Absolute Liability

Four. The measure of compensation must be correlated to the magnitude and capacity of the enterprise, because the compensation must have a deterrent effect: the larger and more prosperous the enterprise, the greater the amount must be.

The reasoning behind the measure. The Court held that if an enterprise is permitted to carry on a hazardous activity for profit, the law must presume that the permission is conditional on its absorbing the cost of any accident as an item of its overheads, and that such an activity can be tolerated only on condition that the enterprise indemnifies all who suffer, regardless of whether it was carried on carefully or not. It added that the enterprise alone has the resources to discover and guard against the hazards.

Absolute against strict liability

How the rule has been used since

Facts. Indian Council for Enviro-Legal Action v. Union of India, AIR 1996 SC 1446, decided on 13 February 1996. Chemical industries at Bichhri, in Udaipur district, produced highly toxic iron-based and gypsum-based sludge which was thrown in the open in and around the village, poisoning the soil and the underground water over a wide area and making the water unfit for drinking and irrigation.

Held. The Court applied the rule of absolute liability laid down in M.C. Mehta and also adopted the polluter pays principle, that the financial cost of preventing or remedying damage caused by pollution must lie with the undertakings that cause the pollution rather than with the Government. It directed the Central Government to determine the amount required for remedial measures, provided that if the industries did not pay it the amount should be recovered from them and used by the Ministry of Environment and Forests, and directed that the polluting units remain closed until they complied.

Why it matters here. It shows the rule working ten years later, and it adds the principle by which the cost of clean-up is allocated.

The statutory sequel

Parliament followed the courts. Section 3 of the Public Liability Insurance Act 1991 makes the owner of a hazardous substance liable to give relief for death or injury or damage to property resulting from an accident, and provides that the claimant need not plead or establish any wrongful act, neglect or default. Chapter [The Public Liability Insurance Act 1991] works out the whole Act, and chapter [The Bhopal Gas Disaster] deals with the disaster that produced both the case law and the statute.

A worked example

A fertiliser plant in a city releases ammonia; two hundred people are hospitalised.

Is the rule in Rylands v. Fletcher available? It could be: ammonia is a dangerous thing, it escaped, and the storage is a non-natural use. But the plant would then be able to plead an act of a stranger, an act of God, or statutory authority.

Is absolute liability available? Yes, and it is the better claim. A fertiliser plant handling ammonia is an enterprise carrying on a hazardous or inherently dangerous activity, so on M.C. Mehta it owes an absolute and non-delegable duty, it cannot plead any of the exceptions, and it cannot say it took all reasonable care.

How much? The compensation is related to the magnitude and capacity of the enterprise, so the same accident produces a larger award against a large company than against a small one, which is a deliberate departure from the ordinary compensatory measure.

Is there a statutory route? Yes. Under section 3 of the Public Liability Insurance Act 1991 the immediate relief is available without proving fault, and it is backed by compulsory insurance.

And who pays for cleaning the site? On the polluter pays principle applied in Indian Council for Enviro-Legal Action v. Union of India, AIR 1996 SC 1446, the industry does.

What it does NOT mean

It is not the rule for every dangerous thing. It applies to an enterprise carrying on a hazardous or inherently dangerous activity.

It does not admit the Rylands v. Fletcher exceptions. The Court removed them expressly.

It is not measured only by the plaintiff's loss. The size of the enterprise enters the calculation.

It is not a criminal sanction. The prosecution of those responsible is separate, as the Bhopal litigation shows.

Quick revision

1. M.C. Mehta v. Union of India, AIR 1987 SC 1086, five judges, 20 December 1986, the Oleum gas leak from Shriram Foods and Fertiliser Industries in Delhi.
2. An enterprise carrying on a hazardous or inherently dangerous activity owes an absolute and non-delegable duty to the community.
3. It is absolutely liable for harm from an accident in that activity, and care taken is no answer.
4. None of the exceptions to Rylands v. Fletcher is available.
5. Compensation is related to the magnitude and capacity of the enterprise, to deter.
6. The Court refused to be bound by English law: India no longer needs the crutches of a foreign legal order.
7. Indian Council for Enviro-Legal Action v. Union of India, AIR 1996 SC 1446: absolute liability applied, and the polluter pays principle adopted.
8. Section 3 of the Public Liability Insurance Act 1991 gives statutory no-fault relief.

Test yourself

1. State the rule of absolute liability and the reasons the Supreme Court gave for it. In M.C. Mehta v. Union of India, AIR 1987 SC 1086, a Bench of five judges held that an enterprise engaged in a hazardous or inherently dangerous activity, which poses a potential threat to the health and safety of persons working in the factory and residing in the surrounding areas, owes an absolute and non-delegable duty to the community to ensure that no harm results; that it must conduct the activity with the highest standards of safety and, if harm results, is absolutely liable to compensate all those affected, it being no answer that it took all reasonable care and that the harm occurred without negligence; that the liability is subject to none of the exceptions available under the rule in Rylands v. Fletcher; and that the compensation must be correlated to the magnitude and capacity of the enterprise so as to have a deterrent effect. The reasons were that a rule evolved in the nineteenth century cannot govern a modern industrial economy, that law must grow to meet new situations, that Indian courts need not be constricted by English law, and that an enterprise permitted to carry on a hazardous activity for profit must absorb the cost of accidents as an overhead, since it alone has the resources to discover and guard against the hazards.

2. Distinguish absolute liability from strict liability. Strict liability under Rylands v. Fletcher applies to an occupier who brings a dangerous thing on to land in a non-natural use, requires an escape, and is subject to six exceptions: the plaintiff's default, his consent, common benefit, the act of a stranger, an act of God, and statutory authority. Absolute liability applies to an enterprise carrying on a hazardous or inherently dangerous activity, does not depend on a non-natural use or on an escape in the same sense, admits none of those exceptions, and imposes a duty described as absolute and non-delegable. The measures differ too: strict liability compensates the plaintiff's loss, while absolute liability requires compensation related to the magnitude and capacity of the enterprise so that the award deters. Absolute liability is an Indian rule made in 1986; strict liability is an English rule of 1866 which India still applies outside the hazardous-industry class.

3. How has the rule been applied since 1986? Most importantly in Indian Council for Enviro-Legal Action v. Union of India, AIR 1996 SC 1446, where chemical industries at Bichhri had thrown highly toxic sludge in the open, poisoning soil and groundwater over a wide area. The Court applied the absolute liability rule and added the polluter pays principle, holding that the financial cost of preventing or remedying pollution must lie with the undertakings that cause it rather than with the Government. It directed the Central Government to determine the amount needed for remedial measures, ordered that it be recovered from the industries if they did not pay and used by the Ministry of Environment and Forests, and directed that the polluting units stay closed until they complied. Parliament followed the same course by enacting the Public Liability Insurance Act 1991, whose section 3 gives relief for an accident while handling a hazardous substance without any proof of wrongful act, neglect or default.