PI claims and renewable energy disputes

PI claims and renewable energy disputes

by | May 20, 2019 | Purpose Built (LexisNexis)

windfarm

Jonathan Spencer (Partner) and Harry Speak (Trainee Solicitor) of Simmons & Simmons look at some of the key areas of disputes and consequent professional indemnity (PI) claims in projects relating to wind power, waste to energy plants, solar power installations and hydroelectric schemes.

Introduction

PI claims in respect of renewable energy projects usually arise from the negligence of either the designer or the contractor who has breached their obligation to act with ‘reasonable care and skill’.
 
The distinction between a designer and contractor is sometimes blurred, particularly with renewable energy products where the product designer may also be responsible for the implementation of the product. This is usually the case with smaller-scale renewable energy solutions.
 
PI insurance is only likely to cover a designer/contractor’s liability where they have contracted to provide a service with ‘reasonable skill and care’ (which would be implied into the contract in any case), rather than the higher duty associated with warranting that their product will be ‘fit for purpose’. That said, if an employer demands that a fitness for purpose obligation is included in the designer/contractor’s appointment, an endorsement to the PI policy could be agreed.
 
Given renewable technologies are relatively new and are under constant development, it is to be expected that designers and contractors will encounter issues while they gather experience of designing and deploying these technologies, and subsequently incur liability.
 
Furthermore, Californian-based GCube Insurance recently indicated that there has been a significant rise over the last 5 years in the number of claims in the U.S. renewable energy market as construction firms have come under pressure to build projects more efficiently and in shorter timeframes. With less experienced personnel being used to handle increasingly complex equipment, the frequency and severity of claims is on the rise. Similar risks likely apply in the UK. It is, therefore, essential that insurance policies are drafted carefully to avoid coverage where operators of equipment are inadequately trained.
 

This note focuses on key areas of disputes and liability in respect of: (1) wind power; (2) waste to energy plants; and (3) solar installations. It also considers briefly a recent and apparently ongoing claim regarding hydroelectric power. While the examples considered are not exhaustive, given the ever-shifting landscape of liability, they address known ‘hot spots’ for liability that have emerged.

Wind power

Generally, throughout the construction stage for wind power, the possibilities of disputes (and consequent PI claims) arising would be like any conventional construction project. However, one specific issue which has affected wind turbines on several occasions has been the failure of their foundations.

MT Højgaard v E.On [2017] UKSC 59 is the most widely reported example of a case concerning wind turbines: is the most widely reported example of a case concerning wind turbines:

  • Facts: Shortly after completion of the project, the foundation structures of two offshore wind farms, designed and installed by MT Højgaard A/S (MTH) at Robin Rigg, failed. The foundations had been made in accordance with an international standard for the design of offshore wind turbines. However, a formula contained within the standard was incorrect, meaning that the foundation strength had been overestimated and repairs were necessary. The resulting dispute considered who was responsible for the €26.25m of remedial costs.
  • Supreme Court decision: It was MTH’s responsibility, as contractor, to identify whether the works required a design which exceeded the minimum expectations provided for by the international standard. Furthermore, MTH had given and breached a warranty that the foundations would last for 20 years, placing them at the higher ‘fitness for purpose’ standard, rather than the mere duty to exercise ‘reasonable care and skill’. Therefore, MTH was liable despite having exercised reasonable skill and care in the design of the foundations.

Although each case will turn on its own facts and the specific wording of the contract, the Supreme Court’s decision serves as a useful reminder that a contractor/construction professional cannot always rely on the defence that they exercised reasonable skill and care. This case is also of concern to construction professionals as, typically, PI policies exclude cover for strict liability (e.g. for guaranteeing fitness for purpose). Agreeing absolute design obligations could, therefore, leave construction professionals in a situation where there is a gap in cover.

There are other scenarios in which claims could arise, including:

  • With off-shore wind farms, disputes can arise where subsea cables have been positioned poorly, or where the incorrect cable has been selected at a design stage, resulting in the cables being damaged by anchors or by the dragging of fishing nets. Repairs to damaged cables are likely to have significant financial implications because their (usually) remote location makes it difficult to carry out repairs, as does the limited number of skilled professionals with the expertise to undertake such repairs. This type of liability might affect parties acting at a design stage (who have made decisions regarding the location of the cable), or those involved at a construction/installation stage where a contractor has laid the cables in the wrong position, not in accordance with the design, thereby acting without ‘reasonable care and skill’.
  • Another issue in relation to the construction of off-shore wind turbines was recently seen in the High Court case of Fluor v Shanghai Zhenhua Heavy Industry [2018] EWHC 1 (TCC). In this case, the Claimant had contracted to construct the infrastructure for 140 wind turbine generators at sea. The materials provided by the Defendant were found to have cracks in the welding, which resulted in the Claimant incurring added costs of inspection and repair of these parts, as well delay in installing the turbines at sea.
  • Following the installation of wind turbines, claims can arise if the installation does not perform as well as the consultant had estimated. A consultant cannot be expected to predict the output of a wind turbine entirely accurately, so the notion of what is an ‘acceptable margin of error’ remains unsettled. However, the consultant may still be exposed to claims where the reality of the performance of the turbines proves to be far from what their analysis had suggested would be the case when the location for a development was selected.
  • It is standard practice following completion of a power project that a review of the technical capabilities of the project will be undertaken by an independent engineer who will prepare a report for the benefit of the lender. This report will validate that the project has been completed in accordance with the design specifications and that the wind turbines will operate as expected under that design. In providing these assurances, it also opens the possibility of the independent engineer themselves being exposed to a claim (i.e. should their assessment of the wind farm not be conducted with reasonable care and skill).

Waste to energy

Waste to energy (W2E) projects are not technically ‘renewable energy’ projects. Rather, they provide an alternative to landfill. These projects take waste and convert it into a valuable product; usually electricity and heat. Typically, this is often done by burning waste and using the hot gases to boil steam and turn a steam turbine. However, new technologies also allow for ‘baking’ of the waste at a high temperature to produce synthetic gas, ‘syngas’, which can be burned directly in gas turbines. W2E projects generate revenue both through the collection of waste products and through the generation and export of power.

The most prominent reported case involving W2E is MW High Tech v Haase [2015] EWHC 152 (TCC). In this case, the contractor submitted a fixed price tender to an employer which relied on a basic design prepared by its process engineer for an anaerobic digester. The engineer subsequently developed a detailed design which went beyond the parameters required in the ‘Delivery Plan’, adding substantially to the contractor’s costs. The court held that the reasonable skill and care obligation overrode a specific obligation to comply with the Delivery Plan. This meant that if compliance with the Delivery Plan was not possible without the engineer being negligent, then the engineer was not obliged to comply with the Delivery Plan. However, if compliance with the Delivery Plan was possible with a non-negligent design and the engineer failed to use reasonable skill to produce the expected design, that was a prima facie breach of contract. Therefore, the engineer was liable for the contractor’s increased costs.

Once operational, ‘throughput’ is the term denoted to the amount of material, or the number of items, which pass through a W2E system. A high throughput is necessary to ensure maximum intake of waste and maximum electricity generation and, therefore, maximum income for the plant.

Plants are designed for a particular waste composition. Faults with the design of the plant may prevent the planned composition of waste in the W2E system from being used effectively by the plant, reducing throughput and leading to a loss of income for the plant. This, in turn, can then lead to claims for negligence against the designer.

On the other hand, the operator of the plant is usually responsible for the provision of the waste and may fail to provide the composition of waste necessary for the plant to operate in accordance with its design. Subsequently, the operator may be subject to a professional negligence claim for failing to act with reasonable care and skill in gathering the necessary composition of waste, although, in reality, it is difficult for the operator to control this.

Disagreements may arise between the designer and the operator in respect of where the responsibility for the composition of the waste lies and the criteria the plant should have been designed to meet, opening both parties up to the possibility of professional negligence claims.

As W2E technologies continue to develop, designers may also find that they incur liability where a major component of a system that they have designed simply does not operate as expected. Where remedial works are required, claims may be brought against the designer for loss of income resulting from operating the plant at a reduced capacity.

Solar

A key element of claims arising from solar energy systems comes from the installation of the system itself to the existing infrastructure (particularly in a residential context). First, the contractor responsible for installation must ensure that the existing roof structure can actually accommodate the additional load of a solar panel. When assessing the risk, underwriters should check that the individuals at the potential insured have (1) an appropriate dual-qualification to make the assessment of the structural stability of the roof, or (2) had a certified professional make the assessment, before any installation takes place.

Where solar energy is not being used for electricity generation, but simply for thermal water heating, an assessment of the existing infrastructure of the property is also necessary. A failure to do so could result in a substantial claim should the system later fail.

The UK government closed its Feed-in Tariffs scheme to new applicants on 31 March 2019 (though applications to the scheme can be made until 31 March 2020 in respect of eligible systems installed before 31 March 2019). There is a possibility, therefore, that liability could also arise where a contractor delayed the installation of a renewable technology meaning that the consumer lost the benefit of an applicable subsidy or tariff. See, for example, GPP Big Field LLP v Solar EPC Solutions [2018] EWHC 2866 (Comm) in which the court held that, had a liquidated damages clause not been effective, it would have awarded general damages because the delay meant that the claimant was not eligible for a particular Renewable Obligations Order Feed-In Tariff (it qualified instead for a lesser tariff which was still available). See News Analysis: Liquidated damages clauses were not unenforceable penalties (GPP Big Field v Solar EPC) for further details.

Hydroelectric

Hydroelectric claims can arise from: water turbines failing; the breakdown of electrical and mechanical machinery; and damage from water surges. SSE v Hochtief [2018] CSIH 26 is a recent Scottish decision which involved a claim concerning a hydroelectric power scheme.

  • Only 7 months after opening, the Glendoe hydroelectric power plant stopped generating electricity as a result of falling rock material which had gradually and completely blocked the tunnel. While out of operation, SSE lost substantial amounts of revenue. It asked the contractor, Hochtief, to carry out the remedial works, but the two parties were unable to reach agreement about who should pay. The dispute between the parties considered whether the collapse was caused by a defect in the design or in the construction.
  • The engineering geologists had been aware of the risks of a fault zone at the part of the tunnel where the collapse occurred but, having not found poor rock conditions, they did not reinforce the tunnel perimeter at that section. The collapse was then caused by insufficient support.
  • As such, it was not the design that had caused the loss, but the implementation of that design. The tunnel’s collapse was a contractor’s risk, and the contractor was found liable for in excess of £100m.
  • It was announced that Hochtief had been granted leave to appeal to the UK Supreme Court. However, at the time of writing the case does not appear to have advanced past this initial step towards securing a Supreme Court hearing.

First published on LexisPSL Construction. The views expressed by our Legal Analysis contributors are not necessarily those of the proprietor.

Source: LexisNexis Purpose Built
PI claims and renewable energy disputes

Energy weekly highlights—3 May 2019

by | May 3, 2019 | Purpose Built (LexisNexis)

This week’s edition of Energy highlights includes the Office of Gas and Electricity Markets’ (Ofgem) announcement that customers will automatically receive compensation from 1 May 2019 if they are mistakenly switched and not returned to the correct supplier; Innovate UK and UK Research and Innovation’s announcement of a £30m fund available to help develop designs for smart local energy systems and the Department for Business, Energy & Industrial Strategy (BEIS) has launched its second consultation on the future of small-scale low carbon generation. Also this week, the Oil and Gas Authority (OGA) has published its new corporate plan which endeavours to ‘add an additional three billion barrels of production by 2035’ and the Intergovernmental Panel on Climate Change (IPCC) has invited experts to apply to become an expert reviewer for the first order draft of the IPCC Working Group I, Sixth Assessment Report. We also include details of our new and updated content, including our new Brexit Toolkit.

Electricity and gas market regulation and licensing

Customers will receive compensation if switched to different energy supplier

Ofgem has announced that customers will automatically receive compensation from 1 May 2019 if they are mistakenly switched and not returned to the correct supplier—as well as if there is a delay in refunding credit balances of customers who have switched away. Customers will receive at least £30 in compensation as new requirements from Ofgem aim to increase consumer protection and confidence in the switching process. Ofgem will also introduce compensation for delayed switches and late final bills later in 2019. See: LNB News 30/04/2019 72.

Renewable energy

Consultation on changes to introduce Smart Export Guarantee (SEG) opened

BEIS has launched its second consultation on the future of small-scale low carbon generation. This consultation seeks views on proposals to modify electricity supply licence conditions for introducing SEG. The closing date for submissions is 27 May 2019. See: LNB News 29/04/2019 47.

£30m in funding announced for smart local energy systems

Innovate UK and UK Research and Innovation have announced that UK organisations can apply for a share of up to £30m to help develop designs for smart local energy systems. The funding aims to make the best use of innovative technologies that include cheaper renewables, energy storage, low carbon heat and digital infrastructure. The funding comes as part of the Industrial Strategy Challenge Fund that aims to support industry, academia, public bodies and local communities in providing new and innovative energy systems in the UK. See: LNB News 30/04/2019 29.

Oil and gas

OGA’s new corporate plan looks at data digitalisation

OGA has unveiled its new corporate plan, which outlines the regulator’s priorities for the next five years. The plan is in line with the OGA’s Vision 2035, which endeavours to ‘add an additional three billion barrels of production by 2035 and to grow supply chain turnover by being a world leader in specific sub-sectors, doubling the UK’s share of service sector exports.’ According to the regulator, ‘key to unlocking these and other future opportunities are data and digitalisation.’ The OGA in 2019 launched the UK’s first National Data Repository, which the regulator hopes ‘will encourage innovation and potentially help unlock significant additional value—particularly if industry can fully embrace digitalisation across the asset lifecycle.’ See: LNB News 26/04/2019 14.

Conventional power, waste to energy, biomass and combined heat and power projects

Government told to give clear policy direction on carbon capture technology

BEIS has urged the government to give a clear policy direction on carbon capture technology to ensure that ‘the UK seizes the industrial and decarbonisation benefits of carbon capture usage and storage’. See: LNB News 25/04/2019 4.

Air emissions, efficiency and climate change

Call for expert reviewers on climate change draft report

BEIS has announced that the IPCC has invited experts to apply to become an expert reviewer for the first order draft of the IPCC Working Group I, Sixth Assessment Report. The report is available for expert review from 29 April 2019 to 23 June 2019 and registration closes on 15 June 2019 at 11:59 pm. See: LNB News 30/04/2019 15.

Government ensures that British Steel company complies with EU environmental obligations

The Secretary of BEIS, Greg Clark MP has stated that the government has entered into a short-term bridge facility worth approximately £120m with British Steel in order to allow the company to meet its 2018 legal obligations under the EU Emissions Trading scheme (ETS). The absence of the expected 2019 free ETS allowance for British Steel—gifted to companies that are the most exposed to international competition—due to the Withdrawal Agreement not yet being ratified, meant that without the £120m provided by the government, British Steel would not have met its 2018 obligations. This would have led to an ‘immediate and unremovable fine’ of £500m, had the government not provided the funds. See: LNB News 01/05/2019 91.

Source: LexisNexis Purpose Built
Energy weekly highlights—3 May 2019

CfD Allocation Round 3—final contracts and statutory notices published

by | May 3, 2019 | Purpose Built (LexisNexis)

The Department for Business, Energy and Industrial Strategy (BEIS) has published the final contract documentation and issued the required statutory notices for the Contracts for Difference (CfD) third Allocation Round (AR3) that opens on 29 May 2019. These include the final versions of the Standard Terms and Conditions, the generic front-end CfD agreement and the contract variants for CfD AR3. BEIS has also published the final statutory notices required and the allocation framework that sets out the rules and eligibility requirements for CfD AR3.

Each CfD contract issued in comprises two components:

  • the relevant front-end CfD Agreement
  • the Standard Terms and Conditions

The final CfD AR3 contract documentation published by BEIS includes:

  • the generic CfD Agreement—this forms the front-end section of the CfD contract and contains project-specific information that tailors the application of the Standard Terms and Conditions. The generic CfD Agreement is used unless one of the other published CfD Agreement variations is required
  • the Standard Terms and Conditions
  • CfD Agreement variations—required in certain circumstances, for example private network terms or unincorporated joint ventures

The statutory notices published include:

  • CfD AR3 Budget Notice and accompanying explanatory note—which confirms an overall budget of £65m (based on 2011–12 prices) for delivery years 2023–24 and 2024–25, a 6GW capacity cap (subject to state aid approval) and sets out the various strike prices. It also confirms that no maxima or minima will apply for CfD AR3.
  • CfD AR3 Allocation Round Notice—confirms the key dates for CfD AR3 including a start date of 29 May 2019, an application deadline of 18 June 2019, and an end date of 29 November 2019. It confirms the eligible technologies, which are:
    • advanced conversion technologies
    • anaerobic digestion (>5MW)
    • dedicated biomass with CHP
    • geothermal
    • offshore wind
    • remote island wind (>5MW) (a new addition since the second allocation round)
    • tidal stream
    • wave
  • CfD AR3 Framework Notice and Allocation Framework—states which framework is applicable for CfD AR3 and sets out the rules for AR3 and the eligibility requirements. The Allocation Framework also sets out the specific requirements for remote island wind applications
  • the CfD AR3 Standard Terms Notice—sets out the figures to be used by the Low Carbon Contracts Company (LCCC), the CfD counterparty, to complete the appropriate standard terms
  • the Counterparty Costs Notice—applicants may apply to the LCCC to request small modifications to the CfD contract, provided they don’t exceed a resulting costs implication of over £18,000

An explanation of the changes to the CfD contract terms made in respect of CfD AR3 was set out in the supplementary government response published in April 2019, see: LNB News 18/04/2019 38

Source: LexisNexis Purpose Built
CfD Allocation Round 3—final contracts and statutory notices published

Energy weekly highlights – 26 April 2019

by | Apr 26, 2019 | Purpose Built (LexisNexis)

This week’s edition of Energy highlights includes the Council of European Energy Regulators’s (CEER) report on ‘accepted market practice’ in the energy sector under the regulation on wholesale energy market integrity and transparency (REMIT), Office of Gas and Electricity Markets’ (Ofgem) consultation on its five-year review of the Capacity Market Rules, publication of the final draft contract documentation for the Contracts for Difference (CfD) third allocation round and publication by Ofgem of a new Direction to make modifications to the Regulatory Instructions and Guidance (RIGs) for RIIO-ED1. The Office for Nuclear Regulation (ONR) has published its corporate plan for 2019 to 2020 and the The Nuclear Decommissioning Authority (NDA) has published its five-year research and development plan for 2019 to 2024.

Electricity and gas market regulation and licensing

CEER NOTE ON REMIT AND ‘ACCEPTED MARKET PRACTICES’ IN THE ENERGY SECTOR

CEER has published a note on ‘accepted market practice’ in the energy sector, and the framework, definitions and rules under REMIT (Regulation 1227/2011/EU). See: LNB News 18/04/2019 73.

OFGEM’S NEW DIRECTION MODIFIES RIGS FOR RIIO-ED1

Ofgem have published a new Direction to make modifications to the RIGs for RIIO-ED1. On 8 March 2019, Ofgem sought views on version 4.0 of RIGs. Following feedback, the modifications outlined in the Directive aim to clarify existing RIGs reporting requirements. Version 5.0 of RIGs, which includes these modifications, took effect from 1 April 2019. See: LNB News 23/04/2019 22.

Capacity market, balancing services and energy system flexibility

CONSULTATION LAUNCHED INTO REVIEW OF THE CAPACITY MARKET RULES

Ofgem has announced a consultation on its five-year review of the Capacity Market Rules. The consultation considers discrete areas of the rules or framework and proposes changes that Ofgem aim to implement to simplify the capacity market in the short term. The consultation is the first phase in aiming to develop longer term changes to the rules and to how Ofgem’s capacity market rules changes process operates. The consultation closes on 28 May 2019. See: LNB News 18/04/2019 63.

Renewable energy

CFD ALLOCATION ROUND THREE FINAL DRAFT DOCUMENTATION LAUNCHED

The Department for Business, Energy and Industrial Strategy (BEIS) has published the final draft versions of the CfD Standard Terms and Conditions, the Generic Agreement and contract variants for CfD Allocation Round 3. BEIS has also published a supplementary response alongside the final draft contract documents. This explains the changes to the CfD standard terms. Changes to the CfD contract are shown using tracked changes. See: LNB News 18/04/2019 38.

STATE AID: COMMISSION APPROVES 385M LITHUANIAN SUPPORT FOR RENEWABLY-SOURCED ELECTRICITY PRODUCTION

On 23 April 2019, the European Commission announced it has approved under EU State aid rules a scheme to support electricity production from renewable energy sources in Lithuania (SA.50199). The Commission found that the scheme—open to all types of renewable generation—will contribute to EU environmental objectives without unduly distorting competition. From 1 May 2019, Lithuania will provide State aid support to installations generating electricity from renewable sources, such as wind, solar or hydropower. See: LNB News 23/04/2019 69.

GOVERNMENT POLICY ACTION IN A ‘CLIMATE EMERGENCY’

Claire Perry, the Minister of State for Energy and Clean Growth, has made an oral statement in the House of Commons on the climate change protests and the government’s climate change policy. Perry highlights a number of key legislative and policy actions the government has undertaken, including a new waste strategy and investment in the offshore wind sector. See: LNB News 24/04/2019 58.

Nuclear energy

NEW CORPORATE PLAN

ONR has published its corporate plan for 2019 to 2020. The plan sets out the ONR’s aims and aspirations for 2019/20 and outlines to some of the challenges, risks and opportunities for the year ahead. According to the document’s executive summary, the regulator’s ‘overarching priority is to continue to deliver efficient and effective regulation of the nuclear industry, holding it to account on behalf of the public’. See: LNB News 23/04/2019 61.

NUCLEAR DECOMMISSIONING PLAN SET TO EXPAND RESEARCH & DEVELOPMENT PORTFOLIO

NDA has published its five-year research and development plan for 2019 to 2024, setting out the intention to extend its portfolio following successful investments over the last five years. The NDA’s intention is to provide information to stakeholders about what they are aiming to fund in that time. Significant developments, such as the Industrial Strategy and the Nuclear Sector Deal, have changed the nuclear decommissioning research and development landscape—the NDA has taken these into account when creating its plan. See: LNB News 23/04/2019 30.

Conventional power, waste to energy, biomass and combined heat and power projects

HANNOVER RE JOINS OTHER REINSURERS IN MOVE AWAY FROM COAL

Reinsurer Hannover Re SE, has said it will scale back the coverage it provides to new coal-fired power plants or coal mines, joining a growing industry move away from fossil fuels. See Law360 article: Hannover Re joins other reinsurers in move away from coal.

 

Source: LexisNexis Purpose Built
Energy weekly highlights - 26 April 2019

PI claims and renewable energy disputes

Fast fashion – the environmental impact

by | Apr 12, 2019 | Purpose Built (LexisNexis)

‘Fast fashion’—what is it?

Buttanshaw and Dorotheou both agree that the key components of fast fashion are:

  • a quick manufacturing process
  • a flexible production that allows manufacturers to quickly increase production if items are selling well
  • low cost

Buttanshaw adds that: ‘Garments are aimed at consumers who want to change their wardrobe on a regular, trend driven, basis but are budget conscious. It has been argued that this combination of low-price points, focus on short term trends and the speed of production results in garments which are of low durability and not intended to last.’

This point has been argued strongly in the Environmental Audit Committee’s report, ‘Fast fashion: clothing consumption and sustainability’, which states that ‘the way we make, use and throwaway our clothes is unsustainable.’ See further: LNB News 19/02/2019 107

Dorotheou notes how long this has been going on as well as some examples of retailers: ‘This practice started in the 1980s and has since become a very popular part of the UK’s retail industry.’

Impacts and issues

When looking into the background of this inquiry, the outcome seems like it was inevitable the spotlight would eventually be shined onto fast fashion.

Dorotheou says that the ‘UK’s love of fashion has resulted in an increasing demand for clothes’ and therefore retailers produce ‘more products to meet demand’. However as this has gone on Buttanshaw says that there has been ‘a growing public consciousness of the potential adverse impacts of consumerism and a ‘throw-away’ culture.’

The Committee’s report is filled with various facts:

  • the UK buys more clothes per person than any other country in Europe.
  • 300,000 tonnes of textile waste ends up in household black bins every year.
  • less than 1% of material used to produce clothing is recycled into new clothing at the end of its life.

There are countless examples with the Committee claiming that ‘fashion shouldn’t cost the earth—but the fashion industry has marked its own homework for too long.’ According to the report, this has come about due to the risk of being caught cutting corners being low.

These facts are why Buttanshaw says that ‘there has been a feeling that fashion is the logical next area for scrutiny, and a series of recent papers (including an influential report by the Ellen MacArthur foundation in 2017, ‘A new textiles economy: Redesigning fashion’s future’) have been highlighting challenges in the sector.’

Buttanshaw also lists the key impacts associated with fast fashion:

  • carbon—the greenhouse emissions currently associated with producing and distributing clothing have been estimated to be greater than international flights and shipping combined
  • waste—recycling rates in the industry are low, leading to huge volumes of clothing going to landfill
  • water and land usage—particularly high for grown fibres. For example, by some estimates, one kilogram of cotton can take up to 20,000 litres of water to produce
  • water pollution—the Ellen MacArthur Foundation estimated that 20% of industrial water pollution can be attributed to textiles (for example, discharge of dyes). Synthetic fabrics also shed plastic microfibres when washed. A recent study by the University of Plymouth found that each cycle of a washing machine could release over 700,000 plastic fibres into the environment
  • social—poor working conditions, including safety risks, poor pay and long hours in circumstances which amount to servitude, and child labour, are considered endemic within industry supply chains. This is an issue not only for production facilities abroad, but also the UK—with numerous instances of pay below minimum wage being reported in the emerging textiles manufacturing hub in Leicester, for example

These issues are seconded by Dorotheou: ‘Large amounts of waste pollution which are produced during manufacturing processes, a severe strain on natural resources to support the growth of cotton, labour exploitation and unsafe working conditions that are common along the supply chain, the great difficulty in disposing of waste clothing or unsold stock, with around 300,000 tonnes of clothing sent to landfills or incinerators every year. These issues are more pronounced within the fast fashion industry, given the large volumes of cheap, disposable clothing produced.’

Recommendations

There are number of key recommendations that the Committee’s report makes:

  • mandatory environmental targets for any fashion retailer whose turnover is above £36m
  • an Extended Producer Responsibility (EPR) scheme to reduce textile waste that should reward companies that design products with lower environmental impacts and penalise those that do not. It suggests the introduction of a 1p charge for every item of clothing produced
  • the tax system should be used to shift the balance of incentives in favour of reuse, repair and recycling
  • the government should reduce VAT on repair services as Sweden has done
  • lessons on designing, creating, mending and repairing clothes should be introduced into the school curriculum

Buttanshaw also lists a key recommendation as: ‘Publish a publicly accessible list of retailers required to release a modern slavery statement under the Modern Slavery Act 2015 (MSA 2015) and increase penalties for those companies who fail to comply. Supply chain due diligence should be made mandatory under MSA 2015, and company reporting obligations in annual reports strengthened to specifically include slavery issues.

Dorotheou scrutinises these: ‘The Committee’s recommendations unfortunately feature very few immediate and practical steps for brands to implement to improve their environmental impact. There are numerous requests for the government to legislate, undertake further research or provide funding for regulatory bodies, all of which are unlikely to be acted upon in the short term. As climate change is such a critical issue, reliance on government action and the lack of practical recommendations is disappointing.’

Buttanshaw echoes that these ‘may not be as radical as they first seem’: ‘Nevertheless, the importance of the Committee Report is perhaps not the specific content of its proposals (none of which, individually, may be ground-breaking). Rather it is its consolidation of so many different strands of the environmental and social challenges posed by the industry into a single and pointedly urgent call for action. It will be interesting to see how government responds.’

Challenges

Due to these recommendations being ‘disappointing’, the legal and regulatory challenges faced may well be all the more pronounced.

Dorotheou notes that these challenges may affect companies that want to do business in the UK: ‘While legislation may be required to drive good behaviour, the government will need to be mindful of not rendering those companies, which do comply with their sustainability requirements, at a competitive disadvantage to their competitors. The fashion industry is big business in the UK (worth £32bn to the UK economy in 2017) and so any changes to improve sustainability will need to avoid the UK becoming an undesirable place to do business.’

Buttanshaw states the challenges may well be threefold—process, product and supply: ‘In terms of process, the report focuses on reducing the environmental and social impact of production—tackling issues such as slavery and pollution. An obvious challenge here is that a lot of production is outsourced overseas and not directly subject to UK regulation (and local law requirements may be considered insufficient by UK standards, or may not be enforced).

‘In terms of product, the report suggests changes are needed to garments so that they are easier to recycle/repair, and micro plastic shedding reduced. To date, efforts in this area have been based on voluntary business initiatives. Translating this into regulatory requirements will be challenging and can create economic tensions.’

‘This can be seen from experiences in the field of electrical appliances—while there has been some success in ensuring more energy-efficient products are placed on the EU market and that consumers are more informed in this respect, efforts to encourage designs which allow for durability, reparability, upgradeability and design for disassembly have been much more difficult to legislate for. Hence the Committee Report refers vaguely to the need to incentivise progress in this area but is less clear on any associated regulatory reform.’

‘EPR schemes have had some success in other fields but they can be relatively complex to implement, including how to define which person(s) should be responsible in a complex distribution supply chain, setting qualification thresholds etc. We have also found enforcement and compliance with those regimes to be patchy. Moreover, it is questionable how meaningful an impact this will have given the difficulties there is in recycling in the industry.’

Developing the law

Changes to the law in this area are on the horizon. For the government to really combat this, the Committee suggests that the way certain products are manufactured may need to change.

Dorotheou discusses how this may affect washing machine manufacturers: ‘The Committee made the interesting suggestion of collaboration between retailers, water companies and washing machine manufacturers to investigate further the problem of microfibre pollution. Once we know more about microfibre pollution, a potential change could be to oblige washing machine manufacturers to have an appropriate filter in machines to minimise this.’

Buttanshaw focuses on the changes to law that may be brought about from labour exploitation reform: ‘Interestingly, in terms of labour exploitation reform, the Committee report referred to the recently published ‘Labour Market Enforcement Strategy’ (from the Director of Labour Market Enforcement). This called for relevant labour legislation to be amended so that those at the top of the supply chain (e.g. a fashion retailer) are legally responsible for labour exploitation breaches further down the supply chain (e.g. by a contracted manufacturer).’

‘This would effectively create a ‘failure to prevent’ type offence, similar to that seen in the anti-bribery and anti-tax evasion fields (and which government has been considering extending to other economic crimes), blurring the lines of corporate legal responsibility. Industry would be sure to object to the prospect of being liable for persons who they may arguably have more limited control and visibility over.’

Changing the public opinion

This is an extremely important step of the process of reducing the harm that fast fashion can do. The UK buys more clothes per person than any other country in Europe. The Committee report states that 17% of young people said that they would not wear an outfit again if it had been on Instagram. Consumers are also more like to buy new clothes rather than repair them. The call for changes to school curriculums may well be intended to help try and shift public opinion and both Dorotheou and Buttanshaw have touched on how fast fashion has grown through public demand and consumption.

Buttanshaw adds to this that ‘there needs to be a shift from a throwaway culture to one focused on sustainability and longevity’ and that ‘government may also be able to support, through fiscal incentives but potentially also through funding and other forms of support, businesses which are focused on renting, repair and recycling of clothes in a more circular model.

Dorotheou supports this shift: ‘Consumers’ perception of clothes needs to change, so that clothes are not seen as single use and disposable items.’ However, Dorotheou also believes that ‘there needs to be a generally accepted and objective definition of ‘sustainable’ and what is needed to fulfil this definition.’

Next steps

The environment is a topic that can be controversial and fiercely debated by many. Regardless, it is a topic that will continue to be divisive and talked about as governments and bodies move to support or reject various recommendations and changes. The Committee’s report is now in the hands of the government and it will be interesting to see what the next steps that come out of it are. This sentiment is echoed by both Dorotheou and Buttanshaw, to use Buttanshaw’s wording: ‘Many of the report’s recommendations are already under consideration in some form, and so it seems likely that the government will simply reaffirm this, and state that it will continue to consult and review reforms in the area.’

In the short term, Dorotheou identifies increased public awareness as the next likely step: ‘More initiatives to increase public awareness and appreciation of the true environmental cost of our love of fashion are welcomed, as this will help to encourage better brand behaviour.’

Buttanshaw believes the short term will focus on the potential introduction of higher consequences: ‘Potential changes in law to introduce offences for ‘failing to prevent’ breaches in the supply chain is an area to watch in the short term. Otherwise further meaningful change may require greater technical/industry consensus on solutions to recycling of fibres etc. Efforts in these areas may therefore need to be the focus.’

When considering the short term however, we must be careful to remember the current situation the UK is in, as highlighted by Dorotheou who states that ‘hopefully this will not get lost among the current Brexit efforts, given the substantial investigation undertaken by the Committee to investigate this area.’

This was first published in LexisPSL. LexisPSL Environment includes a dedicated subtopic with practical guidance and legal news items on Responsible business, human rights and sustainability. Click here for a free trial of LexisPSL.

Source: LexisNexis Purpose Built
Fast fashion - the environmental impact