Polluter pays – Availability of reasonable costs of clean up

What is the issue?

On 26 July 2017, the Supreme Court of Victoria (Court of Appeal) upheld a key finding of Justice Riordan at first instance in Yarra City Council v Metropolitan Fire and Emergency Services Board.[1] The City of Yarra appealed on several grounds[2] from the decision of Justice Riordan, only one of which is discussed in this note.  The issue discussed here is recovery from the polluter of the reasonable costs of clean up conducted by a person who has been served with a notice by the Environment Protection Authority (EPA) under s 62A of the Environment Protection Act 1970 (EP Act) (s 62A notice).

As noted in my recent book review here, at first instance, Justice Riordan in Metropolitan Fire and Emergency Services Board v Yarra City Council & Ors[3] found that statutory liability under the EP Act for the cost of remediation of contaminated land subject to a notice under the EP Act remains with the polluter.  That finding, upheld by the Court of Appeal,[4] is important in the development of contaminated land law and highlights the practical importance of prudent due diligence in the context of buying and selling contaminated land, and considering options for recovery of reasonable clean up costs.

Image credit Burnley and Richmond Historical Society

What was decided?

The EP Act makes provision for EPA to serve a notice directing a person to take clean up measures.  An owner of contaminated land may then recover reasonable clean up costs from the polluter in responding to the s 62A notice.[5]

One finding the Court of Appeal confirmed was that the Metropolitan Fire and Emergency Services Board’s (MFESB) reasonable clean up costs for legacy contamination at the corner of Burnley Street and Barkley Avenue Richmond (Burnley Site) could be recovered.  The analysis required a detailed consideration of changes in site ownership from City of Richmond in 1919, which became the City of Yarra. The Burnley Site was then purchased by the State of Victoria in 2005.  City of Yarra was held liable for pollution at the Burnley Site.  The pollution source was tar found in a bluestone storage pit, identified on the Burnley Site in 2005.

What does it mean for me?

I am a purchaser or vendor (including a public authority) of potentially contaminated land

On the one hand, this decision clarifies the extent of liability for clean up costs which at least in theory should give parties to sale of land transactions comfort.  With increasing pressures on development and land use change at inner city industrial sites, it is less true than ever that contaminated land ought be regarded as ‘land locked’.  The clarity provided by the Court of Appeal gives parties an assurance, including that liability for remediation under the EP Act remains with the polluter where the EPA has issued a s 62A notice regardless of whether:

  • the site has been vacated, relinquished or sold;
  • other contractual arrangements exist dealing with potential land contamination, including with State government;
  • the pollution occurred prior to the EP Act’s inception in 1970;
  • the polluter no longer retains an interest in the property (MFESB v Yarra City Council [2015] VSC 773).

On the other hand, for parties such as the City of Yarra, the Court of Appeal decision is ‘bitterly disappointing’.[6]  In the aftermath, City of Yarra reported that it was considering all its options including appeal to the High Court.[7]  This report relates in particular to the underlying finding that City of Yarra caused or permitted the pollution to occur.  Recovery of reasonable costs of cleaning up land affected by a s 62A notice is only available from a person who ‘caused or permitted the pollution to occur’.

I am an owner of land with a contamination legacy

As an owner of contaminated land, if you propose a change in land use or development, it would be prudent to revisit any assumptions included in your real estate development matrix.[8]  In particular, consider:

  • Are any assumptions made at the time of acquisition of the land still correct?
  • Has a s 62A notice been served in relation to the land, and if not, whether there is a prospect of service of such a notice by EPA in the future in respect of clean up which you have not caused or permitted to occur?
  • Do you have accurate information about the contaminated land history of the land, and is it wise to make further inquiries?
  • Do any contracts allocate the cost of clean up pursuant to an existing s 62A notice and if so are they enforceable? Is the contract potentially inconsistent with any s 62A notice that has been served and therefore likely to be unenforceable in light of this decision?

Section 62A does not provide for any form of damages for consequential loss.  It provides only for actual costs incurred in meeting the requirements of a clean up notice.

Next steps

As noted above, adopting a prudent and on-the-front-foot approach to the management of any legal risk associated with cost of clean up of contaminated land may require consultation with existing commercial advisors.  This note is prepared in practical terms, and relies on assumptions about the particular ownership history at the Burnley Site.[9]  Your circumstances may differ from those discussed by the Court of Appeal, in important respects.

The Court of Appeal remitted the matter back to Justice Riordan for findings on the remaining issues, including the reasonable costs of clean up to be paid by City of Yarra to MFESB pursuant to s 62A.

POST SCRIPT:  City of Yarra recently applied for special leave to appeal to the High Court of Australia.  Special leave was refused on 16 November 2017.

Image Tar Pits Museum https://tarpits.com

© Eliza M Bergin

Liability limited by a scheme approved under professional standards legislation

[1] [2017] VSCA 194 (26 July 2017), [178] (‘Yarra v MFESB’)

[2] (1)  Was Yarra liable for the pollution caused by Richmond (Grounds 1, 2 and 3 – s 62A(1)(b)?

(2)  Is s 62A(2) impermissibly retrospective (Ground 4 – s 62A(2))?

(3)  Did Yarra appear to abandon the industrial waste in the bluestone pit when relinquishing possession of the Burnley Site to the State of Victoria in or about February 1996 (Grounds 5, 6, 7 and 8)?

(4)  Should an order or declaration under s 62A(2) have been made (Grounds 9 and 10 – s 62A(2))?

Yarra v MFESB [2017] VSCA 194, [87]

[3] [2015] VSC 773

[4] Yarra v MFESB [2017] VSCA 194 (26 July 2017)

[5] Section 62A(1)(b) provides that the EPA may issue a notice directing the person who has caused or permitted the pollution to occur to take the clean up and on-going management measures as specified in the notice.  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 compensate the occupier for any costs incurred by the occupier which the court is satisfied are reasonable and were incurred in good faith in complying with the notice.

[6] City of Yarra, Media Release: Supreme Court Appeal (27 July 2017).

[7] Ibid

[8] ‘The seven stages in the model are: land banking, land packaging, land development, building development, building operation, building renovation, and site redevelopment. Each stage in the process begins with the acquisition tasks and ends with the disposition tasks. Each stage must also address, to some extent, the following categories of tasks (many of which are done simultaneously): financing, market research, approvals, environmental, improvement construction, and transportation and accessibility concerns. As with all real world applications of conceptual models, the lines separating the stages and the categories can be fuzzy.’ Daniel Kohlhepp  ‘The Real Estate Development Matrix’ The American Real Estate Society Meetings St. Petersburg, Florida (2012)

[9] That is, the City of Richmond had controlled the land under a Crown grant since 1890 and by 1916 was operating:

  • an abattoir;
  • a quarry;
  • a stone crushing plant;
  • a ‘refuse destructor’; and, relevantly
  • a tar distilling plant with a 40,000 gallon blue stone lined storage pit for coal tar on the depot.

 

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