Land owners beware - the Polluter Pays for legacy contamination

Sep 2017

The ‘polluter pays principle’ is the corner-stone of global environmental policy, and the basis of environmental laws throughout Australia. In Yarra City Council v Metropolitan Fire and Emergency Services Board 1, the ‘principle’ can be seen in action.

The Victorian Court of Appeal recently held that the Yarra City Council (Council) had to compensate the land owner for the cost of cleaning up pollution that occurred up to 100 years ago, in respect of land that had been transferred multiple times since the contamination occurred and which the Council had not owned since 1996.

This decision is important for all land owners and occupiers who participate in activities that could cause contamination across all Australian states and territories.

Background facts

This proceeding arose from a claim by the Metropolitan Fire and Emergency Services Board (MFB) for compensation and damages for losses arising from the remediation of contaminated land located at 450 Burnley Street, Richmond, Victoria (Burnley Site).

The City of Richmond owned the Burnley Site, and operated an abattoir, a quarry, a stone crushing plant, and most relevantly, a tar distilling plant and a 40,000 gallon blue stone lined storage pit for coal tar over nearly a 100 year period, between 1890 and 1984.

The evidence demonstrated that the coal tar pit was filled in (without being emptied) in the 1960s, and the abattoir ceased operation in the mid 1980s.

In 1994, the Council became a body corporate and the successor in law to the City of Richmond by an Order in Council (Order in Council).

In 1996, the State of Victoria (State) revoked the relevant part of the Crown grant of the Burnley Site. At the time, Council fought the revocation of title, but ultimately the land title was revoked and the land was held by the State.

In 2004, the MFB acquired the Burnley Site from the State. The contract of sale stated that:

  1. MFB assumed all risk of loss, damage, liability or injury to any person, corporation or property resulting in any way from the use of the Burnley Site;
     
  2. MFB may not claim any compensation because of the existence of any contaminant in, on or under the Burnley Site;
     
  3. MFB released and discharged the State and its successors, assigns, employees and agents from and against all claims, suits, demands and actions as a result of the presence of any contaminant in, on or under the Burnley Site, including any costs or expenses incurred in relation to any notice, direction or order issued or made under the Environment Protection Act 1970 relating to the protection of the environment.2

The MFB discovered the extent of the contamination during development works, and was issued a clean up notice by the Environment Protection Authority (EPA) to remediate the Burnley Site. The MFB complied with the clean up notice (which reportedly cost nearly double the land acquisition cost) 3 , and sought to recover compensation from the Council under the Environment Protection Act 1970 (Vic) (EP Act).

Relevant legislation

The EPA issued a clean up notice to MFB pursuant to section 62A(i) of the EP Act.

The section reads:

‘Notwithstanding anything to the contrary in this Act, the Authority may by notice in writing direct:

  1. the occupier of any premises upon or from which pollution has occurred or been permitted to occur;
  2. the person who caused or permitted the pollution to occur;
  3. any person who appears to have abandoned or dumped any industrial waste or potentially hazardous substance; or
  4. any person who is handling industrial waste or a potentially hazardous substance in a manner which is likely to cause an environmental hazard—

to take the clean up and on-going management measures as specified in the notice.’

As MFB did not cause the pollution, it sought to rely on s 62A(2) of the EP Act to make a claim for compensation from the Council, as the person who caused or permitted the pollution to occur. Section 62A(2) allows the recipient of a clean up notice to seek compensation from the actual polluter, being a person described in subsections (b) to (d) above. The section reads:

‘On the application of the occupier of any premises which is the subject of a notice, a court of competent jurisdiction may order that the person described in subsection (1)(b), (1)(c) or (1)(d) compensate the occupier for any costs incurred by the occupier which the court is satisfied are reasonable and were incurred in good faith….’

Trial judgment

In the judgment of Metropolitan Fire and Emergency Services Board v Yarra City Council 4 (Trial Judgment) Riordan J held that the Council was responsible for the cost of compliance with the clean up notice issued by the EPA to the MFB pursuant to s 62A(2). The quantum was not established at that time.

The Council appealed this decision.

Appeal judgment

The Court of Appeal allowed the appeal in part. Warren CJ, Tate and Osborn JJs, in their joint judgment, distilled the various grounds of appeal raised by the Council into four main categories.

Those categories were:

  1. whether the Council was liable for the actions of the City of Richmond;
  2. whether s 62A(2) can be applied retrospectively;
  3. whether the Council abandoned the waste when it relinquished the Burnley Site to the State; and
  4. whether any discretion should be applied in the circumstances.

We discuss each of the first three categories below. The fourth category is not included as it is a technical point regarding discretion to hear liability and quantum issues, and is not the subject of this article.

1. Was the Council liable for pollution caused by the City of Richmond?

The City of Richmond was the owner of the Burnley Site and the operator of the activities on it until 1994, when the Council became the successor in law to the City of Richmond pursuant to the Order in Council.

The Order in Council stated that all property, rights and assets of the former City of Richmond vested in the Council, the Council assumed all of the liabilities of the City of Richmond, and any reference to the City of Richmond was to be construed as a reference to the Council.

The Council submitted that it was not the ‘ person ’ responsible for pollution under s 62A(2), given the identity of the polluter was the City of Richmond, not the Council.

The MFB submitted that the Council was the same ‘ person ’ as the City of Richmond for the purposes of the EP Act, pursuant to the Order in Council and that the Council occupied the role of Richmond.

The Court of Appeal agreed with the MFB, and held that the Council was the person responsible for the pollution caused by the City of Richmond:

‘The mere fact that Yarra is Richmond’s successor in law is not sufficient to make it responsible pursuant to s 62A. It is rather that the legal effect of the Order in Council is, relevantly, that for the purposes of s 62A(1)(b), Yarra occupies the role of Richmond; it is the person to whom the EPA has the authority to direct compliance with a clean up notice. That being so, it is the person to whom the MFB, having incurred costs to comply with the EPA’s clean up notices, can look for the recovery of those costs, pursuant to s 62A(2).’ 5

The Council’s appeal on this ground failed.

2. Can s 62A(2) be applied ‘retrospectively’?

All polluting activities, and most relevantly the operation and filling-in of the tar pit in 1964, occurred before the commencement of the EP Act.

The Council put forward that from 1916 to 1960 the City of Richmond had the right to use the Burnley Site for municipal purposes, and that therefore the activity was not illegal at the time.6 On this basis, the Council submitted that a finding of liability under s 62A(2) would be retrospective in nature, as it would impose a liability on the Council (or on the City of Richmond, being the owner at the time) that it did not have at the time when it engaged in the alleged polluting activities.7

The MFB argued that legislation is not retrospective unless it alters rights, obligations or liabilities as they existed prior to the commencement of the relevant statute, relying on the reasoning in Premier Building & Consulting Pty Ltd (receivers appointed) vs Spotless Group Ltd8 (Spotless). In Spotless, the pollution event in issue occurred prior to the introduction of s 62A of the EP Act. Byrne J held that s 62A was not susceptible to the presumption against retrospectivity, because the liability arises when the EPA issues the clean-up notice, not at the time of the polluting event.9

Their Honours agreed with the MFB, applied the reasoning in Spotless, and held that the obligation, or liability, arose from the issuance of the clean-up notice, not the time of the pollution event, regardless of whether the pollution event was, at the time, lawful:

‘…no order for compensation under s 62A(2) could be issued before 1 July 1984, but this does not preclude an order being made after 1 July 1984 that attaches liability for the costs incurred in compliance with a clean up notice to a person who caused pollution before that date despite the fact that, at the time the conduct was engaged in, no liability for compensation attached to it.’10

The Council’s appeal on this ground failed.

3. Did the Council abandon the waste when it relinquished the Burnley Site to the State?

The Council submitted that it had no knowledge of the presence of contamination at the time the Burnley Site was relinquished to the State, due to loss of corporate knowledge over the many years that had lapsed. On this basis, the Council argued that, as there was no conscious decision to give up the waste, abandonment was not possible.11

MFB submitted that, in order to ‘ appear to abandon ’ waste pursuant to s 62A(1)(c), it is not necessary to establish an actual intention to abandon.

The court agreed with both Council and MFB to some extent. While stating that it is not necessary to demonstrate an intention to abandon, the court held that the absence of knowledge of the existence of the waste did preclude a finding of intention to abandon the waste.

‘In other words, while we do not accept Yarra’s submission that to establish that a person appears to have abandoned industrial waste requires proof that the person had knowledge of the waste and intended to abandon it, we do accept the converse proposition, namely, that proof that a person never knew of the presence of industrial waste buried within land it occupied precludes a finding that the person intended to abandon it.’12

The Council’s appeal on this ground was successful.

Lessons – Sellers and Buyers Beware

This case highlights the risks of property ownership and property use.

Purchasers of property should be aware that they will ordinarily be the initial recipient of a clean up order from the EPA, regardless of whether they are, in fact, the polluter. In addition, it is the responsibility of the owner to demonstrate that another party was responsible for the contamination and to bring an action against the polluter for compensation after the clean up order has been complied with.

Purchasers should conduct due diligence to establish the likelihood of historical contamination prior to the acquisition of any site, and consider whether any identified or unidentified pollution risks can be mitigated by seeking indemnities from the vendor, or by other means, including insurance policies that cover the costs of a clean up order.

Vendors should also be cautious about selling contaminated land without remediating it, as transferring land will not automatically transfer responsibility for waste or contamination left on or in the sold land to the new owner. In order to mitigate this risk, vendors could also seek appropriate indemnities in sale contracts (similar to those that the State obtained), depending on the commercial arrangement between the parties regarding allocation of risk.

It is also important to note that this liability regime is common across many Australian jurisdictions.

New South Wales has a similar regime to Victoria, where the EPA can issue a clean up order to the owner (regardless of fault), and the owner can seek compensation from the person who caused the pollution incident.13

In Queensland, a recipient of a clean up notice who complies with the order is entitled to seek to recover the cost of compliance as a debt from another person who caused the contamination to occur.14

If you are developing, buying or selling contaminated land, our specialist property, planning and environment teams can assist you in navigating contaminated land issues. 

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1 [2017] VSCA 194.
2 Metropolitan Fire and Emergency Services Board v Yarra City Council & Ors [2015] VSC 773, 22-23.
3 http://www.theage.com.au/victoria/fire-brigade-burnt-over-toxic-tar-pit-20100404-rlo8.html
4 [2015] VSC 773.
5 Above n1 [164].
6 Above n1 [214].
7 Above n1 [207].
8 (2007) 64 ACSR 114.
9 Ibid [198], quoting Spotless.
10  Ibid [219].
11 Above n1 [235-236].
12 Above n1 [291].
13 Protection of the Environment Operations Act (NSW) 1997, s 91.
14 Environmental Protection Act (Qld) 1994, s 363H(6).

This article may provide CPD/CLE/CIP points through your relevant industry organisation.