Orica IC Assets Ltd v Port Kembla Copper Pty Ltd - [2008] NSWSC 72

No judgment structure available for this case.

CITATION: Orica IC Assets Ltd v Port Kembla Copper Pty Ltd [2008] NSWSC 72

HEARING DATE(S): 29 January 2008

JUDGMENT DATE :
12 February 2008

JURISDICTION: Equity - Commercial List

JUDGMENT OF: Bergin J

DECISION: Answers: "No"; "No"; and "Yes".

CATCHWORDS: [COMMERCIAL CONTRACT] - Determination of separate questions - Contract for Sale of contaminated Land subject to EPA declaration - Whether a "Site Audit Statement" issued by Environmental Auditor within meaning of that term in the Contract - Whether plaintiff entitled to Retention Amount of $500,000 - Whether plaintiff required to complete any Remediation Works.

LEGISLATION CITED: Contaminated Land Management Act 1997

CASES CITED: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579

PARTIES: Orica IC Assets Ltd - Plaintiff
Port Kembla Copper Pty Ltd - Defendant

FILE NUMBER(S): SC 2007/50112

COUNSEL: D Miller/T To - Plaintiff
P Brereton - Defendant

SOLICITORS: Allens Arthur Robinson - Plaintiff
Blake Dawson Waldron - Defendant

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

12 FEBRUARY 2008

50112/07 ORICA IC ASSETS LIMITED V PORT KEMBLA COPPER PTY LIMITED

Introduction

1 At all relevant times until October 2004 the plaintiff, Orica IC Assets Limited, was the owner of a parcel of land in Darcy Road, Port Kembla, being Lot 22 in Folio 546139 comprising approximately 2.85 ha (the Property). The defendant, Port Kembla Copper Pty Limited, was and is the owner of the land adjacent to the south and west of the Property that it uses for industrial purposes (the Land).

2 For many years the Property had been used for the production of superphosphate and for the operation of a fertiliser plant. The levels of minerals, particularly lead, within the Property exceeded the levels approved by the New South Wales Environment Protection Authority (EPA). Groundwater from the Land migrated to the Property and was contaminated with elevated levels of metal and sulphate ions. This contaminated groundwater was then migrating towards the harbour.

3 On 1 October 2004 the plaintiff, as vendor, and the defendant, as purchaser, entered into a written contract for the sale of the Property (the Contract), the purchase price of which was $3.15 million of which $500,000 (the "Retention Amount") was paid by the defendant to the plaintiff’s solicitor to be retained pending completion of the “Remediation Works”. The balance of the purchase price was paid to the plaintiff on the Completion Date, 14 October 2004. The plaintiff claims that it has completed the Remediation Works and that it is entitled to be paid the Retention Amount. It has requested the defendant to direct the payment of the Retention Amount to the plaintiff, but the defendant claims that the plaintiff is not entitled to that amount because it has not yet completed the Remediation Works.

4 The parties requested the Court to determine separate questions to assist with the final resolution of the proceedings. On 5 October 2007 an order was made for the determination of the following three questions:

1. Was the Site Audit Statement issued by the Environmental Auditor on 26 July 2005 a Site Audit Statement within the meaning of the Contract?

2. Did the issue of the Site Audit Statement by the Environmental Auditor on 26 July 2005 trigger an obligation under clause 43.7(e) of the Contract for release of the Retention Amount (by direction from the defendant)?

3. Does the Contract require the plaintiff to carry out any, or any further remediation work despite the issue of the Site Audit Statement by the Environmental Auditor on 26 July 2005?

5 The hearing in relation to the separate questions occurred on 29 January 2008 when Mr D Miller of counsel leading Mr T To of counsel, appeared for the plaintiff and Mr P. Brereton of counsel appeared for the defendant.

Contaminated Land Management Act

1997

6 The general object of the Contaminated Land Management Act 1997 (the CLM Act) is to establish a process for the investigation and, where appropriate, the remediation of land where contamination presents a significance risk of harm to human health or some other aspect of the environment (s 3(1)). The EPA may declare land to be a remediation site if it is found to be contaminated in such a way as to present a significant risk of harm (s 21 (1)). The EPA is also able to order the carrying out of remediation of the land the subject of a declaration (s 23 (1)). There is also a regime under the CLM Act for voluntary investigations and proposals for remediation of land (s 19, 20, 26).

7 The CLM Act also sets up a statutory regime for the accreditation of site auditors (Part 4). A site auditor is obliged to make a site audit report in writing whenever the auditor carries out a site audit. The purpose of a site audit includes determining whether the land is suitable for any specified use or range of uses (s 47 (1)). The site audit report must contain a "critical review of the information collected in relation to the site audit and must clearly set out the reasons for the findings proposed to be contained in the relevant site audit statement" (s 53B (2)). The auditor is required to furnish that report to the person who commissioned the site audit (s 53B(1)). If the site audit is a “statutory site audit” the auditor must at the same time furnish a copy of the statement to the EPA and the local authority for the area in which the land is situated (s 53B(3)). A “statutory site audit” is one carried out in order to secure compliance with a requirement under the CLM Act or to secure compliance with a voluntary investigation proposal or a voluntary remediation proposal that has been the subject of the EPA’s agreement (s 47(2)).

EPA Declaration – 13 February 2004

8 On 13 February 2004 the EPA made a declaration under s 21 of the Contaminated Land Management Act 1997 in relation to the Property and the Land which included the following:

The Environment Protection Authority (the "EPA") declares that the following land to be a remediation site under the Contaminated Land Management Act 1997 ("the Act"):

1. Land to which this declaration applies ("the site")

- Lot 21 in DP 546139 and lot 127 in DP 257531, owned by Port Kembla Copper Pty Limited, located between Military and Darcy Roads, Port Kembla; and

- Lot 22 in DP 546139, owned by Orica IC Assets Ltd, located on Darcy Road, Port Kembla.

2. Nature of the substances causing the contamination

Groundwater beneath the site is contaminated by metal ions including arsenic, cadmium, copper, lead, zinc, nickel, manganese as well as elevated concentrations of sulphate and low pH as a result of historical copper smelting activities.

3. Nature of harm that the substance may cause

The EPA has considered the matter is in s. 9 of the Act and found that:

· Groundwater, which is migrating towards Port Kembla Harbour, located approximately 500 metres from the site, is contaminated with elevated levels of metal and sulphate ions and has a low pH; and

· The contaminated groundwater has migrated off-site into adjacent industrial land.

A significant risk of harm exists as the contaminants can be toxic to aquatic life, which would be a particular concern if the contaminated groundwater were to reach the Harbour. Also, the contamination has degraded the quality of the groundwater and has the potential to affect future beneficial uses of the groundwater (e.g. industrial uses).

4. Work already undertaken

Extraction of deeper groundwater and aboveground treatment commenced in June 1997. To date, more than 20,000 (cubic metres) of groundwater has been extracted. Remediation works have also been carried out in an open area of land in the northern section of the site, known as the Fume Storage Area. The works, which were completed in August 2000, included the removal of industrial residues for treatment and disposal, as well as the installation of a shallow groundwater interception system and remediation of the land.

5. Further action under the Act

The making of this declaration does not prevent the carrying out of a voluntary remediation of the site and any person may submit a voluntary remediation proposal for the site to the EPA. If the proposal satisfies the requirements of section 26 of the Act, the EPA may agree not to issue a remediation order to the person or persons bringing the proposal.

Remediation Action Plan (RAP) – 11 August 2004

9 On 11 August 2004 HLA-Envirosciences Pty Limited (HLA) provided to the plaintiff a Remediation Action Plan (RAP) in respect of the Property. The Introduction to the RAP set out its purpose as: summarising the results of previous investigations of the Property; describing the overall remedial strategy for the Property, in particular with a focus on remediation/management of soils for future redevelopment for commercial/industrial purposes; and presenting a plan of remediation that would allow the continued use of the Property for commercial/industrial purposes to proceed in a manner that protected human health and the environment (p 1). The detail in relation to the previous investigations highlighted the concentrations of lead which exceeded the guidelines recommended by the EPA and included the following (p10):

In summary, the ranges and concentrations of the contaminants identified are considered typical of a former fertiliser manufacturing plant situated adjacent to a former copper processing facility on which imported fill material have been placed. The results of the sampling have indicated that fill materials at the Site contain concentrations of heavy metal elevated above NSW EPA endorsed criteria for commercial/industrial land use.

10 The RAP set out the remedial options for the site identifying the feasible remedial strategy option as (p 11):

· Excavation and Off-Site disposal as Industrial Waste;

· On-Site containment of materials as Industrial Waste;

· Treatment and Off-Site Disposal as Inert/Solid Waste;

· Selective Soil Excavation and Offsite Disposal;

· Delineation, Hotspot Removal and Site Capping.

11 The RAP described each of these strategies and in respect of the Delineation, Hotspot Removal and Site Capping option reported as follows (p13):

6.5 Option 5 – Delineation, Hotspot Removal

Considered the most cost effective and reasonable approach, this option would entail the removal of soil with elevated contaminate mobility (i.e. leachable lead contamination located in the northeastern portion of the Site, refer Figure 5) and stabilisation on-site for off-site disposal to landfill in accordance with NSW EPA guidelines.

Prior to the commencement of excavation works, several trenches would be excavated through the fill material, as shown in Figure 5, to assess the vertical/lateral extent along the excavation/remediation area and to collect bulk samples for use in treatment (stabilisation) trial. Samples would also be analysed in the field with a hand-held XRF analyser and the representative number of these samples would also be analysed in a NATA using accredited methods to validate the XRF results and to establish a correlation between the two methods of analysis. This approach would assist in determining more accurate fill volumes for excavation and treatment requirements that would form part of an application to NSW EPA for an immobilisation licence. Following treatment trials, it is estimated that up to 8 weeks would be required for EPA NSW to grant an immobilisation licence.

Following excavation and disposal of the treated material, the validated excavation would be backfilled with fill material sourced from onsite.

As part of the proposed redevelopment works, the remaining contaminated material would be left insitu and covered with concrete, hardstand or a 300 mm layer of clay to prevent human contact.

Given that leachable contaminates will be removed offsite, no on-going impact to groundwater could reasonably be expected from fill material remaining onsite. However, adoption of this would require a Site Management Plan (SMP) to be implemented to manage future exposure to contaminated fill materials remaining onsite for example, during construction and maintenance activities post-development.

12 Paragraph 7 of the RAP set out the various Remediation Acceptance Criteria (RAC) and noted that the site was to be used for commercial/industrial purposes and that a Site Management Plan (SMP) was to be produced to manage the future potential exposure to fill materials remaining onsite if the Property were to be developed but that it was not necessary to have any groundwater remediation criteria. This part of the RAP also referred to the fact that off-site disposal of soils was to be performed in accordance with the EPA guidelines.

13 In paragraph 8 of the RAP, Option 5, Delineation, Hotspot Removal and Site Capping, was referred to as the “preferred remediation strategy” having regard to the fact that the proposed use was commercial/industrial. Paragraph 8 provided relevantly:

In order to render the Site suitable for the proposed land use, the proposed remedial strategy involves a combination of the following general components:

1. Excavation and off-site disposal of soils with the potential to leach unacceptable lead to underlying groundwater; and

2. Placement of fill materials remaining on-site following remediation under buildings, other surfaces (eg: access roads, carparks, truck turning areas) or a segregating layer to provide a physical barrier to contact and minimise the potential for rainwater infiltration when the Site is developed.

…

8.3 Contaminated Soil Excavation

Leaching Lead Impacted Fill Soils

sic

It should be noted that the extent of contamination required to be excavated is not accurately known at this stage. However considering the volume of material involved (approximately 700 m3), HLA consider that additional investigation is not warranted apart from the excavation of several trenches through the fill material to assess the vertical/lateral extent along the excavation/remediation area and to collect bulk samples for use in treatment (stabilisation) trials. Samples will also be analysed in the field with a XRF analyser and a representative number of these samples will also be analysed by an NATA accredited laboratory to validate the XRF results and to establish a correlation between the two methods of analysis.

sic

Any demolition rubble/debris encountered in the course of the excavation will be inspected visually for evidence of contamination. Materials deemed to be clean, by visual inspection, will be segregated for re-use as backfill.

The excavation will be assessed by visual means and achievement of the remediation goals confirmed by soil validation sampling (as discussed in section 10.1).

14 Paragraph 10.1 of the RAP provided that investigations would be conducted and developed prior to the initiation of the remedial works. Clause 10.2 provided:

Pitt Features

15 Paragraph 10.4 provided for the temporary stockpiling of excavated contaminated soil and paragraph 10.5 provided for a site validation report “subsequent to the completion of the soil remediation activities”. Paragraph 11 provided:

11. Remedial Action Plan Summary

This RAP was compiled to provide a working plan detailing the excavation, soil stockpiling, transport, validation and occupational health and safety and environment management strategy. The following outlines the preferred general remedial strategy required for the Site:

· Trenching at several locations across the proposed excavation area to further determine the vertical extent of fill material that leaches unacceptable concentrations of lead;

· Excavation of lead impacted soils from the vicinity of the northern and northeastern boundary of the Site;

· On-site stabilisation, if required to meet solid waste criteria for off-site disposal to land fill in accordance with NSW EPA guidelines; and

· Construction of a segregation layer as part of future site redevelopment work in all areas where contaminated fill material is to remain onsite.

Following the completion of all soil remedial works a Site Validation Report will be presented that will indicate the suitability of the Site for future commercial/industrial land use.

16 Figure 5 comprised a plan entitled “Remediation & Validation Sampling Plan”. The north and northeastern corner was identified with a broken line the legend for which stated “excavation and remediation area (entire site to be capped with concrete following remediation and validation)”.

Draft Site Management Plan – 17 September 2004

17 The Draft Site Management Plan (SMP) stated that its purpose was to “provide a manual for use by the Site owner and operational staff at the Site and to form an advisory document to regulatory agencies and stakeholders”. One of the objectives identified in the introduction to the SMP was the provision of “guidance for management of excavation works or disturbance of soil at the Site”. The Site description in the SMP included the following:

A Remediation Action Plan (RAP) (HLA, 2004b) was prepared to render the Site suitable for commercial/industrial land use. The preferred remedial strategy involved a combination of the following general components:

(i) Excavation and off-site disposal of soils with the potential to leach unacceptable lead to underlying groundwater; and

(ii) Placement of low permeable cover material over the Site to reduce infiltration of stormwater.

The Contract – 1 October 2004

18 The Contract included Special Conditions relating to the environmental condition of the Property. In particular it provided:

36.2 Purchase Price

On Completion, the Purchaser shall pay the Vendor the Purchase Price in accordance with clause 16.7, less the Retention Amount which will be paid to the Vendor's solicitors, to be held in an interest-bearing account.

…

43.2 Responsibility for Contaminants

Subject to clauses 43.3, 43.4 (b) and 43.6, on and from the Site Audit Statement Date, the Purchaser shall:

(a) assume all responsibility and liability for Contaminants in, on or under the Property and all Contaminants which migrate after the Site Audit Statement Date from, within, on or under the Property and any improvements on it including full responsibility for compliance with and liability under any Law relating to any aspect of the Environment and by that assumption of responsibility and liability, the Purchaser shall be the person who is, from the Site Audit Statement Date, fully responsible and liable for any Contaminants in, on or under the Property and all Contaminants which migrate after the Site Audit Statement Date from, within, on or under the Property and any improvements on it and for their presence; and

(b) comply with the Site Management Plan.

Nothing in this clause 43.2 constitutes an admission of responsibility or liability by the Vendor for Contaminants in, on or under the Property or any Contaminants which have migrated or migrate from the Property before the Site Audit Statement Date.

43.3 Remediation Works by Vendor

(a) The Vendor must undertake, or cause to be undertaken, the Remediation Works

(i) in a proper and workmanlike manner;

(ii) in accordance with the Remediation Action Plan; and

(iii) in accordance with all Environmental Laws and all requirements of Authorities having jurisdiction over the Environment of the Property

(b) The Vendor must:

(i) use all reasonable endeavours to obtain all necessary approvals from relevant Authorities as soon as possible following the Completion Date; and

(ii) complete the Remediation Works as soon as practicable following the Completion Date and, in any event, by the Sunset Date.

The Purchaser must, at its own costs promptly provide all co-operation and assistance (and as owner of the Property sign all documents and consents) which is necessary to permit the Vendor to obtain the approvals from relevant Authorities.

(c) The Vendor must procure the carrying out of the Remediation Works at its own Cost.

(d) Following completion of the Remediation Works the Vendor shall:

(i) procure the Environmental Auditor to issue the Site Audit Statement; and

(ii) provide the Purchaser with a copy of the Site Audit Statement and Site Management Plan by no later than the Sunset Date.

(e) On request by the Purchaser, the Vendor shall inform the Purchaser of the progress of the Remediation Works.

(f) Subject to clause 43.3(g) and 43.10, the Purchaser will permit the Vendor, its agents, servants, employees and consultants to have exclusive access to the Property after Completion, at the sole risk of the Vendor, to enable the Vendor to complete the Remediation Works.

(g) The Purchaser may enter the Property from time to time for the purpose of conducting the existing Purchaser’s Remediation Works and monitoring, maintaining and repairing the pumping and monitoring wells installed by the Purchaser on the Property and in accordance with the pre-existing protocols and practices adopted by the parties as at the date of this contract. The Purchaser in exercising its rights under this clause 43.3(g) will not interfere with the access to the Property by the Vendor or the Vendor’s Remediation Works.

(h) The Vendor must provide the Purchaser with certificates of currency evidencing the currency and types of all insurance policies taken out by the Vendor to cover the Vendor’s risk in relation to the Remediation Works under this clause.

…

43.5 Installation of Cap
(a) Within 2 months after Completion, the Purchaser will provide the Vendor with the design of the Capping Works including all service levels, drainage and Cap materials which meets the minimum specifications specified in the Draft Capping Works Design.

(b) The Vendor may, within 5 Business Days of receiving the Draft Capping Works Design, notify the Purchaser:

(i) that it agrees with the Draft Capping Works Design;

(ii) that it wishes to amend the Draft Capping Works Design including details of the amendments and the reason for them.

If the Vendor fails to give a notice within time, it will be taken to have accepted the Draft Capping Works Design. If the Vendor gives its notice within time, the Purchaser must consider the Vendor’s amendments to the Draft Capping Works Design acting reasonably. If the Purchaser accepts the Vendor’s suggested amendments the draft Capping Works Design, as amended, will become the Capping Works Design . If the Purchaser does not accept the Vendor’s suggested amendments, it must notify the Vendor within 5 Business Days. If the Purchaser does not give that notice within the required time, it will be taken to have accepted the Vendor’s amendments to the Capping Works Design. If the Purchaser gives its notice within time, either party may refer the dispute the Site Auditor to determine the final Capping Works Design. The Site Auditor shall act as an expert and not an arbitrator and his decision shall be final. The cost of the Site Auditor will be borne by each of the parties equally.

(c) Once the Vendor has carried out the Remediation Works in accordance with clause 43.3, the Purchaser will install the Cap on the Property at its own cost, in accordance with the Capping Works Design (the Capping Works ) and the Site Management Plan and by the date which is 9 months after the Site Audit Statement Date.

(d) Following the completion of the Capping Works, the Purchaser will obtain a certificate from a chartered professional engineer (as chartered by Engineers Australia) that the Capping Works are complete and comply with the Capping Works Design (the Capping Completion Statement ). The Capping Works will not be taken to be complete until the Purchaser procures that the Capping Completion Statement is delivered to the Vendor.

…

43.7 Remediation Works not completed by the Sunset Date
(a) Subject to clause 43.8, if the Vendor is unable to complete the Remediation Works and obtain the Site Audit Statement referred to in clause 43.3 by the Sunset Date, then the Purchaser may:

(i) by serving written notice on the Vendor within 10 Business Days after the Sunset Date, undertake those works and obtain that statement itself; and

(ii) demand that the Retention Amount be paid to it to be applied against the cost incurred by it in completing the Remediation Works and obtaining the Site Audit Statement.

(b) If the Purchaser elects to have the Retention Amount applied against the cost of undertaking the Remediation Works and obtaining the Site Audit Statement:

(i) the Purchaser will undertake the Remediation Works and obtain the Site Audit Statement in accordance with clause 43.3 and use its reasonable endeavours to complete those works and obtain the Site Audit Statement as soon as possible; and

(ii) the Vendor must direct its solicitors to release the Retention Amount (and pay any interest earned on its investment) to the Purchaser as provided in clause 43.7(a) in the event that the Purchaser’s demand for payment certifies that the Purchaser has met the costs referred to therein in meeting the cost of completing the Remediation Works and obtaining the Site Audit Statement, the calculations of the demanded amounts are true and correct and the demanded amount has not previously been paid. The Purchaser’s demand shall be conclusive evidence of the matters stated there.

(c) If the Retention Amount (and any interest earned on its investment) is insufficient to meet the cost of the Remediation Works undertaken by the Purchaser under clause 43.7(b)(i), the Vendor shall remain liable to the Purchaser for the amount of the insufficiency.

(d) If the Purchaser does not make the election in clause 43.7 (a), the Vendor shall not be released from its obligation under clause 43.3(a) and shall, without limitation, remain obligated to complete the Remediation Works and obtain the Site Audit Statement as required in clause 43.3 and nothing obliges the Purchaser to make the election in clause 43.7(a) in mitigation of the Vendor failing to perform its obligations to complete the Remediation Works by the Sunset Date.

(e) To the extent that any of the Retention Amount (and any interest earned on its investment) remains unspent at the time of issue of the Site Audit Statement, the Purchaser shall direct the Vendor’s solicitors to pay that balance to the Vendor.

(f) This clause 43.7 does not merge on Completion.

19 Clause 30.1 contained the following relevant definitions:

Adjacent Property means the land adjacent to the Property, more particularly described as Lot 21 on Deposited Plan 546139 and owned as at the date of this Contract, by the Purchaser.

Authority includes:

(a) Any government in any jurisdiction, whether Federal, State, Territorial or Local;

(b) Any provider of utility services, whether statutory or not; and

(c) Any other person, authority, instrumentality or body having jurisdiction, rights, powers, duties or responsibilities over the Property or any part of them or anything in relation to them (including the Insurance Council of Australia).

…

Cap means to undertake earth works to contour and level the land and then to cover by appropriate impervious layer which in turn is covered by asphalt (or a similar material) and includes all stormwater controls and other drainage structures.

Capping Completion Statement means a statement delivered under clause 43.5(c).

Capping Works means the installation of the Cap on the land.

…

Completion Date means 14 October 2004.

Contaminant means any substance or organism present, or emanating from, in the soil, substrate or groundwater on the Property in concentrations greater than the background levels naturally present for that substance or organism and which (based on generally accepted knowledge and practice at the date the potential Contamination is considered) harms the Environment or is hazardous or otherwise harmful to health.

Contamination means the presence of a Contaminate in the Environment.

…

Environmental Auditor means Ross McFarland, Principal Environmental Auditor, CH2M Hill Australia Pty Limited, being an environmental auditor accredited by the EPA or such other accredited auditor appointed by the parties.

…

EPA Declaration means a Declaration of Remediation Site issued by the EPA in respect of the Property and the Adjacent Property, dated 13 February 2004.

Groundwater Contamination means any Contamination to the groundwater or subsoil of the Property originating from the Adjacent Site, including the Contamination the subject of the EPA Declaration.

…

Lead Contamination means the presence of lead or compounds including lead as a Contaminate in the soil or subsoil of the Property as described in the Remediation Act Plan.

…

Purchaser’s Remediation Works means the Works undertaken by or on behalf of the Purchaser to remediate Contamination on the Property, including the Groundwater Contamination but Purchaser’s Remediation Works will not include activities or actions which are preparatory to the actual removal of Contaminates from the land and which could, if those acts were not carried out as acts preparatory to the actual removal of Contaminate from the Land, have been undertaken in accordance with the Site Management Plan.

…

Remediation Action Plan means the plan and procedures dated 11 August 2004 prepared by HLA-Envirosciences Pty Limited (ACN 34 060 204 702) for the remediation of the Lead Contamination on the Property, a copy of which is in Schedule 1, as may be varied by the addition of further works as are necessary to enable the Environmental Auditor to issue the Site Audit Statement.

Remediation Works means the works to remediate the Lead Contamination of the Property in accordance with the Remediation Action Plan and any further works necessary to enable the Environmental Auditor to issue the Site Audit Statement.

Retention Amount means $500,000 of the Purchase Price to be retained by the Vendor’s solicitor pending completion of the Remediation Works, including any interest accrued under clause 36.2.

Site Audit Statement means a site audit statement, prepared by the Environmental Auditor covering the Property, being a statement addressed to the Vendor substantially in the form in Schedule 2 and which states that the Property is suitable for industrial use or would be suitable for industrial use if:

(a) The Groundwater Contamination is remediated;

(b) The Cap over the entire Property is installed in accordance with clause 43.5; and/or

(c) The Site Management Plan is complied with at all times.

Site Audit Statement Date is the date on which the Site Audit Statement is provided to the Purchaser in accordance with clause 43.3(d)(ii).

Site Management Plan means the plan for the management of the Environmental Condition of the Property, which is to be substantially in the form of or on terms not materially different to the Site Management Plan in Schedule 3.

Sunset Date

20 The RAP was annexed to and formed part of the Contract. There was also a pro-forma of a Site Audit Statement annexed to the Contract.

Letter Report 29 March 2005

21 On 29 March 2005 HLA wrote to the plaintiff under the heading “Letter Report - Delineation Trenching, Orica Chemnet - No 1 Area, Port Kembla NSW” (the Letter Report). HLA recorded that it was engaged by the plaintiff “to undertake delineation trenching and treatability studies on lead impacted soils” at the Property. The Letter Report stated that the works were undertaken to “determine the extent of previously identified lead impacted soils and the requirements for the remediation of these soils”.

22 The Letter Report identified concentrations of lead exceeding the RAC in the northern portion adjacent to the buried railway line and in the northeastern portion and southwestern corner. It advised that concentrations of lead in leachates completed under neutral ASTM conditions were greater than the leachability based criterion (0.01 mg/L) in the northern portion adjacent to the buried railway and in the northeastern portion. The Report continued:

Nature and Extent of Lead Contaminated Fill Materials

23 The Letter Report then went on to discuss the results and the requirement for investigation in the areas and concluded as follows:

Conclusions and Recommendations
In order to render the site suitable for the proposed ongoing commercial/industrial land use the proposed remedial strategy, outlined in the RAP required that soils with the potential to leach significant concentrations of lead were to be excavated, treated and stabilised (if necessary) and disposed offsite to a NSW EPA licensed landfill facility. A segregation layer comprising of concrete or hardstand or a 300 mm layer of clay was then required to be placed over the entire site to provide a physical barrier to human contact with underlying fill materials and to limit the infiltration of rainwater.

Based on the results of the investigations conducted on the site to date, significant quantities of soils with the potential to leach concentrations of lead above the RAC are limited to localised areas of the site. Consequently, the extent of these materials was identified to be limited to localised shallow soils along a small section of the railway line and these soils do not extend across a larger portion of the site as outlined in the RAP.

Given that most of the potentially lead leaching material appears to be associated with the railway lines located offsite and that material onsite is not considered to have the potential to leach significant concentrations of lead, it is considered that the remediation of lead contaminated material by excavation, treatment and offsite disposal is not required on the site.

Site Audit Statement – 26 July 2005

24 The Environmental Auditor signed the Site Audit Statement on 26 July 2005. It included the statement that it was a statutory audit within the meaning of the Contaminated Land Management Act 1997. It stated that the purpose of the site audit was to determine the appropriateness of the remedial action/management plan. The information sources for the site audit were identified as HLA and the reports being the RAP, the SMP and the Letter Report. It also listed the other reports identified in the RAP and a previous non-statutory report and Site Audit Statement of April 2005. This last mentioned Audit Statement is not in evidence.

25 The Site Audit Statement included the following in Section B:

Purpose of the plan which is the subject of this audit, is to present a comprehensive remedial action plan and associated Site Management Plan, to enable the Site to be made suitable for its intended ongoing heavy industrial landuses.

I certify that in my opinion

…

The Remedial Action Plan/Management Plan* IS appropriate for the purposes stated above

AND/OR

The SITE can be made suitable for the following uses

…

commercial/industrial

if the Site is remediated/managed* in accordance with the following Remedial Action Plan and Management Plan:

[included in this section were the RAP, the SMP and the letter report]

As noted in the RAP, a number of activities and related documentation are proposed to be completed to supplement the RAP and SMP. The suitability of the RAP and SMP is therefore conditional upon the satisfactory completion of these supplementary activities, being:

· The preparation of a Remedial Works Plan that includes detailed design of the segregation layer; Sampling and Analysis and Quality Plan; Site-specific, standalone Environmental Management Plan; Occupational Health & Safety Plan; and Waste Management Plan that ensures that imported soils meet VENM or INERT criteria;

· Preparation of a post-remediation, ongoing groundwater monitoring plan with contingency plan in the event that the remedial response is not successful.

26 At the back of the Site Audit Statement the explanatory notes included the following:

In Section B the auditor draws conclusions on the nature and extent of contamination, and/or suitability of plans relating to the investigation, remediation or management of the land, and/or whether land can be made suitable for a particular land use or uses upon implementation of a remedial action or management plan.

By certifying that a site can be made suitable for a use or uses if remediated or managed in accordance with a specified plan, the auditor declares that, at the time the audit was completed, there was sufficient information satisfying guidelines made or approved under the CLM Act to determine that implementation of the plan was feasible and would enable the specified use(s) of the site in the future.

For a site that can be made suitable, any conditions specified by the auditor in Section B should be limited to minor modifications or additions to the specified plan. However, if the auditor considers that further audits of the site (e.g. to validate remediation) are required, the auditor must note this as a condition in the site audit statement.

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Site Audit Report

27 The introduction to the Site Audit Report (the Report) discloses that the auditor, Ross McFarlan, resigned from the firm CH2M Hill Australia Pty Limited “at a time when this audit was nearing completion” to take up a position with HLA from 1 August 2005. The introduction notes that the “independent” audit was completed while all auditor accreditation and insurance details from Mr McFarland were with CH2M Hill Australia Pty Limited.

28 The Report states that it was prepared by Mr McFarland to support the opinions specified in the Site Audit Statement regarding the suitability of the proposed RAP for the Property. The Report also included the following:

The site audit has been conducted in accordance with the NSW Contaminated Land Management (CLM) Act 1997. The scope of work for this site audit relates to investigations, proposed remediation to be carried out, and long term site management, in respect of the contamination of the subject land, and was conducted for the purpose of determining the following matters (CLM Act 1997, S.47(1)(b)(iv);

~~a voluntary investigation proposal or a remediation proposal.~~

29 The Report stated that the “strikethrough” was made in conformity to the Department of Environment and Conservation (DEC) requirements for auditors reports. The Report also included the following:

This audit was commissioned by Orica Australia Pty Limited in the form of a “statutory” site audit, to meet regulatory requirements and for contractual requirements in an industrial property transfer from Orica to PKC. Future changes in the land use or management may result in the need for further “statutory” site audits.

30 The Report included the following:

…

6.1.3 Remediation Options Considered

The Consultant considered the “following feasible remedial strategies … for the materials that do not meet proposed Remediation Acceptance Criteria”:

1. “Excavation and off-site disposal as Industrial Waste;

2. On-site containment of materials as Industrial Waste;

3. Treatment and Off-Site disposal as Inert/Solid Waste;

4. Selective Soil Excavation and Off-site Disposal; and

5. Delineation, Hotspot Removal and Site Capping.”

HLA considered Option 5 above, “as the most cost effective and reasonable approach” (HLA 2004a, page 13).

This approach would require the excavation of soil with elevated contaminant mobility and on-site stabilisation prior to removal to an offsite landfill.

· Segregation of subsurface materials by a capping layer.

…

6.2 Auditor Opinion

The preferred order of options for site remediation and management is defined by 1992 ANZECC/NHMRC as:

· On-site treatment of the soil so that the contaminant is either destroyed or the associated hazard is reduced to an acceptable level; or

· Off-site treatment of excavated soil so that the contaminant is either destroyed or the associated hazard is reduced to an acceptable level, after which the soil is returned to the site.

The guidance goes on to note that, if these options cannot be implemented, then other options that should be considered include:

· Removal of contaminated soil to an approved site or facility, followed where necessary by replacement with clean fill; or

· Consolidation and isolation of the soil on site by containment within a properly designed barrier.

If remediation is likely to cause a greater adverse effect than would occur were the site left undisturbed, remediation should not proceed.

In my opinion, the nominated remedial approach presented by HLA, in light of the subsequent reported results (HLA 2005c), is for the most part considered to be consistent with the ANZECC/NHMRC and NEPM guidelines, and is appropriate, taking into consideration the economic and environmental cost-benefits associated with the various potential remedial strategies considered, and given the historical and proposed use of the land and surrounding land.

It is noted that the remedial approach provided:

· Little information relating to construction of the proposed segregation layer across the site, other than that the layer should be “concrete or hardstand” and that “where possible a visibly obvious, plastic marker layer over the surface level of the contaminated soil fill materials should be put in place below the segregation layer”. It is understood that this more detailed segregation layer information is to be provided by the new owner, in the form of a Remediation Works Plan, to integrate with the site’s commercial redevelopment.

· No information in the RAP or the SMP relating to who will be responsible for the segregation layer, and especially how it should be maintained (a condition of DEC’s Approval). Again, it is understood the this information will be provided by the new Site owner.

Notwithstanding these considerations, the proposed remedial action plan (incorporating the results of the supplementary investigations) is considered to be appropriate from an environmental and human health perspective, for the land-use proposed.

…

8 Validation

8.1 Relevant Information

The Consultant provides relevant information in relation to the validation of the proposed remedial action in Section 10 of the RAP. This validation consists of three components:

Validation of the Excavation area.

Imported Fill.

Stockpile Management and Classification.

The Consultant notes that a Validation Report will be prepared subsequent to the completion of soil remediation activities. The Validation Report is to include the scope, methods, results and conclusions of the remedial works in accordance with the requirements of NSW EPA (1997) and other guidelines endorsed by NSW EPA. If other areas subsequently require remediation, validation report(s) will be prepared following remediation.

8.2 Auditor Opinion

The proposed validation programme is considered to be appropriate, although it is noted that the proposed excavation works were subsequently deemed not to be required by the HLA supplementary investigations (HLA 2005c), so the proposed validation of the excavation area may no longer be required. Notwithstanding this anomaly, the proposed excavation validation protocol is considered to be appropriate, should any excavations be required in the ultimate remedial works.

It is noted that no specific validation protocol is provided by the Consultant in relation to confirming the performance of the proposed site capping system. It is recognised, however, that the proposed on-site supervision and reporting of the capping construction works, together with the publication of the “as constructed” final drawings, should combine to act as “defacto” validation of this segregation layer.

In addition, and aside from the Consultant noting that MSDS will be provided for any imported materials, it has not proposed the materials selection criteria of any imported soils. It is important to note that any imported soils must meet VENM or INERT criteria, regardless of a site’s landuse.

Notwithstanding the above considerations, the validation strategy provided is considered to be adequate for the nature and extent of the contamination identified, and based on the remedial response proposed and the ongoing industrial landuse.

…

13 Any Evidence of, or Potential for, Contaminant Migration

…

13.2 Auditor Opinion

Based on the information provided, I am of the opinion that the RAP and associated SMP, when completely and effectively implemented should make the site suitable for the proposed land use and minimise the potential for migration of contaminants off-site.

There is no reporting or strategies presented to assess or monitor the potential for ongoing leaching of COPC or contaminant mobility in shallow groundwater beneath the site and whether this can be assessed to be attributable to the site, or from the afore mentioned up-gradient PKC site.

The performance of the RAP and SMP will be assessed by the proposed validation plans and, at that time it may be necessary to consider the contingency plans that have been proposed for addressing ongoing contaminant mobility, if it has been confirmed to be originating from the Site.

Question 1:

Was the Site Audit Statement issued by the Environmental Auditor on 26 July 2005, a Site Audit Statement within the meaning of the Contract?

31 The Site Audit Statement had to be served on the EPA and the local authority to the area by reason of the fact that the audit was a statutory site audit (s 53B (3)(b)). The CLM Act required the Environmental Auditor to include his "findings" in relation to the site audit in the Site Audit Statement and such findings were required to be "consistent with the reasons" set out in the Report that he was required to make (s 53B(1) and s 53B (4)). The Contract does not recognize or refer to the fact that the audit carried out by the Environmental Auditor under the Contract was a "statutory site audit". It is clear from the Environmental Auditor's Report that the plaintiff "commissioned" the audit in the form of a statutory site audit on 30 September 2004, the day before the Contract was entered into with the defendant.

32 The parties agreed that the Environmental Auditor’s “Site Audit Statement” was to be substantially in the form of the pro forma attached to the Contract as Schedule 2 and they also agreed that the Site Audit Statement was to “state” that the Property was:

suitable for industrial use or would be suitable for industrial use if:

(a) the Ground water Contamination is remediated;

(b) the Cap over the entire Property is installed in accordance with clause 43.5; and/or

(c) the Site Management Plan is complied with at all times.

33 There is no real issue about the form of the Site Audit Statement. It was in the form of the pro forma attached to the Contract. However the Site Audit Statement issued by the Environmental Auditor did not state that the Property would be suitable for industrial use if “the Ground water Contamination is remediated”. The only mention of groundwater in the Site Audit Statement was in the second bullet point to the conditions, which was a requirement for “ongoing groundwater monitoring post-remediation together with a contingency plan in the event that the remedial response” was not successful.

34 The Site Audit Statement did not state that the Property would be suitable for industrial use if “the Cap over the entire Property is installed in accordance with clause 43.5”. There is no express mention of the “Cap” in the Site Audit Statement. In fact the Environmental Auditor purported to make the suitability of the RAP and the SMP "conditional" on the satisfactory completion of "supplementary activities" which included the preparation of a Remedial Works Plan that was to include "detailed design of the segregation layer". The Contract defined "Cap" as the undertaking of earthworks to contour and level the land and then to cover it by an appropriate impervious layer which in turn was to be covered by asphalt (or a similar material) and was to include all stormwater controls and other drainage structures (cl 30.1). The "segregation layer" was a term used in the RAP which included the following:

8.6 Segregation Layer

Although, contaminated fill materials currently located in areas designated as remaining on-site present no unacceptable risk given the present use of the Site, these materials should be covered as part of any redevelopment works, to prevent human exposure, with a segregation layer comprising concrete or hardstand or a 300 mm layer of clay. As well as providing a suitable surface for the proposed site activities, the purpose of the layer is to:

· Provide a physical barrier to human contact with underlying fill materials; and

· Limit infiltration or rainwater.

A visibly obvious, plastic marker layer over the surface level of the contaminated soil fill materials should be put in place below the segregation layer. The visible, plastic marker layer should be tied together to form a continuous visible marker.

35 The term "segregation layer" was also used in the conclusions and recommendations in the Letter Report referring back to the contents of the RAP. The Environmental Auditor’s Report in support of the Site Audit Statement seemed to use the term “segregation” and “capping” interchangeably in 6.1.3 in which it referred to “Segregation of subsurface materials by a capping layer”, whereas the Contract concept of “Cap” was more sophisticated in that it included not only the layer of appropriate materials but also stormwater controls and other drainage structures.

36 The RAP did not contemplate the segregation layer being over the "entire Property". Rather it required the segregation layer to cover only the "contaminated fill materials currently located in areas designated as remaining on-site". The condition in the definition of "Site Audit Statement" in the Contract was that it would state that the Property would be suitable for industrial use if “the Cap over the entire Property is installed in accordance with clause 43.5”. The Site Audit Statement did not so state.

37 The closest the Site Audit Statement came to stating that the Property would be suitable for industrial use if the “Site Management Plan is complied with at all times” was the statement that that the Property “can be made suitable” for commercial/industrial use if “remediated/managed in accordance with” each of the three reports being, the RAP, the Site Management Plan and the Letter Report. There is no statement that such compliance had to be “at all times”. The Site Audit Statement did not fulfil the requirement in the definition in the Contract. There is the additional problem that there was some inconsistency between the RAP, the SMP and the Letter Report. Indeed the Environmental Auditor pointed out what he described as the "anomaly" of the requirement for validation of the excavation area, when it had been subsequently decided that excavation was unnecessary.

38 There is no evidence to establish that the Environmental Auditor had a copy of the Contract or the definition of Site Audit Statement within the Contract. The Environmental Auditor had statutory obligations under the CLM Act and it would appear he was seeking to comply with those statutory obligations.

39 This is a commercial contract between two commercial entities conducting commercial/industrial operations on adjacent land, with similar statutory obligations in respect of the remediation of contamination of the land caused by those operations. The defendant was willing to take on the liability of compliance with the statutory obligations of the remediation of the Property on and from a particular time. That time was agreed between the parties to be the "Site Audit Statement Date", being the date on which it was provided to the defendant in accordance with clause 43.3 (d) (ii) of the Contract. The Site Audit Statement was therefore a very important document not only because its provision triggered the defendant's liability in this regard but it also triggered the plaintiff's entitlement to the Retention Amount. The businesslike construction of the Contract (McCann v Switzerland Insurance (2000) 203 CLR 579 per Gleeson CJ at [22]) leads to the conclusion that the parties intended that the Site Audit Statement had to comply strictly with the definition to trigger such obligations and entitlements. It did not do so.

40 The procurement of the Site Audit Statement was the plaintiff’s obligation “following completion of the Remediation Works”. The Remediation Works the subject of the Contract were the works “to remediate the lead contamination” in accordance with the RAP but also in accordance with “any further works necessary to enable the Environmental Auditor to issue the Site Audit Statement”. The plaintiff submitted that the Letter Report in which HLA concluded that it was no longer necessary to excavate the contaminated soil fits within the definition of Remediation Works. I disagree with that submission. I am of the view that the word “further” in the definition of Remediation Works means additional to the works in the RAP. In the context in which this Contract was entered into and in the context of the words themselves, it is my view that a decision not to excavate the soil but to leave the contaminants in the soil and then place a segregation layer over the surface of the site prior to redevelopment is not “further” works but works quite different from and instead of that which the parties had agreed would be done.

41 Additionally I am not satisfied that such a change was “necessary” to enable the Environmental Auditor to issue the Site Audit Statement. There was no evidence that the issuing of the Letter Report was “necessary” for the Environmental Auditor to issue a Site Audit Statement. Additionally there was no entitlement to procure the Site Audit Statement without the completion of the Remediation Works by the plaintiff.

42 The answer to question 1 is "no".

Question 2: Did the issue of the Site Audit Statement by the Environmental Auditor on 26 July 2005 trigger an obligation under clause 43.7(e) of the Contract for release of the Retention Amount (by direction from the defendant)?

43 For the reasons in relation to the answer to question 1, the answer to question 2 is “no”.

Question 3:

Does the Contract require the plaintiff to carry out any, or any further remediation work despite the issue of the Site Audit Statement by the Environmental Auditor on 26 July 2005?

44 The Site Audit Statement was not a Site Audit Statement within the meaning of that term in the Contract. Accordingly the plaintiff is obliged under the Contract to perform the Remediation Works as defined.

45 The plaintiff analysed the RAP in its written submissions in support of a submission that by reason of the investigations carried out and in consequence of the Letter Report it had completed the “Remediation Works”. I do not agree with that submission. The “Remediation Works” to be completed are more specifically described in Section 8 of the RAP with reference back to the preferred option in paragraph 6.5. It is true that this section of the report recorded that prior to the commencement of excavation works several trenches were to be excavated through the fill material "to assess the vertical/lateral extent along the excavation/remediation area and to collect bulk samples for use in treatment (stabilisation) trials".

46 It is also true that the Letter Report detailed the excavation of the trenches and the assessment of the samples. Although the Letter Report included the conclusion that significant quantities of soils with the potential to leach concentrations of lead above the RAC were present, it concluded that they were limited to localised areas. The final paragraph of the Letter Report concluded:

Given the localised extent of significant quantities of fill materials that leach unacceptable concentrations of lead, these materials are considered to be suitable to remain on the site, beneath a segregation layer, which is to be placed over the surface of the site prior to redevelopment.

47 Option 5 in paragraph 6.5 of the RAP contemplated the analysis of the samples of fill materials excavated from the trenches for the purpose of "determining more accurate fill volumes for excavation and treatment requirements that would form part of an application to NSW EPA for an immobilisation licence”. It did not contemplate the alternative of allowing significant quantities of fill materials that leach, or have the potential to leach, unacceptable concentrations of lead to remain in the ground. The parties reached agreement that such fill materials would be excavated, even if they will localised. A further matter of some contractual significance to the parties was that they had agreed that it would be the defendant’s 's obligation to "cap" the Property. This is I have explained earlier is a different concept to a segregation layer being placed over the surface of the whole site.

48 I am of the view that the plaintiff is obliged to complete the Remediation Works as defined in the Contract by reference to the RAP. It seems to me that the parties agreed that the plaintiff would therefore excavate the localised quantities of fill materials that would leach, or have the potential to leach, unacceptable concentrations of lead as identified in the analysis of the samples of fill excavated from the trenches. Alternatively, if that be wrong, there is no evidence of the obtaining of an immobilization certificate from the EPA as referred to in the RAP. At the very least that should have been done. On the same basis, that is if the conclusion I have reached is wrong, I am satisfied that the plaintiff is obliged to complete what the Letter Report claimed was required to remediate the Property; the placement of a segregation layer "over the surface of the site" prior to any redevelopment of it by the defendant.

49 The answer to question 3 is “yes”.

Conclusion

50 The answer to question 1 is “no”. The answer to question 2 is “no”. The answer to question 3 is “yes”. The parties are to prepare Short Minutes of Order disposing of the proceedings in the light of the answers to these questions, together with an agreed order as to costs. If the parties are unable to agree on a costs order I will hear argument when the matter is listed for the filing of the Short Minutes of Order. The matter is listed in the directions list on Friday 15 February 2008.

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Citations

Orica IC Assets Ltd v Port Kembla Copper Pty Ltd [2008] NSWSC 72

Most Recent Citation

Tapp v The Public Trustee (No 2) [2009] TASSC 62

Cases Citing This Decision

1

Tapp v The Public Trustee (No 2) [2009] TASSC 62

Cases Cited

1

Statutory Material Cited

1

McCann v Switzerland Insurance Australia Ltd [2000] HCA 65

CITATION:	Orica IC Assets Ltd v Port Kembla Copper Pty Ltd [2008] NSWSC 72
HEARING DATE(S):	29 January 2008
JUDGMENT DATE :	12 February 2008
JURISDICTION:	Equity - Commercial List
JUDGMENT OF:	Bergin J
DECISION:	Answers: "No"; "No"; and "Yes".
CATCHWORDS:	[COMMERCIAL CONTRACT] - Determination of separate questions - Contract for Sale of contaminated Land subject to EPA declaration - Whether a "Site Audit Statement" issued by Environmental Auditor within meaning of that term in the Contract - Whether plaintiff entitled to Retention Amount of $500,000 - Whether plaintiff required to complete any Remediation Works.
LEGISLATION CITED:	Contaminated Land Management Act 1997
CASES CITED:	McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
PARTIES:	Orica IC Assets Ltd - Plaintiff Port Kembla Copper Pty Ltd - Defendant
FILE NUMBER(S):	SC 2007/50112
COUNSEL:	D Miller/T To - Plaintiff P Brereton - Defendant
SOLICITORS:	Allens Arthur Robinson - Plaintiff Blake Dawson Waldron - Defendant