In March 2022, the High Court refused the Australian Sawmilling Co’s (TASCO) application for special leave to appeal a decision of the Victorian Court of Appeal.
This decision leaves undisturbed the Court of Appeal’s decision to set aside a disclaimer of onerous property, finding the liquidator of TASCO liable for clean-up costs. In essence, the Court found that the liquidator was an ‘occupier’ in control of the relevant land.
The Facts
On 14 March 2019, liquidators were appointed to TASCO in a voluntary winding up by the company’s creditors. TASCO owned land in Lara which contained over 300,000 cubic metres of construction and demolition waste. The material posed a serious fire risk and was subject to orders by VCAT relating to fire management and land rehabilitation.
Prior to their appointment, the liquidators were aware of issues concerning the contamination and pollution of the land. As a result, the liquidators’ appointment was conditional on an indemnity. The liquidators entered into a deed of Indemnity with TASCO’s only shareholder, Dongwha Australia Holdings, providing ‘an unlimited amount as to Environmental Liabilities’.
On 29 April 2019, the liquidators were informed by the Environment Protection Authority (EPA) that due to the ongoing fire, health and environmental issues and the risks posed to the community, it sought to exercise its power to enter the premises and conduct a clean-up. Sections 55(1) and s62 of the Environmental Protection Act 1970 (Vic) (“Act“) empowered the EPA to take such action. Section 62 of the Act allows the EPA to recover any reasonable costs from the ‘occupier’. The liquidators made arrangements with the EPA and provided for their security contractors to access the land.
The liquidators proceeded to lodge a notice of disclaimer of onerous property under section 568 of the Corporations Act 2001 (Cth). Under s 568(1), a liquidator is able to ‘disclaim’ property:
- which is unsaleable or not readily saleable; or
- which may give rise to a liability to pay more or some other onerous obligation; or
- 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.
The parties agreed that the land was unsaleable. The costs to clean up exceeded the estimated value of the land, $11,155,000. It was also unknown whether Dongwha would be willing or able to satisfy a claim of indemnity to the value of the clean-up costs.
The EPA filed an application under s 568B(2) of the Corporations Act. This allows the Court to set aside a disclaimer if satisfied the disclaimer would cause prejudice to persons who have an interest in the property, that would be disproportionate to the prejudice that setting aside the disclaimer would cause the company’s creditors.
The decision at first instance
Justice Garde found the disclaimer would prejudice the EPA and the State of Victoria by leaving them to foot a clean-up bill in excess of $11 million. This was found to be disproportionate to the prejudice suffered by TASCO’s creditors – who would receive no dividend, whether or not the disclaimer was set aside. Setting aside the disclaimer would cause the creditors to experience delay in finalising the liquidation.
The judge made orders to set aside the disclaimer after an undertaking by the EPA and the State of Victoria that would limit the amount recoverable from the liquidators to be the amount they could obtain under the indemnity.
TASCO appealed the decision and argued:
- the primary ground for challenge to set aside the disclaimer was that the judge was wrong to find the liquidators were ‘occupiers’ for the purposes of s 62 of the Act.
- the primary judge erred in finding that the EPA would be prejudiced by the disclaimer;
- the judge’s exercise of discretion miscarried.
Appeal
The three grounds of appeal were not established.
Liquidators as occupiers
On appeal, the Court upheld the finding that the liquidators have control over the property. Consideration was given to the core functions of a liquidator under the Corporations Act – which include to ‘collect, apply and distribute company property’. The Court maintained that liquidators exercise a very specific statutory function that entails more direct control of company property for the purposes of collection, application and distribution. The Court found the primary judge did not err in finding that the liquidators were the occupier of the land.
Prejudice caused by disclaimer
The Court found the argument that there was no prejudice to the State of Victoria to be without merit. If the disclaimer was not set aside, the EPA could not claim against the liquidators who had the benefit of, and could call upon, their indemnity, which was granted specifically in respect of the potential environmental liabilities.
The Court also considered whether the indemnity would be honoured by Dongwha. Their financial statements showed them to have substantial assets. Ultimately, the Court found the primary judge did not err in finding the disclaimer would cause prejudice to the EPA and the State of Victoria.
Miscarriage of discretion in setting aside disclaimer
The liquidators argued that the judge considered irrelevant and extraneous matters, namely consideration of principles of environmental protection in the Environment Act. This was dismissed. The Court outlined that there is no specific criterion which limits the exercise of discretion under s 568B of the Corporations Act. Therefore, the liquidators’ needed to show that the environmental considerations cited were irrelevant. Given the prejudice was constituted by a failure to recover costs properly recoverable under the Environment Act, environmental factors were said to be “clearly” relevant.
The liquidators failed to show the judge’s exercise of discretion miscarried.
Comment
The High Court recently refused the liquidators’ application for special leave to appeal. So, the issues arising on appeal remain relevant to liquidators.
The Environment Act has now been repealed and replaced with the Environment Protection Act 2017 (Vic). Under the new Act, the EPA is still able to take action relating to any costs reasonably incurred from conducting a clean-up, where the EPA has identified an “immediate or serious risk of harm to human health or the environment arising from pollution, waste or contaminated land’.
Clearly, there is still reason for liquidators to be concerned about the personal risk relating to environmental issues. Complicating matters is that the term ‘occupier’ remains undefined in the new Act – despite the Act specifying that the EPA can recover clean-up costs from an ‘occupier’.
The implications of the liquidators having obtained an indemnity in this case must be recognised. The fact that the liquidators were fully indemnified in relation to environmental liabilities was relevant in considering whether or not to set aside the disclaimer. The question remains whether the EPA would have sought personal liability without the indemnity, which was backed by a shareholder with significant assets.
Clearly, careful consideration is required by practitioners when deliberating over whether to accept an appointment where environmental concerns are present.
~ with Sean Hollis, Graduate at Law
