Contaminated land in Queensland ‒ buyers and sellers take notice

The Queensland Court of Appeal in Albion Mill FCP Pty Ltd & Anor v FKP Commercial Developments Pty Ltd [2018] QCA 229 has recently affirmed what written notice is for the purpose of notifying a purchaser of contaminated land, under the now repealed section 421 of the Environmental Protection Act 1994 (EP Act). Repealed section 421 has been replaced with section 408 which provides a substantially similar onus on the owner of land to provide written notice of land recorded in a land register.

The decision confirms the position that:

• a purchaser should not assume that a formal written notice of contaminated land is required; and
• the notice may take a range of forms, as long as it reaches the attention of and informs the purchaser of the associated liabilities required to be notified under the EP Act.

The underlying transaction

FKP Commercial Developments Pty Ltd entered into an option agreement for the sale of land with Fridcorp Pty Ltd, who nominated Albion Mill FCP Pty Ltd as purchaser. The sale involved the acquisition of a development site at Albion, Queensland. Three of the lots on the Property were contaminated and listed on the Environmental Management Register (EMR), with associated Site Management Plans (SMPs).

The terms of the agreement required payment of a deposit at the end of the due diligence period. Albion Mill failed to comply with the requirement to pay the deposit, and subsequently advised FKP that it sought to rescind the agreement on the basis that no notice of contamination was provided in accordance with section 421 of the EP Act. This was rejected by FKP, who terminated the agreement and subsequently pursued a damages claim against Albion Mill for breach of contract.

Requirement to provide written notice of contaminated land

Under the now repealed section 421 of the EP Act, when selling land an owner was required to provide written notice to a purchaser if that land was recorded on the EMR, the Contaminated Land Register (CLR), or was subject to a Site Management Plan (SMP). This notice had to be provided to the purchaser before agreeing to dispose of the land, and a failure to do so entitled the purchaser to rescind the contract prior to completion of the agreement or possession was taken.

The current section 408 of the EP Act provides a very similar onus on the owner of land to provide written notice of land recorded in a land register. Where an owner has failed to comply with this requirement, the owner may also disclose the contaminated land after agreement to sell, providing the purchaser with 21 business days in which to exercise a right to terminate the agreement. A failure to exercise this right within the statutory timeframe waives a future right to rescind.

Was the purchaser made aware of the contamination?

During the due diligence period, FKP had uploaded a number of documents to a data room identifying the contaminated lots, which were accessed and downloaded by Fridcorp. A due diligence report subsequently identified contamination and remediation liabilities.

While an express formal notice of the contaminated lots was not provided to Albion Mill, evidence was tendered that Fridcorp had notice of the matters required under section 421 of the EP Act in the form of:

• data room records indicating the access of the relevant contamination information by Fridcorp; and
• an email prior to Fridcorp nominating Albion Mill as the purchaser under the option agreement indicating awareness of the contamination and that further advice had been sought.

Was the notice sufficient?

The Queensland Court of Appeal affirmed the original decision that if notice was in writing and it reached the attention of the purchaser to allow them to be informed of the contamination, notice was deemed to have been given for the purpose of section 421 of the EP Act.

The Court's determination rested heavily on considering the purpose of the notice, which was to warn a purchaser of the potential liabilities that may be inherited from the sale of the land (e.g. land with limited development potential or significant remediation costs). Communication of these liabilities is required through notifying the purchaser that the land is on the EMR, CLR or subject to a SMP.

While it was acknowledged that other than to be in writing, there is no requirement under section 421 for the notice to take a specific form, the Court held that "the simplicity of the requirement conforms to the purpose for which such a notice is given: to inform the buyer only of the fact of the registration of the particulars of the land and the details of any plan". The purpose of the EP Act is achieved if the contamination is communicated in writing, prior to entering into a contract.

It was also argued that notice was given to Fridcorp, not Albion Mill. This was dismissed by the Court on the basis that the sole director and sole shareholder of Fridcorp and Albion Mill (at the relevant time) was the same and that the corporate mind for the purposes of the project was the same.

Implications of the decision

For sellers/owners, this decision means:

• notice can take many forms, however best practice remains for a clear, separate notice to be given to the buyer and any nominee before a contract is formed;
• current section 408(5) provides an opportunity to rectify any failure to provide the required notice to the buyer as long as the notice is given prior to completion and the buyer does not rescind the agreement within 21 business days; and
• notice must ensure that it communicates the matters required to be communicated under section 408 of the EP Act:
  • the particulars of the land have been placed on the register; and
  • details of any site management plan.

For purchasers:

• do not assume that a formal written notice will be given - check the data room;
• if the matters required to be communicated under section 408 of the EP Act are disclosed in writing throughout the pre-contractual phase of negotiations, whether explicitly given or not, the purchaser is unlikely going to be able to rely on the failure of a separate specific notice being given as a right to avoid the contract;
• access of documents in a data room may be sufficient for awareness of the matters required to be communicated under section 408 of the EP Act; and
• best practice remains to ensure that sufficient due diligence is undertaken.