Property & Projects Update

LEGSILATION AMENDMENT ALERT – Changes to the Contaminated Land Management Act (NSW) 1997

In December 2008, the NSW government passed amendments to the contaminated land legislation.

The principal legislation in this area is the Contaminated Land Management Act 1997 (CLMA). The CLMA is administered by the statutory body constituted by the Protection of the Environment Administration Act 1991 called the Environment Protection Authority (EPA). The EPA is now managed and administered by the NSW Department of Environment and Climate Change (DECC).

The majority of the amendments in the Contaminated Land Management Amendment Act 2008 (CLM Amending Act) will come into force on proclamation which is anticipated to be 1 June 2009, although some amendments are applicable from the time that the bill was passed in December. Important amendments which are already in force are the introduction of a general offence for providing false and misleading information and the removal of the “no knowledge” defence for directors and other persons concerned in the management of a corporation that has contravened the CLM Amending Act.

Before considering the amendments in the CLM Amending Act, it is worthwhile to briefly state some important provisions that already existed in the legislation.

1. SUMMARY OF THE CONTAMINATED LAND LEGILSATION

The CLMA applies generally to all land, which includes water on or below the surface of land and the bed of such water.

Section 5 sets out the definition of contamination as “the presence in, on or under the land of a substance at a concentration above the concentration at which the substance is normally present in, on or under (respectively) land in the same locality, being a presence that presents a risk of harm to human health or any other aspect of the environment”.

That section goes on to clarify that:-

• land is not contaminated merely because in any surface water standing or running on the land a substance is present in such a concentration or merely because of the presence of a contaminant substance prescribed by the regulations; but
• land may be contaminated land even if it became contaminated partly or entirely by the migration of contaminants into, onto or under the land from other land.

It is the duty of the EPA to:

• examine, and respond to, information that it receives of actual or possible contamination of land; and
• address any contamination that the EPA considers significant; and
• record what it has done under paragraphs (a) and (b) and the reasons for it.

The EPA must respond to a person who has furnished information about a potential contamination within a reasonable time and state what the EPA has done in relation to the information and the reasons for doing it.

In addition to any functions the EPA has under the CLMA, it may take such reasonable steps as it considers necessary in relation to investigating or managing contamination of land or the threat of harm from any contamination.

1.4 Other provisions of the CLMA

The legislation also sets out:-

• the right for a public authority to take action if a person fails to do so;
• provisions for recovery of costs, including:
  
  
  • the creating of a charge over land for recovery of a public authorities costs; and
  • an ability for a person who investigated and/or remediated to recover their costs from the contaminator where that person did not cause the contamination or was only a contributor;
• a regime for carrying out site audits;
• the powers of authorised offices of the EPA; and
• details of offences, including Court jurisdiction, time for commencement of actions and penalties.

2. SUMMARY OF IMPORTANT AMENDMENTS IN THE CLM AMENDING ACT

The CLM Amending Act states that a person is responsible for contamination of land if any one or more of the following is true:

• the person caused the contamination of the land (whether or not any other person also caused the contamination of the land),
• the contamination occurred because an act or activity of the person resulted in the conversion of a substance that did not cause contamination of the land into a substance that did cause contamination of the land,
• the person is the owner or occupier of the land and the person knew or ought reasonably to have known that contamination of the land would occur and the person failed to take reasonable steps to prevent the contamination,
•  the person 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 by the action of natural processes on the land, into substances that are the same as those that caused the contamination,
    
    unless it is established that the contamination was not caused by the person.

A person is also responsible for significant contamination of land if either or both of the following is true:

• the significant contamination occurred because an act or activity of the person resulted in a change in some pre-existing contamination of the land so that the contamination of the land became significant contamination, or
• the significant contamination occurred because an act or activity of the person resulted in a change in the approved use of the land and the consequent increase in the risk of harm caused the EPA to identify the land as significantly contaminated land (even if the contamination itself did not change).

It is irrelevant that the contamination did not arise contemporaneously with the act, activity or omission of the person that ultimately was responsible for (or is taken to be responsible for) the contamination of the land.

A person who is responsible for contamination continues to be responsible for that contamination whether or not the person has entered a contract or other arrangement that provides for some other person to be responsible for the contamination or for any harm caused by the contamination.

The CLMA introduced the concept of a notional owner of land and this has been refined by the CLM Amending Act. A notional owner of land is a person who is a mortgagee in possession of the land or who has a vested interest with respect to the land:

•  that carries an entitlement to have a freehold interest in the land, or
• that enables the person to dispose of or otherwise deal with a freehold interest in the land,

so that the person is able to benefit from the value of the land, or a substantial portion of it, by such vesting, disposal or dealing.

However a person is not a notional owner of land merely because the person has a security (such as a mortgage, charge or lien) over the land or merely because the person is a legal personal representative of a person who was an owner of the land immediately before the person’s death or the appointment of the representative took effect.

There is also an exception if a person would otherwise be a notional owner of land, but that person has some security over the land and the person (or a financial controller appointed by the person) has entered into a contract to sell the land for the purpose of realising part or all of the value of the land in order to discharge the obligation so secured.

The EPA may direct a person to conduct a preliminary investigation of land to investigate whether the land is contaminated with the substances specified in the order and investigate the nature and extent of any contamination.

This may include an order in relation to a chemical group of related substances if the EPA reasonably suspects that the specified land is contaminated with one or more of the substances in that group.

The CLM Amending Act significantly widens the scope of who can be served with an investigation-type order. A preliminary investigation order may be served on any one or more of the following persons:

• a person who the EPA reasonably suspects may have been responsible for contamination of the land with the specified substance;
• an owner of the specified land;
• a notional owner of the specified land;
• a person who carried on activities on the specified land, but only if the activities are of the sort that:
  
  
  • generate or consume the same substance as a specified substance, or
  • generate or consume substances that may be converted by reacting with each other or by the action of natural processes on the land into the same substance as any of the specified substances,
• a public authority.

Maximum penalty for failure to comply with a preliminary investigation order
	Offence	Continuing offence
Corporation	625 penalty units	300 penalty units for each day the offence continues
Individual	300 penalty units	150 penalty units for each day the offence continues

If the EPA has reason to believe that land is contaminated significantly enough to warrant regulation it may declare that land “significantly contaminated land”. This amendment replaces the “significant risk of harm” test in the CLMA. The CLM Amending Act sets guidelines on what should be considered before declaring land to be significantly contaminated, but does not really establish any threshold or specific parameters. Therefore it is arguable that the EPA has a broader discretion under these provisions.

The declaration is to be made in a Gazette and must serve a copy of the notice on the owner of the land, those persons who the EPA believes are responsible for the contamination, the occupier of the land and the relevant local authority.

The EPA may make a management order in relation to significantly contaminated land which requires:

• the carrying out of any action in relation to the management of the land that may be specified in the order; and
• the submission for the EPA’s approval a plan of management of the land.

The management order is to be addressed to one of following persons:

• a person who is responsible for significant contamination of the land (whether or not there may be other persons who are also responsible); or
• an owner of the land (whether or not the person is responsible for contamination of the land); or
• a notional owner of the land (whether or not the person is responsible for contamination of the land).

The EPA is, as far as practicable, required to specify a person referred to in (a) over a person referred to (b) or (c) and to specify a person referred to in subsection (b) over a person referred to (c).

As noted from the definition as set out above, a person responsible for the contamination of land may be an occupier who knew or ought to have know about the contamination. This provision permits a particularly wide scope for the EPA to issue notices to current occupiers who may not have actually caused the contamination but ought to have known that there was, in fact, a contamination.

A management order must specify the following matters:

• the significantly contaminated land to which it applies;
• the nature of the significant contamination (and the nature of any harm that has been or may be caused) that the EPA believes may affect the land;
• the action that the person subject to the management order must take;
• a reasonable period for taking that action; and
• any other matter prescribed by the regulations.

A management order may require the person to whom it is directed to do any one or more of the following:

• to investigate the existence, nature and extent of any significant contamination;
• to investigate the nature and extent of any harm that has been or may be caused by the significant contamination;
• to investigate the most appropriate means for undertaking remediation of the land;
• to carry out remediation of the land;
• to monitor the effectiveness of any remediation or the risk of harm presented by the significant contamination of the land;
• to erect a fence, wall, bund or other barrier in a specified place on the land;
• to treat, store or contain on the land, or remove from the land and treat or dispose of, any solid or liquid materials including any soil, sand, rock or water;
• to vacate, or cease to carry on any activity on, the land or any part of it;
• to display on the land any specified sign or notice;
• to refrain from disturbing or further disturbing the land in a specified manner or below a specified depth;
• to have specified actions audited by a site auditor;
• to make progress reports to the EPA;
• to advertise and conduct meetings for the public to receive progress reports, and to make comments, on the action taken under the management order or on the plan of management; and/or
• to inform the EPA of any change in the ownership or occupancy of the land.

The EPA is able to recover its costs of preparing and serving an order, monitoring action and seeking compliance. A public authority may also require a person to pay any costs associated with the public authority carrying out an order.

A person whose activities have contaminated land must notify the EPA in writing that the land has been contaminated.

• the person’s abilities, including his or 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 CLM Amending Act clarifies the position that if a contravention of the legislation is perpetrated by a corporation then each person who is a director of the corporation or who is concerned in the management of the corporation is taken to have contravened the same provision, unless the person satisfies the court that they were not in a position to influence the conduct of the corporation in that regard or the person used all due diligence to prevent the contravention by the corporation.

Pursuant to its powers under the CLMA, the EPA has approved the following site / contamination specific guidelines:

• Contaminated Sites: Guidelines for Assessing Service StationSites, December 1994
• Contaminated Sites: Guidelines for the vertical mixing of soil on former broad-acre agricultural land, January 1995
• Contaminated Sites: Sampling Design Guidelines, September 1995
• Contaminated Sites: Guidelines for Assessing Banana Plantation Sites, October 1997
• Contaminated Sites: Guidelines for Consultants Reporting on Contaminated Sites,September 2000
• Contaminated Sites: Guidelines on Significant Risk of Harm from Contaminated Land and the Duty to Report, April 1999 (revised July 2003)
• Contaminated Sites: Guidelines for Assessing Former Orchards and Market Gardens, June 2005
• Contaminated Sites: Guidelines for the NSW Site Auditor Scheme (2nd edition), April2006
• Guidelines for the Assessment and Management of Groundwater Contamination, March 2007

3. HOW IS THE CLMA RELEVANT TO YOU?

Land owners generally present an attractive target for the EPA. The registration system of title in NSW makes a proprietor relatively easily identifiable. The registered proprietor will generally have the strongest interest in the property and usually have good financial capacity to deal with contamination issues.

If a land owner is in possession of any information or documentation which suggests that the land may be contaminated (whether by the actions of that particular owner or some previous owner/user) this should be investigated. The land owner should then consider its obligations of disclosure to the EPA.

Vendors of land should note that that the EPA’s primary target for issuing management notices is the person responsible for the contamination. Whilst it is certainly more straight forward for the EPA to issue notices to the current owners, under the definition in the CLM Amending Act a person responsible for contamination continues to be responsible despite a contract or other arrangement that seeks to transfer responsibility to another party. Vendors should not assume that once they have disposed of property they are absolved of their responsibility.

Expert reports, answers to requisitions, disclosures, warranties and indemnities in contracts for sale should all be dealt with carefully and with proper analysis when considering contamination issues.

Purchasers should always be wary of contaminated or potentially contaminated sites. The changes to the CLMA do not significantly affect the position that a prudent purchaser should be diligent with its enquiries and investigations, particularly where it knows of some relevant issue such as a potentially contaminating previous use.

Purchasers should be aware that the current owner is a particularly attractive target for a management order, being the person currently in control of the land and entitled to access. Under the CLM Amending Act a previous owner does not necessarily stop being the party responsible for contamination, but it may take time to prove and pursue the contaminator meanwhile the purchaser is substantially out of pocket for investigation and remediation costs.

Landlords should be particularly wary of the activities that are being carried out by their tenants on leased properties. The case law in this area suggests two cautions. Firstly, the EPA’s primary objective is identifying and managing contamination. It will not go to great lengths or expense to determine the party that caused the contamination but will issue orders to the most practical person. Secondly, a landlord can be guilty of an offence through its negligent contribution to contamination. Where the landlord knows that the permitted or actual use of premises under a lease is a potentially contaminatory activity, the landlord needs to take all reasonable steps to discharge its obligations (which may include providing equipment, structures or fittings at the property to manage any contamination which may arise through that use).

Landlords should takes steps to protect their interests. Firstly by ensuring that tenant are sufficiently financially capable to meet any costs associated with remediating contamination and, secondly, by including lease clauses which impose obligations on the tenant, such as indemnities in relation to contamination and a general right for the landlord to inspect the property. Landlords should also consider the appropriateness of carrying out a site audit prior to the commencement of the lease, in order to be able to show that any subsequent contamination was caused by the tenant.

Again, tenants should note that it is not automatically the owner of land who must manage contamination. The EPA’s powers are wide ranging and an occupier, whether or not they have an actual proprietary interest in the property, is certainly a potential target for an investigation or management order.

It should be noted that the CMLA is expanded by the CLM Amending Act which captures occupiers as a person potentially responsible for contamination. If a tenant suspects that a property may be contaminated then it should consider the option of requesting the landlord or the EPA to carry out an investigation of the land. Any minor contamination should be referred to in the lease (or in a report referred to in the lease), so that on termination the tenant is not required to remediate pre-existing contamination. Tenants should also be very careful about the forms of indemnities which they give to landlords in the lease document.

If during the term of the lease a tenant discovers some contamination, it’s obligation may not only be to report that contamination to the landlord, but also to the EPA.

The “notional owner” concept introduced by the CLMA may pose particular problems for a mortgagee. The CLMA is clear that a person is not a notional owner merely because it has a security (mortgage, charge or lien) over land. Mortgagees must, however, be wary should they enter into possession of the land. Where the registered proprietor is experiencing financial difficulties, a mortgagee in possession is more likely to have the propensity to comply with EPA orders.

The legislation appears to suggest that a mortgagee may be a suitable party to be subjected to a preliminary investigation order and/or a management order between the period from when it takes possession of the secured property and the time that it has entered into a contract to sell the land in order to discharge its security.

Despite the above, all persons and corporations should be aware of their obligations under the legislation to disclose any actual or potential contamination to the EPA as soon as practicable after they have become (or ought reasonably to have been) aware of the contamination, regardless of whether they have caused the contamination and regardless of the negative financial impact it may have on them.