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Environmental Law Blunted by Crippling Court Costs

Zhenhua Ltd. is a glass-making firm based in Dezhou, a city in China’s northeastern Shandong province. The factory sits amid a cluster of modern residential areas, so when the company failed to limit its emissions of polluted air and dust into the atmosphere, many local families suffered.

The All China Environmental Federation (ACEF), a non-governmental organization (NGO) overseen by the Ministry of Environmental Protection (MEP), on July 20 won its lawsuit against Zhenhua for the company’s long-standing failure to curb the release of harmful gases such as sulfur dioxide and nitrogen oxide.

The case made legal history by becoming China’s first public interest action to be brought against air polluters, and ACEF’s action has set a vital precedent for those using the courts to fight environmental crime.

At the verdict, the Intermediate People’s Court in Dezhou ordered Zhenhua to pay 22 million yuan (U.S.$2.55 million) in compensation for damages and to make a public apology on local television.

But the NGO’s victory has been accompanied by frustration. The court rejected a request from ACEF for the imposition of punitive damages on Zhenhua of 7.8 million yuan (U.S.$1.2 million), and the NGO was forced to cover its own legal expenses amounting to 400,000 yuan (U.S.$60,000).

The outcome sent a warning to other firms that illicitly or excessively release harmful pollutants, but it also highlighted the financial difficulty of prosecuting big industrial firms, which has led to a rising number of NGOs opting not to pursue legal action.

A Controversial Judgement

In China, environmental cases form a complex and specialized area of law, meaning that the workload for lawyers, and therefore the legal fees, are higher than in regular cases. Common practice dictates that each party covers its own legal costs, except for in certain cases where the court orders the defendants to pay the plaintiff’s fees.

Expensive fees are a major burden for environmental NGOs, many of which operate on constrained budgets, resulting in a formidable barrier for those seeking legal recourse for environmental crimes.

The risk is that the Environmental Protection Law, which was introduced on January 1, 2015 and is a progressive piece of legislation giving citizens the right to prosecute polluters, becomes a luxury available only to those who can afford it.

Yu Qingchan, Climate Change Program Officer at the Beijing-based Global Environmental Institute, points out a second shortcoming of the law in action, shown by Zhenhua verdict. Yu believes that air pollution is a cross-regional issue and does not fall neatly within jurisdictional borders. Therefore, it was questionable that compensation be paid to the local governments to tackle air pollution, when it could have been redirected towards regional or national efforts.

Mounting Costs

And the costs keeping rising. In the Zhenhua case, ACEF also footed the bill for calculating the amount of compensation (in this case, 100,000 yuan (U.S.$15,000)),which involves hiring an expensive third-party consultancy to carry out sophisticated modeling.

Under Chinese law, this model—known as the “treatment cost estimate”—applies to most public interest cases to determine how much compensation should be paid. Predictions are based on the cost of cleaning the pollution using government-approved clean-up technologies and methods.

Caixin Media

12.09.15

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In the last two years, this method has been used in two well-known environmental public interest lawsuits: the 160 million yuan (U.S.$24 million) case against a Zhejiang chemicals firm, and a case in Fujian where a forest was damaged by a stone quarry.

The way in which treatment costs are estimated is not clear.

Ma Yong, previously Deputy Head of ACEF’s legal center and who played a key role in submitting the Zhenhua case, initially had hoped to avoid the use of treatment cost estimation.

He said that air pollution (pollutants that affect air quality, such as SO2, NOx, PM2.5, rather than CO2 emissions) can be eradicated in the long-term, in contrast to many water and soil pollutants, and so are less of a consideration.

Ma asked that compensation be calculated according to the money the company saved by not installing equipment to treat pollution. (Zhenhua had sulfur scrubbers, which remove gas by combining its chemical characteristic with water, but the company did not always use them; nitrogen oxide scrubbers were never installed.)

A judicial interpretation from the Supreme People’s Court ruled this approach acceptable, but the Dezhou court chose to not adopt it.

ACEF also paid an 180,000 yuan (U.S.$27,000) litigation deposit to the courts.

Litigation deposits are calculated as a proportion of the compensation being requested and are only returned to the plaintiff if they win. Environmental cases often involve huge sums of compensation, another heavy burden for cash-strapped environmental NGOs to bear.

In total, ACEF spent at least 700,000 yuan (U.S.$105,000) prior to reaching court—more than the entire annual budget of many small environmental NGOs.

Ma Yong is now Deputy Secretary-General of the NGO China Biodiversity Conservation and Green Development Foundation (CBCGDF). He said that so far this year, only four NGOs have brought public interest lawsuits, down from 11 in 2015.

As of June this year, Chinese social organizations (which sit in a broader bracket to NGOs) brought 93 civil public interest environmental lawsuits. And it would be more if it were not for the cost of bringing such cases.

For example, Friends of Nature has been working on a lawsuit over chromium pollution in Luliang in Yunnan province, in southern China, in which appraisal costs are expected to reach 1 million yuan—more than Friends of Nature can afford. The case has therefore been repeatedly delayed.

Precedents

An important factor in ACEF’s decision to bring the lawsuit against Zhenhua was a desire to establish and spread a nationwide precedent for assessing damages in air pollution cases, in order to reduce costs and increase feasibility. It looks like that aim has not been achieved.

As Ma put it, “our aim is to promote the environmental rule of law, not just win one isolated case, so we need to establish a set of mechanisms with which to resolve problems.”

Those include simplifying the plaintiff’s duty to present evidence. When it comes to presenting evidence, Ma says that alongside simplifying methods for calculating compensation, it should no longer be necessary to use expert appraisals to reach non-quantitative conclusions on, for example, whether or not pollution has caused harm. He hopes to see a wide use of expert witnesses, a simpler approach.

There is also an inherent failing in the public interest civil litigation system itself: it takes place after the fact, when environmental damage has already been done.

The CBCGDF has submitted a proposal to the legislative committee of the National People’s Congress to give social organizations the power to submit environmental public interest lawsuits in which the government is the defendant.

Civil public interest litigation is, in theory, viewed as positive, as it gives social organizations legal status, making it possible for the public to participate in the processes. But if good precedents are not set, then this advantage may be wasted.