The New South Wales Government has tightened its regulation of contaminated land exposing landowners and businesses to harsher penalties and more extensive obligations on landowners to report contamination.
On 10 December 2008, the Contaminated Land Management Amendment Act 2008 was passed by the New South Wales Parliament significantly amending the Contaminated Land Management Act 1997 (NSW) (CLM Act). These changes impact on owners, developers, landlords, tenants, and purchasers. In dealing with contaminated land, regulators seek to ensure that the contamination is effectively addressed to protect human health and the environment, and managed by the appropriate persons. On the other hand, owners and occupiers of property are concerned with ensuring that their investment is adequately protected and that they comply with the relevant statutory requirements to manage contamination.
The key changes to the CLM Act include:
- an expanded definition of persons responsible for contamination;
- those "responsible for contamination" will continue to be responsible as far as the amended CLM Act is concerned, even if they have made a contract or other arrangement which says another person is responsible
- broader duty to report contamination. If you reasonably ought to have known about contamination (for example, if you could have reasonably sought advice that would have made you aware of the contamination) you must report it;
- a new test for the regulator's (Environmental Protection Authority or EPA) power to regulate. The objective "significant risk of harm" test (SROH) has been replaced by a more subjective test of whether the EPA considers the contamination is "significant enough to warrant regulation" (SEWR);
- new powers allowing the EPA to require a broad range of persons to carry out preliminary investigation, even if the EPA has not determined there is contamination that is SEWR;
- removing the "no knowledge" defence for managers/directors;
- new offset arrangements between the Minister and a polluter (for example, provision of community services or the establishment of environmental or resource projects) where, in the opinion of the Minister, it is in the public interest and it would not be practicable to remediate the contamination within a reasonable time; and
- greater penalties for failure to comply with management orders or the duty to notify the EPA.
The majority of these changes will become effective upon the new CLM Act's proclamation on or around 1 June 2009. A few minor amendments (eg. removal of "no knowledge" defence for directors and managers, general offence for providing false and misleading information) already commenced upon the Parliament's assent of the amendment act on 10 December 2008.
The EPA is currently developing new guidelines for the duty to notify the EPA of contaminated land. A draft copy of these guidelines will be available for comment in 2009.
Managing contaminated land
The new CLM Act contains a new power for the EPA to issue preliminary investigation and management orders.
The current approach to managing land authorises the EPA to declare land to be an "investigation area" and then issue an "investigation order" requiring the appropriate person to investigate the contamination. After this, or alternatively, the EPA can declare land to be a "remediation site" and issue a "remediation order" requiring remediation of the land.
With the amendments, the EPA may issue a "preliminary investigation order" requiring a person to conduct a preliminary investigation of land to investigate whether the land is contaminated and to identify the nature and extent of any contamination. This information must be provided to the EPA who may declare the land to be "significantly contaminated land" and issue a "management order" requiring further investigation and or clean-up.
Under the old CLM Act, the EPA can issue an investigation or remediation order to appropriate persons in the following order:
- a person who has principal responsibility for the contamination;
- owner of land; or
- notional owner of land.
With the changes to the CLM Act, the range of persons who may be required to undertake contaminated land investigations has been increased. The EPA can issue a preliminary investigation order to any one or more of the following people in any order:
- a person whom the EPA reasonably suspects is responsible for the contamination;
- an owner of land;
- a notional owner;
- a person who carried on activities of the sort that generate or consume the same type of contamination; or
- a public authority.
As to management orders under the amended law, the EPA can issue the orders to the following persons in the following order:
- a person who is responsible for significant contamination of the land (note: the definition of "person responsible for contamination" under the amended CLM Act includes, amongst others, an owner or occupier of the land who knew or ought reasonably to have known that contamination would occur but failed to take reasonable steps to prevent contamination, and a person carrying out activities on land that generates or consumes the same substances as those that comprise the contamination unless he/she establishes that he/she did not cause the contamination);
- the owner of the land; and
- a notional owner of the land.
Under the amended CLM Act, the EPA would have discretion to issue a management order to an occupier who knew or ought to have known about the contamination or is carrying out activities that could have caused the contamination.
New test for contaminated land - are they really different?
The amended CLM Act has done away with the declaration of a "remediation site" and has introduced a new phrase "significantly contaminated land".
The change of terminology from "remediation site" to "significantly contaminated land" does not appear to have any practical impacts, other than lessening any stigma that may be tied to land declared as a remediation site.
The more important difference relates to the new test for the determination of significantly contaminated land. The current test is whether the contamination poses an SROH to human health or the environment. The following factors, among others, are relevant in assessing SROH:
- whether the contamination of the land has already caused harm (for example in the form of toxic effects on plant or animal life);
- whether the substances are toxic, persistent or bioaccumulative or are present in large quantities or high concentrations or occur in combinations; and
- whether the substances have migrated or are likely to migrate from the land (whether because of the nature of the substances or because of the nature of the land).
The new test is whether the EPA considers that the contamination is SEWR. The EPA can declare land as significantly contaminated land if it has reason to believe that it is contaminated, and the contamination is SEWR.
Other than drafting changes, there are no significant differences in the factors that the EPA must consider in determining SROH vis-à-vis SEWR. What is different though is that while the current SROH test involves a technical analysis of the criteria to determine whether the EPA, on reasonable grounds, believes that the contamination presents a SROH to human health or the environment, the proposed new test does not contain a standard for assessing the contamination on a site. The assessment of whether the contamination will be "significant enough" is not defined by any threshold. Accordingly, it is currently unclear how the new test will operate in practice and what level of contamination will be required for the contamination to be SEWR by the EPA. In the absence of any statutory guidelines (note: to date the EPA has not issued any guidelines), the SEWR test arguably grants the EPA a broader discretion in determining what is a significantly contaminated land.
Any changes to your responsibilities as an owner or occupier of land?
With the amendments, an owner's or occupier's liability for contamination is triggered if he/she knew or ought reasonably to have known that contamination would occur and he/she failed to take reasonable steps to prevent the contamination.
In practical terms, this may mean that landlords will need to consider more proactive measures to ensure that its tenants' activities do not contaminate the land. Indemnity provisions in lease contracts would have to be carefully drafted to respond to any liabilities a landlord may take on in view of the changes.
As mentioned above, with the amendments, an "occupier" is included in the definition of "person responsible for contamination". In contrast, a mere occupier of contaminated land is not caught under the old CLM Act except under one provision which makes the occupier who is required to undertake a remediation action liable if it fails to do so. In addition, the amended CLM Act also considers a person who carried on activities on the land that generate or consume the same substances as those that caused the contamination, or substances that may be converted (by reacting with each other or via natural processes on the land) into substances that are the same as those that caused the contamination, as a "person responsible for contamination". Effectively, incoming occupiers who take over or continue the businesses/activities on the contaminated site from previous occupiers would qualify as persons responsible for contamination. The only defence they have under the amended CLM Act is to prove that they did not cause the contamination in the first place.
Consequently, incoming occupiers (eg. tenants) may wish to consider obtaining a baseline report that delineates the extent of any pre-existing contamination (depending on the contamination risk profile of the land) at the start of the lease. Occupiers undertaking activities that could potentially contaminate (eg. storage of hazardous substances) should also make sure that comprehensive record-keeping and auditing measures are in place.
The amended CLM Act further clarifies the statutory responsibility for contamination by including a provision stating that the "person responsible for contamination" continues to be responsible for the contamination despite a contract or other arrangement that provides that another person is responsible for the contamination or harm. Consequently, parties should carefully consider indemnity and warranty provisions in any transaction involving actual or suspected contaminated land.
"Do we have to tell the EPA?"
The duty to notify the EPA when a person's activities on land have contaminated it in such a way as to present a SROH has been significantly broadened.
Under the previous CLM Act, it is only when a person has actual knowledge of a SROH that the duty to notify arises. Suspecting that there might be contamination that presents SRoH or suspecting that known contamination may present a significant risk does not give rise to a duty to report. an example of when a person "becomes aware" is when he/she receives a site audit statement or report indicating that contamination has migrated from the site and/or is causing harm to the environment.
Under the amended CLM Act, however, a person "becomes aware" of contamination if he/she has constructive knowledge of the contamination; in other words, if the person "ought reasonably to have been aware of the contamination" based on criteria such as:
- the person's abilities, including his/her experience, qualifications and training;
- whether the person could reasonably have sought advice that would have made the person aware of the contamination; and
- the circumstances of the contamination.
The practical consequence of this change is that companies could have a positive duty to proactively investigate land (to determine the nature and extent of any historical contamination) and involve the EPA at an earlier stage in the remediation process. Additionally, the broadening of the duty to notify may result in a situation where a company becomes aware of past activities, with a concomitant obligation to report that activity even though the activity occurred years before the company's actual knowledge.
The EPA will shortly be issuing new guidelines for the duty to notify the EPA of contaminated land which would be available for comment.
"But we didn't know!" defence
The old CLM Act includes a number of statutory defences for directors and managers of a corporation taken to have contravened the CLM Act, including that the corporation contravened the CLM Act without his/her knowledge, that he/she was not in position to influence the corporation's conduct, or that he/she was in such a position but used all due diligence to prevent the contravention.
The amended CLM Act has done away with the "I didn't know" defence, and consequently, imposes a higher degree of diligence on the part of the director or manager to ensure that the contravention does not occur. This change is consistent with the approach taken recently in other environmental legislation where the "no knowledge" defence has also been removed.
This amendment is one of the few changes that already took effect on 10 December 2008 when the amendment law was assented to by Parliament.
The amended CLM Act introduces a new power for the Minister to enter into offset arrangements with a polluter in situations where the Minister considers it would not be practicable to remediate contamination within a reasonable timeframe. For example, an offset could take the form of provision of community services or the establishment of environmental or resource projects.
A number of the penalties have been increased. For example, the maximum penalties for failure to comply with a management order or duty to notify are increased to $165,000 (currently $137,500) plus daily penalties of $77,000 (currently $66,000) for non-compliance.
The amended CLM Act is a major overhaul of the current system for regulating contaminated land, and will affect anyone who has at any time occupied, owned or controlled land which could potentially be contaminated.
Given that majority of the provisions of the new CLM Act are likely to take into effect on or around 1June 2009, owners, occupiers, tenants, purchasers, vendors and anyone who has dealings with land that is contaminated or suspected to be contaminated will need to carefully consider steps to minimise any potential future legacy liabilities arising from contaminated sites (eg. baseline audits; and carefully worded indemnities if they are purchasing, selling or leasing property) and their existing responsibilities (eg. when duty to notify the EPA is triggered).