A Toxic Appointment: Disclaimer of Contaminated Land Set Aside

The Australian Sawmilling Company Pty Ltd (in liq) v Environment Protection Authority [2021] VSCA 294

Background

On 14 March 2009, liquidators were appointed to The Australian Sawmilling Company Pty Ltd (TASCO) by way of a creditors’ voluntary winding up. TASCO is the registered proprietor of land that was formerly the site of a recycling business (the Land). The Land has been the subject of several proceedings in VCAT and an enforcement order requiring the development and implementation of a fire management plan and rehabilitation plan, amongst other things.

At the time of their appointment, the liquidators of TASCO were aware that there were unresolved environmental issues in respect of the Land. In those circumstances, the liquidators entered into a deed of indemnity with a creditor of TASCO as a condition of their appointment (the Deed of Indemnity). Relevantly, the Deed of Indemnity operates to indemnify the liquidators in respect of any ‘Environmental Liability’, which is defined as:

“…any actions, proceedings, claims, suits, demands, payments, debts, costs, charges, expenses or losses incurred by the Liquidators … under any Environmental Law arising out of, or in connection with, the External Administration of [TASCO] or the proper performance by the Liquidators of their role as External Administrators of [TASCO].”

On 29 April 2019, the Environment Protection Authority (EPA) informed the liquidators that it intended to exercise its statutory power to conduct a ‘clean up’ of the Land. The letter also stated that the EPA may recover any reasonable costs that it may incur in doing so, pursuant to s 62 of the Environment Protection Act 1970 (Cth) (Environment Act). Relevantly, s 62(2) of the Environment Act provides that the EPA may recover costs from “the occupier of the premises” on which the clean up has occurred.

On the following day, the liquidators lodged a disclaimer with ASIC in respect of the Land. Relevantly, s 568(1) of the Corporations Act 2001 (Cth) permits a liquidator to disclaim property that consists of:

…

(c)        property that is unsaleable or is not readily saleable; or

(d)       property that may give rise to a liability to pay money or some other onerous obligation; or

(e)        property where it is reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising the property; …

…

whether or not:

(g)       except in the case of a contract — the liquidator has tried to sell the property, has taken possession of it or exercised an act of ownership in relation to it; …

…

On 14 May 2019, the respondents filed an application to set aside the disclaimer. Relevantly, s 568(3) of the Corporations Act provides that the Court may set aside a disclaimer only if satisfied that the disclaimer would:

“…cause, to persons who have, or claim to have, interests in the property, prejudice that is grossly out of proportion to the prejudice that setting aside the disclaimer would cause to the company’s creditors.”

By orders made on 2 and 4 November 2020, Garde J set aside the liquidators’ disclaimer. His Honour did so on the undertaking of the EPA and the State that the liquidators’ liability would be limited to the amount recovered under the Deed of Indemnity. Garde J concluded that the disclaimer would cause substantial prejudice to the State and the EPA because if the disclaimer took effect, the EPA/State would be unable to recover the relevant clean up costs from the liquidators as the ‘occupier’ of land under s 62 of the Environment Act.

The liquidators applied for leave to appeal. The primary issue on appeal was whether the liquidators were ‘occupiers’ of the Land within the meaning of s 62(2) of the Environment Act.[1]

Consideration: whether liquidators are ‘occupiers’

The Court of Appeal held that the trial judge did not err in finding that the liquidators were ‘the occupier’ of the Land for the purposes of the Environment Act.

Section 4(1) of the Environment Act defines the term ‘occupier’ to include “a person in control of premises”. The Court observed that the core function of a liquidator is to collect, apply and distribute company property. Having regard to that core function, and to the powers and obligations of liquidators under the Corporations Act, the Court concluded that “a liquidator readily falls within the concept of someone in ‘control’ of the premises.”

Their Honours rejected a submission to the effect that it would be absurd for the definition of ‘occupier’ in the Environment Act to extend to a liquidator. The Court observed that if liquidators are in control of premises where dangerous substances are stored, it is consistent with the Environment Act that they be required to comply with the statutory licensing requirements. Their Honours stated there is no reason that liquidators should not be responsible for environmental damage which has occurred on land within their control: [106].

In concluding that a liquidator may be the ‘occupier’ for the purposes of the Environment Act, the Court of Appeal rejected an analogy sought to be drawn by the applicants between the role of a liquidator and that of a sole director. The Court of Appeal observed that the statutory function of a liquidator entails more direct control of company property for the purposes of collection, application and distribution than that of a director: [80].

As to the prejudice that would be occasioned to the State by the disclaimer, the Court considered it inconceivable that the EPA would not seek to recover the costs incurred in cleaning up waste stockpiles on the Land under the relevant provisions of the Environment Act. Their Honours observed that if the disclaimer was not set aside, the EPA could not claim against the liquidators who had the benefit of the Deed of Indemnity (which was granted specifically in respect of their potential environmental liabilities). Accordingly, the Court concluded that Garde J did not err in holding that the disclaimer would cause prejudice to the EPA and the State. Indeed, the Court of Appeal concluded that the proposed ground of appeal was not arguable. As such, leave to appeal on this ground was refused: [126].

Implications

The Court of Appeal’s judgment clarifies that a liquidator may be an ‘occupier’ for the purposes of the Environment Act. It follows that liquidators may be liable for environmental damage on land owned by the company in liquidation.

The judgment also demonstrates that a disclaimer of contaminated land may be set aside if the disclaimer would prevent the EPA or State from recovering under the Environment Act. However, it does not follow from the Court’s judgment that all such disclaimers will inevitably be set aside. In this case it was significant that the liquidators were unlikely to suffer any material prejudice. By reason of the Deed of Indemnity,[2] the liquidators were not exposed to liability beyond the amount of the clean-up costs recovered under the Deed of Indemnity, and would receive their professional fees and expenses. 

[1] Relatedly, the Court of Appeal considered: (i) whether the trial judge erred in holding that the disclaimer would cause prejudice to the EPA and the State, and (ii) whether the trial judge’s exercise of discretion to set aside the disclaimer miscarried. The appellants also raised a constitutional issue, namely that s 62 of the Environment Act is inconsistent with s 545 of the Corporations Act. The Court of Appeal held that there is no such inconsistency: see paragraph [8].

[2] The liquidators also had the benefit of s 545 of the Corporations Act and the undertaking given by the EPA and the State that the liquidators’ liability would be limited to the amount recovered under the Deed of Indemnity.