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n Tydskrif vir die Suid-Afrikaanse Reg - Die aanspreeklikheid van banke as geldskieters vir skade aan die omgewing
The liability of banks as money lenders for damage to the environment
Banks play an increasingly important role in the economy because they are in a position to promote development of the environment by utilising their financial resources. In some instances, lenders who took up finance from banks are responsible for damage to the environment. Why should banks that financed projects, in the normal course of events, be held liable for damage to the environment caused by borrowers? The question may be answered by a comparative study of the 2002 European Union Proposal for a Directive of the European Parliament and of the Council on Environmental Liability with Regard to the Prevention and Remedying of Environmental Damage; the Comprehensive Environmental Response Compensation and Liability Act of 1980 of the United States; part IIA of the Environmental Protection Act of 1990 of the United Kingdom and section 28 of the National Environmental Management Act of 1998.
The South African act of 1998, has its foundation in section 24 of the constitution of the Republic of South Africa. It incorporates sustainable development as a tool to harmonise the necessity to develop with the need to protect the environment. At the same time the act emphasises the role of the principle of intergenerational equity, which presupposes the duty of the current generation to hand over the earth in a better condition than in which it was received from the previous generation. In the future, when finance is considered for projects that may harm the environment, banks must take environmental as well as economical factors into account. Purely economical reasons cannot be the only relevant factor. Development that is financially sound will have to be weighed up against social factors as well as the impact that it will have on the environment.
Section 28 of the act places a general duty of care on every person who causes, has caused or may cause significant pollution or degradation of the environment to prevent such pollution or degradation from occurring, continuing or recurring. The persons saddled with the duty of care are the owner, the person in control, or the person who has the right to use land or premises. Banks may, under certain circumstances, be considered to be the owner, person in control, or even the person who has the right to use land or premises. The polluter pays principle is introduced by section 28 as a basis for liability but the principle is expanded to include, not only the polluter, but also entities, such as banks, which in no way whatsoever, contributed to pollution or degradation. The act affords no protection to banks in cases where banks became owner of land by virtue of their security interest in the property. By following established commercial practices, banks may be held liable for environmental damage caused by their clients or erstwhile clients.
The traditional role of banks as financial institutions has to change because of the duty placed on banks by the constitution and the act, to act as instruments in the protection of the environment. By exerting their influence and by implementing new procedures banks will be able to draw the attention of prospective clients to the need to comply with environmental legislation.
In terms of the 2002 directive of the European Union, the operator who directs an operation by which damage is caused can be held liable for environmental damage. It is necessary to prove that the bank exercised operational control over the business of the borrower. The 2002 directive is more restrictive than section 28 of the act of 1998.
The American legislation is the primary federal legislation dealing with pollution of hazardous substances. The Environmental Protection Agency has the authority to recover the costs for the reparation of damage to the environment. After US v Fleet Factors Corporation the position was that banks might be held liable if their involvement with the management decisions of the borrower is such that they are in a position to influence the decisions of the borrower. The Asset Conservation Lender Liability and Deposit Insurance Protection Act of 1996 changed the magnitude of the Fleet Factors decision. Provision is made to exempt lenders who held security in terms of a secured creditor exemption, on the condition that the property is alienated at the earliest practicable commercially reasonable time after acquiring it. The requirement for liability is that banks must exercise control over the day-to-day activities of a borrower.
The Environmental Protection Act of 1990 in the United Kingdom states that the owner (other than the mortgagee in possession) is the person who has the right to receive the rent of the property if the property was let out. It includes the occupier of the property. The test is whether such a person is in control of the property. If the inference can be drawn that the lender is in control then it can be held liable for environmental damage. The British and American legislation as well as the European Union directive make it clear that if sufficient control is exercised by a lender over the business of a borrower it may be held liable for damage to the environment.
The emphasis should rather be on the ability of banks, generally, to influence borrowers than to hold banks liable for damage caused to the environment by borrowers.
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