Environmental law and practice in Hong Kong: overview
A Q&A guide to environment law in Hong Kong. This Q&A provides a high level overview of environment law in Hong Kong and looks at key practical issues including emissions to air and water, environmental impact assessments, waste, contaminated land, and environmental issues in transactions. In addition, answers to questions can be compared across a number of jurisdictions to assist in the management of cross-border transactions (see Country Q&A Tool).
This Q&A is part of the Practical Law multi-jurisdictional guide to environment. For a full list of jurisdictional Q&As visit www.practicallaw.com/environment-mjg.
Environmental regulatory framework
The Environmental Protection Department (EPD) (see box, The regulatory authority), along with various related Hong Kong government departments, regulate different aspects of environmental law in Hong Kong under the authority and provisions set out in numerous ordinances. All trade and industrial activities in Hong Kong operate in accordance with these statutory standards and requirements. The principal environmental legislation in Hong Kong is set out below.
The Air Pollution Control Ordinance (Cap 311) (APCO) is the principal law for managing air quality in Hong Kong. The APCO empowers the EPD to control air pollution from industry, commercial operations and construction work.
The Water Pollution Control Ordinance (Cap 358) (WPCO) controls the effluent discharge from all types of industrial, commercial, institutional and construction activities into public sewers, rainwater drains, river courses or water bodies. Industries and trades generating wastewater discharge (except domestic sewage) are subject to licensing control by the EPD.
The Waste Disposal Ordinance (Cap 354) (WDO) provides a comprehensive framework for managing waste from the point it arises to the point of final disposal, enforced by the EPD. This includes the production, storage, collection, treatment, recycling and disposal of waste. Currently, livestock waste and chemical waste are subject to specific controls while the general import and export of waste is controlled through a permit system.
The Noise Control Ordinance (Cap 400) (NCO) applies to noise from construction, industrial and commercial activities. Construction noise and the use of powered mechanical equipment in populated areas is prohibited between 7pm and 7am from Monday to Saturday, or at any time on general holidays, unless prior approval has been granted by the EPD through the Construction Noise Permit System.
Hazardous chemical control
The Hazardous Chemicals Control Ordinance (Cap 595) (HCO) regulates, through an activity based permit system, the import, export, manufacture and use of non-pesticide hazardous chemicals that have potentially harmful or adverse effects on human health or the environment.
The Dumping at Sea Ordinance (Cap 466) (DSO) promotes the protection of the marine environment in areas of sea under Hong Kong jurisdiction. Anyone involved in the dumping of waste at sea and related loading operations, requires a permit from the EPD. Materials to be controlled by the permit under the DSO are mostly large quantities of sediment arising from dredging works. All vessels involved in these operations must be equipped with a self-monitoring system that records their position and dumping operations.
The Ozone Layer Protection Ordinance (Cap 403) (OLPO) prohibits the manufacturing of substances that deplete the ozone layer and imposes control on the import, export and production of these substances. Through delegated authority from the EPD, the Trade and Industry Department manages the import and export licensing system.
Producer Responsibility Scheme
The Product Eco-Responsibility Ordinance (Cap 603) (PERO) provides the legal basis for introducing producer responsibility schemes, with the environmental levy on plastic shopping bags introduced in July 2009 as the first scheme under the PERO. The Producer Responsibility Scheme (PRS) is a key policy initiative in the Policy Framework for the Management of Municipal Solid Waste (2005-2014) for waste reduction, recovery and recycling. The EPD administers and enforces the PRS in Hong Kong.
Environmental Impact Assessment
The Environmental Impact Assessment Ordinance (Cap 499) (EIAO) aims to avoid, minimise and control the adverse impact of designated projects (as specified in schedule 2 of the EIAO), through the application of the environmental impact assessment process (EIA) and the environmental permit system before their construction and operation. The regulatory authority for the EIAO is the EPD.
The EPD is the principal department in charge of enforcing environmental legislation in Hong Kong and has been granted a wide range of powers (see Question 27). Some EPD powers are exercised through the Director of Environmental Protection (DEP). Along with its duties on inspection, licensing and responding to complaints, the EPD is in charge of prosecuting offenders who have contravened any of the various ordinances relating to environmental laws in Hong Kong (see Question 1). Before prosecution can occur offenders must be caught in the act. The EPD uses various enforcement techniques to ensure offenders are identified and prosecuted accordingly, including inspections, ambushes and video surveillance.
According to EPD statistics available on its website, it dealt with 20,178 complaints in 2011 and 12,829 for the first seven months of 2012.
In relation to prosecutions and fines, the EPD has dealt with the following:
513 prosecutions in 2008, with imposed fines of HK$3,413,900 in addition to 25 imprisonments (individual sentences ranging from two to five months).
366 prosecutions in 2009, with imposed fines of HK$2,387,200.
394 prosecutions in 2010, with imposed fines of HK$2,288,100.
309 prosecutions in 2011, with imposed fines of HK$1.91 million.
The police in addition to other governmental departments assist in the enforcement of certain environmental laws, helping to ensure that complaints will be heard and offenders will be caught and prosecuted wherever possible.
There are many active green groups in Hong Kong. The opportunity to respond to regular consultation papers issued by the Hong Kong government, as well as different publications often available on their websites, help to ensure their voices are heard. A list of environmental NGOs active in Hong Kong is available on the EPD website (www.epd.gov.hk/epd/english/links/local/link_greengroups.html).
Integrated/separate permitting regime
Hong Kong does not have an integrated pollutant discharge or emissions permit and licensing system.
There are different permits and licences for different forms of pollution. The current discharge and emissions permit and licensing regime is spread among a number of ordinances and subsidiary regulations.
Trade and industry practices falling within designated projects under the EIAO must apply for numerous permissions, permits and licences, depending on the activities in question. The EIAO further requires those falling within its scope to provide EIA reports. To determine whether a company needs to apply for a number of licences greatly depends on the activity the company intends to carry out.
Permits and regulator
There is no integrated system for issuing permits (see Question 4). Different permits are required for different activities. However, the application and issuing process itself is similar and is centralised by the EPD.
The EPD is the sole authority responsible for issuing permits and licences and is the main authority responsible for the enforcement of environmental legislation in Hong Kong.
Length of permit
The validity period for licences and permits can vary greatly. Although there is no fixed standard, a period of between three to five years is quite common.
Restrictions on transfer
The restrictions on transfers/assignments of licences and permits depend on the type of transfer and the nature of restrictions on the licence or permit. In most cases, transfers are subject to the prior approval of the EPD.
In addition to fines and sentences, the EPD has the power to name and shame businesses on their website, by listing their name, conviction, fine and district on a monthly convictions listing.
Permits and regulator
The WPCO and its subsidiary regulations govern water pollution in Hong Kong. Under the WPCO, Hong Kong is divided into ten fresh Water Control Zones (WCZs). The control of discharge in the WCZs is through a licensing system that controls all discharges other than domestic sewage or unpolluted water to a storm drain. Although the licence itself specifies the permitted quality of effluent a business can discharge, it is complimented by the general guidelines in the Technical Memorandum Standards for Effluents Discharged into Drainage and Sewage Systems, Inland and Coastal Waters (Technical Memorandum) (Cap 358AK). The Technical Memorandum sets out standards and permissible limits for water discharge and disposal of sewage in the WCZs. It aims to tighten controls on effluent discharge and to improve maintenance standards for private communal sewage treatment plants.
The EPD through the DEP is responsible for water quality and controls licensing and enforcement under the Technical Memorandum. Before making a licence application to the DEP the applicant must first register with the EPD and make a public statement through a local newspaper, in either English or Chinese. Within 30 days following the publication, any person can object to the granting of the licence by giving notice to the DEP in writing. Within 40 days following the publication, depending on whether any objections have been raised, the DEP will issue a new licence. Generally, licences are valid for up to five years. Controlled discharges that require a licence include effluents from all types of industrial, manufacturing, commercial, institutional and construction activities, as well as discharges from sewage treatment plants and septic plants.
Prohibited activities include discharging polluting, poisonous or noxious matter into a WCZ, or any effluent not covered by a valid licence.
The EPD has further powers to refuse to grant, revoke or vary licences and to require those convicted under the WPCO to restore or partially restore waters damaged by the offending discharge. If the offender fails to clean up, the EPD can undertake restoration work and recover the costs from the offender. The EPD also has the ability to carry out clean-up operations in an emergency situation where it suspects an offence has occurred, and recover the costs from those responsible for the damage, regardless of whether they have been convicted.
Failure to obtain a licence for specific activities, or failure to comply with conditions specified under a licence, can result in:
Initial fines of up to HK$200,000 and imprisonment of up to six months.
Fines of HK$400,000 for secondary or subsequent offences.
A further fine of HK$10,000 per day for each day the offence is continued.
Fines can be imposed for discharging poisonous or noxious matter of up to:
HK$400,000 and 12 months' imprisonment, for a first offence.
HK$1 million and 24 months' imprisonment, for a subsequent offence.
HK$40,000 per day for each day the offence continues.
Permits and regulator
The Air Pollution Control Ordinance (APCO) governs the regulatory regime on air pollution, establishing seven Air Quality Objectives (AQOs) for the EPD to monitor and maintain. Pollutants such as sulphur dioxide, nitrogen dioxide, carbon monoxide, photochemical oxidants and lead are covered by the APCO.
Statutory controls over stationary sources include:
Licensing of specified processes, such as cement works, chlorine works, mineral works and incinerators (as outlined in Schedule 1 of the APCO).
Control of the installation and modification of the design of furnaces, ovens and chimneys.
Control of dust emissions from constructing activities.
Control of emissions from petrol filling stations and dry cleaning plants.
The prohibition of the open burning of construction waste, tyres, cable and wire.
Owners of premises used for specified processes such as power plants, incinerators, and concrete batching and electricity works (set out in Annex 1 of the APCO) are subject to more stringent controls, and must use the best practical means available to prevent noxious or offensive emissions being released from their premises, in addition to applying for (and holding) a valid licence. Licence applications for specified processes should be made to the EPD in a similar format as those for water discharges, that is, registration and public notification. The validity period of the licence is set at a minimum of two years with the length ultimately being determined by the EPD. Further applications can be made to the EPD to transfer, vary or renew licences.
Under the APCO it is an offence to operate a specified process without the appropriate licence in place. A list of 31 specified processes can be found at Schedule 1 of the ordinance. The list includes asbestos works, cement works, electricity works, gas works, petrochemical works and paint works.
Section 10 of the APCO states that, if the EPD or an authorised officer is satisfied that an emission from a polluting process or activity is causing air pollution, the EPD can serve an Air Pollution Abatement Notice, either verbally or in writing, to the owner of the premises or the person carrying on the activity. This may require emissions to be reduced or that the activity ceases.
The APCO specifies that the following penalties:
Operating a specified process without an appropriate licence incurs a fine of HK$200,000 and six months' imprisonment as well as an additional HK$20,000 for each additional day the offence continues.
Operating a specified process in contravention of the conditions attached to the licence incurs a fine of HK$100,000 as well as an additional HK$20,000 for each day the offence continues.
Climate change, renewable energy and energy efficiency
Under the Kyoto protocol and as part of a developing country, Hong Kong does not have any specified emissions targets that it must meet in relation to greenhouse gases (GHGs). However, in 2010 the Hong Kong government issued a Climate Change Strategy and Action Agenda Consultation Document (CCSAA) where it proposed new strategies to help combat climate change and reduce GHG emissions. The Interdepartmental Working Group on Climate Change (IWGCC) has been set up to further develop, promote and co-ordinate the government's plan of action.
Within Hong Kong, power generation, transport and electricity generation are the main sources of GHG emissions. The CCSAA aims to reduce these emissions by decreasing the use and reliance on coal to around 6% by 2020 and to eliminate its use altogether by 2030, replacing it with natural gas and nuclear electricity.
The CCSAA also proposes the reduction of carbon emissions by 50% to 60% by 2020. The main means for achieving these reductions are:
Turning waste into energy.
Making road transportation greener (through, for example, the use of electric vehicles).
Redesigning the proportion of fuels that are used for electricity generation (for example, increasing the use of renewable energies such as wind power to account for 1% to 2% of Hong Kong's total electricity demands by 2020).
Maximising energy efficiency overall.
The Building Energy Efficiency Ordinance (Cap 610) was enacted in 2010 and is expected to be in full operation by 21 September 2012. The ordinance acts as the legal basis for the mandatory implementation of building energy codes, which ensure a minimum energy performance standard based on the four main energy consumption services for buildings (lights, air conditioning, lifts and escalators, and electrical devices).
The Guidelines to Account for and Report on Greenhouse Gas Emissions for Buildings (Commercial, Residential or Institutional Purpose) were published by the Electrical and Mechanical Services Department (EMSD) and the EPD. Through voluntary audits and reporting, the EMSD aims to improve the awareness of entities, such as schools, universities and commercial centres, of the level of GHG emissions produced by buildings.
In addition to the guidelines, the Hong Kong Energy Efficient Registration Scheme for Buildings (HKEERSB) was introduced in 1998. The scheme is voluntary and sets out Building Energy Codes (BEC) used to measure the overall energy efficiency of buildings. Applications may be made to the HKEERSB for a certificate, certifying the energy efficiency of a building. The EMSD is responsible for all operations of the HKEERSB, and maintains a list of all voluntary participants.
Parties to UNFCCC/Kyoto Protocol
Hong Kong being a Special Administrative Region of the People's Republic of China is a Non-Annex I party to the UNFCCC and the Kyoto protocol. Hong Kong officially joined in May 2003.
The Clean Development Mechanism (CDM) implementation arrangements provide for the specific process and procedure by which Hong Kong companies can collaborate with foreign institutions to implement CDM projects within Hong Kong. These projects are aimed at achieving the main objectives of the UNFCCC in relation to stabilisation of GHG concentrations in the atmosphere, in addition to assisting in the reduction of GHG emissions and supporting Hong Kong's sustainable development goals.
The Implementation Framework for the Emissions Trading Pilot Scheme for Thermal Power Plants in the Pearl River Delta Region (PDR) was published by the EPD and the Environmental Bureau of Guangdong Province in 2009. The purpose of the pilot scheme is to:
Assist both governments in developing and implementing a practicable and comprehensive emissions trading scheme and to establish standards and guidelines for the purpose of emissions trading.
To promote the use of emissions trading as a tool to reduce pollutant emissions.
With power generation being a major source of emissions such as sulphur dioxide, nitrogen oxides and respirable suspended particulates, the pilot scheme intends to support the trading of these emissions, while imposing emissions caps on power plants for each of these pollutants. Emissions allowances will be determined based on the amount of electricity generated by each power plant. Eligible power plants may participate in emissions trading and are encouraged to propose additional emission reduction plans for government consideration.
Environmental impact assessments
The role of the EIAO is to proactively pre-empt, prevent and mitigate potentially adverse environmental risks associated with proposed designated projects.
Permits and regulator
Under the EIAO, certain significant designated projects such as roads, railways, airports and port facilities, reclamations of land and hydraulic facilities require environmental permits. The DEP can approve the EIA report submitted by the applicant subject to conditions, or reject it. Appeals on DEP decisions can be made to the Appeal Board, as stipulated in the EIAO.
It is an offence under the EIAO to:
Carry out a designated project without an environmental permit.
Fail to comply with the conditions of an environmental permit.
A person who breaches the EIAO commits an offence that can result in a maximum penalty on indictment of HK$2 million and six months' imprisonment for a first offence, and HK$5 million and 12 months' imprisonment for a second offence. On a first summary conviction a person is liable for a fine at level 6 (HK$100,000) and imprisonment for six months, and for a second or subsequent summary offence a fine of HK$1 million and imprisonment for 12 months. The courts may also impose a fine of HK$10,000 for each day that the offence continues.
The DEP can also issue a cessation order on the project and take direct action against the offender to remedy the identified environmental damage. The DEP can identify the names of the persons liable for the costs, apportioning the costs if appropriate.
Permits and regulator
The Waste Disposal Ordinance (WDO) contributes to providing a comprehensive framework for managing waste from the point of arising to the point of final disposal.
Under the WDO, waste means any substance or article that is abandoned and includes animal, chemical, construction, household, livestock, street and trade waste. Some specific wastes such as clinical, radioactive and waterworks/sewage sludges are also regulated by subsidiary legislation.
The WDO allocates power to the DEP to award licences for the collection of waste, and permits for the disposal and import/export of waste. However, the Food and Environmental Hygiene Department is responsible for refuse collection in Hong Kong. The refuse transfer stations or landfill sites are managed by the EPD.
The DEP has absolute discretion to decide whether to issue permits or licences, and details of the proposed activity must be disclosed to the authority before starting the activity.
Waste collection licence. Waste collection requires a DEP licence. The DEP must be satisfied that the applicant has the capacity to dispose of a minimum quantity of chemical waste in a given period of time.
Waste disposal licence. Disposing of, importing or exporting specific forms of waste specified in schedule 6 of the WDO (such as certain types of electrical waste, metal, inorganic constituents, rubber and plastics) requires a DEP licence.
An offence is committed if waste is deposited in any place, except with lawful authority or excuse, or except with the permission of any owner or any lawful occupier of the land concerned. Any person possessing waste in the manner prescribed in the WDO must notify the DEP.
An offence is also committed if a person provides waste collection services in an area without being licensed by collection authorities.
Waste disposal operators must hold a licence to provide waste collection and disposal services. Operators will therefore be bound to comply with the terms and conditions of their licence.
Special rules for certain waste
Chemical waste. This comprises of substances that are seen to be a possible threat to health or the environment and are listed in the Waste Disposal (Chemical Waste) (General) Regulation.
A chemical waste producer (any person who produces chemical waste or causes it to be produced) must register with the EPD and provide information such as location of waste, type of waste and nature of the business before engaging in chemical waste production.
Before disposing of chemical waste a person must obtain a chemical waste disposal licence. The substances and chemicals that may be disposed of once the appropriate licence has been obtained are also listed in the regulation.
Clinical Waste. Clinical waste is waste generally produced by hospitals and private clinics. There are strict controls for the segregation, packaging, labelling, storage, collection, transportation and disposal of clinical waste. Clinical waste producers are expected to enlist the help of licensed clinical waste collectors who must deliver the waste to a licensed disposal facility within 24 hours of collection. A clinical waste producer must maintain waste consignment and delivery records for not less than 12 months and have them available for inspection by the EPD on request. The Waste Disposal (Clinical Waste) (General) Regulation provides further information.
Construction Waste. This comprises of any waste that is produced as a result of construction work. In 2005 the construction waste charging scheme was introduced to encourage waste producers to reduce, sort and recycle construction waste. Construction waste producers must now open a billing account with the EPD and pay a construction waste disposal charge before using government waste disposal facilities.
Import and export of waste electrical and electronic equipment (WEEE). The import and export of WEEE is controlled through a permit system that is operated by the WDO. Types of controlled waste include:
Non-hazardous WEEE not destined for recycling.
WEEE that has been contaminated with hazardous substances.
Cathode ray tubes and electronic and electrical assemblies.
The WEEE Recycling Programme was launched in September 2005 by the EPD and aims to encourage members of the public to recycle their electrical and electronic equipment for reuse rather than creating additional waste.
Any unlawful collection service can result in a fine of HK$100,000 and disposal of waste can result in a fine of HK$200,000 and imprisonment for six months. Similarly, the unauthorised import or export of waste is an offence under the WDO, and can result in fines of up to HK$200,000 and imprisonment for six months, for first offences.
Under the APCO, it is an offence for any individual or business to carry out asbestos abatement work without prior written notification to the EPD, or for an individual or business that fails to appoint a registered asbestos contractor, consultant or lab technician to carry out the asbestos removal. Contractors and laboratories must also be registered with the EPD and are subject to additional requirements stipulated in the EPD guidelines. In addition, the APCO prohibits asbestos spraying, the use of asbestos for insulation purposes and the use of amphibole asbestos in any process.
The regulatory regime governing asbestos control work is contained in Parts VIII to IX of the APCO and The Factories and Industrial Undertakings (Asbestos) Regulations. According to the EPD (the authority for licensing and controlling asbestos work), an individual or business that needs to carry out maintenance, renovation, demolition or any other work on a given premises must, before work commences, remove asbestos-containing material in accordance with the APCO.
If an individual or a business knows or suspects that asbestos is present, a duty arises to employ a registered asbestos consultant to conduct and compile an asbestos investigation report and an asbestos abatement plan, both of which must be submitted to the EPD 28 days before starting the work. Notification must be given to the EPD of the proposed start date of the work and the individual or business must employ a registered asbestos contractor (to carry out the work), a consultant (to supervise the work) and a lab technician to conduct sampling and analysis.
Permits and regulator
No licence or permit is required by the business or individual owning the premises in question. However the contractors, consultants and laboratories used must be registered with the EPD under Part VIII of the APCO, and vetted by the Asbestos Administration Committee (ACC). The ACC assists the EPD on applications for registration and hears complaints of a disciplinary nature.
It is an offence under sections of the APCO to:
Carry out asbestos abatement work without prior written notification to the EPD.
Fail to appoint a registered asbestos contractor to carry out asbestos removal.
If convicted, the maximum penalty is a HK$200,000 fine and imprisonment for six months.
Regulator and legislation
The EPD is the regulator in charge of contaminated land. The legislation addressing the issue of contaminated land includes the:
EIAO. Under the ordinance, the assessment and remediation of contaminated land is required for designated projects under the EIAO.
WDO. The WDO provides the framework for the management and prevention of waste. Improper waste disposal that then leads to land contamination is an offence under the ordinance.
Water Pollution Control Ordinance (WPCO). The WPCO provides that a discharger of waste or polluting matter into the inland waters (for example, groundwater) or water bodies may be liable, unless the discharge is made in accordance with the WPCO.
Building (Oil Storage Installations) Regulations. Under these regulations, the assessment and remediation of contaminated land is required in the demolition of oil installations under the regulations.
Investigation and clean-up
The EPD is responsible for carrying out assessments and investigations on site. As yet, there is no specific offence for failing to disclose to the EPD pollution discovered on site. However, the contamination could give rise to an offence under the relevant ordinance in Hong Kong or at common law. In addition, overall liability may increase if, in failing to disclose the pollution, greater harm is incurred as time progresses.
The legislative basis for clean-up operations in Hong Kong is found in the EIAO. Hong Kong does not adopt the polluter pays principle in its strictest sense, as those wishing to develop a contaminated site are responsible for clean-up operations.
The penalty for contaminated land varies depending on the ordinance the offence falls within. For contaminated land through unlawful waste disposal, Part IV of the WDO states that the polluter is liable to:
An initial fine of HK$200,000 and imprisonment for six months.
A fine of up to HK$500,000 and imprisonment for five years for further offences.
An additional fine of HK$1,000 for each day the offence continues.
Liability for clean-up operations relating to contaminated land in Hong Kong is not clear cut, and is largely driven by practical considerations. Generally, the financial burden of remediation is borne by potential developers, as all land (with the exception of one plot on Hong Kong Island) in Hong Kong is leasehold, meaning that it is owned by the government and held by occupiers on a leased or sub-leased basis. The current developer of a site does not generally owe a duty to future developers under common law, although they do owe a general duty to neighbouring current and future owners.
The owner/occupier will assume all risk and/or liability.
Previous owner/occupier liability
An owner/occupier may be able to seek compensation from a previous owner/occupier by bringing a claim for damages in tort or, if applicable, in contract law (for example, on the basis of a breach of terms of a contract such as representations and warranties or on the basis of a specific contractual indemnity).
Limitation of liability
Parties are advised to undertake environmental due diligence to reduce potential liability and purchase an insurance policy to transfer such risk to insurance companies (see Question 27). Liability can also be reduced by contractual means.
As long as lenders do not take part in the management or operations of their borrowers, they do not incur liability as a result of any act/omission of their borrowers.
However, in practice, lenders do attempt to minimise potential liability (and reputational risk) by carrying out environmental due diligence checks. In addition, loan agreements include representations and warranties that stipulate that the borrower has complied with all legal requirements and best industry practices (including environmental regulations and standards), the breach of which will result in an event of default, giving the lender the option to accelerate repayment of the loan. Further, ethics committees of financial institutions look closely at environmental issues before lending funds to a particular entity/individual.
Apart from the ordinances relating to environmental laws in Hong Kong, there are common law third party environmental claims available to private individuals.
To bring a claim under nuisance, an individual must prove that an act or omission is an unreasonable interference with the use or enjoyment of their land. The act or omission must be more than short-lived.
An individual must establish that the defendant owes a duty of care and, due to the breach of that duty, the individual has suffered foreseeable damage. As a practical consideration, it may be difficult for an individual to establish and evidence a causal link between the damage caused and their complaint.
Direct interference with personal or proprietary rights must be established, in addition to intent. If the land is contaminated intentionally, trespass is committed. However, if the contaminating substance passes over intermediary land, before contaminating the land in question, trespass cannot be established as the interference is not direct.
Environmental liability and asset/share transfers
In an asset sale, liability for environmental damage is normally inherited by the buyer. Proving that the environmental liability arose before the transfer of an asset can be difficult, therefore it is recommended that the buyer enters into a contractual indemnity agreement with the seller.
In a share sale, environmental liability remains with the company, as the company remains responsible for the environmental damage, not the owner or shareholder.
A seller does not generally retain liability for environmental damage. This is normally passed on to the buyer, as it is difficult to prove that environmental damage occurred before the transfer of the asset (see Question 18).
A company that has caused pollution remains directly liable for the environmental damage (see Question 18).
Environmental due diligence is generally undertaken in relation to transactions involving high environmental risks.
A questionnaire tailored to the business concerned should be sent to and answered by the seller. It typically covers:
Liabilities that are historical, existing or potential.
Details of monitoring and reporting procedures of the seller within the company.
Details of environmental policies implemented and audits carried out by the company.
Whether the seller is aware of any health and safety matters or environmental issues affecting its business.
Types of assessment
Depending on the type of business concerned, a site inspection should be undertaken with qualified professionals as well as historic searches regarding the land and adjoining properties. Also, if required, a questionnaire should be sent to the seller (see above, Areas covered) to assess the level of warranties to be sought when drafting the relevant sale and purchase agreement.
Depending on the business concerned and the environmental risks involved in the transaction, environmental consultants may be hired to audit the targeted company. There are a large number of consulting firms of international repute operating in Hong Kong that are able to handle complex and detailed environmental due diligence assignments. The engagement letter should be precise as to the scope of the audits to be conducted by the consultant.
If warranties are required by the sellers of an asset, the following representations and warranties are usually given:
Valid licences and authorisations.
Compliance with environmental regulations.
Absence of environmental pollution or risk of environmental pollution.
Absence of existing or potential claims in relation to an environmental matter.
The buyer of an asset may require indemnities to avoid liability arising in relation to:
Claims arising as a result of environmental damage that occurred before the purchase.
The seller's breach of any representations and warranties.
This is the same as for an asset sale (see above, Asset sale).
The time limits of the contractual warranties are usually in line with the time prescriptions of the statutory offences that could potentially occur. However, financial caps should be set in accordance with the maximum amounts insured under the relevant insurance policies entered into by the seller.
Reporting and auditing
Access to public information varies according to each individual statutory regime. The requirements for keeping registers of environmental information include:
Under the APCO and the WPCO, the DEP (or another designated authority) must keep a register open to public inspection that contains different documents such as applications for licences, licences and any other document required by regulation.
Under the EIAO, the DEP must also keep a register containing applications and environmental permits, project profiles, EIA study briefs, and so on.
However, some statutes like the NCO and the WDO do not provide for maintenance of a register of licences or permits.
In practice, the EPD does not have a centralised database for environmental information, but the majority of licences, permits and other useful information can be found online on its website. There is no regulatory requirement for keeping registers under the NCO and WDO. However, in practice, public access to information can take the form of the display of a construction noise permit at specified locations, when required by the DEP and a list of construction noise permits in force is available on the EPD website. The WDO provides that once approved, a waste disposal plan is made available to the public free of charge. The EPD website supplies a list of waste collectors and recyclers.
Third party procedures
In addition to the information available on the EPD website, any person can request environmental information by calling the EPD hotline or making a written request to the EPD offices in Hong Kong, or addressing the request to the EPD designated Access to Information Officer. The EPD or the relevant department decides whether to disclose information depending on the type of information requested.
There is no statutory requirement for companies to carry out environmental auditing. However, permits granted under the EIAO can stipulate conditions on the conduct of environmental audits.
In practice, environmental audits and subsequent reports are increasingly common. Since 2000, governmental departments must publish annual environmental reports and private companies are strongly encouraged to do the same. The ACCA Hong Kong Awards for Sustainability Reporting, reward the company that has published the most complete and accurate reports on sustainability, to encourage the uptake of environmental reporting.
There is no statutory obligation to report information about environmental incidents to the EPD or members of the public. However, under common law, there may be grounds of action for private individuals against those causing pollution (see Question 17). Environmental incidents are usually reported by the public, though the EPD uses different devices to monitor and detect pollution levels. In practice, in cases of major pollution or contamination, detailed information about the polluting incident and the company or individual involved is posted on the EPD website.
As the EPD is in charge of enforcing environmental laws, it is granted a wide range of powers under various ordinances.
The DEP, or any public officer duly authorised by the DEP, has the power to enter and inspect, without a warrant, any premises or vessel. However, a warrant is required if the premises or the vessel is for domestic use.
Types of insurance and risk
Companies wishing to deal with potential environmental liability can choose to purchase an insurance policy to transfer the risk to insurance companies. There are five main types of environmental policies:
Pollution Legal Liability Cover (PLL).
Pollution and Remediation Legal Liability Cover (PRLL).
Contractor's Operations and Professional Services Policy (COPS).
Clean-up Cost Cap Cover (CCC).
Warranty and Indemnity Insurance policies.
However, insurance companies normally design a tailor-made policy that covers the specific risks of a company's project or activity.
There are a number of factors to take into consideration when determining whether to seek environmental insurance. For instance, it may depend on the company's risk management policy and a cost-benefit analysis will need to be undertaken. In addition, third parties such as banks may request subscription of insurance before consenting to a transaction. With increasing environmental liabilities, environmental insurance is becoming increasingly common.
There is no environmental tax as such in Hong Kong. However, the government uses fiscal disincentives to make Hong Kong greener. For example, the first PRS approved on the basis of the PERO came into effect in July 2009. This scheme, resulting from the Product Eco-responsibility (Plastic Shopping Bags) Regulation, provides that retailers must charge a HK$0.50 minimum levy to its clients for each plastic bag issued. The retailers submit to the DEP a quarterly return stating the number of plastic bags delivered, and pay the total amount of levies received.
The regulatory authorities
Environmental Protection Department (EPD)
Main activities. The EPD is in charge of implementing environmental legislation, formulating policies and guidelines on environmental aspects and raising public awareness.
Environment Bureau (EB)
Main activities. The EB is the government department responsible for the protection of the environment and the achievement and oversight of all related policies and objectives.
Description. This is the Department of Justice website containing official and up-to-date legislation of Hong Kong.
Description. This is the Hong Kong Stock Exchange (HKEx) website, officially maintained by the HKEx, with official and up-to-date information. In particular, the website contains special listing requirements for infrastructure projects.