Seaforth Securities Pty Limited v Zoya Investments Pty Limited

Supreme Court of NSW|2024-07-29|Before: Windeyer J

Solicitors: Stephen John Rush (plaintiff) No appearance (defendant) File Number(s): 2023/00461516-1

JUDGMENT

This judgment concerns an assessment of damages as a result of a default judgment ordered on 21 March 2024, in relation to the contamination of neighbouring land by an adjoining petrol station in the NSW central coast area.
On 21 March 2024, pursuant to r 16.7 of the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR'), default judgment was entered in favour of Seaforth Securities Pty Limited ('Seaforth') against Zoya Investments Pty Limited ('Zoya') for damages referred to in the statement of claim, which are to be assessed. By notice of motion filed on 8 March 2024, the plaintiff seeks an order for compensatory damages in the sum of $7,450,000 and exemplary damages in the sum of $1,000,000, totalling $8,450,000. The plaintiff also seeks costs relating to legal fees and for the partial remediation of its property in the sum of $1,226,614.74.
The plaintiff is Seaforth. The plaintiff is represented by J. Hutton SC of counsel and H. Ryan of counsel. The defendant is Zoya. On 18 April 2024, Zoya resolved that it would be wound up in voluntary liquidation and that a liquidator, Mohammad Najjar of Vanguard Insolvency Australia Pty Ltd, be appointed. There was no appearance by the defendant, nor by its liquidator.

Background

Between December 2016 and November 2023, Seaforth and Zoya owned neighbouring properties on the NSW Central Coast. A petrol station business was conducted on Zoya's property. The property addresses were 70 Craigie Avenue, Kanwal ('the Seaforth property') and 68 Craigie Avenue, Kanwal ('the petrol station site'). The Seaforth property and the Petrol Station Site were immediately adjacent neighbouring properties. The Seaforth property was located down a gradient from the petrol station site.
In August 2017, Seaforth notified Zoya that petroleum hydrocarbon contamination had been identified in the groundwater of Seaforth's Property and that the petrol station site was the likely source.
Over the following years, Seaforth's solicitors made numerous attempts to engage with Zoya's representation in an effort to manage or minimise the contamination, with little to no success.
On 11 December 2018, the EPA declared all of the petrol station site and part of the Seaforth property as significantly contaminated
On 21 February 2020, the EPA issued Zoya with a management order pursuant to s 14 of the Contaminated Land Management Act 1997 (NSW) ('CLM Act').
On 16 September 2021, the EPA charged Zoya with a failure to carry out the requirements of the management order and commenced proceedings in the Land and Environment Court of NSW.
On 16 December 2022, Zoya was convicted of a breach of s 14(6)(a) of the CLM and fined $320,000
On 11 April 2024, the original directors of Zoya, Satwinder Singh and Rizwan Rana, resigned as directors and Sania Sania was appointed as the sole director and secretary in their place. Sania Sania became the sole shareholder of Zoya at the same time.
On 18 April 2024, Zoya resolved that it should be wound up and placed into voluntary administration.
On 2 July 2024, the Supreme Court made orders pursuant to s 500(2) of the Corporations Act 2001 (Cth) granting leave to Seaforth to continue this proceeding against Zoya.
On 9 July 2024, Seaforth's solicitor advised the liquidator that the Supreme Court had set the date for the hearing of Seaforth's damages claim against Zoya for 29 July 2024 (CB 195).
On 17 July 2024, the liquidator advised Seaforth's solicitor that he did not intend to appear at the scheduled hearing on 29 July 2024 (CB 197).
I acknowledge that I have largely and gratefully reproduced the submissions made by the plaintiff's senior counsel and adopted them. I have added some additional findings and submissions of my own to those submissions.

Evidence

The plaintiff relies on the affidavits of Stephen John Rush (Seaforth's solicitor) dated 16 May 2023, Bruce Stanley Johnson (Director of Seaforth) dated 16 May 2023, Andrew Kita ('Kita') of Trace Environmental dated 24 May 2024 and Dean Galanos ('Mr Galanos') of Property Logic dated 24 May 2024.
On Seaforth's land exists an uninhabitable house and a shed. The shed is used for storage. In October 2016, Seaforth was alerted to the presence of contamination by petroleum hydrocarbons in the soil and groundwater of the Seaforth property. It had reached an in-principle agreement with Australian Unity Funds Management Ltd ('Australian Unity') to sell the Seaforth property to Australian Unity for a price of $10 million.
Australian Unity intended to develop the site into a hospital and aged care facility. The offer was subject to due diligence investigations. Australian Unity engaged KPMG SGA Property Consultancy ('KPMG') to perform a targeted environmental investigation. KPMG produced an expert report, provided to Seaforth, which identified the presence of petroleum hydrocarbons and that the likely source of the petroleum hydrocarbons was the service station at the petrol station site. It noted: "[T]he source of the petroleum hydrocarbons is likely to be the adjacent service station to the northeast of" the Seaforth property."
Consequently, in late 2016, Seaforth engaged its solicitors to advise it in relation to the contamination and its rights and responsibilities under the CLM Act.
Between April 2017 and May 2018, Seaforth engaged environmental consultants, Cardno Geotech Solutions ('Cardno'), to provide advice in respect of the contamination of the Seaforth property and its likely sources. On 27 June 2017, Cardno produced a report concluding that the sources of the contamination were continuing to discharge hydrocarbons, and that it appeared that the underground storage tank systems ('USTs') on the petrol station site were currently losing hydrocarbon product which was then entering the subsurface of the Seaforth property. The Cardno report concluded that: "It appears that hydrocarbon product is currently leaving the boundary of the Service Station Site and entering the subsurface of the" Seaforth property."
On 7 August 2017, Seaforth's solicitors wrote to Zoya to inform it of the contamination of the Seaforth property and that an expert had identified that the likely source of the hydrocarbons was the adjacent service station and may be ongoing. The letter demanded that Zoya immediately prevent the contamination. Seaforth's solicitors did not receive a response. It wrote to Zoya again on 28 August 2017. On 14 September 2017, Seaforth's solicitors received a letter from Zoya's legal representatives, who did not admit that Zoya had caused any contamination. On 25 September 2017, Seaforth's solicitors responded to that letter and provided documents including the Cardno report of 27 June 2017. Between 30 November 2017 and 7 October 2020, Seaforth's solicitors sent Zoya a further nine letters about the contamination. The only responses from Zoya were through its lawyers in July 2020: first, to request copies of all previous correspondence (on 9 July 2020) and then to state that Zoya did not accept any liability for contamination of the Seaforth property and to assert that there was no conclusive evidence that the contamination of the Seaforth property emanated from the petrol station site (on 28 July 2020).

The Environment Protection Authority's involvement with Seaforth and Zoya

On 7 August 2017, Seaforth notified the NSW Environment Protection Authority ('EPA') of the contamination, as it was obliged to do under s 60(2) of the CLM Act.
On 11 December 2018, the EPA declared all of the petrol station site and part of the Seaforth property ('the contaminated site') as significantly contaminated land, pursuant to s 11 of the CLM Act. The declaration stated that: 1. the EPA had found that the contaminated site was contaminated with petroleum hydrocarbons; 2. the EPA had determined that the contamination was significant enough to warrant regulation under the CLM Act; 3. the groundwater was contaminated with petroleum hydrocarbons at concentrations exceeding guidelines that are protective of human health and/or the environment; 4. the source of contamination at the petrol station site had not been suitably identified and appeared to be ongoing; and 5. the extent of groundwater contamination had not been delineated.
A declaration under s 11 enlivens the EPA's regulatory powers under division 2 of part 3 of the CLM Act. Division 2 sets out two avenues for addressing contamination, one coercive and the other voluntary. The first is that the EPA may make a management order in respect of significantly contaminated land under s 14, directing an appropriate person or public authority to carry out specified action or submit for the EPA's approval a plan of management of the land. Such action may include investigating the existence, nature and extent of any significant contamination or harm caused by the contamination, investigating the most appropriate means for undertaking remediation of the land, and carrying out remediation: CLM Act, s 16. It is an offence, punishable with considerable pecuniary penalties, to fail to comply with any direction or other requirement specified by a management order: s 14(6).
The alternative avenue is that a person may furnish the EPA with a proposal for the management of significantly contaminated land (a voluntary management proposal), pursuant to s 17 of the CLM Act. The EPA may then approve a proposal unconditionally or subject to conditions if it is satisfied of certain matters.
Once the EPA made a declaration under s 11, it was inevitable that Seaforth would have to take steps to investigate and remediate the contamination on the Seaforth property pursuant to a voluntary management proposal of its own devising or be subject to a compulsory management order.
In December 2018, Seaforth engaged Harwood Environmental Consultants, ('Harwood'), to advise it in relation to the contamination and remediation of the Seaforth property, and to develop a voluntary management proposal. Throughout 2019, Seaforth submitted several draft voluntary management proposals, developed by Harwood, to the EPA and received feedback on those drafts.
On 6 December 2019, the EPA issued Seaforth a notice of approval of voluntary management proposal. The approved voluntary management proposal required Seaforth to achieve the following outcomes: 1. define the extent of impact to soil gas, soil and groundwater to augment the current data set; 2. define the risk to human health and the environment and to recommend any remediation/management or pilot studies to ensure protection of human health and the environment for the current and approved use of the Seaforth property; and 3. remediate the Seaforth property, if required, so there are no unacceptable risks to human health and the environment.
The voluntary management proposal also required Seaforth to engage a qualified site consultant to carry out investigations and prepare relevant plans and reports, and a site auditor to prepare certain reports and ensure compliance with the voluntary management proposal. The voluntary management proposal was subsequently amended on four occasions. Seaforth engaged Harwood as its consultant until July 2021, Trace Environmental Consultants ('Trace') as its consultant from July 2021, and David Gregory of Geo-Logix Pty Ltd ('Geo-Logix') as its site auditor. Harwood, Trace and Geo-Logix have each performed extensive work as required by the voluntary management proposal.
In May 2023, after extensive testing, investigating and reporting to the site auditor and the EPA, Trace prepared a remedial action plan. On or about 7 June 2023, Trace obtained approval for the remedial action plan from the site auditor. On or about 9 June 2023, Trace submitted the remedial action plan to the EPA. Remediation of the contaminated site began that month and continued through to August 2023.
On 31 August 2023, Geo-Logix issued a site audit statement, certifying that the voluntary management proposal had been complied with.
For its part, Zoya submitted a draft voluntary management proposal to the EPA on 31 December 2018. After receiving comments from the EPA, it submitted an updated version on 28 February 2019. However, on 15 April 2019, the EPA advised that the proposal could not be approved, because Seaforth had not been given the opportunity to participate in the formulation of the proposal submitted for its property, as required under s 17(4)(c) of the CLM, and because of other inadequacies. Zoya did not submit any further draft voluntary management proposals.
On 21 February 2020, the EPA issued a management order to Zoya, pursuant to s 14 of the CLM Act. Among other things, the management order provided that: 1. the EPA believed that the contaminated site was "significantly contaminated with petroleum hydrocarbons as a result of the use of [the petrol station site] as a service station and the migration of the petroleum hydrocarbons onto part of [the Seaforth property]"; 2. investigations to date had been limited but indicated the potential for multiple contamination sources and potentially multiple releases over time; 3. Zoya was responsible for significant contamination of the contaminated site, pursuant to s 13(2)(a) of the CLM Act; 4. there appeared to be an ongoing source of petroleum contamination originating from the central forecourt area of the service station that had not been suitably identified or rectified; 5. surface water management at the contaminated site was poor with unsealed section of the forecourt that were heavily fuel stained; and 6. there was no collection or treatment of contaminated surface water run-off from the forecourt area.
The management order required Zoya to take actions, including to engage a consultant to carry out the work involved in investigating and remediating the land, to engage an accredited site auditor to determine compliance with the management order, to engage a duly qualified person to carry out equipment integrity checks of the underground petroleum storage systems and all associated fuel infrastructure on the land at the petrol station site and to identify any faulty infrastructure or the absence of spill protection/containment measures that may be contributing to contamination, and, where that duly qualified person identified operational issues, to take immediate action to rectify the problem (this last step was termed Direction D(ii)). On 23 April 2020 The EPA issued an amended management order to Zoya.
On 24 July 2020, Zoya provided an 'equipment integrity test' report for the underground petroleum storage systems and associated infrastructure, prepared by a consultant, to the EPA in accordance with Direction D(i) of the management order. The report outlined the following: 1. three of the four underground storage tank systems failed the MESA 2D acoustical test and required further investigation and possible rectification; and 2. the unleaded petrol ('ULP') fuel suction line from the ULP 1 tank to bowsers failed the line test due to a pin hole leak in its anaconda and required immediate action and rectification. Zoya failed to carry out the rectification works required by direction D(ii) immediately, as required. On 16 September 2021, the EPA charged Zoya with failure to carry out the requirements of direction D(ii) and commenced a prosecution of Zoya in the Land and Environment Court of NSW. Zoya ultimately pleaded guilty to the offence. For the purposes of sentencing, Zoya and the EPA agreed to a statement of agreed facts, reproduced in full in the ultimate judgment in the proceeding. (Admissions made by Zoya in the statement of agreed facts are admissible in this proceeding pursuant to s 81 of the Evidence Act 1995 (NSW)). Those facts included that Zoya was repeatedly reminded of its obligation to comply with direction D(ii) by 18 September 2020. It was not completed until 29 July 2022. Importantly, during that period, petrol continued to leak from the fuel suction line from the ULP 1 tank to Bowser 1, 2 every time the pumps at those bowsers were in use during the offence period. Up until 26 July 2022, there was a risk that a potential of 3,210L of petroleum could have leaked from the underground petroleum storage systems.
On 16 December 2022, Moore J in the Land and Environment Court convicted Zoya of a breach of s 14(6)(a) of the CLM Act and fined Zoya $320,000.
Under s 46 of the CLM Act, the EPA may give a notice or direction in accordance with parts 4.2 or 4.3 of the Protection of the Environment Operations Act 1997 (NSW) ('POEO Act') in relation to significantly contaminated land, as if the EPA were the appropriate regulatory authority within the meaning of that Act. Under s 91 of the POEO Act (within part 4.2), a regulatory authority may, by notice in writing, direct an owner or occupier of premises at or from which the authority reasonably suspects that a pollution incident has occurred or is occurring, or a person who is reasonably suspected by the authority of causing or having caused or contributing to a pollution incident, to take specified clean-up action.
On 7 October 2022, the EPA issued a clean-up notice to Zoya, directing Zoya to take clean-up action, pursuant to s 46 of the CLM Act and part 4.2 of the POEO Act. In the clean-up notice, the EPA identified that: 1. the EPA reasonably suspected that water pollution had occurred and was occurring; and 2. the EPA's review of contamination assessment reports provided to it indicated that there were multiple sources of petroleum hydrocarbon contamination at the petrol station site, including leaks of fuel from the former underground petroleum storage systems and associated fuel infrastructure, a 2010 fuel spill incident during fuel delivery, and spills of fuel on the forecourt of the petrol station site that were washed into the stormwater system during rain events, with stormwater discharged to the Seaforth property.

Sale of the petrol station site

On 13 November 2023, Zoya sold the petrol station site to RAS Kanwal Group Pty Ltd ('RAS Kanwal'). The sale price was $600,000, the property having been purchased by Zoya in December 2016 for $2,300,000. Up until 11 April 2024, when Zoya's directors, shareholders and registered office changed, Zoya and RAS Kanwal had identical directors, shareholders and registered office.

Further contamination

During its investigation of the Seaforth property, Trace identified that the contamination had extended outside the contaminated site but on the Seaforth property. The plume identified by the EPA in the contaminated site is referred to as "Plume 1"; the extended contamination within the Seaforth property discovered later is referred to as "Plume 2". Trace has undertaken extensive testing, monitoring and reporting in relation to Plume 2. It now considers that Plume 2 is part of the same groundwater contamination plume and from the same contamination source as Plume 1. Trace also considers that there needs to be an RAP addendum and additional remediation works for the extensive area of contaminated groundwater in the southeast portion of the Seaforth property. Plume 2 is two to three times larger than Plume 1 was prior to remediation and it contains significantly more light non-aqueous phase liquid.
Figures A and B, below, depict the extent of hydrocarbon contamination on the Seaforth property. The approximate boundary of the Seaforth property is indicated by the solid red line. Figure A shows the level of hydrocarbon contamination on and around the Seaforth property prior to Seaforth commencing remedial works. Figure B shows the level of hydrocarbon contamination following the remedial works Seaforth undertook between June and August 2023. The light blue colour represents detectable levels of benzene concentration, with contamination levels increasing in intensity as the colour becomes increasingly red and dark. Figure A Figure B

The law - nuisance

In Robson v Leischke [2008] NSWLEC 152 at [51] Preston CJ stated: "An occupier of land who knows or ought to know of a nuisance, and the possibility of danger occurring in consequence is a real risk, must take such positive action as a reasonable person, in his position and circumstances, would consider necessary to eliminate the nuisance."
In Gales Holdings Pty Ltd v Tweed Shire Council (2013) 85 NSWLR 514 ('Gales') at [131] Emmett JA stated: "An occupier of land will be liable for continuing a nuisance if, with knowledge or presumed knowledge of the state of affairs, the occupier fails to take reasonable steps to bring it to an end despite having had ample time to do so."

Seaforth's submissions on nuisance

Seaforth submitted that Zoya was expressly made aware of the prior nuisance it had caused, and the continuing nuisance that was likely, both by the EPA and by Seaforth. It further submitted that, rather than take remedial action for its past nuisance, or preventative action to curtail any further nuisance occurring, Zoya instead denied responsibility and failed to undertake any reasonable action over a period of years. I agree.

Damages

Where default judgment under r 16.7 of the UCPR is ordered, the matter proceeds to an assessment of damages. That assessment occurs by trial: r 30.1. In other words, Seaforth must establish with evidence its entitlement to the quantum of damages it seeks.

Past and future economic loss

Sections 12 and 13 of the Civil Liability Act 2002 (NSW) provides for damages for past or future economic loss. They read: 12 Damages for past or future economic loss - maximum for loss of earnings etc (1) This section applies to an award of damages: (a) for past economic loss due to loss of earnings or the deprivation or impairment of earning capacity, or (b) for future economic loss due to the deprivation or impairment of earning capacity, or ……. 13 Future economic loss - claimant's prospects and adjustments (1) A court cannot make an award of damages for future economic loss unless the claimant first satisfies the court that the assumptions about future earning capacity or other events on which the award is to be based accord with the claimant's most likely future circumstances but for the injury. (2) When a court determines the amount of any such award of damages for future economic loss it is required to adjust the amount of damages for future economic loss that would have been sustained on those assumptions by reference to the percentage possibility that the events might have occurred but for the injury. (3) If the court makes an award for future economic loss, it is required to state the assumptions on which the award was based and the relevant percentage by which damages were adjusted. .…"
In Winky Pop PTY LTD v Mobil Refining Australia PTY LTD [2015] VSC 348 Digby J stated: "What is the appropriate measure of damages for torts affecting land? In General - diminution in value - reinstatement of costs [136] Fleming's The Law of Torts makes a distinction between damages for harm to the property itself, and damages for consequential loss arising from the harm to the property, including lost business profits.178 General damages may also be awarded for the loss of use of the land.179 In the case of the harm to the land, despite the widespread impression favouring diminution in value, there is no categorical rule that that is the measure of damages.18° There is a wide range of circumstances that could justify reinstatement over diminution in value, even though reinstatement costs would exceed the diminution in value.181 What the court must assess is whether the plaintiffs desire to rebuild, refurbish or be reinstated is reasonable in light of the benefits to the plaintiffs of reinstatement, the extent of the diminution in value and the cost of reinstatement.182 For instance, reinstatement may not be reasonable if the costs of reinstatement far outweigh the diminution in value and the plaintiff can purchase a similar property in the open market.183 Reinstatement would be reasonable, however, in the case of a plaintiff whose factory has been destroyed and there is no reasonable alternative in which the plaintiff can carry on its business and retain its labour force.184 [136] The authors of Law of Torts state that in cases of nuisance, the principle generally applied is to award the plaintiff the diminution in value of the property brought about by the nuisance.185 Moreover, plaintiffs may recover losses that are a reasonably foreseeable consequence of the commission of the nuisance.186 As an alternative to damages for diminution in value, the costs of reinstatement may be recoverable if not out of all proportion to the diminution in value.187 [143] In Seiwa Pty Ltd v Owners Strata Plan Brereton J summarised the measure of damages in nuisance as follows: Ordinarily, the proper basis for assessing damages for nuisance is the diminution in value of the plaintiffs land occasioned by the breach. Reasonably foreseeable consequential losses are also recoverable, including for example loss of custom in the case of interruption to a business conducted from the premises, or costs of relocation. Although the cost of restoring the plaintiff's property to its previous condition may be recoverable - unless there is no prospect of the plaintiff performing the works, or such costs are entirely disproportionate to the diminution in value - that does not extend to performance of works on the land from which the nuisance emanates Conclusion as to the appropriate measure of damages [182] The cases discussed above indicate that usually, the appropriate measure of damages for injury done to land the diminution in value of the land or the costs of reinstatement, courts will start with what the plaintiff has asked for, and then consider whether that measure of damages is fair and reasonable in light of the injury suffered, the difference between the diminution in value on the one hand and reinstatement costs on the other, and any special value in the land. Damages may also be awarded for consequential losses, including lost profits or lost commercial opportunities. The measure of damages must be approached in a realistic way. [185] I consider, however, that at law and in the circumstances of this case, as addressed in detail beIow,2' the appropriate measure of damages is the diminution in value. [203] An assessment of damages based on diminution of value of the land as a result of the contamination injury is, in my view, the much more preferable measure. That is because the alternative sought by the plaintiffs, namely damages for loss of opportunity carries with it a significant risk in this case that the plaintiffs will, or may be, overcompensated because they ultimately develop the land in some way involving residential development. Alternatively, the plaintiffs may well sell their land for a price that factored in potential residential development in the future. This is in my view exacerbated by the way the plaintiffs frame their damages claim. They seek to be compensated on the basis that their residential development plan would have been achieved in all respects as envisaged in relation to cost, timing and scope notwithstanding the many planning and environment vicissitudes which are likely to affect that development, including the resolution of the re-zoning constraints and also the construction and marketing uncertainties. The plaintiffs' compensation involves accepting now, outcomes which would, theoretically, be achieved many years hence and the commercial environment which then exists. Furthermore, the plaintiffs' claim for damages based on their asserted loss of opportunity is by its nature (at this point of time) hypothetical and pregnant with projections and uncertainties whereas the assessment of damages on the basis of the diminution in the value of the plaintiffs' land as a result of the contamination injury caused by Mobil is, for the reasons I have explained, likely to be a more reliable and accurate basis upon which to assess damages."

Plaintiff's submissions on economic damages

Whether Zoya's conduct is conceived of as nuisance or negligence or both, the measure for damages is the same. While an injunction is sometimes sought to remedy a nuisance, that is not the appropriate remedy here, where the nuisance has led to lasting physical damage and Zoya is no longer the owner of the petrol station site. Seaforth is entitled to be compensated for the loss which it suffered as a result of the relevant conduct of Zoya. The kind of harm suffered by Seaforth must have been reasonably foreseeable to Zoya: Gales at [144], [237] (Emmett JA), [276], [280] (Leeming JA), [283] (Sackville AJA). In the case of a tort affecting land, including nuisance, the usual measure of damages is the diminution in value: Winky Pop Ply Ltd v Mobil Refining Australia Ply Ltd [2015] VSC 348 at [136]-[137] (Digby J) (upheld on appeal: Winky Pop Ply Ltd v Mobil Refining Australia Ply Ltd [2016] VSCA 187 at [331]); Qantas Airways Ltd v Mascot Galvanising (Holdings) Ply Ltd (unreported, Supreme Court of New South Wales, Windeyer J, 17 December 1998); Seiwa Ply Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at [27] (Brereton J).
As an alternative, a plaintiff may recover the costs of reinstatement: Winky Pop at [137]. Damages may also be awarded for consequential losses: Winky Pop at [182]; Seiwa at [27]. Damages for reasonable remedial expenditure may be recovered: Delaware Mansions Ltd v Westminster City Council [2002] 1 AC 321.
Seaforth has incurred the following expenses since August 2017 in developing the voluntary management proposal, complying with the voluntary management proposal, corresponding with Zoya, and otherwise investigating and remediating the contamination (GST inclusive): 1. Cardno: $39,982.25 between April 2017 and August 2017, when Zoya was informed of the contamination of the Seaforth property, and a further $24,967.50 after August 2017; 2. Harwood: $166,147.91. 3. Geo-Logix: $87,579.25 4. Trace: $684,269.30 5. EPA: $2,022.75 6. Seaforth's Solicitors (excluding fees incurred in pursuing this proceeding, which are a matter for costs): $14,228.50 between December 2016 and August 2017, and a further $232,384.78 after August 2017.
The total fees incurred by Seaforth pursuant to the remediation of the Seaforth property since December 2016 are $1,226,614.74. The costs incurred since August 2017 are $1,197,371.49.
Further, despite Seaforth's effort and expenditure, the Seaforth property remains contaminated. Although Plume 1 has substantially been remediated, Plume 2 has not. Further, despite numerous requests and directions - and despite having been convicted of pollution offences - Zoya did not put in place measures to stop the contamination occurring and continued to allow the petrol station operations to be conducted on the petrol station site. The petrol station site continues to contaminate the Seaforth property to this day.
Mr Kita of Trace estimates that the costs of completing remediation of the Seaforth property will be in the order of $1,060,000 to $1,670,000 (excluding GST). Of course, those are the estimated direct costs, but to properly cost up completion of the remediation it would be necessary to make adjustments for borrowing costs, risk that the completion of the remediation will not be successful or will be materially more expensive than anticipated, and loss of opportunity to use or invest the funds elsewhere within the business to generate a return. Adjustments to that effect are made by Seaforth's valuer (see below).
The objective of the award of damages is to put Seaforth in the position it would be in if the nuisance and negligence had not been committed. In that counterfactual, Zoya would, within a reasonable time of taking possession of the property in December 2016 or at least having been notified of the contamination in August 2017, have investigated the contamination, and implemented measures to stop the flow of contamination on to the Seaforth property.
Mr Kita opines that if that had been done (starting in August 2017): 1. the Seaforth property would now be fully remediated (Plume 1 and Plume 2); and 2. the cost of fully remediating the Seaforth property would be less than half of the costs that will in fact be required to be incurred to fully remediate it (i.e. less than half of the costs to date, which are $1,197,371.49 from August 2017 or $1,226,614.74 from December 2016, plus the $1,060,000 to $1,670,000 yet to be incurred = approximately $2,600,000, half of which is $1,300,000).
Therefore, Seaforth's costs of remediation would be approximately the same as it has spent to date, but it would have a fully remediated site rather than a partially remediated site.
Seaforth is entitled to damages for the diminution in the value of the Seaforth property attributable to Zoya's nuisance and negligence. Damages for the costs of reinstatement are not appropriate, given the uncertainty over how to achieve full remediation and to maintain the Seaforth property free of contamination while the contamination of the petrol station site is ongoing and contamination continues to cross the boundary between the Seaforth property and the petrol station site. Diminution of the value of the Seaforth property is a foreseeable kind of harm resulting from the contamination.
The appropriate comparison is between the present value of the Seaforth property and the value of the Seaforth property had Zoya acted reasonably when it purchased the property, or alternatively acted to address the nuisance when it became aware of it and remediated the petrol station site and facilitated the remediation of the Seaforth property. In the latter scenario, Trace's opinion is that the Seaforth property would have been fully remediated by now. While the property would not be free of hydrocarbon contaminants, the contamination would be such that the Seaforth property in its entirety would be suitable for commercial/industrial use. As outlined above, remediation of Plume 1 is virtually complete, but contamination from the petrol station site is ongoing, and Plume 2 (having only been discovered later and being considerably larger than the area of Plume 1) must still be remediated.
Seaforth relies on the expert valuer's report of Dean Galanos of Property Logic to quantify the diminution in value of the Seaforth property. Mr Galanos inspected the Seaforth property on 30 April 2024. Mr Galanos is a commercial real estate executive of 28 years' professional experience who is an Associate of the Australia Property Institute as a certified practising valuer.
Mr Galanos' opinion is that the contamination of the Seaforth property significantly impacts on its value. He opines that planning consent authorities are "typically circumspect with regards to granting approval for the redevelopment of contaminated sites" and that lenders in respect of the property will likely only provide finance on less favourable terms than otherwise, or not at all. Mr Galanos' evidence was that potential (hypothetically prudent) buyers seeking to acquire such an impacted property must therefore seek to make contingent allowances for such risk and typically discount such impacted properties accordingly. Contamination can also make it harder for a purchaser to obtain finance. Groundwater contamination sits towards the higher end of the risk spectrum for developers. Mr Galanos suggests this is because "contamination can take significant time to materialise, and often despite any initial efforts to remediate and validate the [impacted] land." In summary, Mr Galanos noted that "the redevelopment of contaminated land is a fraught exercise…"
Mr Galanos used the direct comparison method to value the Seaforth property. This approach involves identifying comparable property sale values to establish the property's current market value. Amongst other things, Mr Galanos had regard to the fact that the Seaforth property was adjacent to a nearby medical facility, was "proximate to a strong arterial road transport network" and was of a significant size.
When considering relevant comparator properties, Mr Galanos concluded that the value of the Seaforth property, if it were free from contamination, was between $650 to $750 per square metre. Using the midpoint of these values, and rounded for practical purposes, this suggested a market value of $17,000,000. However, some of the contamination of the Seaforth property occurred prior to Zoya's acquisition of the petrol station site. As Seaforth accepted, Zoya is neither responsible nor liable for such pre-existing contamination. Consequently, it contends that the appropriate comparator value for calculating damages was $14,450,000, being its market value absent any contamination, less a 15% discount to consider the history of contamination.
Mr Galanos' assessment is that the Seaforth property in its current state is worth $7,000,000. Mr Galanos calculated this value using a residual cash flow analysis. The residual cash flow approach determines a price that could be paid for the property given the expected value or sale realisation once remediated, and the cost, time and charges of proposed works to achieve remediation. As Mr Galanos says, the purpose of this "as is" assessment is "to demonstrate that price that a hypothetical prudent purchaser would pay for the property in its current contaminated state, whilst being fully cognizant of all defects that burden the property (and remediation costs pertaining thereto)." That means the "as is" assessment considers the current impairment of the Seaforth property, including the costs of rectification, and any and all other costs associated with managing and delivering outcomes that restore utility (such as finance costs, professional costs, and holding costs). A "profit and risk" factor is also applied, because a hypothetical prudent purchaser would seek to achieve a fair and reasonable profit from their enterprise and capital cost outlay. Mr Galanos considered that such a purchaser would require a seek a Target Internal Rate of Return of 25%, slightly higher than the 20% it would otherwise seek, to reflect the uncertainties associated with re-developing land affected by petroleum hydrocarbon contamination.
Had the Seaforth property been fully remediated (as would be the case if Zoya had not committed the torts), the value would instead be $14,450,000. This is based on an assessment that the Seaforth property would be worth $17,000,000 if it had never been the subject of contamination (calculated using the direct comparison method), with a discount of 15% applied to consider the history of contamination. That means the diminution in property value attributable to Zoya's conduct is $7,450,000.
It is then necessary to take account of the expenditure that Seaforth would have been required to incur in the counterfactual (where Zoya had stopped contaminating the Seaforth property a reasonable time after August 2017) to sell the property on a fully decontaminated basis. Further, as noted above, Seaforth's costs of decontamination would have been about the same as they are now. Accordingly, no adjustment is required.
Although there may be other ways of quantifying Seaforth's compensable loss, the above would appear to be the most orthodox, since its focus is on the diminution in property value suffered by reason of the nuisance and negligence.

Resolution

Zoya is negligent and has created a nuisance by recklessly allowing the migration of petroleum hydrocarbons into the ground from its petrol station to contaminate Seaforth's land. I agree with the reasoning explained earlier in this judgment. Zoya's negligence and nuisance has caused economic loss and Seaforth is entitled to compensatory damages of $7,450,000.

Exemplary damages

Seaforth seeks exemplary damages in the sum of $1,000,000.
In XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd [1985] HCA 12 471 at 11.29 Brenan J stated, "an award of exemplary damages 'is intended to punish the defendant for conduct showing a conscious and contumelious disregard for the plaintiff's rights and to deter him from committing like conduct again"
In the proceedings brought by the EPA, the court imposed a $320,000 fine on Zoya on the basis of two penalties. The first going towards the breach of s 14(6)(a) of the CLM Act and the second being the accumulation of the daily rate of $500 for 352 days. In the judgment Moore J stated at [13]: "The provision of the CLM Act pursuant to which the prosecutor had commenced proceedings against the company was one which included the option of imposition of a daily penalty from the date of the primary offending conduct, the period pleaded from 19 September 2020 to 6 September 2021 (a period of 352 days) is referenced as the offence period."
There is some overlap between the proceedings in the Land and Environment Court and the current proceedings.
In Environment Protection Authority v Zoya Investments Pty Ltd [2022] NSWLEC 149, Moore J stated: "Between February 2020 and September 2020, the Company completed all items, other than Direction D, as required by the Management Order. Direction D of the Management Order required the Company to, amongst other things, carry out the following actions: 1. D(i) Engage a duly qualified person to carry out equipment integrity checks of the underground petroleum storage system and all associated fuel infrastructure on the land at 68 Craigie Avenue Kanwal, to identify any faulty infrastructure or absence of spill protection / containment measures that may be contributing to contamination… Provide a written report by the duly qualified person detailing their findings to the Prosecutor. 2. D(ii) Where operational issues are identified by the duly qualified persons referred to at (i) above, then immediate action must be taken to rectify the problem. Provide a written report by the duly qualified person detailing the work carried out to the Prosecutor. The Management Order required the written report in Direction D(i) to be provided to the Prosecutor by 24 April 2020 and the written report in Direction D(ii) to be provided to the Prosecutor within four weeks of the works being completed or by 19 June 2020 (whichever came first). On 23 April 2020, the Prosecutor issued an Amended Management Order to the Company, under s 44 of the CLM Act, granting the Company a three-month extension to complete Direction D of the Management Order. The Amended Management Order was served on the Company, and a copy sent to the Company's engaged consultant, Mr Timothy Brown of Aurora Environmental Consulting Pty Ltd, on 23 April 2020. In July 2020, the Company engaged Neo Consulting Pty Ltd (Neo) to carry out the equipment integrity tests (EIT) of the Underground Petroleum Storage System (UPSS) and all associated fuel infrastructure required by Direction D(i) of the now Amended Management Order. The EIT report was provided to the Prosecutor on 24 July 2020. The EIT report provided by Neo identified failures with respect to the UPSS, including test failures in three of the four petrol storage tanks, and a pinhole leak in the anaconda of the fuel suction line from Unleaded Petrol Tank 1 to Bowsers 1 and 2. The amended compliance 'period to complete Direction D(ii) of the Management Order expired on 18 September 2020. Despite repeated reminders and warnings from its consultants and the Prosecutor, as well as the issue of two "show cause" letters by the Prosecutor, the Company failed to comply with Direction D(ii) of the Management Order during the Offence Period. Such reminders and warnings continued to be given to the Company after the Offence Period. On 16 September 2021, the Prosecutor commenced these proceedings, charging the Company with the failure to carry out the requirements of Direction D(ii) of the Management Order. The Summons commencing the prosecution specified the period throughout which the Company's offending conduct continued after the date when the period for compliance with Direction D(ii) of the Management Order expired. The period identified in the Summons was from 19 September 2020 to 6 September 2021. The provision of the CLM Act pursuant to which the Prosecutor had commenced proceedings against the Company was one which included the option of imposition of a daily penalty from the date of the primary offending conduct, the period pleaded from 19 September 2020 to 6 September 2021 (a period of 352 days) is referenced as the Offence Period. It was not until 29 July 2022 that the Company carried out the works and provided the written report as required by Direction D(ii) of the Amended Management Order. In relation to environmental harm, up until 26 July 2022, being the date that the vapour recovery pipework was replaced, tested, and passed, there was a risk that a potential 3,210 litres of petroleum could have leaked from the UPSS after 18 September 2020. This risk carried with it the further potential of harm to human health and the environment. There was also the potential for any petroleum leaking into the subsurface of the soil at 70 Craigie Avenue to migrate off site down-hydraulic gradient to the neighbouring property at 70 Craigie Avenue causing further contamination."
In Gales at [279], Leeming JA noted: "… the fact that exemplary damages are available in an appropriate case [of nuisance] …"
Exemplary damages may be awarded where a defendant has been guilty of conscious wrongdoing in contumelious disregard of another's rights (Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71 at 771 (Knox CJ)) or has committed a particularly flagrant violation of Seaforth's rights (Australian Consolidated Press Ltd v Uren (1966) 117 CLR 185 at 212 (Windeyer J)). If substantial punishment has already been inflicted on the wrongdoer by the criminal courts for substantially the same conduct, exemplary damages are generally barred: Gray v Motor Accident Commission (1998) 196 CLR 1.

Plaintiff's submissions on exemplary damages

Zoya is liable to pay exemplary damages to Seaforth. Zoya's failure to stop polluting the Seaforth property since it was put on notice of the contamination in August 2017 may be described as contumelious. It has continued to deliberately and flagrantly violate Seaforth's property rights by discharging hydrocarbons onto its land. Zoya's failure to stop the contamination emanating from its property has frustrated Seaforth' s attempts to remediate the Seaforth property. Mr Kita's observation is that the extent of contamination has only grown in the past eight years. As Zoya knows, Seaforth is powerless to address the root of the contamination: it has effectively been at Zoya's mercy.
Zoya's complete disregard for Seaforth's rights is emphasised by Seaforth's repeated approaches to Zoya, which have largely been ignored. Seaforth's lawyers' correspondence with Zoya is detailed at Rush [6J41 1] and [12]-[26]. Zoya's response to Seaforth's efforts has been, by and large, to fail to engage. Where it has engaged, that has only been to deny responsibility for the nuisance. Zoya has never accepted to Seaforth that it bears any responsibility for the contamination of the Seaforth property, a fact which is obvious and has been since 2017. Zoya's failure to engage with Seaforth has frustrated its ability to address the nuisance, a circumstance illustrated by the fact that Zoya's attempts to have a voluntary management proposal approved by the EPA failed because it did not involve Seaforth.
The obfuscation of responsibility by Zoya was demonstrated by its most recent response to Seaforth's many attempts to engage with it. On 28 July 2020, through its legal representative, Zoya argued that "there is no conclusive evidence" that any of the alleged contamination stemmed from the petrol station site. This was despite an earlier report commissioned by Zoya itself, of Aurora Environmental Consulting, for the purpose of compliance with the EPA's management order. Zoya's own report made the following findings: "Groundwater data indicates that recent releases have occurred and potentially mixed with older releases of petroleum hydrocarbons on the site. [R]ecent tank and line testing… identifies potential significant releases in the current operation of the site infrastructure. [S]ubstantial levels of petroleum have been observed to migrate significantly beyond the extent of the site. [T]he distribution of the highest levels of petroleum hydrocarbon impact indicate that the most significant sources are associated with the operation of the service station."
Zoya's denial of the apparent was also despite the management order issued by the EPA to Zoya and the EPA's finding that Zoya was responsible for significant contamination of the Seaforth property. It was also despite, as early as 25 September 2017, having been provided by Seaforth reports from KPMG and Cardno. Both documents pointed to the service station site as the likely source of the contamination.
While Zoya's inaction has seen it incur a $320,000 fine imposed by the Land and Environment Court, this punishment is only in respect of Zoya's failure to comply with Direction D(ii) of the management order promptly. This is but a small component of its high-handed disregard for Seaforth's rights between August 2017 and the present.
In November 2023, Zoya sold the petrol station site to a closely related entity for a price of $600,000 which was some $1.7 million less than it paid for the petrol station site in 2016. The sale was not disclosed to Seaforth. The inference arises that this was done in an attempt to avoid or limit liability, or to protect Zoya's major asset, the petrol station site, from Seaforth.
Zoya's reticence to accept its responsibilities to Seaforth has only continued as this proceeding has been underway. Since the proceeding was filed in December 2023, Zoya has not participated at all, nor has it even acknowledged the existence of the proceeding.
An award of exemplary damages is appropriate. Seaforth seeks an amount of $1,000,000, which is necessary for the Court to mark its disapproval of the contumacious way Zoya has violated Seaforth's rights over a period of between six and seven years.

Resolution

Zoya's behaviour demonstrates that it has been guilty of a conscious wrongdoing and a contumelious disregard of Seaforth's rights. I accept that there is some overlap between these proceedings and the Land and Environment Court's proceedings where Zoya was fined $320,000 (referred to earlier in this judgment). Further, I take into account that Zoya purchased the property in 2016, when it was owned by other legal entities, at a time when there had already been some contamination of the Seaforth property. However, due to the contumelious disregard of Seaforth's rights since 2017, when Zoya was made aware of the contamination, and due to the fact that the hydrocarbons continue to contaminate the Seaforth property with Zoya doing little to nothing to prevent the continued spread of contaminates, I assess exemplary damages in the sum of $700,000.

Costs

Costs are discretionary. Normally, costs follow the event.
The defendant is to pay the plaintiff's costs of these proceedings on an ordinary basis.

Conclusion

I award damages calculated as follows, 1. $1,226,614.74 constituting of costs associated with the decontamination of the Seaforth property as well as legal fees incurred by Seaforth. 2. $7,450,000.00 constituting of the diminution in the property's value. 3. $700,000.00 constituting of exemplary damages. 4. Total = $9,376,614.74

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 August 2024

Environment Operations Act 1997(NSW)

At a glance

Court

Decision date

Before

Source

Judgment (19 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (10)