Sale of Land - Vendor’s obligation to disclose environmental assessments

The recent decision of the Full Court of the Supreme Court of South Australia (Court) in Cheshire v Jennings [2021] SASCFC 11 clarifies what constitutes an “environmental assessment” that must be disclosed on a Form 1 – Vendor’s Statement (Form 1) under the Land and Business (Sale and Conveyancing) Act 1994 (SA) (Act).

Previously, it was thought that the obligation only applied to environmental assessments undertaken in relation to the land itself.

However, the Full Court’s decision has the effect of extending the obligation to an environmental assessment generally, which discloses a risk or suspicion of contamination over an area that encompasses the land.

On 15 October 2021, the High Court of Australia refused special leave to appeal against the Full Court’s decision. As such, the Supreme Court’s decision will remain law in South Australia (until such time as the relevant legislation is amended).

Facts

• On 17 November 2018, the plaintiffs (Cheshire) entered into a contract to purchase land at 15 Wyatt Road, Direk, South Australia for $650,000 (the Property).

• The plaintiffs subsequently signed a contract of sale and Form 1, and paid a 10% deposit.
• The defendants (Jennings) answered “no” to question 2(5) of the Form 1, which asked: is the vendor aware of an environmental assessment of the land or part of the land ever having been carried out or commenced (whether or not completed)?” (Question 2(5)).

• Settlement was due to occur on 11 January 2019. However, on 9 January 2019, the plaintiffs asserted that an environmental assessment had been undertaken on the Property, but was not disclosed in the Form 1. The plaintiffs were of the view that this lack of disclosure rendered the Form 1 defective. The plaintiffs sought to avoid the contract and have their deposit returned.

• The environmental assessment in question was undertaken by the Department of Defence over a period of approximately two years between 2016 and 2018 (Dept of Defence Environmental Assessment). The purpose of the assessment was to determine the existence, nature and extent of contamination by Per-and Poly-Fluoroalkyl Substances (PFAS) found in firefighting foam used at the Royal Australian Air Force Edinburgh Base (RAAF Base). This environmental assessment was undertaken across a wide investigation area that consisted of land surrounding the RAAF Base. The Property was located within the investigation area, however no testing actually occurred on the Property.
• The Dept of Defence Environmental Assessment was widely advertised to the local community. This included letterbox drops, Facebook posts, door knocking, community meetings, advertisements in print and online media, factsheets posted on particular websites, leaflets at local council offices and community centres, and coverage on television media.

• The defendants claimed they had never heard of the Dept of Defence Environmental Assessment because they lived in an “information-free bubble”.

Key Issues

The main issues in this case were:

1. were the plaintiffs “aware” for the purpose of Question 2(5);
2. what constitutes an “environmental assessment” for the purposes of Question 2(5); and
3. what constitutes “the land or part of the land” for the purposes of Question 2(5).

The key finding in relation to each of these issues is outlined below.

Key finding: “aware”

The Court determined that it is open to the courts to make determinations of fact as to what a person may be “aware” of when answering questions on a Form 1.

On appeal, the Supreme Court decided that the trial judge was best placed to make a determination as to the level of knowledge of the defendants.[1] This is because the trial judge had the benefit of witnessing the evidentiary statements made by the defendants first-hand.

The trial judge did not accept the defendants’ evidence, and determined that, on the balance of probabilities, they were aware of the Dept of Defence Environmental Assessment. This was due at least in part to the thorough marketing and community engagement campaign surrounding the Dept of Defence Environmental Assessment.

This finding may place a heavier burden on vendors to disclose environmental assessments that have occurred. The application of this decision will depend on the circumstances of each matter. However, it is evident that courts are entitled to make a finding that vendors were aware that an environmental assessment had been undertaken, even if those vendors claim to have no knowledge of the assessment.

Key finding: “environmental assessment”

The Court determined that the term “environmental assessment” as used in Question 2(5) is to be given a wide interpretation. The reasoning for this is that a narrow interpretation of this term would be, in the Court’s opinion, contrary to the evident object of the Act (which is to provide disclosure to purchasers).

An environmental assessment means an assessment into the existence, nature or extent of site contamination at a particular location, or any other contamination of the land by chemical substances and includes such an assessment in relation to water on or below the surface of the land.

The Court noted that the term, as used in a Form 1, operates as an umbrella term. It potentially encompasses a myriad of investigations and activities that may or may not be undertaken to determine whether site contamination is present at a site. It includes investigations that are undertaken to determine whether site contamination exists at a particular location, but it is not limited to that. It includes investigation into any other contamination of the land by chemical substances.

Key finding: “the land or part of the land”

The Property was not directly tested as part of the Dept of Defence Environmental Assessment. However, this parcel of land was part of the wider study area and the purpose of the study was to determine the extent (or existence) of contamination from PFAS across the entirety of the investigation area, which included the Property.

The Court concluded that this is sufficient for the purposes of Question 2(5) and it is not necessary for the environmental assessment to be confined exclusively or specifically to the property that is the subject of the Form 1. The Court said:

‘It does not matter where the physical work associated with the assessment occurs. It is sufficient that the assessment is directed towards an assessment of the risk over an area that encompasses or includes the property the subject of the Form 1.’

The assessment may extend beyond the land. If the assessment relates to a risk or suspicion of contamination over an area that encompasses the land, that is an assessment “in relation to that land”.

In arriving at the decision, the Court reiterated the importance of the Form 1 as a document that ensures purchasers have sufficient and accurate information which in turn enables them to make an informed decision about whether to enter into a contract to purchase property, and at what price.

Orders

The Court allowed the appeal and set aside the contract between the parties, ordering that the deposit be returned.

High Court Appeal

The defendants sought special leave to appeal the decision to the High Court of Australia. Their application was dismissed on 15 October 2021.

Take Home Message

This case reinforces the risk to vendors if they do not fully understand, and discharge, their disclosure obligations under the Act.

If the vendor is aware of an environmental assessment generally in an area which encompasses the land, which assessment discloses a risk or suspicion of contamination of the land, that assessment must be disclosed.

This may has specific relevance in industrial, or formerly industrial areas, where there is often a degree of public knowledge and awareness about environmental assessments in the general area.

For more information in relation to this article please contact Peter Psaltis on +61 8 8210 1297 or ppsaltis@normans.com.au or Lachlan Goddard on +61 8 8210 1227 or lgoddard@normans.com.au.

[1] See Cheshire v Jennings (No 2) [2019] SADC 106, [173].