Banks play an increasingly important role in the economy because they are in
a position to, inter alia, 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 legal 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 (CERCLA) of the United States; Part IIA of the Environmental Protection
Act of 1990 (EPA) of the United Kingdom and section 28 of the National
Environmental Management Act of 1998 (NEM A).
NEMA, 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 NEMA 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 banks, when finance is considered for projects that may harm the
environment, 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 NEMA 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 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, who in no way whatsoever, contributed to pollution or
degradation. NEMA 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 NEMA 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 NEMA.
CERCLA 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 the US v Fleet
Factors Corporation decision the position was that banks might be held liable if
their involvement with the management decisions of the borrower are 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
(ACA) changed the magnitude of the Fleet Factors decision. Provision is made
by ACA 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. EPA, CERCLA as well as the
Directive makes 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 placed on the ability of banks, generally, to
influence borrowers than to hold them liable for damage caused to the
environment by borrowers. / Thesis (LL.M. (Import and Export Law))--North-West University, Potchefstroom Campus, 2005.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nwu/oai:dspace.nwu.ac.za:10394/160 |
| Date | January 2004 |
| Creators | Muller, Gert Cornelius |
| Publisher | North-West University |
| Source Sets | South African National ETD Portal |
| Detected Language | English |
| Type | Thesis |
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