Metals Trading Pty Ltd v Doctor Scrap Pty Ltd

Judgment 1These proceedings, commenced by Metals Trading Pty Ltd ("Metals"), concern the lease by Metals of a property at Hereford Street, Wagga Wagga ("the Site") from the defendant, Doctor Scrap Pty Ltd ("Doctor Scrap"), and equipment hired by Doctors Scrap for Metals. Mr Greenwood SC appears with Mr Hynes for Metals and Mr Robb QC with Ms Baxter appears for Doctor Scrap. 2The two elements of Metals' claim were: (1) the cost of works on the Site to a value of $216,169.70 for which Metals paid and which Doctor Scrap promised to reimburse it, plus interest; (2) an amount for hire and repair of an item of equipment hired by Metals to Doctor Scrap, with the amount claimed being $116,507.94 plus interest. There is now no dispute by Doctor Scrap that it is liable to Metals for these two heads of claim to a total amount of $332,677.64 (plus interest), subject to its cross claim. 3In view of the concessions made, the background to the lease becomes of less importance, namely that Metals bought the scrap metal business that Doctor Scrap conducted at several sites. Doctor Scrap, shortly before the sale, was contemplating purchasing the Site and as part of the sale agreement it was agreed that it would purchase the Site and lease it to Metals for initially a two-year period. It was agreed that Doctor Scrap would arrange for the completion of works required to make the Site functional as a yard suitable for Metals' business (principally by installing a shed, a road and a weighbridge) and later that Metals instead would arrange those works and be reimbursed for an amount of up to $350,000 (including the $216,169.70 referred to above). Doctor Scrap purchased the Site for $1.1 million in May 2007. 4In late 2009, Doctor Scrap sought to have Metals enter into a further lease, this time for five years (with a five year option). Metals did not agree to this and Doctor Scrap gave notice to Metals to vacate the premises by way of a notice to quit on 16 December 2009, which Metals did on 29 January 2010. Metals initially considered challenging the notice to quit but then decided to vacate the Site. 5Doctor Scrap, by its cross claim, claims that: (a) by virtue of its scrap operations on the Site, Metals brought asbestos onto the Site; and (b) by virtue of various clauses of the lease, or alternatively, by virtue of s 84(b) of the Conveyancing Act 1919, by which a term requiring the premises to be yielded up by the tenant in good and tenantable repair, having regard to the conditions of the premises at the commencement of the lease, is implied, Metals is required to remediate the Site. 6Metals did not accept that there was a binding lease imposing an obligation to remediate the property but it did not dispute that an implied term to the same effect arose by operation of s 84(b) of the Conveyancing Act, which would require it to remediate the Site in respect of any asbestos for which it was responsible, and accordingly it is not necessary to determine whether the term arose by reason of an effective lease. 7Doctor Scrap's claim is for an amount of approximately $3.8 million, being the cost of removing all of the topsoil and shipping it to an authorised asbestos site. 8The Site as it is now configured has been treated as having four portions. Portion 1 is the north-western quadrant (approximately) of the Site. Portion 2 is the north-eastern quadrant (it has within it the shed and weighbridge constructed in 2007). Below those two portions is the southern portion which has a "Y" driveway and the last portion is a small fenced off area in which a hayshed was constructed many years ago. After Metals left the Site, Doctor Scrap cordoned off what it calls "Portion 1" of the Site pursuant to a direction of the WorkCover Authority and, by reason of the confirmed presence of asbestos, Portion 1 has not been used since March 2010. Portion 2 of the Site and the southern part of the Site has been leased by Doctor Scrap to Riverina Scrap, another scrap dealer, since sometime in 2010. 9In November 2010, Mr Peter Jamieson, the principal of Doctor Scrap, made an assertion to Metals that he had seen asbestos on the Site (see pars 466 - 469 of Mr Jamieson's affidavit of 21 October 2011 at p160 of Exhibit A1). It is not established that what he thought was asbestos-containing material ("ACM") was in fact ACM since, although he said he was having the samples tested, he did not in fact do so (see T63.30 - 34) and there was the evidence that the product "super-six sheet" containing asbestos and which he thought he saw was replaced by the manufacturer with a very similar product which did not contain asbestos. Metals staff decided, however, that in the light of Mr Jamieson's allegations they should ensure that Environmental Resources Management Australia Pty Ltd ("ERM"), a firm of soil engineers, conduct a test for the presence of asbestos on the Site before Metals departed the Site. ERM had, in August 2008, conducted a "Baseline" study of the Site as part of a planned "Exit Report". That study, provided to Metals in the form of a report dated 27 February 2009 ("Baseline Report"), had been carried out as part of a policy of Metals in respect of all sites occupied by it to assess leased property at the commencement of occupation. The Baseline Report had not, however, been directed to making an assessment for the presence of asbestos and hence the absence of any mention of asbestos in the report does not as at August 2008 establish that there was no asbestos on the Site as at the time of the ERM 2008 investigation. ERM, at the time of commissioning of the Baseline Report, had been informed by Metals that the Site had only been used for farming. Incidentally, although Metals took occupation of the Site in May 2007, on completion of Doctor Scrap's purchase of the business it did not commence operations on the Site until April 2008. 10In January 2010, at the time that Metals was in the process of cleaning up the Site, ERM undertook, on behalf of Metals, investigations for the Exit Report dated 10 February 2010, which involved it: (a) endeavouring to mimic the investigations undertaken for the Baseline Report so that a close comparison could be made between the Exit Report and Baseline Report findings; (b) undertaking an assessment of whether asbestos was present on the Site. 11So far as (b) is concerned, ERM took "grab samples" (a scooping of 10cm of topsoil: see T303.21 - 303.24) from ten defined locations (see p664 of Exhibit A2) to test them for the presence of asbestos. Seven of the ten grab samples were found to contain asbestos fibres. 12The grab samples were all taken from positions on which Metals had stockpiled scrap, and which Metals staff identified for ERM personnel: see T303.17 - 19. Mr Troy Blackman, who was the occupational health and safety officer of Metals, was the person who organised the ERM Exit Report and, at the time of engaging ERM to carry out the investigations for the Exit Report, he was confident that there had been no asbestos contamination: see T99.1 - 39 and T102.47 - T103.12. 13Subsequently Doctor Scrap engaged its own expert to investigate the Site. Dr Takashi Itakura, who at the time worked for SLR Consulting Australia Pty Ltd ("SLR") and later for Peter J Ramsay and Associates, organised an investigation and produced reports which have been relied on by Doctor Scrap in these proceedings. 14Dr Itakura's technique was to dig 25 test pits across Portion 1 at more or less equal intervals in a grid pattern. The grid pattern is marked on p1204 of Exhibit A4. The result of what was discovered as to the soil is summarised at p1206. 15Dr Itakura's test results established that asbestos was present in 7 of the 25 test pits. 16Tests were also conducted on three very small clumps found on the Site by another person retained by Doctor Scrap, a Mr Stephen Wilkinson of the firm Carey Murphy & Associates Pty Ltd: see p1157-1 of Exhibit A4. Those tests established that two of the three clumps contained asbestos. They were taken from "near the metre box" (see par 604 of Mr Jamieson's affidavit at p176 of Exhibit A1 and T71.15 - T71.25) which may have been at the northern end of the Site (see T71.29 but see also T138.40 - T139.10), but only after Metals had already left the Site. 17In Exhibit A3 on p802 is a diagram of the Site in which are represented all of the test pits (by SLR) and grab samples (by ERM) in which asbestos was detected. The green dots show the ERM-detected asbestos and the red dots show SLR-detected asbestos, except that AB12 located on Portion 2 is wrongly coloured orange and should, it was agreed, have been coloured green. Notwithstanding that AB12 is an asbestos location, the area has not been cordoned off. 18The laboratory testing results of the grab samples which tested positive for asbestos (see p564 of Exhibit B2) were AB02 (Chrysotile), AB04 (Chrysotile), AB06 (Chrysotile and Amosite), AB07 (Chrysotile), AB09 (Chrysotile and Amosite), AB10 (Chrysotile, Amosite and Crocidolite) and AB12 (Chrysotile). The soil samples in which they were found are at p648 of Exhibit B2. Items thought to contain asbestos from AB02, AB06 and AB08 (in addition to the grab samples) were tested but found not to contain asbestos: see p564 of Exhibit B2. 19Asbestos is a mineral which was mined for many years in Australia and other countries. There are three main types: Chrysotile (white in colour), Amosite (brown in colour) and Crocidolite (blue in colour). Asbestos was commonly combined with cement and used as a building product but it has been used in many products, particularly as an insulation against heat - over doors, fire doors, brake and clutch linings. In more recent times, asbestos fibres have become identified as a cause of significant and potentially fatal lung disease and its presence is regarded as a potential health hazard, so much so that when its presence is identified in a building in NSW, licensed contractors are required to be engaged to deal with the problem, and there are a restricted number of tips or dump sites permitted to hold ACMs. 20When Mr William Ellis, engineer and partner at ERM, first identified the presence of asbestos fibres in the topsoil at the locations which I have identified, he recommended a remediation process that involved removal of the topsoil within a radius of the ascertained locations and transportation to a depot authorised to receive ACMs. Mr Ellis did not at that stage know how much soil would need to be removed but he gave two indicative prices based on alternative quantities, the higher quantity being 1500m3 and the lower being 600m3. That report was provided well before Dr Itakura carried out his investigations. Later when Mr Ellis was appraised of the SLR results, he recommended a process known as "capping" whereby the affected area is capped in concrete: see p931 of Exhibit A3. Mr Ellis annexed a diagram to his report of 18 November 2011, and provided a cost estimate of $995,000 (see p933 of Exhibit A3) and said: "The cost estimates are based on a potential remediation strategy for the Site comprising containing and capping asbestos-impacted soil beneath a layer of geotextile, and natural clay. Figure 1 presented in Annex A shows the current Site layout and proposed area to be capped. It is noted that the existing shed and weighbridge would not need to be capped as they are hardstand areas, however the concrete entrance driveway will be included in the cap for ease of future use of this area. Following completion of works a site management plan would need to be recorded on the land title to ensure that future owners were aware of impacts on the site and any requirements contained within the management plan." 21Metals does not dispute that there have been found asbestos fibres and ACMs on the Site but disputes that it is responsible for the asbestos and ACMs. At one point Mr Greenwood asserted that all of the asbestos found had been removed and this seemed to amount to a contention that nothing more need be done. That contention does not accord with even Metals' own expert evidence and the document containing points of agreement between the experts: see Exhibit 2, which contained the following (see Exhibit 2): "Points of agreement