ENVIRONMENTAL LAWYERS

Lawyers cash in
as environment
moves up the corporate agenda

The widening embrace of environmental legislation, stricter enforcement and mounting pressure to engage in the corporate social responsibility agenda bring a significant cost burden to many organisations and make professional advice essential. While consultants may be brought in to assist on the technical and sometimes strategic aspects, environmental lawyers are lining up to offer help from the legal standpoint. ENDS looks at the current state of play in this emerging niche of the UK law services market, identifying the key players and how their changing workload reflects on the attitudes and priorities of corporate clients.

The following analysis draws on a series of interviews with lawyers active in the field, informed by profiles of the top law firms listed in professional directories such as the Chambers and Partners and Legal 500 guides.1

When a company is being prosecuted for pollution offences or negotiating an acquisition or divestment where environmental liabilities may be involved, the services of a specialist legal practitioner will invariably be required. However, lawyers may advise organisations on a wide array of environmental matters:

  • Brownfield development, contaminated land and remediation
  • Climate change and emissions trading
  • Contingent liability issues
  • Corporate social responsibility
  • Environmental due diligence and compliance during, and following, mergers, acquisitions, property transactions and management buyouts
  • Environmental dispute resolution
  • Environmental impact assessment
  • Environmental insurance
  • Environmental financing
  • Environmental management and auditing systems
  • Human rights and the environment
  • Pollution prevention and control noise, air and water
  • Producer responsibility
  • Regulatory compliance and licensing issues
  • Risk analysis
  • Renewable energy, clean energy projects
  • Waste management

The first lawyers specialising in environmental law emerged on the UK scene in the 1970s. However, it was not until the 1990s that the environmental law market began to take off, mainly in response to US multinationals demanding global service provision from their lawyers. Specialist environmental advice was increasingly required to support the work of corporate lawyers in the due diligence and risk aspects of major transactions. The Environmental Protection Act 1990 also signalled that this would be a growth area, prompting some of the larger law firms to establish dedicated environmental practice groups.

However, the market was initially much slower than anticipated. It only picked up some years later as demand began to emerge for "freestanding" environmental advice as a result of the growing influence of environmental legislation on some of the major blue chip clients, and environmental law became much more than simply a support function.

The UK environmental lawyers pool

Around 140 law firms are listed in legal directories as practising environmental law in the UK, although many of these do not have standalone environmental units or employ full-time environmental specialists. While most top law firms have experience of environmental law in relation to corporate transactions, those with experience of pure environmental law form a much smaller playing-field.

Chamber and Partners and Legal 500 both compile league tables of firms active in different practice areas on the basis of data supplied by the companies themselves, including the number of partners and fee-earners and case details, as well as opinions gleaned through interviews with clients and senior practitioners. The rankings are often considered by the lawyers themselves to be contentious and somewhat subjective, although it is generally agreed that City lawyers are at the forefront of the profession and benefit from the lions share of the transactional workload.

The top-ranked players in London all have standalone environmental practices, although some are integrated with planning, health and safety and/or energy groups. There are also some highly capable regional practices, many of which have developed specialist expertise. Given that they are considerably less expensive than City groups, the caseload often comprises more pure environmental work, such as criminal prosecutions and licensing and appeals relating to industrial and waste management facilities.

The environmental law groups of Allen & Overy and Freshfields Bruckhaus Deringer are highlighted by the legal directories as two of the leading City practices. The former comprises two partners and nine associates, and is particularly noted by Legal 500 for a "leading exposure to waste matters, packaging waste issues, and climate change and emissions trading." Meanwhile, Freshfields is considered by Chambers & Partners as "unique in establishing a strong niche litigation practice," and has acted on behalf of corporate defendants in some major cases. The team is made up of four partners and 16 associates in London, with a total of 30 partners and 75 associates across Europe.

Other prominent City environmental practices include Ashurst Morris Crisp, Barlow Lyde & Gilbert, CMS Cameron McKenna, Linklaters, Mayer Brown Rowe & Maw, Nabarro Nathanson, Simmons & Simmons and Slaughter & May. In the regions, Burges Salmon (Bristol), Brodies (Edinburgh), Cleaver Fulton Rankin (Belfast), Dickenson Dees (Newcastle), Eversheds (Leeds) and Mills & Reeve (Cambridge, Norwich) are among those highlighted in the legal guides for their strength in environmental law.

Litigation spur

Growth in environmental litigation has been one of the most important factors bringing these firms into the environmental law market. This trend has a number of distinct strands. One of these is the increased number of multi-claimant actions. Leigh, Day & Co has been a prominent player in these actions. It has had extensive involvement in precedent-setting cases, such as attempting to prove the responsibility of a parent company for the actions of its subsidiaries on behalf of South African workers living near a polluted mine. In another case it represented people affected by two pollution incidents at Solutias chemical works near Wrexham.

The past decade has also seen a growing number of judicial reviews in which decisions by regulatory authorities or Ministers have been contested in the courts. High-profile cases have ranged from a successful challenge by Greenpeace to the Governments policy on protecting wildlife habitats in waters affected by oil and gas exploration and production, to a failed bid by the UK Renderers Association, represented by Nicholson Graham & Jones, to overturn elements of the Governments policy on odour control at animal rendering works. Another prominent case in which CMS Cameron McKenna represented the Atomic Weapons Establishment concerned the legal validity of radioactive discharge authorisations for two nuclear defence sites.

Civil litigation forms a third strand of this work. Much of this takes the form of negligence and nuisance cases. CMS Cameron McKenna, for instance, says it is currently handling cases of this kind involving oil migration in groundwater and landfill gas migration. Other civil litigation takes the form of contractual cases arising out of warranties and indemnities in transactions. Perhaps the biggest civil case in recent years was a negligence claim against environmental consultancy Mott MacDonald which led to it being ordered to pay some 18.5 million as a result of defective advice on a major contaminated land remediation project for the Urban Regeneration Agency.

Environmental lawyers have also benefited from growth in criminal litigation. Prosecutions for pollution and waste offences have been on a rising trend for some years, and recent legislation has created new types of offences an example being the packaging waste regulations, under which several dozen companies have now been prosecuted.

Client perceptions

Despite its multidisciplinary nature, environmental work still constitutes only a tiny fraction of the UK law market, and is considerably smaller than the related environmental consultancy sector. Even the biggest law firms in the City, which each employ thousands of lawyers, have no more than twenty dedicated environmental fee-earners at most, and still have a long way to go to catch up with their US counterparts.

"Within the UK law market, the importance of different practice areas really mirrors clients perceptions of how important they are to them," says Charles Smith, head of the five-strong environmental law group at Brodies. "Despite years of awareness raising on the part of regulators, campaigners and government, I still dont believe that environment is regarded by clients as much more important than it was 12 years ago."

Kathryn Mylrea, partner and head of the environment practice at Simmons & Simmons, agrees that "there is still a perception that environment is not a priority for most companies." She adds that "of course it becomes a priority if something goes wrong, and all companies are now spending money in this area."

However, others believe that there has been a notable change in corporate attitudes, with UK and European companies increasingly engaging with the environmental agenda voluntarily, particularly since the arrival of the ethical fund manager and growing importance of corporate social responsibility (CSR) as well as the looming prospect of personal liability of directors.

Anthony Hobley, senior associate in Baker & McKenzies environmental and climate change groups, says: "With these latest developments and new regulations, weve seen issues move up from environmental manager level to board level in recent years." This has prompted the City-based firm, which has an international office network, to set up a dedicated CSR practice group the first of its kind to include lawyers specialising in environment, employment and human rights.

According to Vanessa Havard-Williams, who leads the environmental practice at Linklaters, clients are now better briefed and weighting the issues more appropriately, "so were not having to educate them as much as five years ago." She believes that the key growth driver for the firms environmental business is the corporate need to understand and manage all aspects of risk commercial, liability and reputational.

Burges Salmon has one of the largest provincial environmental law units in the UK, with seven dedicated lawyers of the firms total of 180. Just five years ago, there was only one lawyer whose time was divided between environmental and planning work.

"Our expansion in such a short space of time provides an indication of the scale of attention now being given to the subject by corporate clients," says Ian Salter, partner and head of the environmental team at Burges Salmon. "My view is that environment is very much a growth area because lawyers always thrive on change and theres been an unprecedented level of change in the last five years on the environment front, meaning that there is always something new for clients to deal with."

Regulations provide new staple

Corporate transactions continue to provide the bread and butter work for environmental lawyers, forming a primary revenue stream because of the sheer size of the deals involved. This area of the market has softened during the past year as the economy has weakened, but growth in regulatory-driven environmental work has helped sustain environmental lawyers through this period.

In particular, they are increasingly finding themselves being asked to offer standalone advice about brownfield development and the implications of the contaminated land regulations introduced in 2000. Since local authorities begun wielding their statutory powers under the new regime, lawyers have begun to receive instructions from clients faced with dealing with the consequences of having their sites designated or being served with a remediation notice (see Box 1).

Box 1 

Contaminated land regime brings
lawyers and consultants together

Progress in the implementation of the new contaminated land regime has been slow. Local authorities in England and Wales had notified the Environment Agency of only 40 sites designated as contaminated including 13 "special sites" by the end of 2002 (ENDS Report 333, pp 13-14). However, lawyers are already beginning to see their first instructions as a result of the enforcement of the new regulations, from clients wishing to contest either the site designation or their identification as "appropriate persons" bearing liability for the remediation costs.

The details of individual client cases remain confidential, but Allen & Overy appears to have taken an early lead in this emerging area. Partner in the environmental practice, Ross Fairley, told ENDS that the firm is currently involved with "several" of the designated sites. He also notes that in these particular cases lawyers must work closely with environmental consultants, as "it is essential to get the consultants take on the nature and extent of contamination we are dealing with, so we can advise appropriately on the next step."

This need for close collaboration between lawyers and consultants over contaminated land issues has led some to attempt to formalise the relationship. For example, in 2001, the environment practice of Nicholson Graham & Jones established a three-way alliance with Casella Stanger (part of the Casella consulting group) and property advisors Rogers Chapman with the initial aim of providing clients with a "one-stop shop" solution to the legal, commercial and practical implications of contaminated land management.

Mike Smith, who heads Casellas side of LPC, comments on what has worked and what hasnt: "It has proved to be a useful combination that has benefited all sides, but has been one that is more internal than external. It has allowed the parties concerned to improve the services they deliver to their individual clients, but has not necessarily been one that clients seek out as the main service." However, John Garbutt of Nicholson Graham & Jones expects a "stronger pull on the services of the consortium over the next three years as the new regime beds in."

Brodies also elected to link up with an environmental consultancy some years back in a joint marketing initiative aimed at local authorities, which were then having to draw up formal contaminated land inspection strategies. Brodies Charles Smith would not be surprised if other law firms consider more formal joint ventures with consultants.

Lawyers have mixed views as to how much work will eventually come their way as a direct result of the new regime, but agree that contaminated land will continue to be a growth area because of what is being done on a voluntary basis. Paul Sheridan of CMS Cameron MacKenna comments: "We are dealing with one of the first special sites which are regulated by the Environment Agency contesting our clients designation as an appropriate person. However, this sort of work is really the tip of the iceberg when it comes to the whole area of contaminated land in property transferrals and other corporate transactions, but voluntary action was always the policys key intent."

Expanding on this perspective, Daniel Chappell of CMS notes that the upturn in legal work related to contaminated land actually began in 1994, when the draft legislation on the new regime was published. This, he says, "gave rise to numerous difficult negotiations over environmental indemnities. The matter was complicated by the fact that lawyers were having to deal with a regime that was some way from having regulatory effect. Once the key statutory guidance was finalised and now that the legislation is being applied in practice, contractual negotiations are less contentious."

Today, says Daniel Chappell, the increased workload on contaminated land is coming not only from designated sites, but also from proactive risk management being undertaken by some companies in relation to historically contaminated sites. "Over the last few years I have been doing a lot of work of this nature involving analysing the ownership and contractual history of sites, obtaining appropriate technical information and assisting clients in applying information to the law to make risk management decisions."

According to Cate Sharp, partner in the London environment practice of Mayer Brown Rowe & Maw, "because of the low interest rates there are a lot of people putting money into property at the moment, and their key concern is whether or not these sites are liable to get a contaminated land designation and who would be responsible for the remediation work." In particular, she notes that there is a lot of nervousness among US clients involved in corporate transactions or property deals, "especially if they have already been burned several times in their home market."

Anthony Hobley of Baker & MacKenzie agrees that the new regime has made clients more proactive in addressing contaminated land and remediation issues. Although the firm has not yet acted on behalf of any clients involved with designated sites, Baker & MacKenzie expects the number of designations to rise to a peak in 2005/06 as most local authorities are working within a seven-year strategy.

Mr Hobley notes: "Financial resources will be the main driver. In a significant number of cases it will come down to whether the clean-up costs are higher than the litigation costs. I believe that the most lucrative side for lawyers will be good advice on managing risk in redevelopment and advising clients on how to avoid designations. This type of work will fluctuate with the planning/development market."

For Simmons & Simmons, an increase in nature conservation related instructions has helped fill the gap as merger and acquisition support work has slowed. According to Kathryn Mylrea, "nature conservation has become a big growth area for us in the last two years because of the tightening of habitats regulations under EU legislation." In recent months, the environmental practice has been advising Associated British Ports on the legal ramifications of nature conservation matters critical to port development, including whether English Nature followed the correct procedures in designating certain sites adjacent to its ports as Special Areas of Conservation. It has just begun a judicial review to this effect.

Mirroring the situation for environmental consultants (as reported in ENDS recently published Market Analysis2), renewable energy has emerged as another significant growth area for environmental lawyers. This is primarily in response to the Governments target of generating 10% of the UKs electricity from renewable sources by 2010. Simmons & Simmons has been involved at a policy level, advising energy regulator Ofgem on the development of the new renewables obligation and its relationship to the climate change levy. CMS Cameron McKennas energy and environment teams recently collaborated in producing a report for a consultancy which was advising the Japanese government on renewable energy support mechanisms throughout Europe.

There is also a steady stream of work for lawyers as a result of the need for new generating plant. Advice may be needed at all stages of a development, from project financing, environmental impact assessment and planning consents, to the position with regard to energy trading certificates. Allen & Overy has been assisting the British Wind Energy Association with contractual aspects relating to Crown Estate leases for proposed offshore wind farms, while CMS Cameron McKenna has advised on regulatory issues related to biomass power stations and coal bed methane projects.

Other firms have noted an upturn in demand from industry sectors not traditionally associated with major environmental impacts, such as electronic and hi-tech goods manufacturers. The EUs producer responsibility legislation, specifically the packaging and waste electrical and electronic equipment (WEEE) Directives, and the European Commissions impending integrated product policy (IPP), have become a particular worry for these sectors. "Companies need to know how their operations and products will be impacted in different countries across Europe, while there is also a lot of concern among these industries as to who should bear the cost of the incoming waste regulations," says Paul Sheridan, partner at CMS Cameron McKenna.

According to Owen Lomas, head of Allen & Overys global environmental law practice, who advises Valpak and Hewlett Packard, "the recycling responsibilities which now go

with placing products on the market in Europe are one of the biggest environmental challenges facing manufacturers. Todays electrical companies now even have to assume responsibility for the cost of reprocessing all the historical waste equipment collected irrespective of whether and to what extent their products contributed to it in the first place."

Meanwhile, the twin requirements of the integrated pollution prevention and control (IPPC) regulations and EU landfill Directive are generating a lot of uncertainty for the waste industry. John Garbutt, partner in the planning and environment group at Nicholson Graham & Jones, says that disputes about the definition of different waste streams, the classification of landfills and their waste acceptance criteria have created a lot of work for environmental lawyers, specifically in leading negotiations between the Environment Agency (EA) and relevant trade associations.

Since the changeover from integrated pollution control (IPC) to the more rigorous and wide-ranging IPPC regime began in 1999, lawyers have been engaged to help in drafting the reams of industry-specific guidance as it is implemented, sector by sector, up to 2007. And, as each sector goes through the permit application process, lawyers are also finding themselves being asked to negotiate with, and appeal to, the Agency over contested permit conditions. Many firms have run into difficulties in demonstrating the use of best available techniques (BAT), and there have also been several disputes between the Agency and consultants brought in to carry out baseline site condition surveys for IPPC applications, mainly over the sampling methodologies used.

Other growth factors

Added to new environmental regulations, the Governments push for public-private partnerships coupled with its private finance initiative are also driving increased work for environmental lawyers as environmental risks must be accounted for in these major contracts. Stricter enforcement of environmental laws is also fuelling demand for environmental litigation specialists (see Box 2).

Box 2 

Environment Agency raises
the stakes for litigation

One of the key factors contributing to the growth in environmental litigation in the UK was the creation of the Environment Agency (EA) in 1996. Ian Salter of law firm Burges Salmon comments: "Although the impact of the merger of the former NRA [National Rivers Authority], HMIP [Her Majestys Inspectorate of Pollution] and waste functions of the country councils has settled down now, it has certainly enhanced the policing of rules."

Litigation is a very small part of the business of Baker & Mackenzies environment practice group, "but it is growing and the scope for it is mushrooming as legislation is enforced more seriously by the regulators." Although group partner Chris Norton believes that the EA still has a major problem with resources - "manpower more than money" - he believes that "the Agency is much more professional now and is really starting to function as one cohesive organisation. It has put a lot of resources into harmonising its approach to legislation, which used to vary markedly from region to region."

The number of prosecutions brought by the Agency increased by 20% over the three years to 2001/02, with a total of 773 in that year. Its prosecution success rate has also improved markedly, with 94.3% of charges being upheld compared to 89.1% in 2000/01, providing further evidence that the EA is getting its act together.

Kathryn Mylrea, head of environment at Simmons & Simmons, believes that "the Agencys success rate is increasing because it is being more selective over the prosecutions it brings. There is also a tendency now to bring multiple prosecutions at the same time, which means a company is more likely to plead guilty to at least one of them." Another key factor, she believes, is that the Agency has begun to employ more ex-Crown Prosecution Service lawyers within its own in-house team, which handles the bulk of its legal affairs.

As a result, Ms Mylrea believes that "the Agencys lawyers are much less likely to miss a trick on evidence as was often the case in the past." Ian Salter agrees that the EA appears to have learned from its mistakes and "is much more switched on to doing things by the book now." He points out that most environmental crimes are strict liability offences, so that most cases will hinge on whether the prosecutor has adequately fulfilled the burden of proof. "If the Agency has got the evidence collection right, there is less scope for defence," he says. As a result, lawyers acting for defendants need to be much sharper on criminal procedure as well as environmental law.

According to Paul Bowden of Freshfields, the EAs growing willingness to consider prosecutions has also meant that environmental lawyers are often being brought in by companies to advise and mediate at a much earlier stage of the regulators investigations, in the hope of avoiding litigation.

Charles Smith, head of Brodies environmental law group based in Edinburgh, says that the situation in Scotland is similar, except that the prosecution process is more protracted than in England and Wales. This is because the Scottish Environment Protection Agency cannot prosecute companies directly. Instead, it must report to the Procurator Fiscal, who makes the decision whether to prosecute and conducts the prosecution himself.

Mr Smith believes that "this extra link in the chain has meant that less prosecutions have been brought than perhaps there should have been, but the situation is definitely improving." This is good for business, as litigation forms one of the three core environmental practice areas for Brodies alongside corporate and brownfield matters.

However, not all lawyers believe that the trend is inexorably towards a growing volume of criminal proceedings. Daniel Chappell of CMS Cameron McKenna believes that the Environment Agencys move towards risk-based regulation, with inspections being targeted on poor performers, may well mean a downturn in prosecutions in the future.

Nicholson Graham & Jones reports seeing a growing amount of litigation and arbitration instructions relating to noise and odour disputes in particular. John Garbutt believes that the main driver here is peoples shrinking tolerance of environmental nuisance in the vicinity of homes and workplaces.

Linklaters also has a growing focus on contentious issues, but outside the sphere of straightforward non-compliance litigation. Instead, it is aiming to establish a niche in "longtail liability" where there could be mass compensation claims at stake. For example, it recently acted for global mining giant Rio Tinto in setting up an independent scheme to handle claims by individuals in the north of England relating to pollution and contamination from a former subsidiarys smelting operation. Linklaters has also advised several major companies on health, safety and environment risks and policies in relation to parent company, director and officer liability.

Similarly, Freshfields has a track record for defending major corporations against multi-party claims through a series of ground-breaking test cases in the nuclear, power and mobile phone sectors. The firm has also been instructed to act on behalf a number of the producers of genetically modified crops across Europe.

Another important emerging trend noted by environmental lawyers is the increasing "trans-border" nature of their workloads as a result of the growing influence of the EU and the Europeanisation and indeed globalisation of business in general. Kathryn Mylrea notes that "the main change over the past few years is that a lot of environmental law practices are no longer just UK focused anymore, they are Europe-wide, so the marketplace has evolved by integrating more into Europe." Companies with operations in different EU jurisdictions want to know how the current laws vary from state to state, and clearly this type of work favours the larger law firms with an international network or those with alliances with firms in other countries.

Baker & MacKenzie was recently instructed by one of its clients to put together a regulations database showing the differences in environmental law in some 30 countries, while another firm required advice on the current state of asbestos litigation across the EU. Chris Norton, partner in the firms environment group, says: "Clients may know of the general regulations but dont know how it is being implemented and what the differences are among the different jurisdictions." It is a similar story at Allen & Overy, according to partner Ross Fairley. "We get quite a lot of inquiries from clients looking for us to keep them in touch with developments coming out of Brussels on an ongoing basis, how this may affect their business and what to do in preparation to mitigate the risks."

The emerging market for environmental insurance (ENDS Report 326, p 33-34), is also affecting demand for legal advice from both insurers and their customers. Most environmental insurance products are bespoke policies and the wording needs to be carefully scrutinised by a legal professional so that companies can be sure of exactly what they are covered for. Paul Bowden, partner at Freshfields, comments: "Insurance for environmental risk has always been very difficult to obtain and it is also extremely costly which makes it a troubling matter for industry, especially when it comes to the potential large-scale public health consequences of pollution. We have had a lot of work in fighting insurance companies on claim disputes and also helping clients look at alternative, more sophisticated risk management practices such as sinking funds."

Client-driven demand set to increase

With new legislation continuing to flow out of Brussels, enforcement of existing legislation expected to tighten and corporate governance and reputational issues becoming increasingly important, lawyers are on the whole highly optimistic that the steady increase in demand for specialist environmental law services in the UK will continue.

In addition to the growth areas previously highlighted, the incoming EU environmental liability Directive in particular is expected to generate a significant stream of work, with clients wanting to know how they might become exposed and what their potential liabalities may be. The incoming EU-wide greenhouse gas emissions trading scheme is also expected to have a positive impact on demand for specialist climate change advice.

With emissions trading, parent company liability and corporate governance becoming increasingly prominent, Kathy Mylrea expects the whole area of environmental law to become "more applied and focused on the commercial affect on clients businesses," which means that environmental lawyers will need to be able to "cross skill". Similarly, Anthony Hobley of Baker & MacKenzie believes that the key differentiator for the most successful practices will be "the ability to see the opportunities for companies and not just the risks and liabilities."

1 Chambers and Partners index to leading lawyers see www.Chambersand Partners.com for further details; Legal 500 guide to the legal profession see legal500.com for further details

2 ENDS Environmental Consultancy Market Analysis, November 2002. See endsdirectory.com for further details