Premier-Spotless Case Study

Demonstrating the Importance of Due Diligence

Premier Building and Consulting purchased industrial land in inner city Melbourne from Babka Pty Ltd with the aim of rezoning the site for a residential apartment development.

The site was rezoned with an environmental audit overlay signalling it was potentially contaminated. The overlay required Premier to obtain a Certificate of Environmental Audit before commencing construction on the site or prior to residential occupancy.

Commencing construction on a contaminated site
The vendor commissioned a “soil report” that failed to detect contamination. Premier was given the report but was not advised that it did not equate to a Certificate of Environmental Audit.

Without obtaining a Certificate, Premier proceeded to build 49 residential apartments; all 49 had been sold off the plan. When Premier sought an Occupancy Permit from the local council they were asked to submit the Certificate of Environmental Audit.

During site investigations for certification, investigators found white spirit, perchloroethylene (PCE) and trichloroethylene (TCE) contamination.

Land-use History
The Spotless Group had owned an adjoining property from 1963 to 1979 and operated a laundry and dry cleaning business on the property. For 12 months Spotless also used the Premier site for laundry and dry cleaning operations.

White spirit and PCE are used in dry cleaning. Spotless stored white spirit in underground storage tanks in the neighbouring site and the tanks had leaked white spirit that travelled via groundwater onto the Premier land.

Battling It Out In Court
A lengthy court battle ensued between Premier and a number of parties including Spotless, the environmental consultants who provided the soil report, and the planning consultants who failed to advise Premier that the soil report was not a Certificate of Environmental Audit. The disputed issues included:

• The extent of the chemical contamination and the degree of risk posed
• The source of the chemical contamination on the Premier land and the time period in which the chemicals came onto the land
• The inadequacy of the soil investigation report and whether in providing the report the environmental consultants had breached their duty of care
• Whether the environmental consultants were guilty of misleading and deceptive conduct
• The liability of the planning consultants in failing to advise Premier that the soil report was not a Certificate of Environmental Audit

The environmental consultants argued that the soil report was a soil waste report prepared for the vendor to inform excavation works and that they had no knowledge that Premier may misconstrue the report as a Certificate of Environmental Audit.

Costly Exercise
Between them the parties amassed around $40 million in legal fees. The court ordered Spotless to pay $4 million to Premier and had to spend $3 million on remediation. Meanwhile Premier lost about $12 million in building the apartments.

Do Your Due Diligence
These problems could have been avoided if Premier had engaged a suitably qualified consultant to undertake a thorough due diligence investigation before purchasing the property rather than relying on an inadequate report commissioned by the vendor.

What would Geo-Logix do?
Geo-Logix works with property developers to conduct thorough due diligence investigations in accordance with the clients’ objectives. Geo-Logix consults with clients to explain the methodology and rationale behind their reports. Educating clients makes good business sense and can lead to long-term relationships.