contracting party can safely rely on terms which modify the liability rules in the Environmental Code (a welcome clarification), it also highlights the importance of ensuring that such provisions are clearly worded and that their scope and effects are well understood.

For further information on this topic please contact Sara Andersson at Advokatfirman Lindahl KB by telephone (+46 40 664 66 50) or email (sara.andersson@lindahl.se). The Advokatfirman Lindahl KB website can be accessed at www.lindahl.se.