In a landmark judgment that dismayed environmentalists and pleased industry and the City, the Lords also put the responsibility for defining how far 'high risk' businesses are liable for the pollution they cause squarely on Parliament rather than the courts.
Lawyers said the judgment would make it much harder for the victims of pollution to win damages, and water companies and their customers would be among the biggest losers.
The judgment allowed an appeal by Eastern Counties Leather, a tannery, against a damages award of pounds 1m - plus the same again in interest - for pollution that closed a well owned by Cambridge Water Company. The Lords overturned a decision last year in the Court of Appeal which in effect imposed retrospective liability on polluters and made it easier for victims to claim damages.
Madeleine Cobbing, toxics campaigner for Greenpeace, called yesterday's decision 'bad news for the environment and for victims of pollution everywhere.' Friends of the Earth also condemned it as a blanket amnesty for polluters of ground water and urged the European Commission to step in. But Andrew Lees, campaign director, said there was still scope for water companies to sue polluters.
The Lords said a polluter could not be liable if it had not foreseen the damage from its actions. But Mr Lees believed that in other cases - such as spillages from chemical storage tanks - a powerful case could be made that companies should have foreseen the damage. The fact that the pollution happened in the past would be no defence against a claim.
Mr Lees suggested that despite the decision other water companies may sue on those grounds, and defendants would be forced to prove they had behaved responsibly.
Last year's appeal court decision alarmed industry and insurance companies because they feared a spate of heavy claims going back many years.
The pollution from the tannery occurred before 1976 through accidental spillages of solvents that seeped underground to the well, more than a mile away. The contamination was acceptable under regulations at the time.
But much tighter European Commission rules were introduced in 1982, forcing Cambridge Water to close the well the following year. It sued the tannery, backed by its insurance company. The insurance industry warned that if the House of Lords judgment went against the tannery, it would curtail pollution liability insurance.
John Cridland, environmental director of the Confederation of British Industry, said: 'We have always said that retrospective liability should not apply where somebody was acting properly at the time.'
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