Be careful when you purchase land you know to be contaminated and be careful when you sell land without remediating known contamination first; these are the lessons learned from the Victorian Supreme Court decision in Metropolitan Fire and Emergency Services Board v Yarra City Council & Ors [2015] VSC 773.

MFESB ordered to clean up historical contamination by EPA

In 2004, the Metropolitan Fire and Emergency Services Board (MFESB) purchased 1.71 hectares of land in Richmond, an inner city suburb of Melbourne, from the State of Victoria. Its intention was to build a community safety and training facility. The land had previously been possessed by the Yarra City Council, formerly the City of Richmond (together the Council), from 1890 to 1996 under a Crown grant. The MFESB knew the land was contaminated because it had the benefit of environmental assessment reports on the land from both the State of Victoria and the Council. But what it did not know was that the land had been used by the Council as a tar distillery from about 1916 to 1960, which had since been covered with rubble.

The MFESB subsequently discovered the extent of the contamination pre-construction and was issued a clean up notice by the Environment Protection Authority Victoria under section 62A of the Environment Protection Act 1970 (Vic) (Environment Protection Act). By 2010, the MFESB had reportedly spent $12.3M remediating a site that had cost it $7.73M.1 It also needed to rent alternative premises due to its facility not being completed. The contractual carve outs prevented the MFESB from passing any liability onto the State of Victoria.

MFESB pursues the Council for cost of clean up and damages

Section 62A(2) of the Environment Protection Act provides that an occupier of premises who is issued a clean up notice may apply to the Courts for an order that the person who caused or permitted the relevant pollution to occur, or who appeared to have abandoned or dumped any industrial waste or potentially hazardous substance, compensate the occupier for the reasonable costs in complying with the notice.

In this case, the MFESB pursued the Council for its costs in complying with the clean up notice on the basis that the Council either polluted the land or abandoned industrial waste on the land.

The MFESB also raised a number of other arguments, including that the Council owed it a duty of care not to pollute the site and/or to disclose the previous uses of the site to protect the MFESB from suffering loss and damage.

Court finds the Council liable for clean up costs but not damages

Justice Peter Riordan found that the source of the contamination was a filled in tar pit that had historically been used on site in a tar distillery by the Council. His Honour found that the Council had polluted the site and that the act of vacating the site without remediating the waste constituted an abandonment of the waste for the purposes of section 62A.

His Honour held the Council liable for the MFESB’s reasonable clean up costs under s 62A(2) of the Environment Protection Act, however, his Honour failed to find that any statutory duty of care not to pollute or that any other duties of care had been owed or breached to cause the damage.

Lessons for historical contaminators, vendors and purchasers

This decision makes it clear that those responsible for or who abandon very old contamination (nearly a century old here) are still potentially liable under the Environment Protection Act for the cost of cleaning up that contamination. In this case, the Court specifically considered and rejected the argument that the Environment Protection Act did not apply to pollution caused or permitted to occur prior to its commencement. Vendors should accordingly be cautious about selling contaminated land without remediating it first, or at least having a plan for remediation shortly after sale.

The decision also clarifies the limitations on common law liability for contamination. Purchasers of contaminated land will generally have limited recourse against a prior land owner who polluted the land unless they are issued with a clean up notice under section 62A or they have a remedy under the contract. Even under section 62A(2), recoverable costs are limited to the reasonable costs of complying with the relevant notice. Costs incurred prior to the receipt of the notice, or to do work that goes beyond what is required under the notice, are not recoverable. Other types of losses, such as losses caused by delay, are not recoverable either.

The decision also reinforces some messages from earlier decisions, namely:

● A vendor who passes reports and information on the historical use of land to a buyer and permits the buyer to access and inspect land will reduce the ability of the buyer to argue that the vendor has breached some duty to the purchaser and should be liable in the event that contamination is discovered by the purchaser.

● Ultimately, the terms of a contract of sale of land are key: sophisticated parties with the capacity to negotiate in their own interests will be bound by the terms of that contract. As a result, it is of vital importance that vendors and purchasers obtain expert advice on the preparation of provisions dealing with environmental and contaminated land liability.

This case also has similar implications in other states and territories that have legislation that enables those who receive clean up notices to recover costs from polluters, such as in NSW.