3 Things To Know About Contamination Risk

Overview

Contamination risk. It’s a huge topic. Vitally important to understand, if sleepless nights and sizable bills are to be avoided. 

I recently presented a national contamination update to members of the Australian Environment Business Network on 1 June 2022 and also shared some of my perspective as an environmental lawyer to fellow legal and conveyancing practitioners at an InfoTrack x Lotsearch Contaminated Land webinar on 7 June 2022.  I thought it would be great to share some key issues from those talks to help shine a light on legal liability. If you have an appreciation of the liability risks, as well as financial and reputational risks, you can start to make optimal contamination risk management decisions for your organisation.  

1 – The “Polluter Pays” principle won’t always protect innocent parties

All State and Territory environmental laws make an attempt to incorporate the “polluter pays” principle into law.  This is the notion that the person who is or was responsible for causing or contributing to pollution or contamination is the person who should have to pay for its clean up or remediation.  

It’s a lovely idea in principle and it can work really well in contemporary situations, where for example, you have an industry with site activities that clearly demonstrate causal connection to the contamination.  

However, as is more often the case, a site may have had historic or legacy contamination from a former industrial or commercial activity that occurred in the past, and has long since ceased. The key problem here is that the original polluter(s) of the land either cannot be found, or simply don’t exist (as they have been wound up) or cannot be tied to the land due to lack of evidence that they actually caused the particular contamination.  In this scenario, contamination laws set out who is liable for clean up of contamination, particularly in circumstances where the original polluter can’t be found. 

It can come as quite a shock to clients and their professional advisers that in most jurisdictions the law prescribes that the person who is liable to clean up contamination is the owner or occupier of the land (irrespective of the fact that they are not the polluter).  That is, an “innocent” party can be still held legally liable to be issued with a statutory notice requiring clean-up of a contaminated site. 

Even if the original polluter could be found, the environmental regulator usually has flexibility over the person to whom they address a notice.  They will often elect to serve a notice on the person that is easiest for them. 

Environmental laws generally facilitate a way for a party to recover its costs of complying with a statutory notice from the polluter, but this route is not always practical and depends on identifying the polluter, having adequate evidence and the polluter being in existence. At best this risk amounts to one of embroilment in a legal proceeding.  At worst, you can be left with the financial loss of the cost of clean-up. 

2 – Liability can arise in different ways

When managing contamination risk, legal liability can come up in different ways, for example:

• liability to clean-up contamination (such as requirements to investigate, manage and remediate contamination) that arises from a legal requirement or to comply with a statutory notice served by a State and Territory environmental regulator;

• statutory liability to a party who was issued with a statutory notice (or in the case of Victoria, someone who has expended money on site investigation to meet a compliance obligation) and you are a person who is alleged to have caused or contributed to the contamination;

• civil liability from contractual counterparties (e.g. claims by purchasers against vendors for contamination issues)

• civil liability from other people in relation to property damage or human health impacts from contamination (i.e. site neighbours)

• criminal liability if contamination management offences are breached, for example, failures to notify environmental regulators of contamination discoveries

• director and officer liability in relation to certain criminal offences of an organisation relating to contamination;

• related corporation and related party (i.e. mortgagee) liability to clean-up contamination as required under a statutory notice served by a State and Territory environmental regulator or have liability to cover those costs;

• director and officer liability for the costs associated with a corporation defaulting on its clean up duties

3 – It’s worse than you might expect

By worse, I mean prevalent. Which is worse in many respects for contamination risk management. Have we all been lulled into misunderstanding the true extent of contamination risk? Quite possibly. We have a few things working against us. 

First, although there are governmental records (publicly maintained registers) held by the environmental regulators in each State and Territory, those registers don’t in any way capture all contaminated sites. Not all contaminated sites have been notified to the environment regulator. Not all those that are notified are listed (and indeed registers are different in each State and Territory, with some capturing only those sites with active clean up notices ,for example). Even if contamination may be known, it may be at a level that doesn’t require regulatory notification, but could still cause potential legal problems or trigger a future requirement to clean up (i.e. if the site were to be developed). The number of sites listed on public registers could make it look like there isn’t much of a problem.

Second, there aren’t vast numbers of contamination law cases out there. So it would be easy to assume that contamination litigation is somewhat rare. This is not the case. The absence of reported cases is attributable predominantly to out-of-court settlements and cases not proceeding to trial. 

We all probably have a little bit of cognitive bias acting against us. When combined with reliance on public registers and reported cases, it is easy to mistakenly believe that it’s not a big problem. I always try to be curious and intellectually humble and it never fails to amaze me how often contamination issues actually come up, even in places you don’t necessarily expect, such as greenfield sites. 

Things for the “to do” list

• Take stock of your organisation’s current approach to contamination risk management. Have you properly identified your risks? Have you taken into account the change of law in Victoria that occurred on 1 July 2021?

• Check that your contamination management and regulatory notification duties are understood and documented. There are strict legal requirements to notify of discoveries of contaminated in all States and Territories. These ought to be captured in your legal requirements/obligations register, a contaminated land policy (that steps through the legal requirements, risks and business approach to contamination management) and in your EMS.

• If you are contemplating site acquisition or taking a new lease, pre-acquisition due diligence is essential. This might include purchase of a comprehensive contamination risk report, and commissioning a Phase 1 (preliminary site investigation, with a physical site inspection by a suitably qualified environmental consultant) or Phase 2 (detailed site investigation), depending on the circumstances.

• If you are in a sector that has regular land transactions, consider developing a pre-acquisition policy that covers contaminated land risk and a protocol mapping out the various requirements for environmental due diligence before purchasing a site.

• Given the liability profile, consider appointing an environmental lawyer to work with you on contaminated land investigations to help you understand legal liability and advise on legal requirements.

The legal stuff

This article is drawn from talks given by Gabrielle Guthrie in June 2022. It is aimed to be high-level, practical and thought-provoking. It is not a detailed description of environmental law in any particular Australian State or Territory. All States and Territories have different environmental laws. You should always seek independent legal or other professional advice on specific cases and before acting or relying on any of the content.

All the information in this article and on this website and any downloads are intended only to provide a summary and general overview on matters of interest.  It is not intended to be comprehensive nor does it constitute legal advice or establish a lawyer - client relationship.  Whilst attempts have been made to ensure that the content is current, Gabrielle Guthrie and Guthrie Legal do not guarantee its currency. 

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