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08 Aug 2019

Narrow interpretation wins out: EPA v Grafil – huge blow for waste recycling industry

By Claire Smith, Emma Whitney and Jessica Lighton

The Grafil decision imposes a greater burden on the waste industry in regards to inspection and compliance, especially for those processing construction and demolition waste, because of the strict interpretation of the definition of "asbestos waste".

One fragment of asbestos (regardless of its type or size) in a waste stockpile (no matter how large it is) will mean that the whole stockpile is classified as "asbestos waste", following a critical NSW Court of Criminal Appeal decision.  This judgement is likely to significantly impact the construction and demolition waste recyclers as well as users of recovered aggregate and excavated natural material.

The Grafil decision

On 2 August 2019 the NSW Court of Criminal Appeal (CCA) in Environment Protection Authority v Grafil Pty Ltd; Environment Protection Authority v Mackenzie [2019] NSWCCA 174  overturned a seminal decision of the NSW Land and Environment Court (LEC) that lifted the standard of proof for waste dumping offences and challenged the statutory definition of asbestos waste.

The CCA unanimously held that Justice Pain of the LEC had erred in interpreting NSW waste laws in Environment Protection Authority v Grafil Pty Ltd; Environment Protection Authority v Mackenzie [2018] NSWLEC 99. Broadly, the case considered whether Grafil was operating a waste facility without lawful authority as the company's site was being used to store stockpiles of waste, which were later found to contain asbestos. Grafil argued that the stockpiles were temporary and the site was being used for resource recovery, specifically road construction, rather than waste dumping. Justice Pain, adopting a narrow definition of "waste", held that the stockpiles were temporary and subject to resource recovery exemptions. Her Honour also considered that it was "potentially absurd and impractical" to classify an entire stockpile as asbestos waste on the basis of the presence of one piece of asbestos of any type or size.

The CCA unanimously disagreed with Justice Pain's findings and framed its decision around nine key questions considering the definition of waste, stockpiling activities in relation to waste materials, the application of Resource Recovery Exemptions , and the definition of asbestos waste (Environment Protection Authority v Grafil Pty Ltd; Environment Protection Authority v Mackenzie [2019] NSWCCA 174). The LEC will re-determine the case based on the CCA's answers to these questions.

Could the material in the stockpiles be defined as "waste"?

Under the Protection of the Environment Operations Act 1997 (NSW) (POEO Act), waste is given a broad, multi-faceted definition and a substance is not precluded from being classified as "waste" under the POEO Act simply because it has or may be processed, recycled, re-used or recovered. The CCA, finding that Justice Pain had misconstrued this definition by focusing on a single aspect of the statutory definition, held that the various aspects of the POEO Act "waste" definition are not mutually exclusive. Specifically, the CCA adhered to the POEO Act by determining that material that is processed, recycled, re-used or recovered can be waste under multiple paragraphs of the POEO Act. In short, Justice Pain's interpretation was too narrow.

Did the stockpiles constitute waste disposal?

The CCA also took issue with Justice Pain's approach to the classification of waste disposal to land as a two-step process initially requiring consideration of whether the material was applied to land before determining whether it was disposed of. Her Honour found that, as Grafil were intending to use the material during road construction and the stockpiles were temporary, the stockpiling did not constitute an "application to land" and therefore the material could not be considered as disposed of. According to Justice Pain, the words "application to land" required more than the temporary placement of the material prior to their application to land during road construction.

The CCA overturned this interpretation, finding that a material is applied to land by undertaking one or more of the methods specified in clause 3B1(a)(i)-(iii) of the Protection of the Environment Operations (Waste) Regulation 2005 (NSW). This means that temporary stockpiling of waste, irrespective of how short a period, constitutes an application to land and waste disposal without a licence or exemption under the POEO Act.

Meaning of "contains asbestos"

Fundamentally disagreeing with Justice Pain's interpretation, the CCA held that if any amount of asbestos is present in waste, then the entire load is classified as asbestos waste. This finding aligns with the EPA's view of asbestos waste and reflects the statutory definition of "asbestos waste" under the POEO Act.

Under the POEO Act, any waste that contains asbestos is defined as asbestos waste. The CCA found that the statutory meaning does not "import degrees of inclusion" and applied the dictionary definition of "contains" to determine that the definition does not depend on the absolute or proportionate amount of asbestos contained in the waste.  The CCA held that this wider construction accords with the purpose of the regulation of asbestos waste, including to protect, restore and enhance the quality of the environment and to reduce risk to human health.

Resource recovery exemptions and consumer confidence

Justice Pain's decision was founded on the view that it was reasonable for Grafil, as a consumer of a waste-derived resource, to rely on certificates stating the material satisfies requirements for the resource recovery exemption scheme. The CCA dismissed this view in favour of a black-letter approach, emphasising that consumers (or defendants) bear the onus of proof in establishing they have lawful authority to exercise the resource recovery exemptions. This strict interpretation reflects the language of section 144(2) of the POEO Act. The CCA held that Justice Pain's practical approach was inconsistent with the language of the POEO Act. As such, if consumers using recovered resources seek to rely on the resource recovery exemption as a defence to prosecution by the EPA, they must prove on the balance of probabilities that their use and actions lawfully fall within the exemption. To this end, consumers need to be confident that the recovered resources come from a responsible supply-chain. This is also important as any directors and persons concerned with the management of a business can be deemed individually liable for non-compliance offences in addition to the liability of the business.

What does this mean for the waste industry?

The Grafil decision imposes a greater burden on the waste industry in regards to inspection and compliance, especially for those processing construction and demolition waste, because of the strict interpretation of the definition of "asbestos waste". Recyclers and other operators of waste facilities need to ensure they have thorough and documented inspection and handling systems in place for asbestos to address the considerable compliance risks posed by the definition.

Additionally, users of recycled products such as recovered aggregate and excavated natural material may need to more rigorously prove the elements of resource recovery exemptions in order to succeed in challenging offences prosecuted by the EPA. Users will likely need to ensure they are sourcing material through a trustworthy supply chain to avoid potential compliance risks.

The CCA's decision is likely to have serious repercussions for the construction and demolition waste recycling industry in NSW and firmly positions NSW at odds with other States where very small amounts of asbestos are allowable in recyclable waste up to a specified limit. The zero-tolerance approach to asbestos reinforced by this decision is likely to significantly impact the sale of recovered aggregate and excavated natural material in NSW due to concerns about the risks associated with prosecution if any asbestos is identified in the waste stockpiles.  At a time where there is a considerable market for such material it is unfortunate that the EPA is not adopting a risk based approach and implementing clear statutory guidelines consistent with the State guidelines.  Further in light of the CCA's decision, further legislative reforms are likely to be required to clarify the definition of "asbestos waste" if, in the future, a risk-based approach is adopted where very small quantities of asbestos are allowable.

For more information on the impacts of this decision, please contact Claire Smith or Emma Whitney.

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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 communication. Persons listed may not be admitted in all States and Territories.