Shoot first, target later: the NSW clean-up and cost recovery scheme

The NSW Land and Environment Court (LEC) has handed down a recent decision determining the quantum of costs arising from clean-up actions undertaken by Kempsey Shire Council (Council). Although this case was not about the question of liability, which was determined before the LEC in 2015, it provides a useful narrative of the clean-up and compliance cost recovery scheme unique to NSW.

The Court held the directors of a waste facility liable for remediation costs incurred by Council in cleaning up asbestos from the facility. For those involved in the management of environmentally sensitive operations, there are three important lessons that emerge from both the quantum hearing in 2017 and the former liability hearing in 2015:

  1. Don’t be last in a row of sitting ducks: the case serves as a reminder of the effect of the ‘compliance cost’ mechanism in the Protection of the Environment Operations Act 1997 (POEO Act), which allows a public authority to carry out clean-up action and then recover its costs from any person who the public authority reasonably suspects to be the polluter – whether or not the person is in fact the polluter;
  2. The corporate veil is of no avail: company directors may not be able to hide behind a corporate veil in the context of a compliance cost recovery order; and
  3. Engaging with the elements of expenditure: during quantum hearings relating to a compliance cost notice, it is crucial to engage with the reasonableness of the elements which make up the amount claimed.

Facing the facts

During the case before the LEC in 2017, no appeal was brought against the Court’s decision of the liability question in favour of Council. The case focussed exclusively on quantum issues in relation to the debt claimed by Council for recovery of its clean-up costs. The Court specifically noted that the purpose of the recent quantum hearing was not to re-agitate questions of liability which were dealt with during the former hearing in 2015.

Michael and Barry Slade managed a commercial waste facility (Premises) on Crown Land managed by Council, which was initially leased to Michael Slade (for the purpose of a “Commercial waste sorting, resource & recycling centre”), and later leased to Mid Coast Skip Bins and Metal Recycling Pty Ltd (the Company) (for the purpose of a “Waste and Resource Transfer Station”). Michael and Barry Slade were the only directors and shareholders of the Company.

After the Company vacated the premises, Council and the NSW Environment Protection Authority (EPA) identified asbestos across numerous locations of the Premises. The EPA initially issued a clean-up notice under the POEO Act to the Company, but shortly after issuing the notice Michael Slade applied to voluntarily deregister the Company. When the notice was not complied with, the EPA issued a clean-up notice to Council.

Council removed asbestos waste from the Premises and issued a compliance cost notice to the Slades. The amount claimed in the compliance cost order was the subject of this recent dispute before the LEC.

Don’t be last in a row of sitting ducks

The clean-up and compliance cost scheme in NSW is regulated under the POEO Act. The scheme is three-fold:

  1. Sections 91 and 92: where the EPA “reasonably suspects” that a pollution incident has occurred, it may issue a clean-up notice directing a person or public authority (such as a council) to perform the clean-up obligations specified in the notice;
  2. Section 104: after having complied with the Clean-up Notice, a public authority may issue a compliance cost notice to the person the public authority “reasonably suspects” caused the pollution. The compliance cost notice takes the form of a recovery order for reasonable costs incurred by the public authority during its clean-up efforts; and
  3. Section 105: where a person pays the costs specified in the compliance cost notice and was innocent of causing the pollution, the person’s costs may be recovered from the actual polluter, but only if the innocent person is able to prove on the balance of probabilities that the actual polluter caused the pollution.

The Court found during the liability hearing that the waste facility operation involved bringing onto the premises waste that from time to time contained asbestos, and that the Slades’ system of managing and removing asbestos had failed. On this basis, the Court held it was reasonable in the eyes of Council to “suspect” that the Slades caused the asbestos pollution incident.

The Slades therefore stood in the spotlight of suspicion and were ordered to pay all reasonable costs incurred during Council’s clean-up program, for the amount determined in the quantum hearing (approximately $1.3m).

Whereas the compliance cost mechanism enables an appropriate regulatory authority to recover its costs based on “reasonable suspicion”, if the person who receives such an order is innocent, then to recover that person’s costs that person must prove on the balance of probabilities that another person caused the pollution.  In the initial LEC decision, Biscoe J commented that:

Thus, at that cost recovery stage the law seizes on any person who stands in the spotlight of suspicion even though they may be innocent of causing the pollution incident

If a recipient of a compliance cost notice is innocent, it is only after that person complies with the notice, and seeks to recover that person’s costs from the actual polluter, that the following factual issues are determined:

  • was there in fact a pollution incident? and
  • who in fact caused the pollution?

Therefore, an innocent recipient of a compliance cost order bears the burden of recovering their costs – including the evidentiary burden of proving that another person was the polluter, and the risk of insolvency.

Councils, and other appropriate regulatory authorities, therefore have a very effective machinery under the POEO Act to ensure that clean-up action is carried out.

The corporate veil is of no avail

The Slades put forward the argument that they should not be responsible for the actions of the Company, who was the lessee the time that the clean-up notice was issued.

During the liability hearing, the Court was clear in its reasoning that the question of who caused the pollution is framed so widely under sections 104 and 105 of the POEO Act that it captures both a corporation and its directors, or either. The focal point of this question is whether an individual who is the target of liability has control or authority and responsibility to prevent the act causing the pollution.

For the Slades, both Michael and Barry exercised the requisite level of control and responsibility over asbestos removal practices for the Premises:

The respondents created, adopted and were involved in the implementation of procedures for the inspection, discovery, handling and removal of asbestos.  That system failed to prevent asbestos being left on the Premises…

As such, the corporate veil provided no defence in this context and the Slades remained the target of personal liability.

Engaging with the elements of expenditure

The Slades and Council were unable to agree upon the amount to be recovered, which was the subject of the recent quantum hearing. However, as the Court noted, the Slades failed to challenge the “reasonableness” of the elements which comprised the amount claimed.  For example, the Slades, who were self-represented, did not produce evidence to challenge:

  • the quantity of waste disposed to landfill (which formed the largest component of the claim),
  • the methods of remediation; or
  • the waste rates that were applied.

In the absence of evidence before the Court demonstrating that Council acted other than “reasonably” in its remediation efforts, the Court ordered that the Slades pay the total amount claimed by Council in the order of approximately $1.3m.

In terms of assessing “reasonableness” of expenses, Council submitted that it was entitled to calculate the actual cost incurred. The Court accepted Council’s reliance on this principle, which was laid down in an earlier case regarding an oil pollution incident.[1]

[1] Maritime Services Board of New South Wales v Posiden Navigation Incorporated; Maritime Services Board of New South Wales v Liberian Cross Transports Incorporated [1982] 1 NSWLR 72.

This post was prepared by Nathan Lambrinos with the assistance of Joshua Same.

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