Posted on March 27, 2017 by Anna Sinclair 1

Council clean-up of polluted sites – lessons for recovering costs

Recent decisions of the Land and Environment Court show that public authorities, including local councils, can pursue individual directors to recover their clean-up costs where a corporation is deregistered.

These decisions also provide guidance on what a council will need to establish to make a person liable for its clean-up costs, as well as the evidence it will need to bring to recover those costs.

Background

Kempsey Shire Council v Slade (2015) 214 LGERA 214; [2015] NSWLEC 135 (Kempsey (No 1)) and Kempsey Shire Council v Slade (No 2) [2017] NSWLEC 10 (Kempsey (No 2)) concerned the Council’s clean-up of a polluted yard in the South West Rocks Rubbish Depot Reserve.

The respondents, Michael Slade and his father, Barry Slade, were the directors of a company (Company) that leased the yard from Kempsey Shire Council (Council) to use it as a commercial waste facility.  The Company occupied the yard for one year between 2011 – 2012, before the lease was terminated. Soon after, the Company was de-registered.

The EPA subsequently found asbestos littered throughout the yard. The EPA issued a “clean-up” notice on the Company under s91 of the Protection of the Environment Operations Act 1997 (POEO Act). The Company failed to comply with the notice.

Statutory clean-up regime

In these circumstances, the POEO Act creates a regime that permits the EPA to issue a clean-up notice on a council (or other public authority) on the basis that it ‘reasonably suspected’ that pollution incident has or is occurring. The council is required to comply with the notice at its own cost (s92(1) of the POEO Act).

The council can then issue a ‘compliance cost notice’ (s104), and if necessary, commence legal proceedings (s105) to recover its reasonable costs and expenses incurred in connection with the clean-up action from either:

• the occupier of the premises at or from which the authority ‘reasonably suspects’ the pollution incident occurred, or
• the person who is ‘reasonably suspected’ by the authority of ‘having caused the pollution incident’.

The system operates so that any person who ‘stands in the spotlight of suspicion’ of a public authority for a pollution incident may be subject of a cost recovery order.

In this case, the clean-up notice issued on Council required Council to remove the asbestos from the leased yard and remediate the site. Council undertook the clean-up action by engaging external consultants and contractors, at a cost of $1.28 million.

Findings

Kempsey (No 1) concerned the liability of the respondents, in their individual capacity as directors, to pay Council’s clean-up costs.

The respondents argued that only the Company could have been reasonably suspected of causing the pollution at the yard, and the corporate veil protects them from individual liability.

The key question for the Court was therefore whether Council could have ‘reasonably suspected’ that the respondents (being the directors of the Company) ‘caused’ the pollution incident.

This was the first time that the Court had considered the meaning of ‘reasonable suspicion’ in the context of s104(2)(a) of the POEO Act. It adopted the interpretation of ‘reasonable suspicion’ from other statutory contexts, and held that the following principles apply to its interpretation under s104(2)(a) of the POEO Act:

• the public authority must have formed a genuine suspicion that a particular person/s caused the pollution incident,
• a reasonable suspicion is less than a reasonable belief, but more than a possibility,
• there must be an objective or factual basis for the suspicion, and
• the objective circumstances do not have to establish on the balance of probabilities that the person caused the pollution incident, or that there has been a pollution incident.

In regards to whether a person ’caused the pollution’ incident for the purpose of s104(2)(a), Biscoe J (applying established principles of causation) held that this may include:

• a person who did or directed the act that led to the pollution incident,
• a person who established the system that enabled the act to occur, and
• a person with sufficient control over operations to be held responsible for the act or with responsibility or authority to prevent or correct the act.

In this case the Court found that it was reasonable for council to suspect that the respondents caused the pollution incident because the asbestos had been brought on to the yard during the period the Company leased the yard.

The respondents had caused the pollution incidents given that they were responsible for the conditions that gave rise to the pollution incidents – they had created, adopted and were involved in the implementation of procedures for the inspection, discovery, handling and removal of asbestos.

Lessons for councils required to take clean-up action

(1) Can a council recover its costs from directors personally?

An important part of the decision in Kempsey (No  1) is that the Court held that the respondents were not protected by the corporate veil for the pollution incidents that occurred when they were directors of the Company.

The Court found that the causation question is framed so widely in s104 of the POEO Act as to be capable of catching both a corporation and its directors.

This means that councils will not be prevented from seeking to recover their clean-up costs where a corporation, which is liable, no longer exists, or is insolvent.

(2) What is required to show a ‘reasonable suspicion’?

Kempsey (No 1)  further shows that for a council to seek to recover its clean-up costs it does not have to show that the person actually ‘caused’ the pollution. It must only show that it had a genuine suspicion that a person caused the pollution, which was objectively reasonable.

To establish this a council still needs to investigate the circumstances which led to the pollution incident so that it can form the reasonable suspicion. However, it is a lower evidentiary threshold which reduces some of the investigation work and evidence collection that a council has to undertake before it can issue a compliance cost notice.

(3) How can a council recover its reasonable costs and expenses?

In Kempsey (No 2) the quantum of Council’s clean-up costs had to be determined.

The Council’s costs and expenses for the clean-up action were considerable and it had engaged appropriately qualified experts to assess, project manage and safely remove and dispose of the asbestos-affected waste on its behalf.

The respondents (who were self-represented in these proceedings) failed to bring any evidence which challenged the Council’s claim for costs.

The Court ordered the full recovery of Council’s costs, finding that the Council’s claim was amply supported by the evidence.  The Court also stated that Council was perfectly entitled to engage and rely on appropriately qualified experts to assess, project manage and safely remove and dispose of the asbestos-affected waste on its behalf.

This decision, whilst not creating new law, is an important reminder to councils that to ensure that they can recover all clean-up costs they must maintain thorough business records, invoices and other relevant documents which detail all of the clean-up works and costs that have been undertaken to comply with the clean-up notice.

The decision in  Kempsey (No 1) can be read here, and the decision in Kempsey  (No 2) here.

If you wish to discuss these cases further then please contact Anna Sinclair, Senior Lawyer on 8235 9713 or by email, at anna.sinclair@lindsaytaylorlawyers.com.au