Contamination risk

Professor Robert Lee | 12 years ago

In Lambson Fine Chemicals Limited v Merlion Capital Housing Limited (2008) EWHC 168, the Technology and Construction Court considered the allocation of liability as between buyer and seller for site remediation, post-purchase. The case arose out of the sale by Lambson to Merlion of a 40-acre site in Castleford for £12.25 million. Lambson took a leaseback of the site to enable it to demolish its chemical works within an agreed timeframe while Merlion held a retention of £500,000 against the costs of cleaning up any contamination caused by the demolition works. Once Merlion was on site it undertook further investigations and discovered additional contamination, involving clean-up costs of £425,000 giving rise to the litigation.

Lambson had carried out the manufacture of chemicals on the site for over 30 years, though it had been operative since the 1860s and used for the production of sulphuric acid. ‘Blue billy’, a waste product from gas works, also known as spent oxide, had been used as feed for the production of sulphuric acid. The substance is bright blue in appearance (hence the name) and contains high concentrations of cyanide, carrying a strong odour. The sale to Merlion was brokered by a Mr Gladwyn, who realised the development potential of the site. The price for the site was negotiated prior to any site investigations and was not reduced subsequently on the basis of environmental reports (see below).

Gladwyn introduced Merlion, who wished to develop the site for mixed-usage, including 1,300 flats and houses so that the site contamination posed a barrier to this form of development. The environmental consultants, URS, were engaged by Lambson while dealing with Gladwyn. However, Merlion eventually paid for two URS reports, one of which identified the presence of contamination in the soil excavated from earlier on-site piling undertaken by Lambson during building works. The piling soils formed a mound on the site. The other report also disclosed findings from soil samples taken across the rest of the site. Some of these samples showed heightened levels of cyanides.

Having completed its demolition works and handed back the site, Lambson asked Merlion to release the balance of the retention. Merlion refused, however, claiming that it faced additional costs in removing the contamination and that a director of Lambson, Mr Hall, had fraudulently misrepresented the known extent of the contamination. Lambson therefore sued Merlion, claiming the balance of the retention of about £150,000. Merlion counterclaimed against Lambson and Mr Hall for £425,000 of land remediation costs.

The basis of the Merlion claim was that, when asked in May 2004, Lambson, via its director, Mr Hall, stated that it had no knowledge of any contamination beyond that identified by URS. Merlion claimed this was a misrepresentation, since Lambson was aware from the earlier construction projects that contamination was said to be widespread. Specifically at the time of the earlier construction works that led to the mound of soil from piling works, Lambson had been told by the then consultants, Travers Morgan, of extensive contamination.

His Honour Judge Peter Coulson QC resolved this conflict of evidence by holding that all parties were fully aware that the site was heavily contaminated and that, as a result, site remediation would be required. Quite how extensive this would be would depend upon what the planning authority might demand, given the housing on the site. But the failure to renegotiate the price following environmental reports indicated that the development potential of the site was the driving force behind the deal, notwithstanding site contamination.

On this basis, Merlion’s claim failed, requiring them to pay over the balance of the retention. The case would seem to stress the necessity of giving full and adequate instructions to environmental consultants, and to issue fresh instructions, as necessary, on the back of a careful reading of any reports conducted for other parties or at an earlier point in time. The documentation between the parties here might have made it clearer which party bore the risk of residual contamination, especially since Lambson had remained on site to conduct further works. The entire question of for whom the reports were produced and the extent to which either party could place reliance on these was itself uncertain. It is necessary to address these points directly. In the absence of specific provisions it is more likely that the risk of site contamination will simply pass from vendor to purchaser once the transfer is completed.

About the author

Professor Robert Lee

ERIC Director and Head of Birmingham Law School, Professor Robert Lee was co-director of the publicly funded Centre for Business Relationships, Accountability, Sustainability and Society at Cardiff University (BRASS). He is an expert on regulation, including environmental regulation and regulation of biotechnology and biomedicine. He previously worked for two top 10 UK law firms, and remains a professional-development consultant to one of the largest law firms in Europe, working on pan-European delivery of legal services.