Court of Appeal decision highlights difficulty for water treatment plant operator to recover losses from polluter

The Court of Appeal’s decision in Saj Ranhill Sdn Bhd v SWM Greentech Sdn Bhd & Anor [2023] 6 AMR 272 concerns a claim by the operator of a water treatment plant against the operator of a landfill for polluting a gazetted water catchment area.
The facts
The appellant operates a water treatment plant (“WTP”) in Simpang Renggam, Kluang, Johor. The WTP is located along Sungai Benut, a gazetted water catchment area under the Fourth Schedule to the Environmental Quality (Sewerage and Industrial Effluents) Regulations 1979. The appellant extracts raw water from Sungai Benut which is then treated at the WTP.
The first respondent is the statutory operator of a landfill ("landfill") which is located not less than 15 km upstream from the WTP, whilst the second respondent had novated its rights and obligations in respect of the operation, management and maintenance of the landfill to the first respondent.
From 20 November 2016 to 18 January 2018, the WTP was shut down eight times. The shutdowns were attributed to the leakage of untreated effluents and leachate originating from the landfill. The appellant claimed it suffered loss and damage and initiated a claim against the respondents in the High Court based on four causes of action, namely negligence, nuisance, the rule in Rylands v Fletcher1 and breach of statutory duty in discharging effluents above the parameter limits.
Decision of the High Court
The High Court found that the cause of the ammonia pollution in Sungai Belut on the dates of the shutdowns was the overflow of leachate from the landfill.
Applying the “but for” test in Chua Seng Sam Realty v Say Chong Sdn Bhd [2013] 2 MLJ 29 to determine causation, namely “whether the damage would not have been caused but for the respondents’ conduct/ omission”, the High Court found that, based on the testimony of the appellant’s expert witness (“PW7”), the primary causes of the spillage of leachate from the ponds in the first respondent’s premises into Sungai Ulu Benut and then into Sungai Benut are: 
  1. the location of the landfill upstream is a high risk factor; 

  2. the poorly designed landfill could not handle the incidences of unusually heavy rainfall which occurred during the periods of the leachate overflow and bund collapse; and 

  3. the decisions by the local authorities to dump waste from other districts in the landfill, which was beyond the capacity of the landfill to handle. 
From the foregoing, the learned Judge concluded that the parties who are primarily responsible for “the whole debacle” are the owners of the landfill (instead of the respondents who are operators appointed to manage the landfill) and the local authorities. The Judge concluded that those parties bear the primary responsibility for the debacle, and should have been made defendants.
The respondents were thus found not liable in negligence.
The High Court also stated that the appellant’s claim was for economic loss which is not allowed in law; and only nominal damages would have been awarded had the respondents been found liable.
Dissatisfied with the decision of the High Court, the appellant appealed to the Court of Appeal.
Decision of the Court of Appeal
i. Liability
As mentioned earlier, the appellant’s claim is premised on four causes of action. The Court of Appeal found the claim in negligence sufficient to dispose of the appeal without the need to consider the other causes of action.
Proximate cause and but for
The Court of Appeal held that the “but for” test is intended as a filter to exclude irrelevant causes for the purpose of establishing liability and cited, inter alia, the following from Clerk & Lindsell on Torts, 23rd Edition, at pp 61 and 62:
It is worth bearing in mind that the "but for" test functions as an exclusionary test, i.e. its purpose is to exclude from consideration irrelevant causes. The fact that the defendant's conduct is found to be a cause, applying the "but for" test, is not conclusive as to whether he should be held responsible in law since the function of the causal enquiry in law is to determine which causes have significance for the purpose of attributing legal responsibility. It is sometimes said that the law seeks the causa causans (effective factor) rather than the causa sine qua non (factor(s) without which damage could not have occurred).
The Court of Appeal added that, “It bears reiterating that the "but for" test is a factual inquiry and a first step to determine causa sine qua non factors, without which damage could not have occurred. The second step is a legal inquiry to determine causa causans, which is the effective factor.”
Proximate cause
In delivering the grounds of the decision of the Court of Appeal, Datuk See Mee Chun JCA said the Court should concern itself with the effective factor or the proximate cause as per Majlis Perbandaran Ampang Jaya v Steven Phoa Cheng Loon & Ors [2006] 2 MLJ 389 where the Federal Court said, “where the injury has been done to the plaintiff and the injury is indivisible, any tortfeasor whose act has been a proximate cause of the injury, must compensate for the whole of it.
Justice See added that, as stated by the High Court, "the spillage of leachate from the ponds which then caused an excessive amount of leachate flowing into Sungai Ulu Benut and then into Sungai Benut" was the proximate cause of the shutdowns since it was the closest in time. The respondents had through their solicitors, also admitted to incidents of leachate spillage into Sungai Benut in a number of the instances.
Location, design and capacity
The Court of Appeal then addressed the three factors identified by the High Court as the primary causes of the spillage. First, the location of the landfill upstream from the WTP is a historical factor. Second, the poor design of the landfill is not proven; and third, overcapacity is improbable as the respondents were allowed to accept waste from third parties. The Court added that in any event, the second and third factors were also historical factors. In light of these findings, Justice See said that the High Court’s decision which laid the responsibility on the owners of the landfill and the local authorities could not be viewed as the proximate cause.
Preventive measures
The respondents contended that they had taken the preventive measures set out in their Defence to prevent and abate events of overflow and any consequent spillage. The respondents referred to Pacific Tin Consolidated v Hoon Wee Thim [1967] 2 MLJ 35 where the court suggested that a balance between the risks and the cost of practical measure to eliminate it is an important feature in determining whether there was a breach of duty. In effect, this contention means that the respondents have discharged their duty of care.
The Court of Appeal said it will also be seen with reference to Cambridge Water Co v Eastern Countries Leather Plc [1994] 2 AC 264 at 300, that the House of Lords said, “… it is still the law that the fact that the defendant has taken all reasonable care will not of itself exonerate him from liability, the relevant control mechanism being found within the principle of reasonable user2.” The Court of Appeal concluded that the preventive measures taken do not assist the respondents in establishing that there was no breach of duty.
Liability on negligence
According to the Court of Appeal, the evidence outlined above shows that the proximate cause for the ammonia pollution was the leachate spillage from the landfill. The appeal court agreed with the finding of the High Court that the foreseeability of harm to the downstream users, of which the appellant is one, is plain and obvious.
The Court of Appeal thus found the respondents liable in negligence where the ingredients of negligence, namely duty of care (which had been admitted by the respondents in its Defence), breach of duty of care, and resulting damage not being remote, have been proved.
ii. Damages
Having found the respondents liable to the appellant in negligence, the Court of Appeal considered the damages to be awarded to the appellant.
Based on its Statement of Claim, the appellant claimed damages of RM1,656,284.22 (comprising RM406,669.98 for losses suffered due to the closure of the WTP, RM18,709.00 for renting a water tanker, RM285,319.14 to increase the standard of chlorine dosage system, RM941,704.00 for other jobs in relation to the WTP and the River to improve the water treatment process, and RM3,882.10 for demand for alternative water supply).
As the appellant had confirmed that its claim is one of pure economic loss, without any physical or property damage, the Court of Appeal had to determine whether absent any physical or property damage, pure economic loss is recoverable.
After considering the arguments and authorities presented by the appellant, the Court of Appeal held that the Federal Court’s decision in Tenaga Nasional Malaysia v Batu Kemas Industri Sdn Bhd (and Another Appeal) [2018] 5 MLJ 561 is authority for the proposition that without any physical and/ or property damage, pure economic loss is not recoverable. Nevertheless, the Court of Appeal held that as the respondents were liable in negligence, nominal damages could be awarded. Taking into account that there were eight occasions of shutdown of the WTP and the ammonia pollution caused, the Court of Appeal awarded nominal damages of RM100,000 to the appellants.
In coming to its decision in this case, the Court of Appeal applied the established principles relating to the “but for” test and the limitation on recovery of “pure economic loss” under the law of torts. As a result of the latter, the damages awarded to the appellant were significantly lower than the amount of damages claimed by the appellant (assuming it succeeds in establishing the amount of the damages claimed).
Given that the respondents were found liable for negligent conduct that caused the appellant’s WTP to be shut down on eight occasions, it would be fair to say that the respondents got away lightly by reason of the application of the “pure economic loss” rule. This highlights the difficulty that an operator of water-treatment plant will encounter in recovering its actual financial losses from a polluter of the waterways if the operator does not suffer physical or property damage in consequence of the polluter’s negligence.
In view of the regular occurrence of water-cuts in several parts of Malaysia, such as Selangor and Johore, in recent years, it may be time for Parliament to provide water-treatment plant operators with statutory remedies in civil proceedings against polluters to overcome the limitation on the damages recoverable due to the application of the “pure economic loss” rule to claims founded in negligence.
Case Note by Kok Chee Kheong (Partner) of the Corporate Practice and Siti Ayenaa Binti Mohd Anis (Associate) of the Environmental Law Practice of Skrine.

1 Rylands v Fletcher (1866) LR 1 Ex. 265; (1886) LR 3 HL 330, is a decision where the House of Lords imposed strict liability on an occupier of land for damage caused by isolated escapes of dangerous substance from the land onto the neighbouring lands.
2 In Cambridge Water Co., a case concerning nuisance, the House of Lords explained that that the effect of “reasonable user” (i.e. reasonable enjoyment of a right) is that if the user is reasonable the defendant will not be liable for consequential harm to his neighbour’s enjoyment of his land; but if the user is not reasonable, the defendant will be liable, even though he may have exercised care and skill to avoid it (see page 299 of the Judgment).

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