Environment Protection Authority v Duke Eastern Gas Pipeline Pty Limited

SOLICITORS Minter Ellison

JUDGMENT: IN THE LAND AND MATTER No. 50027 of 2001 ENVIRONMENT COURT CORAM: Cowdroy J OF NEW SOUTH WALES DECISION DATE: 06/06/2002

Environment Protection Authority Prosecutor v Duke Eastern Gas Pipeline Pty Limited Defendant JUDGMENT

The Charge

1. By summons filed 7 March 2001 the prosecutor ("the EPA") charges the defendant that it committed an offence by causing waters to be polluted ("the offence") contrary to s 120(2) of the Protection of the Environment Operations Act 1997 ("the PEO Act"). The defendant has pleaded guilty to the charge and accordingly the Court is required to determine penalty. The Facts
2. The defendant is the contractor engaged in the construction of a gas pipeline between Longford, Victoria, and Horsley Park in western Sydney called the Eastern Gas Pipeline ("the EGP"). The defendant had entered into a joint venture arrangement with a corporation known as DEI Eastern Gas Pipeline Pty Limited for the purpose of such construction. The defendant and that company are hereafter referred to as "the Duke Joint Venturers".
3. The physical construction of the EGP was carried out by companies which were sub-contractors to the Duke Joint Venturers. A company known as Duke Australia Operations Pty Ltd ("DAO") was engaged for this purpose. Whilst there is no direct ownership relationship between the Duke Joint Venturers and DAO the ultimate holding company of both companies is incorporated outside of Australia and known as Duke Energy Corporation.
4. On 28 May 1999 a further contract was entered into between DAO as agent for the Duke Joint Venturers and an entity known as the TWM Joint Venture ("TWM"), being a consortium comprising Transfield Pty Limited, Willbros International and McMahon Contractors Pty Limited. TWM was selected as the successful tenderer because of its specialist expertise in the construction of pipelines and other infrastructure projects. It was made known to TWM at the time of entering into the contract with DAO that the Duke Joint Venturers would be relying upon TWM's expertise. TWM and its sub-contractors were independent contractors to DAO and TWM was to be solely responsible for the performance of the works specified in the contract. The responsibility of TWM to DAO for any acts or omissions of TWM personnel and of any sub-contractor was acknowledged in the agreement. DAO's Representative had broad powers to issue instructions to TWM or to appoint another person to do so if TWM failed to comply with any direction issued by DAO.
5. Thereafter TWM subcontracted most of the construction work in respect of that portion of the gas pipeline in New South Wales known as Spread 3 and part of Spread 2 to Fondside Australia Pty Ltd ("Fondside"). Accordingly the latter company was the actual entity engaged in the physical construction work in respect of matters pertaining to the charge. Legal Requirements for the EGP
6. The Duke Joint Venturers were required to apply to the Minister for Minerals and Energy for a permit under Part 2 Div 2 of the Pipelines Act 1967 (NSW) and for a licence pursuant to Part 3 thereof. The permit was issued to the Duke Joint Venturers on 19 February 1997. Pursuant to condition 3 thereof the Duke Joint Venturers were required to prepare an Environmental Management Plan as specified in Schedule 2 of the permit ("the EMP"). The EMP was duly prepared and submitted to the Director-General of the Department of Energy and it was approved on 14 October 1997.
7. On 12 November 1997 the Minister for Energy granted the requisite licence to Duke Joint Venturers to undertake construction of the pipeline.
8. The EMP imposed various statutory requirements upon the Duke Joint Venturers including the fulfilment of various environmental obligations. Among these obligations was the appointment of a Project Manager to supervise the operation of the EMP. Mr Mark Landseidel, an employee of Duke Energy (Global Asset Development) of the United States of America was appointed to such role. The defendant was deemed ultimately responsible for ensuring that the proposed works complied with all relevant legislative procedures, requirements and environmental objectives (cl 2.4.4), and it acknowledges responsibility for the environmental management of the EGP.
9. Early in 1999 DAO entered into an agreement with ECOS Consulting (Aus) Pty Limited ("ECOS') known as a Repetitive Services Agreement pursuant to which the latter company agreed to provide environmental management services and inspectors for the Duke Joint Venturers. Such inspectors were to be known as "Duke Environmental Inspectors" and were to be engaged on Spread 3. Construction Program
10. The construction of the EGP was carried out in cycles of a 28 day consecutive working period followed by a 7 day period when no work was undertaken. During the latter period a minimal staff was engaged on site. The construction involved various stages of work including clearing and grubbing of the easement for the EGP to a width about 20 metres, the digging of a trench; the stringing and bending of the pipe; the welding of sections of the pipe; the non-destructive testing of pipe welds; the lowering and laying of the pipeline into the trench; the back filling of the trench and the reinstatement of the easement and clean up. All phases of the work was conducted in accordance with the provisions of the EMP.
11. Construction of the New South Wales portion of the EGP began during the second half of 1999. The operations of the defendant first came to the attention of the EPA on 8 September 1999 when a meeting was held between representatives of the EPA, Mr Landseidel and other representatives of the Duke companies. At such meeting the EPA expressed concern in respect of the inadequacy of the erosion and sediment controls on the EGP easements and of the fact the existing controls failed to comply with the EMP because they were too widely spaced. Such meeting took place before any work commenced on that portion of the EGP known as Spread 3.
12. On 21 September 1999 the EPA officers again inspected the work and by letter dated 27 September 1999 wrote to Mr Andrew Pym, the Environment and Regulatory Affairs Manager for the EGP Project, acknowledging that there had been an improvement in the standard of sediment control but pointing out that other areas showed room for improvement.
13. On 3 November 1999, Mr Peter Jamieson, an officer of the EPA observed a large erosion gully in the vicinity of that area known as the Endrick River and noted sediment migrating from the erosion into various waters. As a result a meeting was convened on 5 November 1999 between Mr Pym and Mr Michael Sotak, the Land and Environment Manager of the Duke Energy Executive Management. A penalty infringement notice was issued on 3 December 1999 in respect of this event.
14. The defendant had engaged Social and Ecological Assessment Pty Ltd as a consultant to prepare an environmental audit. During November 1999 the defendant had been advised by that consultant that the environmental measures were inadequate. The Statement of Agreed Facts records part of the advice as follows:- Temporary erosion banks are generally inadequate and are often absent. Many structures will breach during heavy rainfall, other will fail to direct run off the ROW. Sediment fences are often inappropriately placed and too small to be effective. Many temporary banks are damaged by construction traffic and no [sic] reported. The overall impression was that temporary erosion and silt control during construction needs to be significantly better managed.
15. On 8 December 1999 a notice was issued pursuant to s 91 of the PEO Act requiring the defendant and the Duke Joint Venture partners to clean up the site in the vicinity of the Googong Dam which was contained in the area known as Spread 2.
16. The notice also required the appointment of an independent expert to audit the environmental controls in respect of erosion and sediment and to make recommendations. In fulfilment of these requirements the Duke Joint Venturers engaged Ms Laura Beaupeurt to prepare a report which was duly forwarded to the EPA on 18 January 2000 in compliance with the notice.
17. On 23 and 24 February 2000 further inspections of sediment control measures on the EGP were carried out by Mr Peter Jamieson, Mark Robertson and Veronica Boland of the EPA. Ms Charmaine Savage, an employee of ECOS, attended in her capacity as a Duke Environmental Inspector and also as a representative of TWM. Inadequacies in sediment control were observed and the EPA relayed their concerns to Ms Savage. Subsequently Mr Jamieson spoke to Mr Sotak on 2 March 2000 by telephone expressing his concern.
18. On 23 and 24 February 2000 the DAO issued a 'Corrective Action Request' to TWM indicating measures which it required to be taken in order to comply with the EPA's requirements. Events of 8 March 2000
19. On 8 March 2000 the 7 day cycle break for construction work commenced. On that day there was a rain event which caused sediment to be washed from the EGP easement into Kembla Creek near Mt Kembla, west of Wollongong ("the site'). The site was located in the catchment of Lake Cordeaux which is part of the water supply for Sydney and is therefore environmentally sensitive.
20. The rain event was less than a 1 in 1 year average of occurrence interval event and was not a significant storm. Consequences of the Rain Event
21. The sediment and erosion control measures installed by Fondside crews at the site were inadequate, failed to comply with the EMP and failed on 8 March 2000 during the rain event. Berms placed across the slope were over topped, breached or bypassed with the consequence that the run off water was concentrated within the disturbed area of the easement instead of being diverted from loose soil on the easement. Many of the berms did not extend the full distance across the easement and uninterrupted spoil piles on the side of the easement directed water run off from the easement towards Kembla Creek. Berms were spaced further apart than required under the EMP.
22. It is estimated that approximately 150 tonnes of sediment was washed into Kembla Creek and that some sediment was carried into Lake Cordeaux. Such sediment changed the physical, chemical and biological condition of the waters of Kembla Creek and was inorganic matter within the meaning of Schedule 3 to the Protection of the Environment Operations (General) Regulation 1998.
23. Water samples which were taken on 8 March 2000 during the rainfall event revealed very heavily contaminated waters running off the easement with a suspended solids level of 28,000mg/L. The waters in the Kembla Creek upstream of the main erosion discharge were below the EPA guidelines with a suspended solids level of 33mg/L. Even this reading may have been slightly affected by EGP activities.
24. It is also recorded that waters at Kembla Creek downstream of the points of discharge contained a suspended solids level of 7,700mg/L which is approximately 230 times higher than the waters upstream and 150 times higher than the EPA guidelines used in connection with the protection of aquatic ecosystems.
25. On 9 and 10 March 2000 further inspections were made of Kembla Creek and the waters of Lake Cordeaux. Pools within the Creek were found to be filled with sediment. The waters of Kembla Creek and part of Lake Cordeaux were similarly impacted, being yellow or brown in colour and turbid. Other creeks within the catchment were found to be generally clear.
26. The EPA carried out investigations on 31 March 2000 which revealed that the riffle zones as well as quiescent zones within Kembla Creek had been impacted by sediment. The bed of Lake Cordeaux was found to be blanketed with a layer of fine sediment approximately 1 to 1.5 mm thick.
27. Macquarie Perch is listed in Schedule 5 of the Fisheries Management Act 1994 as a vulnerable fish species within New South Wales. New South Wales Fisheries surveys have established isolated Macquarie Perch populations existing within Lake Cordeaux and the tributaries running into the dam form the spawning habitat for such population. Kembla Creek offers a large proportion of available potential spawning habitat of all of the available tributaries. Macquarie Perch spawn between October and December and any increase in sediment has the potential to affect the riffle beds by filling the interstitial spaces which are required for successful spawning and hatching of the Macquarie Perch. Sentencing: matters for consideration
28. Section 241 of the PEO Act requires the Court to consider the following matters in so far as they may be relevant. (a) The extent of harm caused or likely to be caused to the environment by the commission of the offence
29. The estimate of 150 tonnes of sediment washed into Kembla Creek and Lake Cordeaux represents a significant quantity of foreign material. The offence occurred within a declared Metropolitan Special Area being part of the catchment of Lake Cordeaux. There was a deleterious change to the condition of such waters by the introduction of turbidity and sediment. There is no evidence that in fact the offence had any actual impact on the spawning season in the summer between 1999 and 2000 nor that the event caused any long term detriment to Macquarie Perch in Lake Cordeaux. Some harm may have been caused to the spawning of Macquarie Perch during the ensuing spawning season, and in this sense the Court finds that this was "likely" to have resulted: see Newcastle City Council v Pace Farm Egg Products Pty Limited, Lloyd J [2002] NSWLEC 66.
30. It is acknowledged by the parties that any increase in turbidity and level of suspended solids would have degraded the water quality of Kembla Creek and Lake Cordeaux. The deposition of fine sediments in Lake Cordeaux caused disturbance of sedimentary habitat and added to the siltation of the reservoir. The benthic habitat of Kembla Creek would similarly have been affected but it is impossible to assess the actual extent of the affectation.
31. The Court is satisfied beyond reasonable doubt (see R v Olbrich (1999) 199 CLR 270) that there was harm or likely to have been harm to the environment caused by the disturbance of sedimentary habitats in Lake Cordeaux resulting from the sedimentation washed into Lake Cordeaux via Kembla Creek. (b) Practical measurements that may be taken to be prevent, control, abate or mitigate such harm
32. The requirements of the EMP were not implemented in relation to sediment control measures at the site. Inspections were made before 8 March 2000 and recommendations were made to ensure that the measures were in place prior to the commencement of the 7 day cycle. For some unexplained reason such measures were not installed, or if they were, they were inadequate and failed to comply with the requirements of the EMP. Measures could have been taken which would have at least controlled or mitigated the harm. (c) The extent or foreseeability of harm or of likely harm
33. The defendant had been placed on notice since September 1999 that there were shortcomings in the erosion and sediment controls on the EGP easement. At the commencement of the 7 day cycle break commencing on 8 March 2000 the easement had been cleared, the pipeline trench had been excavated and the pipe was partially in place. Accordingly the site was vulnerable in the event of inclement weather. The risk of harm was accordingly readily foreseeable. (d) The extent to which the person committing the offence had control over the causes leading to the offence
34. The defendant accepts responsibility for the offence. The provisions of cl 2.4 of the EMP imposes the ultimate responsibility "for ensuring compliance for the environmental procedures" upon the defendant's Project Manager, Mr Mark Landseidel. Such liability attaches despite the interposition of several contractors and sub-contractors and the retention of ECOS.
35. The defendant does not resile from such liability but relies upon the decision of the Court of the Criminal Appeal in Cabonne Shire Council v Environment Protection Authority (2001) 115 LGERA 304 (CCA) in which the Court determined that a minimal penalty should be imposed in respect of an employer whose employee had discharged raw sewerage into a stream. The Court held that although more might have been done by the employer to educate the employee, the employer should not be visited with a heavy penalty because the employee's conduct was out of character and was unexpected.
36. The Court accepts that the defendant did not have physical control over the excavations. That task was being undertaken by Fondside which had no contractual association with the defendant. However the defendant did retain indirect control over the causes which gave rise to the offence. (e) Whether in committing the offence the person was complying with orders of an employer
37. This sub-paragraph has no application in the present circumstances. Mitigation
38. The maximum penalty in respect of a corporation for an offence charged is the sum of $250,000. In assessing the appropriate penalty the Court is required to consider several factors in mitigation.
39. The incident occurred on the first day of the 7 day cycle and in the days preceding the day of the offence substantial clearing and excavation for the EGP had been carried out. On 2 March 2000 Duke Environmental Inspector Susie Smith had inspected the area. As recorded in the Daily Activity Log of that day that she intended to prepare a rehabilitation and sediment control plan for the site. Subsequently on 5 or possibly 6 March 2000 Ms Laura Beaupeurt requested the foreman to reinstate the berms before the cycle break and to ensure that the easement had provision for drainage. Ms Smith inspected the site on the same day and again reminded the Fondside crew of the importance of the sediment control measures. On the evening of 7 March 2000 Ms Laura Beaupeurt again inspected the site.
40. The EPA acknowledges that even if erosion of sediment control on the site had been provided in accordance with the requisite standards, the escape of some sediment into Kembla Creek was inevitable.
41. The Court notes that the defendant has pleaded guilty and has co-operated fully with the prosecutor. In accordance with the observations of the Court of Criminal Appeal of New South Wales in R Thomson; R Houlton [2000] 49 NSWLR 383 such plea warrants a reduction in the penalty. The practice of nominating a percentage of discount has been reviewed by the High Court of Australia in Cameron v R [2002] HCA 6 and placed in question. It has long been recognised that a plea of guilty had indicated "… acceptance of responsibility and a willingness to facilitate the course of justice" (per Gaudron, Gummow and Callinan JJ in Cameron). Section 22 of the Crimes (Sentencing Procedure) Act 1999 provides statutory power to award a lesser penalty where a plea of guilty is made. If genuine remorse exists this factor is one which should also be taken consideration: see Cameron, per Kirby J, see also Camilleri's Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683 at 700, (1993) 82 LGERA 21 at 38 per Kirby P; Neal v The Queen (1982) 149 CLR 305 at 315.
42. The Court also observes that the defendant was not directly involved in the breach although it was monitoring its environmental obligations and had issued directions to its sub-contractors namely TWM and ECOS.
43. The affidavit of Mark Eugene Landseidel sworn 15 May 2002 discloses the significant undertakings of the defendant in pipeline projects in Australian and in the Asia Pacific region. The defendant and its co-owners of the EGP expended over $4 million on the development and approval of the EMP when they acquired the joint ownership of the EGP in 1999. The undertaking was substantial since the EGP traverses a distance of nearly 800 kilometres. The defendant and its co-owners also expended an additional $3 million in monitoring and implementing the provisions of the EMP during construction and rehabilitation of the EGP. A further $5 million has been expended towards the preservation of Aboriginal Cultural Heritage sites and artefacts along the EGP during the clearing and trenching operations. The defendant and its co-owners voluntarily undertook a special procedure during a crossing of the Tiarenjara Falls in the Moreton National Park at a cost of $500,000 to ensure the preservation of such an environmentally sensitive site. The defendant and its co-owner have engaged trained biologists to monitor the works and to identify and protect over 13,000 individual species, some of which were threatened or endangered during the clearing process. There has been no other prosecutions for any environmental offences relating to the EGP. The EGP easement has been rehabilitated and permanent erosion and sediment control measures are now in place.
44. The Court is required to determine the relative seriousness of the offence having regard to the maximum penalty (see Camilleri at p 698). The defendant suggests penalty in the "low range" identified at 10%. The prosecutor however points to the fact that the pollution took place in relation to a waterway which provided Sydney's metropolitan water supply and urges a penalty in the range of 20-30% of the maximum. The defendant has agreed to pay the costs of the prosecutor in the sum of $75,000.00.
45. The Court has assessed the culpability of the defendant in light of the above circumstances and considers that the appropriate penalty for the offence is the sum of $30,000.00. It will grant a reduction of the amount of the penalty in view of the early plea of guilty and of the co-operation which it has afforded to with the EPA. Accordingly the fine will be fixed in the sum of $25,000.00. Orders
46. The Court orders that:

1. The defendant be convicted of the offence as charged.
2. A fine of $25,000.00 be imposed in respect of such offence, such fine to be payable at the expiration of 28 days.
3. The defendant pay the prosecutor's costs.
4. Exhibits be returned.

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