Contaminated land: key issues and updates

Environment eBulletin - 27 February 2013

Summary

  • Contamination can significantly reduce the value of a site and poses significant risks to owners and purchasers of contaminated sites. 
  • Owners, managers and potential purchasers of contaminated sites should have an understanding of the legislative regimes which apply to contaminated sites in each jurisdiction. 
  •  While the polluter pays principle generally operates, where the polluter cannot be located or required to remediate, a subsequent owner, occupier, mortgagee or even local government could be issued with a remediation notice and be responsible for heavy clean-up costs. 
  •  Purchasers of contaminated land should carry out careful due diligence in order to quantify the commercial risk before agreeing to take on a contaminated site. 
  •  Directors or managers of contaminated sites should also be aware of relevant obligations as they may be exposed to liability in the event of a breach of contaminated land requirements.

 

Quick links:

Contaminated land is a significant and contentious issue, particularly in the context of property transactions and the redevelopment of brownfield sites. Contaminated land is also a significant issue for regulators in seeking to regulate the environmental and health impacts of historical contamination. For example, last week, EPA Victoria released its contaminated environments strategy outlining how it proposes to address contaminated land issues.

This eBulletin provides a summary of the key features of the contaminated land management regimes Australia-wide. In addition, we provide an update on recent and proposed changes to the directors' liability provisions for offences in connection with contaminated land.

 

Contaminated land: the issues

Generally speaking, contaminated land regimes seek to regulate land that has been contaminated by past practices. While pollution laws are generally applied to currently operating businesses and ongoing activities, contaminated land legislation relates to pollution from past activities.

Statutory regulation of contaminated land is usually required only where the extent of the contamination poses significant risks to the environment or public health. Otherwise, the market will deal with the issue of contaminated land – for example, the cost of clean up will be reflected in value of land or there may be economic incentive to remediate (such where it is proposed to convert an industrial site to residential use).

However, complications can arise where, for example, the original polluter has disappeared or where standards have changed over time. Owners/purchasers/developers of such sites therefore need to work out if remediation is required and if so, who is responsible and who should foot the bill?

 

Contaminated land regimes

Regimes for the management of contaminated land differ in each State and Territory. Some jurisdictions have standalone acts, while other contaminated land regimes are contained within the main environmental protection laws. However, there are key elements which are common across the regimes in that they establish, for example:

  • Who is responsible? 
  • When must the regulator be notified? 
  • Whether or not liability can be transferred to another party.

As the regimes do vary across each State and Territory, companies operating in potentially contaminating activities and entities which own or occupy land which may be contaminated must have an understanding of the relevant requirements in each jurisdiction in which they operate.

By way of example, each State and Territory (other than Victoria) has a statutory duty to notify a regulator when contamination is discovered at a site. However, each of the regimes differ in terms of: 

  • when the requirement to notify is triggered; 
  • the timeframe for notification; and 
  • penalties for non-compliance.

The table below summarises some of the key features of the contaminated land regimes in each State and Territory.

Contaminated land regimes Australia

The relevant legislation identified may also be supported by regulations, guidelines and technical notes which will be relevant in managing contaminated land. Specific requirements may also apply for the management, decommissioning and removal of underground petroleum storage systems (see, for example, the NSW Protection of the Environment Operations (Underground Petroleum Storage Systems) Regulation 2008).

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Managing risks: contaminated land

As is clear from the above, while contaminated land regimes principally seek to hold the original polluter responsible, this may not always be possible or practical. Therefore, those seeking to purchase or redevelop potentially contaminated sites are exposed to significant financial and regulatory risk, particularly given the potential costs of remediation.

Those considering whether to take on or redevelop a contaminated site should therefore aim to manage those risks by carrying out appropriate due diligence and seeking to protect themselves from liability. For example, purchasers/developers should: 

  • Review relevant registers and searches (though these may not be exhaustive). 
  • Review environmental audits and reports. 
  • Examine surrounding land uses and previous history of the site. 
  • Examine environmental management plans and/or contamination management plans connected to the site to ensure conditions are not overly onerous or expensive. 
  • Request a warranty from the vendor that all information regarding contamination has been disclosed. 
  • Have any relevant deeds/indemnities provided by previous owners assigned. 
  • If contamination is a potential issue, the purchaser should engage its own environmental consultants to investigate the site.

Vendors or owners should also be aware that while the principle of caveat emptor (or buyer beware) applies, there are statutory requirements for the disclosure of certain information about the contamination of a site to prospective purchasers. In addition, in certain circumstances, silence and failure to disclose information about contamination to prospective purchasers or lessees has been held to constitute misleading and deceptive conduct.1 Therefore, care should be taken when making representations to potential purchasers/developers/lessees about the contamination status of a site.

Where a purchaser does agree to take on a site which may be affected by contaminated, the contractual options available to deal with the issue of liability for contamination include, for example: 

  • a discount in price to allow for the estimated clean-up costs;
  • a requirement that the vendor remediate prior to settlement;
  • indemnities; and
  • apportioning the risk, for example, “layers of liability" might be adopted where land is being acquired with the purchaser effectively assuming some responsibility for the existing contamination.

Ultimately however, the way in which contamination is dealt with will come down to commercial negotiations between the parties and factors such as: 

  • the nature/extent of the contamination; 
  • the intended land use; 
  • the purchaser's objectives; and 
  • timing.

 

Update: liability of directors and managers

Directors and managers of companies which own or manage land which might be contaminated should also bear in mind that failure to comply with the requirements of the relevant contaminated land regime can result in heavy fines and pose a significant cost to businesses, and in some circumstances, directors or managers may be personally liable for the actions of its corporation.

By way of update however, the NSW Miscellaneous Acts Amendment (Director's Liability) Act 2012 came into force on 11 January 2013. Similar legislation has been introduced in parliament in Queensland, the ACT and Tasmania. It is expected that the other Australian jurisdictions will follow. However, in Queensland and Tasmania there are no changes proposed to their main environmental protection laws that deal with contamination. (For a more detailed explanation of these changes please click here).

As a result of these amendments, in NSW, directors or managers can still be prosecuted for executive liability offences committed by a corporation (being a failure to comply with a management order or ongoing maintenance order issued to the corporation by the EPA or failure to by the corporation to notify the EPA of contamination), however the prosecution bears the legal burden of proving the elements of the offence.

In the ACT, the Directors Liability Legislation Amendment Bill 2012 proposes to amend the Environment Protection Act 1997 (ACT) (ACT EP Act) (and other ACT legislation), so that executive officers, charged with an offence under the ACT EP Act, will be presumed innocent until the prosecution proves each element of the offence. Relevant offences include failure to comply with a remediation order in relation to contamination; causing serious or material environmental harm; and placing a pollutant where it could cause harm.

While these amendments arguably make the task of prosecuting directors and managers more complicated for prosecutors, directors should not relax their compliance processes for managing contaminated land.

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Conclusion

Contaminated land can expose owners, purchaser and developers to significant financial and regulatory risk.

Owners and managers of contaminated land should be aware of the specific requirements of the regimes in which they operate.

Prospective purchasers of contaminated land should conduct appropriate due diligence to assess the nature, extent and cost of remediation prior to taking on a site which may be contaminated and should protect themselves by seeking appropriate warranties and indemnities.

Authors
Breellen Warry, Senior Associate and Natalie Rodwell, Lawyer 


1  See, for example, Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd [2005] 215 ALR 625.

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