Environment Protection Authority v Hochtief; Thiess Pty Ltd

Empress Car Co (Abertillery) Ltd v National Rivers Authority (1998) 1AllER 481; Environment Protection Authority v New Generation Beverages Pty Ltd & Anor [2000] NSWLEC 130; EPA v Forestry Commission of NSW [2004] NSWLEC 751; CASES CITED: Haynes v CI & D Manufacturing Pty Ltd (No 2) (1995) 60 IR 455; Mill v The Queen (1988) 166 CLR 59; Postiglione v The Queen (1997) 189 CLR 295

DATES OF HEARING: 26/04/2005, 28/04/2005, 04/05/2005

PROSECUTOR: Mr G Plath, Solicitor SOLICITORS Solicitor Environmental Protection Authority

DEFENDANTS: Mr I Lloyd QC SOLICITORS Minter Ellison

THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

50067 of 2004 ENVIRONMENT PROTECTION AUTHORITY v HOCHTIEF AG

50068 of 2004 ENVIRONMENT PROTECTION AUTHORITY v THIESS PTY LTD

JUDGMENT CORAM: HIS HONOUR A. INTRODUCTION 1 Each Defendant, which together created a Joint Venture known as Theiss Hochtief Joint Venture (the Joint Venture) which in July 2002 was awarded by the NSW Transport Infrastructure Development Corporation the contract for the construction of the Epping to Chatswood component of the Parramatta Rail Link Project, is charged with the same offence against s 20(1) of the Protection of the Environment Operations Act 1997 (the PEO Act) in that on or about 27 October 2003 at or near Wicks Road, Macquarie Park, it polluted waters. 2 According to the Particulars endorsed upon each Summons:

(i) the relevant pollutants were: Liquid from a water treatment plant; and/or soil, earth, mud, stones, and/or similar inorganic matter; and/or liquid containing suspended solids; and/or nitrogen; and/or phosphorous; (ii) the relevant polluted waters were Porters Creek; and (iii) the manner in which the pollution incident occurred was Being the occupier of premises from which the Pollutants entered a service trench leading to a stop valve on Wick Road; and/or operating a water treatment plant or causing a water treatment plant to be operated in such a manner that liquid containing the Pollutants overflowed from a pH tank; and/or omitting to repair or to cause the repair of a hole in the wall of a bunded area into which the Pollutants entered;

and as a result of which the Pollutants:

• entered the Waters; and/or
• were placed in a position where they fell or descended into the Waters; and/or
• were placed in a position where they were likely to fall or descend into the Waters.

3 Section 120(1) of the PEO Act provides as follows:

A person who pollutes any waters is guilty of an offence.

4 The terms "pollute" and "waters" are expansively, defined in the Dictionary to the PEO Act. Additionally, the evidentiary provisions contained in ss 257 and 258 of the PEO Act deem the Defendants as co-licensees under the PEO Act to be the occupiers of the licensed premises from which pollution occurs "to have caused the pollution". 5 Section 123 of the PEO Act prescribes a maximum penalty of $250,000 where the offence is committed by a corporation. 6 Each Defendant has pleaded guilty to the offence charged and by consent the hearing on sentence in respect of each charge was conducted concurrently. As will appear the hearing, which was considerably facilitated by the joint tender of an Agreed Statement of Facts (Exhibit 1), yielded only one significant difference in the competing cases. 7 That single difference however raised an important matter of sentencing principle in the present cases where the Defendants are clearly co-offenders in the sense that each Defendant was a principal offender but where each offence was committed by the agency of the Joint Venture, which is not a separate legal entity and hence cannot be charged with the offence with which each principal is charged. 8 The Prosecutor submitted that the penalty to be imposed upon each Defendant should be determined independently of the penalty imposed on the other (except for application of the parity principle which on the facts of the present cases would require equality of penalty since the culpability of each Defendant is indistinguishable one from the other). 9 The competing submission of Senior Counsel for the Defendants was that having regard to the Joint Venture, the penalty to be imposed upon each Defendant should be determined by first determining the appropriate penalty for the water pollution incident founding each offence having regard to its objective gravity and thereafter by allocating 50 percent of that penalty to each Defendant having regard to the indistinguishable culpability of each Defendant. 10 Since the competing submissions were made without either elaboration or citation of supporting authority I invited the parties to make further considered submissions on the disputed question. 11 Thereafter the parties filed further written submissions supported by citation of relevant case law. Although the result of these further submissions (supported by evidence of the terms of the Joint Venture Agreement) appeared to bring the parties' respective positions into much closer alignment than had been the case at the hearing, nonetheless at the end of the argument what should be the appropriate sentencing principle to be applied in the present cases remained in doubt. 12 It will be necessary to return to this matter after I have recorded the relevant facts. B. THE RELEVANT FACTS 13 The relevant facts concerning the admitted offences, the circumstances in which the water pollution incident occurred, the environmental consequences of the water pollution incident and the clean up action taken by the Defendants are found in the Statement of Agreed Facts (Exhibit 1). 14 Additional evidence in mitigation of penalty was given by Mr Stephen Burns, Project Director for the Joint Venture. 15 The following abbreviated summary of relevant facts is extracted from the Statement of Agreed Facts. 16 In July 2002 the Joint Venture was awarded by the NSW Government's Transport Infrastructure Corporation the contract for the construction of the Epping to Chatswood component of the Parramatta Rail Link Project. The contract required the design and construction of two tunnels, each 13 kilometres in length, and 4 railway stations. 17 In order to undertake the contract works the Defendants were granted as joint licensees an environment protection licence (No.11735) under the PEO Act which specifies over 60 sites in and about the suburbs of Epping, Macquarie Park and Chatswood as relevant "premises" to which the licence applies. 18 As part of the contract works, water treatment plants (WTPs) were required to be installed for treating sediment laden waters including ground water and construction generated water and in 2002 the Joint Venture commissioned Liquitek Pty Ltd (Liquitek) to design, supply, install and commission 2 WTPs, one of which was located near Wicks Road Macquarie Park (the Macquarie Park WTP) from which the pollution incident emanated. 19 The Macquarie Park WTP was designed to receive waste waters generated by the construction process and treat them by way of settlement and chemical treatment (by applying caustic soda and a flocculent) before being discharged into Porters Creek via the licensed discharge point. (The licence does not permit discharge of any pollutant containing phosphorous or nitrogen). 20 At approximately 10.15am on 27 October 2003 Joint Venture personnel became aware that a discharge of white sludgy liquid into Porters Creek was occurring from the premises otherwise than via the licensed discharge point. Thereupon environmental officers of the Joint Venture took action by placing sandbags and geofilter fabrics in Porters Creek to prevent the sludge from flowing further downstream. The Environment Protection Authority was informed of the incident and one of its officers, Mr Gathercole, attended the site, made relevant observations, took photographs and collected samples of the discharge and the waters of Porters Creek upstream and downstream the point of discharge into it. 21 Prior to Mr Gathercole's arrival the Joint Venture had engaged a remediation company to remove the pollutants and sludge from Porters Creek and from the bunded area around the WTP. 22 The following day Mr Gathercole again attended the site and made observations of Porters Creek. He was satisfied that the clean up undertaken by the Joint Venture had been effective. 23 According to paragraph 4 of the Statement of Agreed Facts the cause of the pollution incident was as follows:

4.1 Shortly before the incident, Liquitek was still commissioning the WTP ensuring it operated properly. At the time the pH of the raw, untreated water entering the WTP changed which required a change in the chemical dosing regime of the WTP. The WTP ran out if sulphuric acid and the plant shut down. However, the operations within the WTP were not synchronised and the sludge continued to be pumped from the clarifier to the sludge thickening tank and then pumped back to the pH tank. This resulted in more sludge being pumped to the tank than it had capacity for and the pH tank overflowed with sludge.

4.2 There were no alarms in place on the tank to notify of overflows.

4.3 The WTP was surrounded by a properly designed bund which was more than adequate to contain the liquid that had overflowed into it on 27 October 2003. However, sometime prior to the incident and unknown to the defendants, an electrical contractor for the Joint Venture had re-routed an electrical cable so that it went through a conduit at the base of the bunded area and into a service trench. This was to enable an electrical cable to be fed through an electrical conduit into the service trench. In order to carry out this work the contractor drilled a hole in the bund wall. This hole in the bund was not sealed.

4.4 When the sediment laden water overflowed into the bunded area surrounding the WTP, it flowed through the hole in the bund wall, into an underground service trench before discharging (probably via hydrostatic pressure) to the stop valve on Wicks Road and then into Porters Creek.

24 It is not known precisely how much sediment was discharged into Porters Creek as a result of the pollution incident although the experts' estimate was "no more than 4.5 tonnes". 25 No actual environment harm is known to have been caused by the pollution incident either to Lane Cove River or to Porters Creek. The latter water body was at the time of the pollution incident "a moderately impacted system, impaired by anthropogenic land uses" which water contained a variety of invertebrate taxa dominated by pollution tolerant species. 26 The water quality test results of the collected samples revealed levels of nutrients (mainly phosphorous) within the range of variability already existing in Porters Creek, although the pollution incident would have raised the cumulative concentrations of nutrients. 27 Following the pollution incident the Joint Venture commissioned GHD Pty Ltd to undertake an independent audit of the WTPs and the resulting recommendations of that audit (including interlocking safety devices being installed in the WTPs) have been implemented by the Joint Venture. 28 Prior to the commission of the admitted offence there have been two occasions when a penalty infringement notice under the PEO Act has been issued on the Defendant Theiss Pty Ltd in respect of a breach of a condition of the relevant environment protection licence. The first notice involved a breach on 11 March 2003 by virtue of the failure to install sediment and erosion controls for a topsoil stockpile. The second notice involved a breach on 2 October 2003 by virtue of a discharge of the contents of a sedimentation pond caused by an excessive injection of a surfactant "Biosolve". 29 Although the penalty infringement notices were issued only in respect of one of the Defendants it is not suggested to be otherwise than that the breaches of the conditions of licence were committed by the Joint Venture in the course of carrying out the contract works for which construction activity commenced in late 2002. (Apparently however, and unlike the present charges, only one of the Joint Venture Companies was issued with the penalty infringement notices.) 30 The affidavit of Mr Stephen Burns, Project Director for the Joint Venture, sworn 26 April 2005 deposes to the following facts:

(i) in undertaking the contract works the Joint Venture has employed a number of personnel on its environmental team (including an Environmental and Community Relations Manager) and has prepared an Environment Management System in accordance with International Standard ISO14001; (ii) since the pollution incident the Joint Venture has undertaken structural improvements to the WTP and operational improvements (in terms of staff training and the production of operations manuals); (iii) soon after the pollution incident Liquitek transferred operational responsibility for the WTPs to the Joint Venture which has since installed operational improvements such that since that transfer there have been no unforeseen or unintended discharges from the WTPs; (iv) the Joint Venture expended some $178,700 in clean up costs in respect of the pollution incident and in future preventative action (some $142,000 being spent on implementing the recommendations arising out of the audit undertaken by GHD); (v) the Joint Venture has spent some $15M on environmental compliance (including $1.4M on the WTPs) since the commencement of the project in 2002; (vi) the Joint Venture has held 70 community liaison meetings in connection with the project and 400 household consultations; (vii) the Joint Venture fully appreciates its environmental responsibilities (including respect for the amenity of residents); (viii) the Joint Venture sincerely regrets and is genuinely contrite in respect of this pollution incident and will endeavour to make every effort to ensure that such an incident does not occur again.

31 The Defendants entered their guilty plea on 25 January 2005, in circumstances where each Summons had been twice previously before the Court - on 2 November 2004 (first return date) when the proceedings were adjourned to 14 December 2004 to allow the Prosecutor to serve additional affidavits, when on that occasion the Defendants sought an adjournment to 25 January 2005 to give them the opportunity to obtain expert evidence on matters concerning sampling methodology, sampling results and environmental harm (being matters raised by the Prosecution evidence). 32 The Defendants have agreed to pay the Prosecutor's costs in the sum of $21,000. C. THE COMPETING CASES ON SENTENCE 33 As previously noted the competing submissions on sentence only diverged on the single issue of principle that I have earlier outlined. 34 That issue arises, not because the Defendants are co-offenders or principal offenders whose respective culpabilities in respect of the same offence are indistinguishable from one another, but because the offence was, from a practical viewpoint, committed by the Joint Venture that the two Defendants had created for the purpose of undertaking the contract works. Since that Joint Venture does not possess a legal personality, it cannot be charged with the offence because it is not relevantly "a person who pollutes waters" within the meaning of s 120(1) of the PEO Act. It is as a result of the Joint Venture's lack of legal personality (which also explains why the environment protection licence was granted to the two Defendants as co-licensees rather than to the Joint Venture) that the Defendants as the constitutive members of the Joint Venture incur liability for the offence committed by the Joint Venture. (Liability may also arguably be separately imposed by virtue of the operation of ss 257 and 258 of the PEO Act which are evidentiary provisions that deem the holder of an environment protection licence to be "the occupier of the premises" at or from which any pollution occurs to have caused that pollution). 35 In my opinion the appropriate sentence to be imposed upon each of the Defendants for the admitted offences (and the competing cases did not recognise any other sentencing outcome than that each Defendant be convicted and fined) is one that takes into account the fundamental reality that the pollution incident was caused by the Joint Venture (notwithstanding the absence of legal personality of the Joint Venture), and the further reality that the admitted liability of each Defendant for the same offence only arises because the absence of legal personality of the Joint Venture precludes the Joint Venture from being charged with the offence of causing the water pollution incident. 36 The foregoing approach to sentencing the two Defendants in the present cases accords with the following statement appearing at par 40 of the judgment of Lloyd J in Environment Protection Authority v New Generation Beverages Pty Ltd & Anor [2000] NSWLEC 130:

The prosecutor submits that since there are two separate charges against two separate defendants then the penalty that would be otherwise imposed should be imposed on both of them in equal amounts. As I understand the submission, that would result in a total fine greater than would be the case if the offence had been committed by a single defendant. This is a novel approach to me. I am unaware of any case in the past where that has been done. The prosecutor has been unable to identify any authority where such an approach has been adopted in this Court, or for that matter, in any other court. The fact is that the activities being conducted on the land are being conducted by a partnership of Pepsi Seven-Up Bottlers Australia Pty Limited and by New Generation Beverages Pty Limited. It is the partnership that is carrying on a single business. The defendants are not carrying on separate businesses or engaged in separate enterprises. I am not persuaded that the submission of the prosecutor should be accepted.

37 That case is the only relevant decision of this Court yielded by the combined result of the parties' respective researches. The Defendants submit that I should follow Lloyd J's approach but the Prosecutor has advanced several reasons why I should not follow it. In so submitting the Prosecutor has acknowledged that a similar approach to that of Lloyd J had earlier been adopted by the Full Court of the Industrial Court of New South Wales in Haynes v CI & D Manufacturing Pty Ltd (No 2) (1995) 60 IR 455. In that case the Full Court at 458 posed the following question:

Should the prosecution of the closely related companies attract one penalty or two penalties assessed against each company?

We have come to the view on the evidence that the connection between the two companies was so intimate that it is permissible to view the offence in a global way. We are of the view that an appropriate penalty in all the circumstances would be a total fine of $30,000.00.

39 (The Full Court went on to consider whether each of the companies should be held to be jointly and severally liable for the total amount of the fine, concluding that each should bear an equal one half share of the total fine.) 40 The Prosecutor's ultimate submissions were as follows:

In accordance with general sentencing principles, the appropriate approach for the Court to take where more than one individual or legal entity can be said to have committed the offence is for each offender's culpability etc to be considered individually. That is, the Court should view the nature and seriousness of each offender's part in the incident, their respective culpability, other objective factors and their respective subject factors. Where the connection between each offender, as it relates to the facts, is so intimate that they are indistinguishable, as is the case in these matters, the Court may view this as a factor relevant to assessing each offender's individual culpability. While the end result of this process may lead to each offender receiving the equivalent of half the fine they would have received if the Court was instead concerned with one offender, it is respectfully submitted that this is the appropriate way of determining a penalty for each offender and that it is not appropriate to determine a global fine and divide it evenly amongst both offenders.

41 The opposing principal submission argued on behalf of the Defendants was as follows: Accordingly, the defendants submit that it is appropriate in these circumstances that the Court determine the penalty payable for the offence arising out of the incident, and apportion the penalty equally between the two defendants. It would be contrary to the totality principle for the prosecutor to obtain two fines arising out of the same incident and same offence. The two defendants are so intimately related that they should be seen as one entity for the purposes of setting the penalty. In simple terms the Court should see the defendants as one. Each defendant is being prosecuted for its role as occupier and licensee of the premises. If the defendants were contractors and sub-contractors or a holding company and the operating company the circumstances would be different.

42 Of these competing submissions I think those advanced on behalf of the Defendants are to be preferred and accord with the realities of the case as I have described them in par 35. However, I do not think that the Defence submissions can legitimately invoke the "totality principle" of sentencing. That sentencing principle as enunciated in the decision of the High Court of Australia in Mill v The Queen (1988) 166 CLR 59 and as more recently discussed and applied (particularly in its relationship to the "parity" sentencing principle) by the High Court in Postiglione v The Queen (1997) 189 CLR 295, appears to be relevant only in relation to the sentencing of a single offender convicted of multiple offences. 43 For all the foregoing reasons I propose to proceed by determining the appropriate penalty in respect of the admitted water pollution incident by considering its objective gravity or seriousness together with the Defendants' indistinguishable levels or degrees of culpability and other relevant subjective factors and thereafter by apportioning that penalty equally between the two offenders to achieve the necessary parity of sentence between them. 44 Except for the matter just adjudicated upon, the competing submissions on sentence combined to support the imposition of a penalty which reflected an evaluation of the objective gravity at the lower end of the spectrum of gravity for the offence created by s 120(1) of the PEO Act and which also reflected a significant sentencing discount on account of mitigating factors (in the order of 40 percent considered globally). 45 These conclusions result in an ultimate penalty of $24,000 (i.e. $40,000 less 40 percent sentencing discount). This level of sentence reflects my consideration of the relevant matters specified in s 241(1) of the PEO Act and of the mitigating factors made relevant by s 241(2). 46 In respect of the relevant s 241(1) matters the relevant facts (earlier summarised) clearly address the relevant matters and need not be here repeated, except for the question of foreseeability of environmental harm caused by the commission of the offence: vide par (c). In this respect the Defence submissions were as follows: The defendants do not dispute that they could have reasonably foreseen the harm likely to be caused to aquatic life by virtue of sediment laden water discharging from the premises near Porters Creek.

Nevertheless it is submitted that the defendants could not have reasonably foreseen the unexpected change in the pH of raw untreated water malfunctioning the WTP causing sludge to escape through a hole in the bund wall. That is, the defendants could not have foreseen the incident that occurred in this case causing the damage that it did.

47 To the extent that the Defence submission focuses attention on the precise manner in which the pollution incident occurred, I do not, with respect, think that that is a matter that falls within the scope of "foreseeability" that is required to be considered by s 241(1)(c) cf Empress Car Co (Abertillery) Ltd v National Rivers Authority (1998) 1AllER 481 at 492 per Lord Hoffman where his Lordship held that ordinary vandalism (causing water pollution) was foreseeable although its particular form may not have been. 48 In any event, I am satisfied that an escape of pollutant from a breach in the bund wall surrounding the WTP (including a breach that has been caused by a electrical contractor working for the Joint Venture) was a reasonably foreseeable risk. 49 Finally, I should note that the penalty of $24,000 that I consider to be appropriate is within the penalty range established by the decisions of this Court referred to by the parties for similar offences against s 120(1) of the PEO Act involving the pollution of waters by the introduction of soil and/or sediment laden waters (eg EPA v Forestry Commission of NSW [2004] NSWLEC 751) and accordingly, the imposition of such a penalty satisfies the sentencing principle of "even-handedness". D. CONCLUSIONS AND ORDERS 50 For all of the foregoing reasons, I am of the opinion that it is appropriate to convict each Defendant of the admitted offence as charged and to apportion between each Defendant an equal one half share of both the appropriate penalty ($24,000) and the agreed costs ($21,000). 51 Accordingly, I make the following orders - A. In proceedings No 50067 of 2004 1. The Defendant is convicted of the offence as charged. 2. A penalty of $12,000 is imposed in respect of that conviction. 3. The Defendant shall pay the Prosecutor's legal costs in the agreed sum of $10,500. 4. The exhibits remain on the Court file. B. In proceedings No. 50068 of 2004 1. The Defendant is convicted of the offence as charged. 2. A penalty of $12,000 is imposed in respect of that conviction. 3. Defendant shall pay the Prosecutor's legal costs in the agreed sum of $10,500. 4. The exhibits remain on the Court file.

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