1 October, 2015
The Land and Environment Court has handed down a decision that makes clear that a public authority may recover its reasonable costs from anyone whom it reasonably suspects of having caused pollution or a pollution incident, including the directors and officers of the company involved.
Key points
A public authority can recover the costs of its compliance with a Clean Up Notice from any person it reasonably suspects of having caused the pollution.
A reasonable suspicion does not require proof that a person caused the pollution. A reasonable suspicion involves less than a reasonable belief but more than a possibility.
Any person who has control, responsibility or authority to prevent a pollution incident may be reasonably suspected of causing the pollution and issued with a clean-up compliance costs notice.
Therefore, it is possible that directors, managers, employees, receivers and liquidators could, under certain circumstances, be issued with a clean-up compliance costs notice.
If an innocent person is issued a clean up compliance costs notice they may recover the cost as a debt by proving that another person caused the pollution, but their bear the risk of insolvency of that person.
The purpose of the clean-up costs recovery regime is to provide a simple and strong machinery for clean-up of pollution which can require public authorities to clean-up pollution where attempts to get polluters to clean-up have been exhausted but permits them to recover the costs of the clean-up from anyone that they reasonably suspect to have caused that pollution.
Implications of decision
The EPA generally issues Clean-Up Notices to public authorities after it has exhausted all avenues in attempting to have the polluter clean up a site, or where it cannot find the polluter. This often occurs in an insolvency context. The case, therefore, clearly has significant implications for:
- directors and managers of companies that have been involved with a pollution incident under circumstances where there may be a risk of insolvency for the company;
- persons who acquire facilities from companies that are or may be insolvent, particularly where there may be a risk of ongoing pollution; and
- insolvency professionals appointed to owners of facilities that are in financial distress, where facilities may be causing ongoing pollution or where there is a pollution incident during the course of their appointment.
The facts – what happened
The case of Kempsey Shire Council v Slade [2015] NSWLEC 135 involved a claim by Kempsey Shire Council to recover a statutory debt under s 105(1) of the Protection of the Environment Operations Act 1997 (POEO Act). The claim was for reasonable costs and expenses of the Council in taking clean-up action in respect of pollution incidents resulting from the deposit of asbestos at a waste facility during the currency of the lease of the facility to Michael Slade or the currency of a later lease to a company of which Michael Slade and his father Barry Slade were the only directors and shareholders. The amount claimed was $1,291,728.26.
In March 2011, Kempsey Shire Council leased a rehabilitated and capped landfill at South West Rocks to Michael Slade, trading as Mid Coast Skip Bins and Metal Recycling, for use as a commercial waste transfer station. Waste from the business' former premises was brought to the site and stockpiled contrary to the terms of the lease. Processing of this waste was not commenced and the stockpiles of waste were observed to be higher than the fence. Three months later, the business was registered as a company with Michael Slade and his father Barry Slade becoming its only directors and shareholders. A new lease for the site, under the company name Mid Coast Skip Bins and Metal Recycling Pty Ltd, was issued in September 2011.
Shortly before the second lease was issued Council wrote to the Company informing it that the terms of the lease did not allow temporary stockpiling of waste on the site before processing and that this waste should be disposed of at an alternative facility.
Although waste processing equipment was finally assembled at the end of January 2012, Barry Slade informed Council that the company had ceased trading due to Council's insistence that no new waste could be brought onto the site in early February 2012. Equipment, office and fencing were removed and the site was vacated by 30 April 2012 but the stockpiles of waste remained. Nine days later an inspection revealed asbestos on the site.
The EPA then, on the basis that it had a "reasonable suspicion" that a pollution incident had occurred, directed Kempsey Shire Council to take clean up action via a Clean-Up Notice, as it is permitted to do under s 92 of the POEO Act. Kempsey Shire Council complied with the Clean-Up Notice and then, via a Compliance Cost Notice issued under s104 of the POEO Act, required Michael and Barry Slade to pay its costs in doing so on the basis that it "reasonably suspected" Michael and Barry Slade of having caused the pollution.
In an attempt to avoid the costs of cleaning up the pollution, Michael and Barry Slade argued that the pollution did not occur until the lease was terminated and the waste remained stockpiled on site. Therefore, only the company could be reasonably suspected of causing the pollution because it was the entity responsible for the site at the end of the lease.
Court found that there was a "reasonable suspicion" that directors caused the pollution
The Land and Environment Court considered the statutory scheme for pollution clean-up and cost recovery under the POEO Act. The Court noted that the most remarkable aspect of the scheme is that it is based merely on reasonable suspicion and is therefore undemanding. It is only at the final stage in the statutory scheme that the factual issues as to whether there was in fact a pollution incident and who in fact caused it squarely fall for determination. The Court noted that the purpose of the regime was to provide a simple and strong machinery for clean-up of pollution by a public authority where there is a reasonable suspicion that a pollution incident has occurred, even though the public authority had nothing to do with the pollution, and for the public authority to recover its reasonable costs from anyone it reasonably suspects of having caused the pollution incident even though that person may not in fact have caused it. It is the latter who, if he did not in fact cause the pollution or the pollution incident, then bears the burden of recovering those costs from the person who in fact did. As a result, it would be possible for a person who was "reasonably suspected" of having caused a pollution incident to be required to pay the clean up costs even where they may actually be innocent of having caused the pollution.
Deciding the meaning of "reasonable suspicion" for the first time, the question for the Court was whether Council's subjective suspicion that Michael and Barry Slade had caused the pollution was objectively reasonable. The Court determined that it was reasonable for Council to suspect that the pollution occurred during the currency of both leases but that the timing of the occurrence was not relevant in circumstances where the individuals with control, responsibility and authority to prevent the pollution occurring or continuing failed to prevent it. It was objectively reasonable for Council to suspect that both Michael and Barry Slade were in charge of operations and had management responsibility for implementing the asbestos removal practices at the waste transfer station which failed and caused the pollution, even during the period in which the company held the lease.
The Court noted that the fact that someone else (such as the Company or another employee) may also have caused the pollution is not inconsistent with the respondents having caused it. It need not be either a company or its directors who caused the pollution incident: all may have done so.
As a result, Michael and Barry Slade were ordered to pay the Council’s reasonable costs in complying with the EPA’s Clean-Up Notice.
For further information, please contact:
Jennifer Hughes, Partner, Baker & McKenzie
jennifer.hughes@bakermckenzie.com
