Beware the risk of liability for contamination investigation

The regulator’s power to manage contaminated land in most Australian states is generally divided into investigation, remediation and ongoing maintenance powers. While a landowner typically focuses its spotlight on the risk of liability to remediate contamination, the cost and reputational risk issues arising from contamination investigation may also be material.

Given the relatively low threshold test that the regulator must satisfy to validly issue an investigation notice it would be prudent for owners of land to understand, and mitigate, their potential exposure to this liability.

The recent decision in WM Stuart v Environmental Protection Authority (2012) TASRMPAT 110 (Stuart) highlights the risk of liability for former owners to undertake contamination investigation, even if they were not responsible for day-to-day operations during their ownership of the land.

Liability for contamination investigation

In Stuart, the Tasmanian Environment Protection Authority (EPA) issued an Investigation Notice to Mr Stuart under section 74C of the Environmental Management and Pollution Control Act 1994 (Tas) (EMPC Act).

The Investigation Notice required Mr Stuart to investigate potential contamination at a premises formerly owned by him at 176 Channel Highway, Taroona, Tasmania (Subject Site). Mr Stuart subsequently commenced proceedings in the Tasmanian Resource Management and Planning Appeal Tribunal (Tribunal) challenging the validity of the EPA’s decision.

Mr Stuart argued in the proceedings that, amongst other matters, he was not responsible for the contamination and therefore the EPA did not have the power under the EMPC Act to issue the Investigation Notice to him.

By way of background, Mr Stuart owned the Subject Site between about 1987 and 2008. During this period he leased the Site to a series of tenants for use as a service station. Mr Stuart sold the Subject Site to the current owners in about 2009, and they changed the use of the Site to a bakery/shop. The current owners obtained a site contamination assessment that identified petroleum hydration contamination (caused by fuel leaking from underground storage tanks located under the Subject Site) and reported the contamination to the EPA on 1 October 2009.

The Tribunal observed generally that the threshold test for the EPA to lawfully issue an Investigation Notice under section 74C of the EMPC Act is a low one because an Investigation Notice merely commences an investigation process. It does not involve a determination that the person in fact caused any contamination.

In light of this, the Tribunal considered that section 74C of the EMPC Act should be interpreted to make the investigation process one which can be implemented efficiently. The Tribunal concluded that, at a minimum, the Director was required under section 74C to have a reasonable belief that the Subject Site is contaminated and a reasonable belief that Mr Stuart is ‘likely to be … partly responsible for causing or possibly causing’ the contamination.

A key issue in the proceedings was whether responsibility for contamination required some form of intention or positive act. The Tribunal relied on the Victorian Supreme Court’s decision in Premier Building and Consultant Pty Ltd v Spotless Group Limited & Ors [2007] VSC 377 (Spotless) to find that an omission or failure to act when action is required may be described as conduct which causes a particular result.

Applying this principle, the Tribunal found that although Mr Stuart was not responsible for the day-to-day operations of the service station on the Subject Site, he was still a person likely to be partly responsible for causing the contamination. The Tribunal based its decision primarily on the fact that Mr Stuart was obliged, under the terms of some of the leases, to maintain the underground storage tanks that are likely to have caused the contamination and Mr Stuart did not satisfy these obligations. The Tribunal proceeded to find that the Investigation Notice was properly and validly issued to Mr Stuart under section 74C of the EMPC Act.

What does this mean for your business?

A similar broad power to issue investigation notices for contamination to that contained in section 74C of the EMPC Act exists in some other States in Australia. For example, in New South Wales the EPA has the power under section 10 of the Contaminated Land Management Act 1997 to issue a preliminary investigation order to any person the EPA ‘reasonably suspects may have been responsible for contamination’.

Given the relatively low threshold test that the regulator must satisfy to validly issue an investigation notice, and taking into account the potential materiality of investigation costs, it would be prudent for owners of land to understand, and mitigate, their potential exposure to this liability.

For landlords of property that is currently, or historically has been, used for potentially contaminating activities this could be achieved by reviewing leases to identify any obligations on the landlord to maintain plant/equipment (such as underground fuel tanks) that could cause contamination. If any obligations exist, then suitable management systems should be implemented to ensure that these obligations are satisfied. A failure by the landlord to satisfy these leasehold obligations may be construed as conduct that has caused contamination, regardless of whether the landlord actually carried out any operations at the site.

If a landlord is negotiating the terms of a new lease, it is important to understand the plant/equipment and key elements of the operations that have the potential to cause contamination and ensure that responsibility for these triggers are clearly transferred to the tenant.

The principles in Stuart and Spotless may also expose other types of owners (such as joint venture participants) to a risk of liability for contamination investigation even if they were not responsible for the day-to-day operations that are likely to have caused the contamination during their ownership of the land.