Environment Protection Authority v Orica Australia Pty Limited

Axer Pty Limited v Environment Protection Authority (1993) 113 LGERA 357; Cabonne Shire Council v Environment Protection Authority (2001) 115 LGERA 304; Camilleri's Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683; CASES CITED: Environment Protection Authority v Incitec Limited [2000] NSWLEC 217; Environment Protection Authority v Incitec Limited [2003] NSWLEC 381; R v Sharma (2002) 54 NSWLR 300; R v Thomson; R v Houlton (2000) 49 NSWLR 383

DATES OF HEARING: 03/11/2005 EX TEMPORE JUDGMENT DATE : 11/04/2005

PROSECUTOR: Mr G Plath (solicitor) SOLICITORS: Environment Protection Authority LEGAL REPRESENTATIVES: DEFENDANT: Ms J Jagot (barrister) SOLICITORS: Mallesons Stephen Jaques

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

50027 of 2005 Environment Protection Authority v Orica Australia Pty Limited

EX TEMPORE JUDGMENT 1 Her Honour: The Defendant has been charged with the breach of an environmental protection licence held by it. The Defendant has pleaded guilty to the charge. The summons alleges that on 15 July 2004 and 16 July 2004 at Kooragang Island the Defendant committed an offence against s 64(1) of the Protection of the Environment Operations Act 1997 ("the POEO Act") in that it contravened a condition of its Environment Protection Licence 828 ("the licence").

2 The particular condition contravened is condition L3.1 of the licence which provides: For each monitoring/discharge point or utilisation area specified in the table/s below (by a point number), the concentration of a pollutant discharged at that point, or applied to that area, must not exceed the concentration limits specified for that pollutant in the table. The relevant table provides, in part: Water and Land

POINT 1 Pollutant Unit of Measure … 100 percentile Concentration limit

pH pH 6.2 - 9.5 3 The summons alleges that between 15 July 2004 and 16 July 2004 inclusive the Defendant discharged wastewater that had a pH lower than 6.2. I note that pursuant to s 64(1) of the POEO Act, the maximum penalty applicable for offences of this nature is $250,000 for a corporation. As the Defendant has pleaded guilty it may be assumed that the Prosecutor has proved to the requisite standard the essential elements of the offence. Background 4 A statement of agreed facts was provided to the Court. At all relevant times, the Defendant operated a chemical manufacturing facility located at Greenleaf Road, Kooragang Island ("the site"). The Defendant has operated a chemical plant at the site since 1 June 2003. The Defendant manufactures ammonia, ammonium nitrate and nitric acid at the site. The processes carried out at the site generate wastewater. The licence specifies that wastewater between pH 6.2 - 9.5 may be discharged from the site to the north arm of the Hunter River by a submerged diffuser. Condition P1.2 of the licence identifies the diffuser discharge to the north arm of the Hunter River as "Point 1".

5 The statement of agreed facts summarised the cause of the incident as follows: On 15 July 2004, Orica personnel emptied and then flushed the No 1 Acid Storage Tank located in the Nitrates section of the plant. The purpose of the flushing was to enable the tank to be modified. This activity had previously been successfully undertaken on the No 3 Acid Storage Tank in May 2004 and a procedure developed during this activity was reviewed and adopted for the activities undertaken on 15 July 2004.

The bulk of the acid and washwater flushed from the No 1 Acid Storage Tank was recovered to the process. However, a quantity of the material was not able to be recycled. This material was emptied into the bund area around the tank and then pumped to the No 2 Nitric Acid Plant (NAP2) Neutralising Pit, where it was neutralised with limestone.

The liquid from the NAP2 Neutralising Pit was then pumped to the Nitrates Effluent Pond for further treatment, prior to the material being pumped to the River Pit and then being discharged to the Hunter River via discharge point 1.

After the process described above had been operating for several hours, the low pH alarm situated at the River Pit went off. Orica personnel took remedial action by closing a valve situated between the Nitrates Effluent Pond and the River Pit. The pH level initially rose but shortly after it dropped again. Orica personnel then shut a manual valve situated between the Nitrates Effluent Pond and the River Pit. The pH level again initially rose but then dropped again.

Further investigation revealed that some of the wastewater was unexpectedly overflowing from the NAP2 Neutralising Pit and going to the River Pit (bypassing the Nitrates Effluent Pond where it would have been treated) and then being discharged to discharge point 1 (the first period of low pH discharge). Investigations determined that the cause of the overflow was that wastewater from the Acid Storage Tank bund was being pumped to the NAP2 Neutralising Pit more quickly than it could be pumped from the NAP2 Neutralising Pit to the Nitrates Effluent Pond, resulting in the overflow.

Pumping ceased while Orica personnel determined whether the Acid Storage Tank flushing operation could continue without causing further pH problems. It was decided that the operation could continue in batches to prevent the NAP2 Neutralising pit from becoming too full and overflowing.

Orica personnel recommenced the operation while ensuring that the maximum level in the NAP2 Neutralising Pit was maintained at less that 80 per cent to ensure that the NAP2 Neutralising Pit overflow level was not reached.

As the Acid Storage Tank flushing operation was about to be completed, fume (a steam like appearance) was noticed in the area of the bund. Further inspection identified that a valve, which had been replaced that day by a contractor as part of an unrelated maintenance activity, had been incorrectly installed. Common practice is to install valves such that the position of the handle on the valve indicates whether the valve is open or closed. When the handle is in line with the pipe it is attached to, the valve is open and liquid can flow through the pipe. When the handle is at 90 degrees to the pipe it is attached to, the valve is closed and liquid cannot flow through the pipe.

The replaced handle had been welded onto the pipe in such a manner that when it was at 90 degrees to the pipe, the valve was open rather than closed. This enabled the flow of a quantity of nitric acid into the bund around the Acid Storage Tank. This discharge was not immediately detected because the discharge point for the pipe was below the level of wastewater in the bund and the operators could not see that acid was flowing into the bund from that pipe. Once it was detected, the valve was closed, stopping acid from flowing into the bund. Once the valve was closed, the operators then decided that the process could continue without further consequences because the additional nitric acid in the bund as result of the open valve could be transferred via the NAP2 Neutralising Pit for treatment in the Nitrates Effluent Pond as part of the normal Acid Storage Tank flushing operation.

The final batch of effluent from the Acid Storage Tank bund was then transferred to the NAP2 Neutralising Pit, completing the transfer of material. Pumping from the Acid Storage Tank bund ceased and additional limestone was added to the NAP2 Neutralising Pit to assist in acid neutralisation. At this time the NAP2 Neutralising Pit was observed and the water level within the pit was no higher than expected. Therefore, it was concluded that the process was proceeding in accordance with the revised method referred to in par 19 above. The operator returned to the control room.

Later, a low pH alarm activated at the River Pit and a subsequent inspection of the NAP2 Neutralising Pit noted that there was a vigorous reaction occurring between the wastewater in the Pit and the limestone. More limestone was added to the Pit to assist in the neutralisation.

A low pH alarm then activated at discharge point 1 and a further inspection of the NAP2 Neutralising Pit identified that the Pit pump had stopped pumping, probably because of an air pocket caused by the vigorous reaction between the limestone and acid. This resulted in an overflow from the NAP2 Neutralising Pit which subsequently resulted in a low pH discharge at discharge point 1 (the second period of low pH discharge)…

Orica determined that approximately 683 kg of nitric acid (about 1000 litres or 1 cubic metre) was discharged, via discharge point 1, into north arm of the Hunter River as a result of the discharge that occurred over the two periods.

6 On 16 July 2004, the Defendant's site manager, Mr Sean Winstone telephoned the Prosecutor's Senior Operations Officer, Mr Trevor Henderson, to report that during the previous evening there was a discharge from the site of wastewater with a pH below 6.2. The Prosecutor requested the Defendant submit a written report of the incident in accordance with the requirements of the licence. The Defendant submitted a preliminary report on 24 July 2004, a final report on 13 August 2004 and reported the incident in its annual return. It is agreed that the Defendant has cooperated fully with the Prosecutor in this matter.

Evidence in relation to environmental harm 7 The statement of agreed facts referred to the evidence of Dr Ronald Patra, the Prosecutor's environment protection officer in relation to the environmental harm caused by the incident. The statement of agreed facts set out Dr Patra's conclusions as follows: Dr Patra concluded that there was no evidence of actual environmental harm and that potential impacts would have been short term, localised and insignificant…

Considering the toxic nature of the extremely acidic discharge, there might have occurred localised adverse effects on the bottom dwelling animals. However, again these localised effects are not likely to be significant in terms of the overall river system. Moreover, the likely buoyancy of the plume would move acidic water rapidly away from the benthic environment, further limiting impacts.

In summary, any potential environmental harm caused by the discharge would have been short term, insignificant and localised. This is due to the environmental context of the location, which is flushed by large tidal exchanges, the chemistry of the receiving waters, the nature of the estuarine flora and fauna in the north arm and the conditions at the time of the incident.

Defendant's submissions 8 The Defendant relied on the affidavit of Ms Janice Van Reyk, the company secretary of Orica Limited, sworn 26 October 2005, and the affidavits of Mr Winstone, the Defendant's site manager, sworn 25 October 2005 and 2 November 2005. Orica Limited is the parent company of the Defendant.

9 Ms Van Reyk attested to the fact that the Defendant took over operation of the site in early 2003 from Incitec Limited, the previous owner. Since 2003, the site's environmental performance has been reviewed by senior management and the Orica Limited Board of Directors. Ms Van Reyk also attested to the good environmental and safety record of the Defendant and its commitment to safety, health and the environment as stated in the Defendant's Safety, Health and Environment Report 2004. Ms Van Reyk also referred to the Annual Report 2004 which detailed the creation of the Environment Committee in August 2004 to assist the Board in the effective discharge of its responsibilities in relation to environment matters arising out of the Defendant's activities.

10 Mr Winstone's affidavit stated that since becoming owner of the site, the Defendant had closely monitored environmental compliance and had undertaken a number of activities intended to improve the environmental performance of the site. Since April 2003, the Defendant has approved expenditure of approximately $20,200,000 on environmental improvement projects on the site. In August and September 2003, the Defendant provided training for all employees on the site in relation to their responsibilities under the POEO Act. In March 2004, a Steering Committee was formed to ensure that improvement in the environmental performance of the site occurred in a timely fashion. Mr Winstone gave several further examples of activities the Defendant had undertaken to improve environmental performance on the site and manage environmental compliance.

11 The Defendant also relied on a letter from Mr Graeme Liebelt, Managing Director and Chief Executive Officer of the Defendant, dated 24 October 2005 addressed to the Court expressing remorse for the incident and reinforcing the Defendant's commitment to sound environmental management. Finding Section 241(1)(a) - the extent of the harm caused or likely to be caused to the environment by the commission of the offence 12 The parties agreed that there was no evidence of any actual harm to the environment. In relation to potential environmental harm, the impacts would have been short term, localised and insignificant. The Prosecutor accepted that once the wastewater had escaped into the Hunter River there were no measures the Defendant could have taken to ameliorate the harm as dilution of the wastewater was the most effective way of minimising any potential harm. Section 241(1)(b) - the practical measures that may be taken to prevent, control, abate or mitigate that harm 13 The Prosecutor submitted that there were several measures that the Defendant could have taken to prevent the incident from occurring. The Defendant could, for example, have undertaken a risk assessment of the flushing of the Acid Storage Tank, checked the relative capacities of the pumps operating between the Acid Storage Tank, NAP 2 Neutralisation Pit and Nitrates Effluent Pond, closed the river valves at an earlier stage of the investigation, and could have more closely monitored the NAP 2 Neutralisation Pit to avoid the second overflow.

14 The Defendant submitted that the agreed statement of facts disclosed no element of deliberate commission or omissions in the incident giving rise to the offence. The Defendant's actions should not be assessed with the benefit of hindsight, but from the view of reasonable persons at the time and in the circumstances. The preventative measures taken by the Defendant's employees were reasonable in the circumstances.

15 Since the incident the Defendant has conducted more training of its employees in their responsibilities under the POEO Act, and has spent a considerable amount of money constructing a diversion pond to ensure that the technical problems that resulted in the incident would not occur again. Following the incident, the Defendant spent $2,800,000 in accelerating the construction of the diversion pond, a process which had commenced before the incident. Had the Defendant not accelerated the process, it would have only incurred costs in the order of $2,200,000.

16 While I accept that the Defendant's employees acted reasonably at the time of the incident I consider that greater measures could have been taken to prevent or control the incident leading to this charge. The Defendant is a large company undertaking complex procedures with harmful chemicals. It has an environmental protection licence and is responsible for ensuring all appropriate measures are taken to prevent harm which may result from its activities. While I appreciate the steps to implement these measures were already commenced by the company, that does not dispel the responsibility the Defendant has to exercise all due care, particularly at a time when its Annual Report 2004 states that production from this facility increased by 40 per cent. Section 241(1)(c) - the extent to which the person who committed the offence could reasonably have foreseen the harm caused or likely to be caused to the environment by the commission of the offence. 17 The Defendant accepted that it could have reasonably foreseen the potential harm to the environment by the commission of the offence. Section 241(1)(d) - the extent to which the person who committed the offence had control over the causes that gave rise to the offence. 18 The Defendant accepted that it had control over the causes that gave rise to the offence. Section 241(1)(e) - whether, in committing the offence, the person was complying with orders from an employer or supervising employee 19 Section 241(1)(e) of the POEO Act is not applicable to the circumstances of this case. Consideration of penalty Prosecutor's submissions 20 The Prosecutor submitted that despite there being no evidence of actual harm from the incident the Court should consider the offence to be relatively serious given the nature of the pollutant and the large size and complexity of the chemical plant. The amount spent by the Defendant on improvements to the site's environmental performance should also be considered as a proportion of the Defendant's considerable income (see Annual Report 2004), and the successful commissioning of a 40 per cent increase in the capacity of the plant.

21 The Prosecutor also argued that while the Defendant was permitted by the licence to pollute waters, considering the public trust bestowed upon the Defendant, the penalty should also act to deter other licence holders from breaching their licences.

22 The parties agreed to the making of a publication order pursuant to s 250(1) of the POEO Act.

Defendant's submissions 23 The Defendant submitted that the objective features of the offence placed it towards the low end of the scale of seriousness. The subjective features of the offence, including the Defendant's prior good record, contrition, cooperation with the Prosecutor, and early guilty plea also weighed positively in the Defendant's favour.

Culpability 24 Regard must be had to the culpability of the Defendant and the individual circumstance which led to the commission of the offence in assessing its gravity. There is no suggestion of deliberate or negligent or reckless behaviour on the part of the Defendant in relation to the failure of its systems which lead to the pollutant escaping from the premises. The Defendant's behaviour during and after the pollution incident and that of its employees suggests that I should attribute a low level of culpability to their actions.

Proportionality 25 The sentence must be proportional to the gravity of the crime. The Court is also to have regard to the maximum penalty applicable, as this is an expression of the seriousness Parliament attributes to the offence. In Camilleri's Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683, Kirby P (with whom Campbell and James JJ agreed) stated at 698 that: The task of a court is to assess the relative seriousness of the offender's particular offence in relation to a worst case for which the maximum penalty is provided.

26 Further Kirby P stated at 701 that: …the more serious the lasting environmental harm involved the more serious the offence and, ordinarily, the higher the penalty.

27 Considering all the factors under s 241(1) of the POEO Act, it is the view of the Court that the matter is not minor but is not in the most serious range.

Deterrence 28 General deterrence is always a consideration in sentencing offences of this nature (see Axer Pty Limited v Environment Protection Authority (1993) 113 LGERA 357 per Badgery-Parker J at 367; Camilleri's per Kirby P at 701). The Prosecutor argued that specific deterrence is also a matter which should be considered.

29 The Defendant has no prior convictions. The Prosecutor argued there was a need for specific deterrence because of the nature and quantity of the chemicals that the Defendant deals with, the complexities involved in the site's operations, and the problems in managing pH at the site under the previous owners. I accept the Defendant's submissions that the statement of agreed facts shows that the Defendant responded quickly and promptly to the incident, that it has implemented improved management practices, a process starting before the incident, and has since spent a considerable amount to overcome the technical problems which caused this incident. These improvements were accelerated following the incident and cost the Defendant approximately $2,800,000. Had the Defendant not accelerated the process, it would have only incurred costs in the order of $2,200,000. I do not consider there is a need for specific deterrence in this case as I do not consider it is likely this Defendant will re-offend.

Evenhandedness 30 While it is a sentencing principle that similar offences should receive similar penalties, as emphasised in Cabonne Shire Council v Environment Protection Authority (2001) 115 LGERA 304 each case must also depend on its own facts. The Prosecutor relied on the judgments of Sheahan J in Environment Protection Authority v Incitec Limited [2000] NSWLEC 217 and McClellan J in Environment Protection Authority v Incitec Limited [2003] NSWLEC 381. In Environment Protection Authority v Incitec Limited [2000] NSWLEC 217 the defendant pleaded guilty to an offence under s 16 of the Clean Waters Act 1970 for the discharge of between 320,000 and 400,000 litres of acidic wastewater into Hunter River and was fined a sum of $25,000. In considering the penalty, Sheahan J considered the offence to be in the low-medium range and took into account the defendant's prior offence. In Environment Protection Authority v Incitec Limited [2003] NSWLEC 381, the defendant pleaded guilty to an offence under s 64(1) of the POEO Act for contravening a condition of its environment protection licence by discharging waste water with a pH below 6.2 into the Hunter River. In imposing a fine of $90,000, McClellan J took into account the inadequacies of the management system in place to respond to the incident, the defendant's prior offences, and the need for specific deterrence in that matter.

31 I do not consider these cases to be at all analogous to the circumstances before me which are clearly much less serious in nature. The Defendant has no prior offences while the defendants in the matters referred to by the Prosecutor had previous convictions.

Penalty 32 In my opinion, the circumstances of the offence warrant that a penalty of $15,000, representing 6 per cent of the maximum penalty, should be imposed.

33 I also consider that it is appropriate in these circumstances to make a publication order pursuant to s 250(1) of the POEO Act.

Mitigating factors 34 There are, however, a number of mitigating factors that should be taken into account to reduce that penalty.

35 The Defendant pleaded guilty at the earliest opportunity and the Prosecutor has submitted that there was utilitarian value in the plea. A plea of guilty entitles the Defendant to a discount in penalty under s 22 of the Crimes (Sentencing Procedure) Act 1999 in the range of 10 - 25 per cent (see R v Thomson; R v Houlton (2000) 49 NSWLR 383; R v Sharma (2002) 54 NSWLR 300).

36 The Defendant has demonstrated its contrition and remorse and has cooperated with the Prosecutor. The evidence discloses that it responded quickly to the incident and reported it promptly to the Prosecutor and has taken steps to prevent its recurrence.

37 The Defendant has agreed to pay the Prosecutor's costs.

38 As demonstrated by the affidavit material relied upon by the Defendant, it has a long standing commitment to achieving excellent environmental practice at all its operations and has spent large amounts of money at this site to address this particular issue. I accept the Defendant is of good corporate character.

39 In all the circumstances I think that the Defendant's penalty should be discounted by a total of 30 per cent and consider that a fine of $10,500 is appropriate. Orders 40 The Court orders that:

1. The Defendant is convicted of the offence with which it is charged.
2. The Defendant is fined the sum of $10,500 to be paid to the Registrar of the Court within 28 days of today's date.
3. The Defendant is ordered to pay the Prosecutor's costs in such amount as is agreed or assessed pursuant to Pt 16 Div 3 of the Land and Environment Court Rules 1996.
4. The Defendant must within 14 days of today publish an advertisement in the form of Annexure A in the Financial Review and the Newcastle Herald in the early general news section, with a size of approximately ten centimetres by two columns.
5. The Defendant must publish the contents of Annexure A in the director's report in the Environment section of its next annual report.
6. The exhibits may be returned.

Annexure A Publication Order Orica Australia Pty Limited convicted of discharging acidic wastewater

On 4 November 2005 the Land and Environment Court of New South Wales found ORICA AUSTRALIA PTY LIMITED guilty of breaching its Environment Protection Licence.

The offence occurred about 15 July 2004 when Orica discharged wastewater containing about 683 kilograms of nitric acid and which had a pH ranging between 6.0 and 1.5 into the Hunter River over a period of about six and a half hours. 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 $10,500 for this offence.

Orica was ordered by the Court to publish this notice and to pay the Department of Environment and Conservation's costs.

At the time and since, Orica has accepted responsibility for the incident and has invested in projects to prevent future incidents. Orica sincerely regrets what occurred and that it failed to realise its own standards and those of the community.

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.