Clayton Utz Insights

05 July 2012

Contaminated sites: Pollution without lawful authority?

By Mark Etherington.

Key Points:

The Court confirmed that lease covenants for the operation of sites are likely to be very relevant to identifying who's assumed the responsibility of preventing pollution.

As we foreshadowed last month, the recent decision of BP Australia Pty Ltd v Contaminated Sites Committee [2012] WASC 221 provides clarity around the process for assigning remediation responsibility under the Contaminated Sites Act 2003 (WA) and the significance of covenants for maintenance and repair.

Background

BP Australia Pty Ltd was the lessee of a petrol station site under a head lease and found to be 36% responsible for remediating the site. The sub-lessee and sometime owner of the site was assigned 41% responsibility.

Contamination arose from a "weeping anaconda" joint or valve (Equipment) that connected the dispensing equipment to the underground pipework.

The Court held that the head lease but arguably not the sub-lease assigned responsibility for the repair and maintenance of the Equipment (excepting fair wear and tear).

Failure of appeal

The Court dismissed the appeal from the Contaminated Sites Committee's decision because no error of law was identified in the Committee's decision that contamination arose from:

  • BP's failure to:
    • ensure that the Equipment was sound;
    • maintain the Equipment; and
    • enforce covenants by others for the maintenance and use of the Equipment;
  • the sub-lessee's continued use of the Equipment when in a state of disrepair; and
  • "an act done without lawful authority" by each of BP and the sub-lessee.

BP's contention that the leak arose from fair wear or tear was rejected as lacking evidentiary support, and (in any event) not giving rise to a question of law.

Two significant appeal issues where the correctness of the Committee's approach in:

  • finding that the contamination arose without lawful authority; and
  • apportioning responsibility between four parties over 15 different time periods.

As to whether BP acted without lawful authority, the Court:

  • upheld the Committee's finding of unlawfulness based on a contravention of the Environmental Protection Act 1986 (WA) (EP Act); and
  • rejected BP's contention that the criminal burden of proof (ie. beyond reasonable doubt) rather than the civil burden of proof (ie. balance of probabilities) applied in the absence of BP being convicted under the EP Act.

As to the apportionment of responsibility, the Court rejected BP's contention that the Committee failed to provide adequate reasoning. The Court suggested that apportionment involves the making of a value judgement rather than applying the civil burden of proof. This was said to require the making of findings about the contamination and the persons responsible but not the enunciation of "why a particular percentage of responsibility was allocated…. as compared to some other percentage".

Significance of covenants for maintenance and repair

The Court confirmed that lease covenants for the operation of sites are likely to be very relevant to "the identification of the person or persons who had assumed the responsibility of preventing pollution from occurring". This is a critical factor given that the causing of pollution can be "an act done without lawful authority".

The importance of such clauses is seen in the Court's finding:

"BP's concession that the contamination of the site came about as a result of leakage of fuel from underground pipes on the site which it was obliged to repair and maintain, a concession amply justified by the evidence before the Committee, was quite sufficient to sustain the conclusion that BP caused pollution at the site by failing to repair and maintain the pipework. Any other conclusion would have been perverse",

BP's proportional responsibility for remediation may have been less if the sub-lease covenant mirrored that of the head lease (ie. by attributing greater significance to the sub-lessee's failure).

Contamination pre-dating the EP Act

The Court was not required to consider whether remediation responsibility could be allocated for contamination pre-dating the pollution offence within the EP Act.

However, the Court did note that there was some support for the argument that:

  • a breach of a written law is not required; and
  • unlawful authority may arise in instances of nuisance and trespass (but less likely under contracts) through a breach of common law standards or duties, community standards or norms of conduct.

This issue may yet arise on the redevelopment/urban renewal of or near former market garden or industrial sites.

Review of Act

This Court decision is also timely, in coinciding with the five-year legislative review of the Act's operation.

The Department of Environment and Conservation has released a consultation paper (June 2012), which:

  • identifies the aim of the review as the fine tuning the Act by making its operations simpler, more transparent and more proportionate; and
  • poses the questions:
    • has the Act delivered?
    • is the Act meeting the expectations of stakeholders and the wider community in effectively identifying, recording, managing and remediating contaminated sites?
    • is the Act fulfilling its objective of protecting people's health and the environment.

The consultation paper is open for public comment until 28 September 2012.

Implications

The Court's decision highlights the significance of repair and maintenance covenants in determining responsibility for remediation – specifically, given the high costs involvement in site remediation, the:

  • allocation of responsibility based on a failure to prevent leakage from plant and equipment;
  • potential for a vendor of a contaminated site to remain liable for remediation as the "polluter" (because the landowner, rather than the occupier, retained responsibility for repair and maintenance of critical plant and equipment); 
  • importance of historical agreements in determining proportional responsibility (which should also be addressed as part of acquisition due diligence); and 
  • potential liability for remediation arising from pollution that precedes the commencement of the EP Act pollution offence on 20 February 1987.

These may be issues that are addressed as part of the current review.

 

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For more information, contact...
Email: Brad Wylynko, Partner
Tel: +61 8 9426 8552
Email: Mark Etherington, Senior Associate
Tel: +61 8 9426 8012
Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
Mark Etherington
Mark Etherington