Is a site audit statement worth the ‘paper’ it is written on?

In many transactions, site audit statements have become de facto certificates that a condition precedent or condition subsequent in an agreement has been satisfied (or not). Multiple parties often rely on a site audit statement, such as vendors, purchasers, financiers, directors and decision makers within a company. However, are these parties entitled to rely on them? What does a site audit statement that confirms the land is suitable for a particular use actually tell them?

At a glance 

  • The site audit scheme operates primarily for the protection of planning and consent authorities. However, in practice it is relied on by multiple parties.
  • A site audit statement can be relied on by those who commissioned it, those to whom it is addressed and planning and consent authorities where it is a statutory site audit.
  • It is unclear whether other parties can rely on it and careful drafting is required when site audit statements are included in the conditions of a contract.
  • Site audit statements are limited to the date of issue and the contaminants of concern investigated and audited.
  • A site audit statement which certifies that land is suitable for a category of use is not a certification that the land is not contaminated or even significantly contaminated.

Overview of the site audit scheme 

The site audit scheme was introduced in Part 4 of the Contaminated Land Management Act 1997 (CLM Act). Land owners and developers can retain their own consultants to advise on contamination, conduct site assessments, and undertake any necessary remediation. However, under the scheme their work is independently reviewed by an accredited expert known as a ‘site auditor’.

The independent reviews by site auditors are called ‘site audits.’ There are two types of site audits:

  • a statutory site audit – i.e. a site audit carried out by a site auditor to secure compliance with:
    • a requirement under the CLM Act;
    • an approved voluntary management proposal;
    • a requirement imposed by State Environment Planning Policy 55 – Remediation of Land;
    • any other requirement imposed by or under an Act.
  • a voluntary site audit – i.e. any audit that is not a statutory site audit.

A site auditor must prepare a ‘site audit report’ whenever they carry out a site audit. The site audit report must contain a critical review of the information collected in the site audit.

A site audit statement is a written document provided in an approved form. It sets out the site auditors findings in relation to the site audit and must be consistent with the reasons set out in the site audit report.

What is the purpose of a site audit statement?

A site audit statement can be issued for 4 broad purposes, i.e. to confirm:

  • the suitability of land for a user ‘where site investigation and/or remediation has been completed and a conclusion can be drawn on the suitability of land uses’;
  • that certain testing plans, assessments and investigations are adequate to characterise the contamination or specify a management plan;
  • whether the terms of a management proposal or order have been complied with;
  • whether the site can be made suitable for a specified land use (or uses) if the site is remediated or managed in accordance with the implementation of a specified plan.

What comfort does a site audit statement give? 

The approved form of site audit statement allows for two types of certification:

  • Section A1 – the site is suitable for the following uses (without conditions).
  • Section A2 – subject to compliance with the attached environmental management plan (EMP), the site is suitable for the following uses. 

A site audit statement which certifies that land is suitable for a category of use is not a certification that the land is not contaminated or even significantly contaminated.[1] A site audit statement is limited to the date of its issue and the contaminants of concern investigated in the reports and assessments that have been audited. The applicable guidance and standards will, if complied with, include processes to properly identify contaminants of concern so there is a high degree of confidence that the relevant contaminants have been identified and considered.

However, where there are changes in the understanding of the contaminants, the standards, the law or the risk mechanisms after the site audit statement has been issued, a site may be found to be significantly contaminated. This is so even though there is a site audit statement certifying that the land is suitable for a particular use and despite the site auditor having acted properly and without negligence.

It is unclear how long a site audit remains current and for how long the site auditor remains liable for it. 

Who benefits from the site audit scheme? 

The scheme enables planning and consent authorities to have a higher degree of certainty that the assessments of contamination and other technical reports have been prepared in accordance with the applicable EPA guidance documents. This is likely to assist them in establishing the good faith defence from liability for contaminated land available to planning authorities under Schedule 6 to the Environmental Planning and Assessment Act 1979 (EP&A Act).

In practice, site audit statements are relied on by multiple parties in transactions. For example:

  • the vendor to allow the property out of their control in circumstances where they may be liable in the future for remediation or costs if there is an issue;
  • the purchaser for making the investment decision;
  • the purchaser’s financier for advancing funds secured against the property;
  • the directors and decision makers within the vendor and purchaser.

However, who can rely on a site audit statement? 

It is clear that the following parties can rely on a site audit statement (subject to any limitations or disclaimers in the statement):

  • those who commissioned it;
  • those to whom it is addressed; and
  • planning and consent authorities where it is a statutory site audit carried out within the ambit of those functions.

However, it is unclear whether other parties can rely on a site audit statement. The table below reflects our current thinking on the position of certain parties.

Site audit table

Where a party seeks to rely on a site audit statement it is important to consider:

  • whether they are entitled to rely on it;
  • the effect of any limitations and disclaimers in the site audit report;
  • whether the site audit report is incorporated into the site audit statement by reference;
  • the impact of a site audit statement that is subject to an EMP being implemented;
  • what happens if there is a change in the contaminants, standards or law after a site audit statement has been issued.

For more detail on this topic, and an example of some of the issues that may arise in transactions, download the full version of this paper Is a site audit statement worth the ‘paper’ it is written on presented by Patrick Ibbotson at the Environment and Planning Law Association Conference in October 2018.

 

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