The Protection of the Environment Operations Act 1997 (POEO Act) gives a public authority broad powers to recover pollution clean-up costs from any person who it ‘reasonably suspects’ of having caused that pollution.

This means that any person who ‘stands in the spotlight of suspicion’ of a public authority for a pollution incident may be subject of a cost recovery order. If that person did not in fact cause the pollution, they must pay the public authority’s costs and then bear the risk of recovering such costs from the actual polluter (assuming the polluter can be found and is solvent).

The recent decision in Kempsey Shire Council v Slade [2015] NSWLEC 135 (Slade) considers the meaning of the threshold test of ‘reasonable suspicion’ in the context of the pollution clean-up and cost recovery mechanism under the POEO Act. A similar threshold test of ‘reasonable suspicion’ is applied to the regulator’s powers under other environmental legislation in Australia including:

• the power to issue prevention notices, to enter and search premises and to require mandatory environmental audits or environmental risk analysis under the POEO Act;
• the power to issue preliminary investigation orders and to enter and search land under the Contaminated Land Management Act 1997 (NSW); and
• determination of responsibility for remediation under the Contaminated Sites Act 2003 (WA).

The decision in Slade is relevant to any company that carries out operations that have the potential to cause pollution, or that acquire or divest land that may be polluted. In particular, it highlights the risks for companies (and their directors) for pollution clean-up costs even if they no longer own or occupy the site.

Liability for pollution clean-up costs

In Slade, Kempsey Shire Council (Council) leased land to Michael Slade, trading as Mid Coast Skip Bins and Metal Recycling, for use as a commercial waste facility. The lease was substituted by a second lease to Mid Coast Skip Bins and Metal Recycling Pty Ltd (the Company), of which the respondents, Michael and Barry Slade, were the only directors and shareholders.

The Company vacated the premises during the term of the second lease. Council and the NSW Environment Protection Authority (EPA) subsequently discovered asbestos in many locations on
 the premises.

The EPA issued a Clean Up Notice to Council under section 92(1) of the POEO Act on the basis that it ‘reasonably suspected’ that pollution incidents had occurred on the leased premises. The Clean Up Notice required Council to remove asbestos from the leased premises.

Council complied with the Clean Up Notice, and subsequently issued a Compliance Cost Notice to the respondents, Michael and Barry Slade, pursuant to section 104(2)(b) of the POEO Act on the basis that Council ‘reasonably suspected’ the respondents had ‘caused’ the pollution incident.

The issue for the Court’s consideration was whether Council’s suspicion that the respondents caused the pollution incident was reasonable. The respondents argued that, among other matters, that only  the Company could have been reasonably suspected of causing the pollution incident, and the corporate veil protects the respondents from liability.

The Court noted that the meaning of ‘reasonable suspicion’ had not previously been considered in the context of section 104 of the POEO Act. Adapting the authorities on ‘reasonable suspicion’ in other contexts, the Court held that the following principles of interpretation apply in relation to section 104(2)(b) of the POEO Act:

• the public authority must have formed a genuine suspicion that a particular person (or persons) caused the pollution incident;
• a reasonable suspicion involves less than a reasonable belief but more than a possibility;
• there must be some objective and factual basis for the suspicion, which would create in the mind of a reasonable person in the position of the public authority an apprehension that that person caused the pollution incident (the reasonable suspicion must be based on evidence that has some probative value); and
• the objective circumstances do not have to establish on the balance of probabilities that the person in fact caused the pollution incident, or that there has in fact been a pollution incident.

In respect of the test of causation of a pollution incident, the Court adopted the accepted principle that there can be more than one person who causes a pollution incident. In this regard a person who causes a pollution incident could include:

• a person who did the actual act that led to the pollution incident;
• a person who directed the act;
• a person who established the system that enabled the act to occur; and
• a person with sufficient control over operations to be held responsible for the act, or with responsibility and authority to prevent or correct the act.

Applying the above principles, the Court found that it was reasonable for Council to suspect that the respondents caused the pollution incident. In summary, the Court accepted that the waste management systems implemented by the respondents failed to prevent asbestos being left on the premises, resulting in pollution incidents. In addition that the respondents had, and it was reasonable to suspect they had, authority to prevent asbestos being left on the premises and they failed to do so.

In light of the above, the Court considered that the corporate veil provides no defence where an individual is the target of liability and has control or authority and responsibility to prevent the pollution incident occurring. The fact that the Company may also have caused the pollution is not inconsistent with the respondents having caused it.

What does this mean for your business?

Given the relatively low threshold test that a public authority must satisfy before it can issue an order to recover pollution clean-up costs, it would be prudent for any company that carries out operations that have the potential to cause pollution, or who acquires or divests polluted land to mitigate their potential exposure to this liability.

Key mitigating measures include, among other matters:

• carrying out environmental site assessments prior to occupation of a site, and on exit of a site, to identify any material pollution incidents and the cause of that pollution;
• ensuring systems are in place to identify and manage material pollution incidents during the life of the facility (including documentation of the cause of such pollution incidents and taking action against any third party polluter); and
• maintaining lines of communication with public authorities (in addition to any statutory notification and reporting obligations) to ensure that relevant public authorities are aware of the identify of any third party who has caused pollution at a site.