MOST companies will be under the impression that should they sell an asset, any environmental liabilities that go with that asset will pass on to the new owner. They are mistaken.
Last week the Supreme Court of Appeal, in a unanimous judgment, ordered Harmony Gold to continue paying for the costs associated with the environmental fallout caused by acid mine drainage at mines in North West.
This in itself would not be unusual, except that Harmony sold the mines in 2008 to Pamodzi.
For a couple of months after Pamodzi acquired the mines, it had paid its share of the costs to treat the polluted underground water. That was until it ran into financial difficulties.
Harmony, to its credit, stepped into the breach, and paid Pamodzi’s share while Pamodzi desperately tried to find ways to survive before it was finally placed in liquidation.
In the interim, Harmony asked the Department of Water Affairs to release it from this financial commitment, saying that it was no longer the owner of the assets and therefore was no longer liable for the continued costs associated with treating the acid mine drainage.
When the department refused, Harmony approached the courts for relief, leading to last week’s rejection of Harmony’s argument by the Supreme Court of Appeal.
It ruled that the responsibility to address the pollution, or risk of pollution, does not fall away when a company ceases to "own, control, occupy and use the land".
The Supreme Court of Appeal noted that the minister of water affairs has specifically been given wide powers to order companies to pay the costs associated with their pollution in order to ensure that companies do not simply sever their ties as an easy way to escape their legal obligations.
These wide-ranging powers were necessary, said Judge Piet Meyer, or the "absurdity" might arise that a polluter could walk away from the pollution it had caused with impunity, for example by transferring the asset that had caused the pollution to a bankrupt subsidiary.
If this was allowed, it would undermine the principle that the polluter must pay the costs associated with preventing, minimising and remedying the pollution they have caused, he wrote.
This is a significant point.
It means companies can no longer simply wash their hands of any environmental damage they might have caused just by selling the asset to a third party, even if they believe the sale was legitimate.
It creates an additional complication for company executives in how they provide for future liabilities, because it is possible that they might, in the future, be required to assume the legal and financial environmental obligations for an asset they believed they had legitimately passed on to a third party.
This has particular implications for the mining industry, where a mine or shaft might change hands multiple times in its lifetime.
In this case, it would not have been that unreasonable for the Harmony executives to have believed they had passed on their firm’s environmental liabilities to Pamodzi.
No wonder former Harmony CEO Bernard Swanepoel has described the judgment as an unsustainable interpretation.
He is partly right.
The judgment raises the question of how to deal with the long-term effects of mining, especially when the owners of these mines no longer exist, or as in this case, have gone bankrupt.
Perhaps the answer lies in a levy that is placed in a ring-fenced fund, which could be used to deal with the long-term environmental effects of mining. Many of these might only become apparent much later.
But as the Supreme Court of Appeal pointed out, it is the polluter which has a legal and financial obligation to deal with the consequences of its actions.
Former Harmony Gold CEO Bernard Swanepoel. Picture: FINANCIAL MAIL
MOST companies will be under the impression that should they sell an asset, any environmental liabilities that go with that asset will pass on to the new owner. They are mistaken.
Last week the Supreme Court of Appeal, in a unanimous judgment, ordered Harmony Gold to continue paying for the costs associated with the environmental fallout caused by acid mine drainage at mines in North West.
This in itself would not be unusual, except that Harmony sold the mines in 2008 to Pamodzi.
For a couple of months after Pamodzi acquired the mines, it had paid its share of the costs to treat the polluted underground water. That was until it ran into financial difficulties.
Harmony, to its credit, stepped into the breach, and paid Pamodzi’s share while Pamodzi desperately tried to find ways to survive before it was finally placed in liquidation.
In the interim, Harmony asked the Department of Water Affairs to release it from this financial commitment, saying that it was no longer the owner of the assets and therefore was no longer liable for the continued costs associated with treating the acid mine drainage.
When the department refused, Harmony approached the courts for relief, leading to last week’s rejection of Harmony’s argument by the Supreme Court of Appeal.
It ruled that the responsibility to address the pollution, or risk of pollution, does not fall away when a company ceases to "own, control, occupy and use the land".
The Supreme Court of Appeal noted that the minister of water affairs has specifically been given wide powers to order companies to pay the costs associated with their pollution in order to ensure that companies do not simply sever their ties as an easy way to escape their legal obligations.
These wide-ranging powers were necessary, said Judge Piet Meyer, or the "absurdity" might arise that a polluter could walk away from the pollution it had caused with impunity, for example by transferring the asset that had caused the pollution to a bankrupt subsidiary.
If this was allowed, it would undermine the principle that the polluter must pay the costs associated with preventing, minimising and remedying the pollution they have caused, he wrote.
This is a significant point.
It means companies can no longer simply wash their hands of any environmental damage they might have caused just by selling the asset to a third party, even if they believe the sale was legitimate.
It creates an additional complication for company executives in how they provide for future liabilities, because it is possible that they might, in the future, be required to assume the legal and financial environmental obligations for an asset they believed they had legitimately passed on to a third party.
This has particular implications for the mining industry, where a mine or shaft might change hands multiple times in its lifetime.
In this case, it would not have been that unreasonable for the Harmony executives to have believed they had passed on their firm’s environmental liabilities to Pamodzi.
No wonder former Harmony CEO Bernard Swanepoel has described the judgment as an unsustainable interpretation.
He is partly right.
The judgment raises the question of how to deal with the long-term effects of mining, especially when the owners of these mines no longer exist, or as in this case, have gone bankrupt.
Perhaps the answer lies in a levy that is placed in a ring-fenced fund, which could be used to deal with the long-term environmental effects of mining. Many of these might only become apparent much later.
But as the Supreme Court of Appeal pointed out, it is the polluter which has a legal and financial obligation to deal with the consequences of its actions.
Post a comment