In Canberra Hire Pty Ltd v Koppers Wood Products Pty Ltd, the ACT Supreme Court interpreted clauses of a contract for the sale of land that allocated liability for site contamination and remediation. As a result of the way in which the clauses were drafted, the vendor (Koppers) was responsible for remediation of soil, but not for remediation of groundwater and the purchaser did not get the clean site it thought it was buying.

Contractual allocation of liability

The ACT Supreme Court recently handed down judgment in the matter of Canberra Hire Pty Ltd v Koppers Wood Products Pty Ltd & Ors [2013] ACTSC 162 (12 August 2013). The case concerned the interpretation of a contract for the sale of land. The site in question had previously been used by Koppers for the manufacture of treated wood products. The treating process involved use of a number of chemicals, some of which were toxic and had a high capacity to dissolve into soil.

The contract between Canberra Hire and Koppers included a requirement that Koppers undertake remediation of the site. The standard of remediation to be achieved was specified as the Health Investigation Level “F” (known as “HIL F”) determined under the National Environmental Protection (Assessment of Site Contamination) Measure 1999 (“Site Contamination NEPM”), which was the level appropriate for contaminated in soil on land used for an industrial use.

After the contract was signed and exchanged, it was confirmed that the previous use of the site had caused contamination of both soil and groundwater. Canberra Hire argued that the contract included a requirement to remediate both soil and groundwater contamination. However, Koppers argued that, as a result of the specific reference in the contract to the HIL F standard, it was responsible only for remediation of soil.

Refshauge J agreed with Koppers’ interpretation, deciding that the reference to that specific standard was “selected deliberately because it was a specific term and…has a very specific meaning” (at [209]). As the contract allocated liability only for remediation of soil contamination to Koppers, it had no responsibility to remediate the associated groundwater contamination.

What constitutes a ‘register’ of contaminated sites?

The contract also included a requirement that Koppers ensure that the site could be removed from any “register of contaminated sites”. In the ACT, the Environmental Protection Authority maintains a database in which it records sites which, to its knowledge, are potentially contaminated. However, that database has no statutory basis, is not used to record formal or official transactions and no listings are ever removed from it. On this basis, Refshauge J concluded that the database did not fulfil the meaning of “register” in the sense that that term was used in the contract.

Lessons for contractual allocation of liability for contamination and remediation

This case provides a number of useful lessons for persons dealing with contaminated land:

  • it is important to conduct legal and technical due diligence to establish and understand the history of use of the land;
  • it is important to engage appropriate environmental experts at an early stage. Those experts can assist you by:
  1. identifying potential sources of contamination;
  2. providing technical advice about possible contaminants;
  3. arranging further investigations if necessary;
  4. providing advice about the appropriate standards of remediation that are required for the ongoing or proposed use of the land; and
  5. peer reviewing material prepared by other parties to a transaction;
  • it is important to ensure that the allocation of risk and liability for any contamination and/or remediation is agreed with the benefit of relevant technical and legal advice;
  • it is essential that drafting of contamination liability and remediation clauses is precise, accurate and adapted to legislative and regulatory conditions in the specific jurisdiction.