Take the money and run? Court of Appeal confirms directors' liability for Council's clean-up costs

Following the NSW Court of Appeal's recent decision in Slade v Kempsey Shire Council [2018] NSWCA 25, directors of companies whose operations risk polluting land should take extra care to ensure that proper remediation steps are taken, lest they be required to personally foot the bill for Council's clean-up efforts.  

EPA clean-up notices and compliance costs

The Protection of the Environment Operations Act 1997 (NSW) (POEO Act) establishes a stick and carrot system which ensures compliance with mandatory clean-up notices issued by the EPA.

In the first instance, the EPA may order a landowner, an occupier and/or any person who is "reasonably suspected" of having caused a pollution incident (eg. a past tenant) to take action to clean up a pollution incident on a particular site (section 91).

The EPA also has the power to issue a clean-up notice on a "public authority" (usually, the relevant local Council), requiring them to undertake the clean-up action. Councils also have the ability to voluntarily undertake clean-up action themselves, if they reasonably suspect that a pollution incident has occurred on land within their boundaries (section 92).

The EPA generally issues clean-up notices to polluters or, in some cases, occupiers and landowners. If those notices are not complied with (usually because the relevant party has since become insolvent), the EPA may then pursue Council.

However, if Council undertakes clean-up action, polluters and occupiers do not get off scot free.

The POEO Act provides that the relevant public authority may recover its reasonable costs and expenses associated with the clean-up action from the suspected polluter and/or occupier, as a debt enforceable by the Court (sections 104-105). Similarly, where a landowner or occupier is required to undertake clean-up action, or an occupier is required to "foot the bill" incurred by Council, the landowner or occupier may themselves recover those costs from the person who caused the pollution incident.

It is these cost recovery provisions which were central to the Slade case.

Asbestos in the South West Rocks

Michael and Barry Slade were the directors, only shareholders and operators of Mid Coast Skip Bins and Metal Recycling Pty Ltd, a company which operated a commercial waste facility. The company operated on land which was initially leased by Michael Slade from Kempsey Shire Council in the South West Rocks Rubbish Depot Reserve, north of Port Macquarie, for seven months during 2011 and 2012. During 2011, the Company incorporated and assumed many aspects of the Slades' operations, including the lease. Despite this, Michael Slade’s evidence suggested that the Company remained "essentially his".

After the Company's leases were terminated by Council on 16 March 2012, the site was left vacant. Shortly after the Slades' departure, approximately 6 tonnes of asbestos waste, "ranging from fragments bigger than a human hand to tiny fragments ground into dust", was found on the site. It was agreed that the waste was deposited on the site during the period of the Slades' occupation.

In August 2012, the EPA issued a clean-up notice to the company. Shortly afterwards, on 5 September 2012, Michael Slade applied for voluntary deregistration of the company. The company was de-registered on 7 November 2012.

On 17 January 2013, the EPA issued a clean-up notice to Council, who undertook a range of investigation and remediation activities on the site, costing approximately $1.3 million.  Council sought to recover these costs from the Slades personally.

Since the closure of the business, the LEC noted that both Michael and Barry Slade have been unemployed, and depend upon social security payments as their main source of income.

The Slades challenge Council's costs notice

The Slades initially challenged the validity of the Council's costs notice in the LEC, arguing that Council’s suspicion that they caused the pollution incidents was unreasonable, rendering the costs notice unlawful. The Slades argued that Council could not have reasonably suspected them of polluting the site, as the premises were licensed for use as a waste facility by the company, the company (not the Slades themselves) occupied the land, and there was no evidence that any stockpiled asbestos actually made physical contact with the land at any time.

The LEC did not accept these arguments and found that Council's suspicion that the Slades caused pollution on the sites was reasonable. In a later decision, the Court went on to quantify the costs which Council incurred, requiring the Slades to pay $1,286,452.62 (plus legal costs) to Council.

The Slades appealed these findings, arguing that a large portion of Council's costs were not properly incurred, and thus not payable by the Slades.

The EPA's clean-up notice required Council to provide it with an "asbestos assessment report … prepared by a qualified and experienced Occupational (Asbestos) Hygenist". Council retained an external contractor to undertake tests and prepare this report. The contractor selected was an "environmental engineer" who, despite being considered an “appropriately qualified expert" by Council with demonstrated experience in the field, did not describe himself as an “Occupational (Asbestos) Hygienist”.

Accordingly, the Slades argued that the Council's costs of procuring this report and acting on its recommendations were not payable by them, as Council had not complied with the EPA's clean-up notice but had, in effect, incurred these costs of its own volition.

The Court of Appeal comprehensively rejected this additional challenge, finding that the Council's reliance on the contractor's report was within the scope of the clean-up notice, and thus, the costs remained payable by the Slades.

Importantly, the Court of Appeal never decided whether the Contract was an “Occupational (Asbestos) Hygienist”. The key aspect of the Court of Appeal's reasoning was its finding that the Council's rights to recover its costs did not depend upon Council's compliance with the EPA’s clean-up notice. The Court found that even if the Slades were correct in arguing that the contractors report was outside the remit of the clean-up notice, Council was still entitled to recover the costs it incurred as it represented the costs of a "voluntary clean-up action".

A lesson to would-be polluters

This finding is of great consequence to parties whose activities might result in pollution of land. Slade confirms that the cost-recovery powers available to innocent landowners, occupiers and local authorities are significant and will be interpreted broadly. In that respect, suspected polluters have very few avenues by which they can avoid having to account for clean-up costs.  As this case demonstrates, those costs are often significant, and challenges to the reasonableness or proportionality of those costs are unlikely to succeed.

Similarly, Slade demonstrates that insolvency and impecuniosity are simply not relevant once the clean-up action has been commenced. Neither the protection of the corporate veil, or the de-registration of the company, inhibited Council's ability to recover its costs from the Slades personally. Their lack of income, and their seeming inability to pay those costs in the foreseeable future, did not sway the LEC's decision.

The Court of Appeal's decision confirms that organisations have an enduring responsibility to ensure that their activities do not adversely impact the environment. The costs of breaching that responsibility may be significant. In this respect, organisations should continue to take steps to ensure that the risks of pollution posed by their activities are minimised. Additionally, the case confirms the importance of adequately providing for environmental liabilities, including rehabilitation costs, throughout the life of an organisation's operations. Similarly important are pre-occupation due diligence efforts, to ensure that potential occupiers and landowners are properly appraised of the condition of the land before leasing or purchasing it.

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