By Charmian Barton

Recent changes to NSW contaminated land law could mean businesses who own, lease or manage contaminated land in NSW will be liable for contamination where previously they were not.

The Contaminated Land Management Amendment Act 2008 (NSW), which came into effect on 10 December 2008, has given the Environment Protection Authority (EPA) broader powers to issue investigation and management orders.

Currently only some of the changes are in force – those provisions relating to the removal of the “no knowledge” defence and to the introduction of offset arrangements. The remainder of the changes, including the removal of the ‘significant risk of harm’ test, are likely to be in force by mid 2009.

‘Significant risk of harm’ test replaced

The EPA will have power to regulate contaminated land if it considers that the contamination is ‘significant enough to warrant regulation’. Currently, the EPA must be satisfied that contamination presents a ‘significant risk of harm’ (SROH) before it regulates a site under the existing Contaminated Land Management Act 1997 (CLM Act). The new test may see the EPA issuing more management orders for the investigation and clean-up of contamination.

However, the EPA will still need to apply the same considerations as those provided under the existing SROH test when deciding whether to declare land to be ‘significantly contaminated’. For example, the EPA must take into account any increase in the risk of harm arising from the current approved use of land, and whether contamination has migrated off-site. Because the same considerations are relevant to the EPA’s decision, we may not necessarily see an increase in the number of sites caught under the new regime.

Change in terminology

The Amendment Act provides new terminology for the declaration of contaminated land as “regulated land” and for the issuing of management orders which may include investigating or cleaning up contamination. The current system of declaring land an investigation area or remediation site and the issuing of investigation or remediation orders will be done away with.

Responsibility for clean-up

Under the Amendment Act, in deciding whether to issue a management order, the EPA is only required to follow the former “hierarchy” of responsible persons as far as is practicable. In addition, the EPA will have power to issue a management order to investigate and/or clean up contamination against more than one person. This means that the EPA does not have to pursue the polluter in the first instance, but can serve orders on the polluter, land owner and notional owner simultaneously. As a consequence, land owners may be subject to more management orders under the new regime, and find themselves responsible for cleaning up contamination caused by their tenants.

Also, the Amendment Act specifically states that a person cannot contract out of liability for contamination or for any harm caused by contamination. This simply reflects the existing lawthat liability under the CLM Act cannot be transferred to another person. However, there is nothing to prevent a person from contractually allocating the responsibility for the cost of cleaning up contamination.

Preliminary investigation orders

The EPA will have new powers to serve a preliminary investigation order (PIO) to determine whether land should be declared ‘regulated land’. Currently, the EPA must first declare a site to be an investigation area before issuing an investigation order and so must have reasonable grounds to believe that the land is contaminated in such a way to present a SROH. Under the new regime, the EPA may issue an investigation order where it reasonably suspects the land is contaminated but is not required to declare the site until it is satisfied that the contamination is significant enough to warrant regulation.

A PIO must specify the substances or class of substances which the EPA reasonably suspects contaminate the land. The power to issue a PIO is substantially broader than the power to issue a management order. A PIO may be served on one or more of the following:

· a person who the EPA reasonably suspects as being responsible for the contamination

· an owner of the land

· a notional owner of the land

· a person who carried on activities on the land that generate or consume the same

substance as specified in the order

· a public authority.

The EPA will be able to select from any person in the above list to carry out an investigation for site contamination; there is no hierarchy. It includes a person who carries out activities on land which generate the same contaminate as specified in the order, even if there is no evidence that the contamination was caused by that person.

Incoming tenants should be aware that they may be responsible for investigating past contamination if they continue to generate or consume the initial contaminating substance. It would be prudent for tenants to obtain a baseline report before entering into a lease in order to determine the extent of any contamination. If you are a landlord, you may wish to include a clause in your lease requiring the tenant to cover the cost of complying with a PIO if an investigation is associated with their activities.

Substantial penalties apply to corporations and individuals for failing to comply with a PIO ($68,750 for a corporation with an additional penalty of $33,000 for each day the offence continues, and $33,000 for an individual with an additional daily penalty of $16,500 for a continuing offence).

Duty to notify

Under section 60 of the CLM Act, the duty to notify is triggered when an owner or polluter ‘becomes aware’ that land is contaminated in such a way as to present a SROH. The duty does not arise from a mere suspicion of the existence of contamination presenting a risk of harm.

Instead, actual knowledge or evidence of contamination is required, such as a statement or report from an environmental consultant to the effect that a site presents a SROH.

Under the Amendment Act, an owner or polluter must notify the EPA if that person ‘ought reasonably to have been aware’ of the contamination. The modified test requires consideration of various factors in determining when a person would reasonably have become aware of the contamination including the person’s abilities, experience, qualifications and training, whether the person could have reasonably sought advice that would have made them aware of the contamination, and the circumstances of the contamination. This means that where your knowledge of a site or your ability to seek advice from experts could lead to a conclusion that you should have been aware of site contamination, then a duty to notify may arise. As a consequence, those with greater financial resources or expertise may be expected to proactively investigate past or potential contamination.

In addition, objective criteria will be introduced as a trigger for reporting contamination to the EPA in contrast to the existing SROH test. If contamination has specified characteristics or meets or exceeds criteria set out in the regulations or guidelines, then an owner or polluter will be obliged to notify the EPA. Given the specificity of these criteria, there may be a legal obligation on owners and polluters to report a contaminated site where there was previously no duty to report. Failure to report may result in prosecution and substantial penalties ($165,000 for a corporation with an additional daily penalty of $77,000 for each day the offence continues, and $77,000 for an individual with an additional daily penalty of $33,000 for a continuing offence).

‘No knowledge’ defence removed

The ‘no knowledge’ defence has been removed for directors and managers of a company. A new provision has been introduced in similar terms to section 169 of the Protection of the Environment Operations Act 1997 (NSW) (POEO Act). Section 98 of the CLM Act now provides that a director or person concerned in the management of the company is taken to have committed the same offence as that committed by their company, unless the person establishes one of the following two defences:

· the person was not in a position to influence the conduct of the corporation in               relation to the contravention

· the person used all due diligence to prevent the contravention by the corporation.

A director or manager of a company can only rely on the two defences listed above. They can no longer raise as a defence to a criminal prosecution that the actions of the company resulting in the offence occurred without their knowledge.

Voluntary management proposals

The Amendment Act removes the concept of a ‘voluntary investigation proposal’ and replaces a ‘voluntary remediation proposal’ with a ‘voluntary management proposal’ (VMP). The EPA will be able to serve a management order on a party to a VMP where the party has not complied with the proposal, the order relates to a matter not adequately addressed by the proposal, or the proposal was given on the basis of false or misleading information. In addition, the EPA will be able to recover any or all of its costs associated with approving and implementing a VMP from a person who is a party to the VMP. Because of the EPA’s power to serve a management order and recover its costs, there is less certainty for parties to a voluntary management agreement (formerly a voluntary remediation agreement) under the new regime.

Offset arrangements

For the first time, the Minister in charge of administering the CLM Act may enter into offset arrangements with polluters where it is either impractical to remediate the contaminated land within a reasonable timeframe or it is in the public interest. The form of arrangement may include the provision of community facilities or services, or the establishment of environmental or resource projects. Direct financial compensation is not permitted. Businesses that have contaminated land legacy issues where there is no reasonable practical means of remediation, may wish to investigate the potential advantages of entering into an offset arrangement.

For more information, please contact:

Charmian Barton is Environment and Climate Change Partner at Phillips Fox