Yarra City Council v MFB: The cost of legacy contamination

In Yarra City Council v Metropolitan Fire and Emergency Services Board [2017] VSCA 194 (26 July 2017) (Yarra v MFB), the Victorian Court of Appeal (Court) has held that Yarra City Council (Council) is liable for remediation costs linked to contamination caused by a coal tar pit installed decades before environmental legislation existed.

Another 50 or so years would pass from the cessation of the use of the pit to when litigation would ensue.

The Court largely upheld the trial judge's ruling in a dispute between the Council and the Metropolitan Fire and Emergency Services Board (MFB) over the costs of complying with a clean-up notice issued by the Victorian Environmental Protection Authority (EPA). The case has been remitted to the trial judge to consider a range of discretionary factors relating to whether the Council should have to pay.

The Background of the Case

The EPA issued a notice relating to legacy contamination on a former Council depot in Richmond (an old industrial inner city suburb of Melbourne).[1]

The depot was originally the responsibility of the City of Richmond, but following amalgamation in 1994, the depot land became part of the Council area. The City of Richmond had controlled the land under a Crown grant since 1890 and by 1916 was operating:

• an abattoir;

• a quarry;

• a stone crushing plant;

• a “refuse destructor”; and, relevantly

• a tar distilling plant with a 40,000 gallon blue stone lined storage pit for coal tar on the depot.

The tar distillery continued to be operated by the Council until 1960. After a fire damaged the plant in 1959, the coal tar pit was filled in (without being emptied) and the various plant buildings were demolished. Once the abattoir ceased operation in 1984, the site became disused and the Council began investigations for remediation prior to rezoning and redevelopment. All buildings were demolished and the site was completely cleared in 1993.

Shortly before amalgamation, the City of Richmond obtained briefs for contamination investigation but no mention of the tar pit was made. In 1996, after amalgamation, the State revoked the 1890 Crown grant and the benefit of the land was lost to the Council. In 2002, the State government paid for an environmental assessment of the site, and a number of investigations were undertaken during negotiations for the MFB to buy the land from the State.

MFB had access to the State’s environmental assessment reports, but none of these identified the tar pit. Therefore, although MFB had agreed on clean-up costs with the State government, the extra cost associated with the tar pit contamination was not contemplated as part of the purchase. In 2004, the MFB purchased the land from the State of Victoria for $7.75M. Under the contract MFB accepted responsibility for any contamination and indemnified the State for any claim about contamination of the land. The MFB applied to the Council for a planning permit to build a new community safety and training facility on the site which was approved.

After purchase and planning approval, MFB began detailed site investigations for remediation during which a test hole found a strong black odorous liquid at 1.5 metres depth. Work ceased and a series of investigations began both on-site and into the historical records of the City of Richmond to determine what historical activities had been carried out on the land. The coal tar pit (now known to have never been emptied and which leaked for many years), was formally identified in December 2006. Following this, the Victorian EPA served a clean-up notice on the MFB as the occupier of the land.

Under s.62A(2) of the Environment Protection Act (Vic) 1970, an occupier of land who is given a clean-up notice may seek a court order that the original polluter or a person who abandoned industrial waste or a potentially hazardous substance on the land compensate the occupier for the costs of complying with the clean-up notice.

After complying with the clean-up notice, MFB sued the Council under s.62A(2) also alleging negligence. The Judge found that the Council was liable to compensate the MFB for any reasonable costs incurred in complying with the clean-up notice, but did not find the Council negligent.

This finding is of particular interest to local governments even though these facts are unusual: urban intensification will make the impacts and management of historical contamination a significant future planning and environment issue. The negligence principles considered by the trial judge confirm that courts will be reluctant to find local governments liable for economic loss alleged to be suffered by applicants (and others) as a result of planning decisions unless the Council had knowledge not available to other people or there is a relationship in which the person who suffered damage was particularly vulnerable.

In Yarra v MFB, the MFB did not have a special relationship with the Council and did not fall within a class of persons who were vulnerable. Additionally, the Council did not have any information that was not available to the MFB. In fact, the MFB was aware of the existence of contamination on the site and of the risk that there may be further unknown contamination, but it chose not to undertake further investigations and instead entered into a contract with the vendor disclaiming any claim arising from contamination.

This aspect of the case is a good outcome for local governments.

The Council appealed the trial judge’s decision, amongst other things, about whether the MFB could seek compensation from the Yarra City Council as being either the original polluter or a person who abandoned industrial waste under s.62A(2) of the Environment Protection Act (Vic) 1970.

The Decision

The Court held that the Council is liable for the pollution caused by Richmond prior to the transfer of its contingent liabilities to the Yarra City Council. However, the Court concluded that the Council did not ‘abandon the industrial waste’, because the land passed through the Council’s hands without it knowing about the tar pit and its contamination. Without knowledge of something, it cannot be abandoned.

The Court held that it was premature to make a formal declaration (a declaration being discretionary) that the Council was liable to compensate the MFB until specific issues were determined at trial, including:

• consideration of the terms of the contract of sale by the State of Victoria to the MFB;

• the supervision of demolition work by a contractor;

• the alleged lack of particularity of the MFB’s pollution claim;

• the absence of knowledge of Richmond City Council of the presence of the industrial waste on the land; and

• the consequences of representations of the MFB's planning consultants.

Accordingly, the Court allowed the appeal in part and set aside the declaration made by the trial judge. It also remitted the matter to the trial judge to determine the discretionary issues before making a final order.

We will await the trial judge’s decision with interest.

Key take-aways

1. Entities can be liable for contamination that occurred in the distant past – not because the activity was unlawful at the time, but because they may now be responsible for the consequences of the pollution.

2. While Yarra v MFB deals with Council amalgamations in Victoria, the legislature clearly intended for the rights and responsibilities of former local governments to be preserved by reason of the amalgamation. In other words, the public should be left no worse off. To clarify, Richmond became part of Yarra – Yarra was not responsible as a successor.

   It is likely that Queensland local governments which have been amalgamated may be liable for the consequences of polluting activities of former local governments. This is particularly pertinent for landfills (closed and still operating), various depots and workshops, quarries, asphalt plants and fuel storage which were (and perhaps still are) conducted by local government.

3. A key issue in determining legal responsibilities (including whether the local government has been negligent in a town planning context) may come down to ‘corporate knowledge’ about the contamination.[2] A corporation cannot cause itself to shed knowledge by the turnover of staff but there may be limits to the continuation of corporate knowledge, for example, at the completion of a transaction.

   In Yarra v MFB, Richmond staff became staff of the Council upon the implementation of the council amalgamation process. Nevertheless, it appears that the industrial waste was buried and incorporated into the land by Richmond more than 30 years prior to the alleged apparent abandonment of it. There was no continuing transaction in relation to the waste and knowledge of its presence could not readily be imputed to the Council.
   
   In future, computerised records (and the ease with which they allow information to be stored) may mean that arguments about loss of corporate memory will become more difficult to establish, particularly when:
   

   • residents are more likely to make complaints (which in the ordinary course would be recorded and investigated);

   • audits are often required under various environmental authorities or best practice guidelines; and

   • there is interchange of information between sections of councils about adjacent properties i.e compliance and development sections.

   Knowledge about audits of operations etc. will not be lost merely because recommendations made in associated documents are not followed, for whatever reason.
   
   Council officers should turn their minds to matters of contamination, particularly when dealing with:
   

   • former industrial sites (which may or may not be on the contaminated land or environmental management registers and which may or may not have been zoned for industrial use);

   • land near waterways; or

   • land that is regularly flooded.[3]

4. It is vital that due diligence enquiries be conducted by both the vendor and purchaser (councils regularly buy, sell, lease and accept land) and where appropriate, investigations conducted.

5. If the true nature of the land contamination is understood, at least on a high-level basis, contracts for sale may go some way towards protecting the stakeholders.