D. Stakvilevičiūtė. Lessons of fire in Alytus tire recycling factory: environment is first among many victims

As soon as the mountains of tires were extinguished near Alytus, the focus shifted onto third party damages: from the cancelled concert of local Lithuanian star Džordana Butkutė to the farmers losing hundreds of thousands of euros due to their suspended activities. Yet it seems that the creditors will have to move over and let through the environment which has suffered the greatest damage, currently estimated at more than EUR 5 billion, to be compensated with a priority right over the rights of third parties under the effective legislation.

As prescribed by the legal acts effective in Lithuania, a company in bankruptcy must first compensate for the debts from employment relationships, also damage caused by grievous bodily harm or some other injury, then (as indicated by the State Tax Inspectorate) all the other taxes and other payments due to the budget as collected by the State Tax Inspectorate are second in line. The latter include fines and amounts payable for environmental damage, the natural resources of the state.

Accordingly, after settlement with the employees in the event of bankruptcy, the state could receive compensation for environmental damage second in line, and all the other creditors would already stand third in line provided the company still has any assets.

Naturally, it’s too early to talk about bankruptcy, although it is quite likely as the tires constituted one of the greatest assets of the company.

In any event, compensation for the environmental damage will bring a major headache for the company. According to the established legal practice, the damage to the environment must be primarily compensated by the operator of harmful activities, and only afterwards the company may recover its damages from those directly at fault, if any.

The same principle applied in the event of theft from the pipeline of oil refinery “Orlen”. When the criminals drilled the pipeline and were stealing oil, some of it was spilled causing damage to the environment which had to be compensated by “Orlen” as the entity engaged in oil refining activities. It was up to “Orlen” to recover that amount from the perpetrator.

Compensation for environmental damage most probably will not be the only costs related to the impact on the environment. Under the effective legal acts, the guilty party must first take measures to mitigate the damage. I am not certain whether in this case such measures are possible, but if the company is obligated to take them, its losses would only increase as the practice shows that such measures are much more expensive than the resulting reduction of the amount for environmental damage.

Of course, compensation for environmental damage is a legally sensitive matter and its amount may still change if the company decides to go to court.

Currently, assessment and compensation for environmental damage across the European Union is carried out in accordance with Directive 2004/35/EC on environmental liability with regard to the prevention and remedying of environmental damage.

The directive defines environmental damage as follows: any damage that significantly adversely affects the ecological, chemical and/or quantitative status of the waters concerned, as defined in the EU Water Directive and the Marine Strategy Framework Directive; land damage which creates a significant risk of human health being adversely affected; damage to protected species and natural habitats which adversely affects their preservation, as defined in the Directive on the Conservation of Wild Birds and the Directive and the Directive on Natural Habitats.

Directive 2004/35/EC has been applied since 30 April 2004. The EU member states had to transpose it to their national law at least by 30 April 2007, and Lithuania has already done it.

Nevertheless, the countries assess environmental damage in accordance with the national methodologies which can be debatable. Legitimacy of the expert examination may also be questioned pointing out that it is doubtful if the number of qualified experts to assess such damage in Lithuania is sufficient, questioning if the impact of damage is as long-erm as established, and ordering independent surveys.

Optimistically, examining of such matter at court takes 2-3 years, but it may also last longer. Unless the company decides that declaring bankruptcy is a better way out. But in such case a number of other questions arise, already concerning the bankruptcy procedure. A partial liability might be shifted onto the CEO or shareholder.

In any event, until disputes for compensation of environmental damage are pending, third parties may hardly expect that the company will cover their damages. Even if some money remains to compensate for the damage sustained by business people and farmers afterwards, it will have to be proven legally as the damage might have been caused both by the fire and by actions of authorities, e.g., unreasonably prohibiting from selling milk or grain.

Commentary to news website delfi.lt