Environment Protection Authority v Incitec Limited

1. At approximately 10.14am the conductivity meter on the process condensate tank registered that the liquid in the tank had an elevated conductivity and triggered an alarm.

2. At approximately 10.27am the pH meter of the nitrate plant detected the presence of low pH waste water and a second alarm was triggered.

3. At approximately 11.06am the pH monitoring device on the diffuser detected that low pH waste water was being discharged from the facility into the north arm of the Hunter River and another alarm was triggered. However, the pH meter on the process condensate tank did not activate on 12 July 2002. 16 Incitec's employees did not become aware that these alarms had been activated until approximately 1pm on 12 July 2002. Accordingly, for a period in the order of two hours, water with a pH less than the minimum provided by the licence was allowed to enter into the Hunter River before any action was taken to identify and attempt to control the release. 17 The control room in which the alarms activated apparently contained many alarm systems monitoring the activities on the site. During the relevant period on 12 July, numerous other alarms were activated in relation to other plant and equipment. The practice was to respond to alarms in the order in which they were activated. Because the defendant's employees were responding to other alarms, the alarms relevant to this offence were not addressed until, as I have indicated, approximately 1pm. 18 The facts before me do not enable me to understand the nature of the other alarms which were activated at that time. However, there is nothing in the evidence to suggest that any of the other alarms related to an illegal discharge into the river, and there is no evidence which indicates that the other alarms may have required a more urgent response than the alarm designed to warn of an illegal discharge into the river. 19 After discovering that the alarms had registered, Incitec's employees took a number of actions, including operational changes and visual inspections of the equipment including the AN1 and AN2 plants. No obvious acid leaks were found. Systematic examination of all remaining sources of effluents were undertaken using relevant procedures. As a consequence, the process condensate from AN1 was found to be low in pH. When this was identified, the flow of condensate from the acid heater into the plant's waste water system was stopped. This measure was effective to bring the pH of the discharge to the north arm of the Hunter River back into compliance with the relevant condition of the licence. 20 At about 1pm the ammonium nitrates pond to which I have previously referred was apparently filled to about ninety-one per cent of its capacity. Accordingly, there was sufficient capacity remaining in that pond at that time to hold an additional 45 cubic metres of liquid. Although other sources of waste water were diverted into the ammonium nitrates pond on 12 July 2002, Incitec's employees did not divert the process condensate from the AN1 plant to the pond due to concerns that the pond might overflow. 21 Between the time of 11.06am until approximately 3.28pm when the discharge was stopped, waste water with a pH below 6.2 was discharged from point one at Incitec's facility to the north arm of the river of a range between 4.6 and 1.4 pH. The pH of the effluent prior to discharge and dilution through the multiple port diffuser was continuously below 2 pH from 11.20 through to 3pm. About 333 cubic metres or 333,000 litres of low pH waste water was released into the river during the incident, which included approximately 30,000 litres of condensate contaminated with nitric acid. Approximately 1,465 litres of nitric acid was discharged to the north arm of the river during the incident. This amounts to a discharge of approximately two tonnes of acid. 22 It was ultimately identified that the discharge was caused by the rupture of a tube in the acid heater in the plant. The failure of the tube allowed nitric acid to enter the condensate that was discharged to the waste water system from the overflow pipe of the condensate tank. The cause of the rupture is believed to be the corrosion of the tube by the prolonged attack from nitric acid. When the tube was inspected after the incident, a series of small holes was found at the failure site. The nitric acid apparently leaked through these holes and found its way into the system. The wall of the tube at the failure point was very thin and the internal surface had a rough appearance like that of sandpaper. Apparently the roughness is evidence of corrosion, a classic signature of nitric acid attack of stainless steel. 23 Incitec notified the Environment Protection Authority in relation to the discharge on 7 August 2002 when a telephone call was made advising of the incident. Subsequently, written notification was made. The company had an obligation to notify of the incident, provided for in condition R2 of the licence. 24 The parties are agreed that there is no evidence that the incident caused actual harm to aquatic life. I understand that agreement to be that there is no observable evidence that aquatic life was harmed. However, because of the acid content of the water, the evidence makes plain that although it was not observable, injury would almost certainly have been occasioned to marine organisms including plankton, benthic invertebrates and macro-invertebrates. 25 In the ordinary course, waters with a low pH have a high concentration of positive hydrogen ions. It can be directly toxic to aquatic animals and plants. Low pH can interfere with normal physiological processes of biota such as enzyme and membrane processes, and can thus cause aquatic organisms to die. In this context it is important to appreciate that pH is a measure of the acidity or alkalinity of water and has a scale from 0, extremely acidic, to 7, neutral, through to 14, extremely alkaline. Accordingly, for a significant part of the time during which the discharge occurred, the waters would have tended towards the extremely acidic range of pH. 26 Incitec engaged a firm of consultants to model the likely environmental impacts of the incident. Their report, which is not challenged, makes plain that, as it happened, the discharge coincided with the start of an ebb tide, with the consequence that the discharge would have been rapidly transported downstream towards the Hunter River. 27 Kooragang Island is located proximate to the mouth of the river at a point where significant volumes of water would move under tidal influence. The consequence of this tidal effect was to enhance the neutralisation of the discharge. However, modelling indicates that the acid discharge event would have caused a plume of water with a pH below the ambient level of the river, which was 8.2, to extend out from the discharge point. According to the modelling, the plume would have extended about two kilometres downstream of the point of discharge at the peak of the acid discharge event, which was around two o'clock. The modelling also demonstrates that when the tide oscillated, there would have been a remnant discharge which would have been transported back upstream, but by the time it reached the diffuser it would have been close to normal levels. 28 The report concludes that within approximately five hours of the end of the incident, the discharge would have been barely detectable due to the dilution enhanced by the tide. Accordingly, any impact on the Hunter River system would have been relatively short-term. The report also indicates that in the area within which modelled concentrations of pH were undertaken, a pH of less than five would have occurred in various but localised locations. The conclusion is that the environmental harm likely to have been caused by the discharge would have been localised, short term in nature, primarily due to dilution and neutralising action of the river waters. 29 It is the opinion of the consultants that most fish would probably have sensed the acidic discharge and would have avoided the resulting zone of low pH waters. However, other smaller marine life such as plankton would not have been able to swim away from the low pH waters and may have been rapidly killed on exposure. The area in which plankton was likely to have been killed was probably limited to within a zone of approximately fifty metres from the diffuser. The overall impact on the plankton population in the river system would have been small in that only a small percentage of all the plankton in the river would have been exposed to waters affected by the acidic discharge. 30 Following the incident on 12 July, Incitec reconfigured its metering processes, with the consequence that earlier warning of a low pH within the system is now available. The company has also designed and is in the process of constructing a pH control system of nitrates for the plant. The cost of this system is estimated to be $180,000. It will act as a pH modifier for any low or high pH streams in order to prevent the type of incident impacting on the river in the future. A requirement has been included in the licence to ensure that this process is undertaken in the future. 31 The risk assessment process for the assessment of vessel life, in particular the acid heater, has been upgraded to improve consideration of potential environmental impacts in the future. All equipment on the site is apparently being reviewed on a plant-by-plant basis to update the risk assessment. In addition, all personnel on site are trained in environmental issues and responsibilities as appropriate. 32 In response to the particular incident giving rise to this offence, a programme of training has been completed for all personnel on site, approximately one hundred and seventy persons, to reinforce the relevant issues and the responsibilities of those engaged on the site. In particular, the training covered the operational aspects of the environmental licence and personal responsibilities under the Protection of the Environment Operations Act. This training was undertaken over a period of months by internal advisers and external consultants engaged for the purposes. It was completed in October 2003. 33 As part of the project to control pH outside the plant, equipment is also being installed to enable the automatic diversion of AN1 condensate to the AN pond in the event of low pH. This has also been included as a requirement of the licence. 34 The defendant has previously been convicted on two occasions for breaches of environmental laws. The first offence related to an event which occasioned pollution to the air when an amount of ammonia gas was discharged under pressure, occasioning impacts in the Stockton area of Newcastle. On that occasion the company pleaded guilty to the offence, which carried a maximum penalty of $125,000. Sheahan J imposed a penalty of $125,000 being twenty per cent of the maximum. I do not consider that matter of any particular significance in relation to the present offence. 35 However, the position is different in relation to the second offence. Incitec pleaded guilty to a charge that on 1 March 1999 it polluted waters contrary to section 16(1) of the Clean Waters Act and as a consequence committed an offence against the Environmental Offences and Penalties Act. On that occasion, as in the present case, the particulars of the charge involved the release into the Hunter River of waste with an acidic pH. Incitec pleaded guilty. Sheahan J in his reasons for sentence related the material elements of the statement of charge which includes the following. "(6) As acid was being transferred from number 3 to number 2 tank, it began escaping into the bunded area via the open drain valves. Terry Powazuk did not observe the escape of acid through the discharge lines submerged in a drain trench inside the bund. The submerged drain line is visible from the operating platform from which the outside operator lines up the transfer of acid. (7) Contained in the bund sump is an alarm. If the alarm activates, it registers in the control room. Shortly after acid began spilling into the bund this alarm activated. The control room operator, Allan McCully, accepted the alarm, but did not initiate any action because he had too many alarms to deal with, many associated with the start up of the nitric acid plant. This particular alarm was treated with low priority, partially because it could be triggered by rainwater, although there had been no rain that night. As a result, acid continued to leak from the open drain valves into the bunded area. The acid in the bund began reacting with the equipment left in the bund by the maintenance team, and damaged the welding and electrical gear. A nitrous oxide cloud was emitted as a result of the acid reacting with the equipment left in the bund area. The acid was also corroding the two compressed breathing air cylinders left in the bund. One hour and twenty minutes later at 4.40am, one of the compressed breathing air cylinders exploded and became airborne. It struck an overhead universal beam and then ruptured a 25-millimetre instrument air line. The cylinder then continued travelling through the air for about 100 metres, landing on the roadway near the Incitec control room. It was this explosion that alerted the Incitec staff. By that time, 23.93 tonnes of acid had escaped into the bund." 36 In the way in which his Honour relates, having escaped into the bund, acid was then able to be discharged into the Hunter River. Sheahan J found that as a result, effluent with a pH of approximately 1.5 and possibly as low as 1.2, was discharged for approximately two and a half hours. The total volume of acidic discharge at this time was likely to have been between 140,000 and 218,000 litres. There was a further discharge of acidic liquid. The lowest pH recorded for this second discharge was between 2.5 and 3 pH. The approximate total volume of the second discharge was 180,000 litres, which would have amounted to a discharge of 1.8 to 2.7 tonnes of acid. 37 Sheahan J found that it was appropriate to impose a penalty towards the high point of what he referred to as the low-mid range, namely ten to thirty per cent of the maximum penalty. He ultimately determined that a fine of $25,000 was appropriate and that represented twenty per cent of the maximum penalty. 38 In the present case, the prosecutor emphasises the fact that this is in effect the second offence committed by the defendant where it has allowed an escape of acidic water into the river contrary to the conditions of its licence. The prosecutor draws attention to the fact that the grant of a licence constitutes a public trust which entitles the holder to pollute waterways. With that trust comes the obligation to ensure that the conditions under which the pollution is authorised are not breached and that the environment is appropriately protected, see EPA v Port Kembla Copper Pty Limited [2001] 115 LGRA 391, and EPA v Shoalhaven Starches Pty Limited [2003] NSWLEC 107. 39 With respect to the matters to be considered in imposing penalty provided by s 241 of the Act, the prosecutor accepts that there was no observable harm but, as I have indicated, emphasises the fact that harm must have occurred. Emphasis is also placed on the fact that there were practical measures which were available which would have avoided the entry of the waters into the river, including their effective capture. As I have observed, facilities to provide for this capture are now being incorporated into the defendant's plant. 40 However, the prosecutor particularly emphasises the fact that the responsibility fell upon the defendant to not only provide alarms but ensure that mechanisms were in place whereby appropriate responses were made to them. The lesson that should have been learned from the earlier incident leading to prosecution and imposition of a fine by Sheahan J, the prosecutor emphasises, does not appear to have been learned. Accordingly, the prosecutor submits that a significantly greater penalty should be imposed in this case to ensure that the relevant objective of deterrence is achieved. 41 The prosecutor also emphasises that the events which occurred were foreseeable. The facility providing for the transfer of heated nitric acid in a steel vessel would inevitably corrode and it was incumbent upon the defendant to ensure that appropriate inspection routines were in place so that the corrosion did not lead to the unexpected release of acid liquids. Again the defendant has responded to the situation by providing a more effective inspection regime. Emphasis is placed on the fact that Incitec, as is obvious, had control of its own premises. 42 The prosecutor accepts that there are a number of mitigating features. In particular the defendant has taken corrective measures and has put in place processes to ensure that alarms are responded to insofar as a human response will in the future be necessary. The other measures which have been taken should ensure that a similar breach does not occur in the future. It is accepted that the defendant pleaded guilty at the first opportunity and accordingly this factor must, consistent with authority, be considered in determining the appropriate penalty. 43 The defendant in its submissions emphasises the fact that there is no evidence of actual harm, and to the extent that it must be accepted that harm occurred, the tidal influences would have been significant in diluting the waters and minimising any harm to the ecosystem within the river. It is submitted that although the event was in general terms foreseeable, the incident which occurred was accidental in the sense that the physical cause of the harm arose from an event which the defendant did not know was likely to occur. 44 In its written submissions the defendant said, "the events of 12 July 2002 - that is, the physical cause of the breach of the licence condition - were accidental. An equipment failure caused the discharge. That equipment failure was not caused by any default of the defendant. One of the seventy-six stainless steel tubes in the acid heater ruptured, allowing nitric acid to flow into the process condensate tank. Had a reasonable person been asked about the prospect of that failure occurring in such a way as to cause the discharge of low pH effluent into the Hunter River, that person would have regarded the prospect as very unlikely because any serious acidic discharge would have activated the pH and conductivity alarms on the process condensate tank, and the problem could have been identified and remedied. The conductivity alarm activated but the pH alarm did not. Some time passed before the defendant's employees could identify the location of the problem and stop the flow of condensate from the acid heater into the waste water system." 45 I do not accept that it is appropriate to describe the events which occurred here as an accident. Two particular elements are relevant. By reason of the fact that the defendant was processing acid which was contained within steel tubes, it could be expected that with time the tubes would deteriorate. However, the difficulties extend beyond that matter. As the defendant points out in its submissions, procedures were in place to provide warning of failures in the system. Those procedures included alarms which would have identified the fact that liquids with low pH were being allowed to pass into the Hunter River. The failure of the defendant to have in place procedures which provided for an immediate response to that alarm in circumstances where the discharge was a breach of the licence is a serious matter. It cannot be described as an accident. Rather, it reflects a failure in the defendant to provide for appropriate management of its facility. 46 The defendant also submits that notwithstanding the fact that it has been convicted on two previous occasions, it should be sentenced on this occasion as a defendant of prior good character. I do not accept that submission. In my opinion, although as I have indicated the air pollution matter can be put to one side, the conviction for a previous breach of the licence by allowing the discharge of polluted liquids into the river is a matter which must be brought into consideration in imposing a penalty on this occasion. 47 I am satisfied that notwithstanding the fact that there was no observable harm to the environment, the present offence should be considered serious. Although no harm was observed, there can be no doubt that marine life was destroyed by the event. It was fortuitous that the movement of the tide operated to remove the acidic water from the river system within a relatively short space of time. 48 A most serious aspect of the matter is that this is a second offence by the defendant in circumstances where although an alarm was triggered, there was no appropriate response from the company for in the order of two hours. The purpose of the alarm system was to warn of circumstances where the company was releasing liquid in breach of the conditions of its licence. If instead of immediately responding the alarm had to wait its turn, the management procedures were effectively structured so that a possible breach of the law could be knowingly continued until the relevant operator had time away from his other duties to investigate the problem. 49 The fact that a second offence has occurred in these circumstances demands a penalty which will ensure that the defendant accepts its obligations to install and manage its processes effectively. A licence provides a privilege, permitting the holder to pollute within the terms of that licence. It carries with it an obligation to ensure that any pollution is kept within the parameters provided by the licence conditions. 50 With respect to mitigating factors, I accept that the damage to the environment was not substantial. However, I do not accept that it was negligible. I also accept that the defendant has co-operated with the prosecutor and has made genuine efforts to participate with the local community in minimising the harm which its activities may cause to the environment. In this respect I note that it was the winner of the National Plastics and Chemical Industries Association Incorporated (PACIA) Environmental Award 2001. I also accept that the defendant has shown genuine regret for the discharge and has now taken significant steps to protect against a similar occurrence in the future. It has also co-operated with the authorities in the investigation of the matter and is joined in providing a joint statement as to the facts of the event. 51 In this case, in my opinion, the plea of guilty should be given little weight. The obligation to report the event and thus disclose that an offence has occurred arises from a condition of the licence. It is difficult to accept that in those circumstances any defence would have been arguable, and no defence was effectively suggested as having been compromised by entering a plea. Accordingly, it is difficult to determine that there has been any utilitarian advantage achieved by the plea. 52 In Axer Pty Limited v EPA [2001] 113 LGERA 357, the Court of Appeal had occasion to consider the legislative scheme in relation to pollution. Mahoney JA said at 359, "the community has adopted a stern policy against pollution. The legislative scheme requires that proper, and strict, precautions be taken by those whose activities may cause proscribed pollution. The quantum of the fines which may be imposed evidence this: for the present offence a maximum fine of $125,000 was available. The quantum of the fines which the legislation allows to be imposed has no doubt been fixed not merely to indicate the seriousness with which such pollution is regarded but also to deter those engaged in such activities and to procure that they will take the precautions necessary to ensure that it does not occur." 53 His Honour continued: "In the end, the object of the legislation is to prevent pollution and to do this, inter alia, by the deterrent effect of a substantial fine and by in consequence persuading the industries concerned to adopt preventive measures" 54 The quantum of fines available has since been increased to a maximum of $250,000. 55 The Protection of the Environment Operations Act 1997 provides the matters of particular relevance when a court is sentencing in relation to an offence against the Act. I have given consideration to the matters in s 241 of the Act. I have also considered the provisions which are of general application in the Crimes Sentencing Procedure Act 1999. 56 The prosecutor in the present case also seeks an order pursuant to s 250(1)(a) of the Protection of the Environment Operations Act. That section provides that: "The Court may do one or more of the following. (a) Order the offender to take specified action to publicise the offence and its environmental and other consequences and any other orders made against the person." 57 That provision follows s 244 of the Act which provides that orders in Part 8.3 of the Act, which contains the relevant sections, may be made against an offender. Section 244(2) provides that orders may be made under this Part in addition to any penalty that may be imposed or any other action that may be taken in relation to the offence. 58 The order which the prosecutor seeks in the present case is opposed by the defendant. It is submitted that a fine would be an adequate penalty in the present case, and to require publicity for the offence would be to impose a total penalty which would be unreasonably severe. Submissions were made as to whether or not when considering whether to make an order pursuant to s 250(1)(a) a court is to have regard to its decision to require publicity and bring that into account as part of the overall penalty. The alternative position is that the Court is required to consider the penalty which it will impose and then turn to the question of whether or not publicity should be given to the offence. 59 The form of s 244(2) suggests that the latter submission should be preferred. The section speaks of an order in addition to any penalty. As the earlier provisions of the Act provide the regime for the determination of that penalty, an order under s 250 should be seen as an order which the court, exercising a separate discretion apart from the determination of the appropriate penalty, may make. 60 The parties are in agreement that in the ordinary course when a conviction is obtained, the prosecutor will publish the fact on its website. As a consequence, from time to time but by no means in every case, publicity in newspapers will be given to the fact that an offence has occurred. The nature of the reporting of the prosecution and its outcome of course is not within the control of the prosecutor or the defendant in any particular case. 61 However, it is plain that in relation to major industrial enterprises which are provided with a licence to release polluting liquids into major waterways, the opportunity for serious damage to the environment is always present. Unless those who carry out those activities are reminded of their obligation to ensure that they confine their discharges to those authorised by a licence, a serious impact both in individual cases and cumulatively with time can occur. Because of the nature of the enterprises, it will often be the case that the appropriate monetary penalty may not carry with it a significant reminder of the responsibilities which licence holders must accept, and that publicity of offences and knowledge of the consequences is likely to operate in these circumstances as a significant deterrent. 62 In the present case I am satisfied that it is appropriate to provide a significant monetary penalty. For the reasons I have previously identified, although the environmental harm in the present case was not large, the offence must be viewed as serious. The penalty which should be imposed should reflect the fact that the breach occurred in circumstances where although an alarm was activated, there was no effective response. It is appropriate to impose a penalty which will ensure that the need for constant rigour in the monitoring and control of pollutants discharged into waterways is appreciated by the defendant and others whose activities are authorised by similar licences. 63 The maximum penalty is $250,000. Having regard to the matters to which I have referred, in my opinion the appropriate penalty in the present case is a sum of $90,000. I am also satisfied that in the present case, particularly having regard to the fact that this is a second offence of a similar nature, it is appropriate to require the defendant to give publicity to the offence. 64 The parties tendered before me different versions of a possible publication order. I indicated yesterday in the course of argument that if I came to the view that a publication order should be made, it would follow a form which reflects a modification of both the suggestion of the prosecutor and that of the defendant. I am of the opinion that it is appropriate to require the modified form of notice to be published. The prosecutor sought that the notice be published in the Financial Review at a size of sixteen centimetres by four columns. In my view, this would be an unnecessarily large notice. It seems to me the appropriate size would be two columns and ten centimetres. 65 Therefore the orders of the Court are:

1. The defendant is convicted of the offence charged in the summons. 2. The defendant is fined a sum of $90,000 payable within twenty-eight days. 3. The parties have agreed that the defendant will pay costs in the sum of $20,000. The defendant is ordered to pay the prosecutor's costs agreed at $20,000 within twenty-eight days. 4. (a) The defendant must within fourteen days of today publish an advertisement in the form of annexure A in the Financial Review in the early general news section, with a size of ten centimetres by two columns. (b) The defendant must also publish the contents of annexure A in the executive summary of its next annual report. **********

ANNEXURE A PUBLICATION ORDER INCITEC CONVICTED DISCHARGE OF ACIDIC WASTEWATER

On 15 October 2003, the Land and Environment Court of New South Wales found Incitec guilty of an offence against the Protection of the Environment Operations Act 1997, in that it breached a condition of its environment protection licence by, on 12 July 2002, discharging over a period of approximately four and a half hours, acidic wastewater with a pH ranging between 4.6 and 1.4 into the Hunter River.

The acidic discharge had the potential to cause harm to fish and other aquatic life, however, there was no evidence of actual harm to fish or other aquatic life. The company was fined $90,000 for this offence.

Incitec was ordered to place this notice and to pay the EPA's costs of $20,000. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.