Environment Protection Authority v The Shell Company of Australia Ltd

ENVIRONMENT PROTECTION AUTHORITY Prosecutor v THE SHELL COMPANY OF AUSTRALIA LTD Defendant

The defendant, The Shell Company of Australia Ltd ("Shell"), has pleaded guilty to a charge of polluting waters contrary to s 16(1) of the Clean Waters Act 1970.

The parties have tendered an agreed statement of facts from which I derive the facts of the incident. The incident occurred at a service station at Ocean Beach Road, Woy Woy, which is leased by Shell from a company called Hynken Pty Ltd for the purposes of a retail petrol outlet. The premises are occupied on a day to day basis by another company under licence from Shell to operate them as a Shell franchise.

On 22 June 1998, approximately 2,300 litres of unleaded petrol were spilt during a fuel decanting operation from a mobile tanker into an underground tank at the premises. The tank in question, which was ULP tank 2 at the premises, had been undergoing maintenance and integrity testing ordered by Shell but in fact carried out by Shell's contractor, Masstech Australia Pty Ltd, which itself had subcontracted to K and D Petroleum with Shell's approval. In the course of that maintenance and integrity testing, the fuel line was cut.

The employee of K and D Petroleum gave evidence by affidavit that he had placed a warning sign at the fill point. The warning sign was handwritten on cardboard and it stated: "Do not fill tank 2 ULP fuel line disconnected from tank 17/6/98" . His evidence was that he attached the sign to the fill cap with a piece of wire.

The integrity testing required that, for its proper effect, tank 2 should be filled. That instruction was conveyed by Shell through its terminal to one of its delivery contractors. Shell has two delivery contractors, and the one that was involved in this incident is John L Pierce Pty Ltd and the tanker driver was Mr M G Freund.

Mr Freund's evidence was that when he arrived at the premises, it was dark, it was night and it was raining. He did see the cardboard sign but his evidence was that he could not read it, it was partly obliterated and he did not see any wire attached to the filler cap. He then proceeded to fill tank 2 with fuel through the filler point and after a short time, he smelt a heavy smell and discovered, by walking around the tanker, that there seemed to be a wet patch of liquid which he ascertained was petrol. He took prompt action. The fire brigade was alerted and containment procedures were put in place. The containment was effective because the spill of 2,300 litres went into the stormwater drains and canals in the vicinity of and adjacent to the premises, but does not appear to have entered Brisbane Waters.

There was evidence of harm and likely harm in this case. One of the officers of the prosecutor, Mr M Julli, inspected the premises and its vicinity on the following day. His evidence was that he found three dead fish, two dead eels and two dead gudgeons. His evidence was that petrol is a complex mixture of organic chemicals which is acutely toxic and can be lethal to aquatic life. His conclusion was that it was highly likely that the petrol caused the deaths of the eels and the fish, but it is unlikely that there was any harm to marine life in Brisbane Waters. The dispersal of the petrol was assisted by heavy rain and strong winds, although there was a potential for any aquatic life to suffer harm if that aquatic life came into contact with the substance.

In a case such as this where the defendant has pleaded guilty, the Court's task is only to deal with the appropriate penalty and to order costs. In dealing with penalty the Court is required to take into consideration certain matters pursuant to s 241 of the Protection of the Environment Operations Act 1997.

Section 241(1)(a) provides that the Court must take into consideration the extent of the harm caused or likely to be caused to the environment by the commission of the offence. The significant feature of this case is that actual harm to fish was observed. Dead aquatic organisms were found and the expert evidence of Mr Julli is that it is highly likely that their deaths were caused by the spill of the petrol. There was also a potential for serious or lethal harm to other marine organisms but no evidence of any other actual harm. In particular I note that there was no harm in or to the natural waters of Brisbane Waters and the likely harm and actual harm was confined to the stormwater drains and canals. I also take into account that the harm was permanent so far as the dead fish were concerned, but temporary so far as likely harm was concerned.

I also take into account the conclusions of three reports which were furnished by Shell to the prosecutor. Shell commissioned contractors to consider the harm caused by the spill. The first report was the Fluor Daniel Surface Water and Sediment Report which investigated the impact of the spill on soil and water. There was a second report, the Fluor Daniel Ground Water Report, which assessed the potential impact of the spill on ground water. E R M Mitchell McCotter reported of the possible impact of the spill on indigenous oysters. Each of those reports considered that there was no serious harm. The first report concluded that the spill "… did not create a risk of harm to human health or the environment in the stormwater system" . The second report concluded that there was "… no increase in dissolved-phase petroleum hydrocarbons or phase-separated petroleum hydrocarbons" . The third report concluded in relation to the indigenous oysters that "… the overall environmental impact of the spill was minor" .

I do not classify the spill as minor when there was actual harm. In my judgment, where actual harm occurs, even though there will be no lasting potential harm, I regard the spill as serious and not as minor.

The second consideration, pursuant to s 241(1)(b), is the practical measures that may be taken to prevent, control, abate or mitigate the harm. Mr Kelly for the prosecutor drew attention to a number of matters which could have been done by the defendant in this regard. One of the matters which he raised was the bunding of the premises so as to contain a spill if any should occur, but I do not take this into account as a relevant factor in the circumstances where Shell is not the owner of the premises, and not free, as Mr Brennan for Shell submitted, to make alterations to the premises as it wishes. Indeed, there is no evidence of any order requiring bunding having been issued by the prosecutor.

However, there was overall evidence that the procedures could have been tighter. Under the Australian Institute of Petroleum Code of Practice there are work clearances which are required. It appears that they were not rigorously enforced and, in particular, the contractor carrying out the tank integrity test did not complete the work clearances. There was certainly not a great deal of rigour in the attachment of a handwritten cardboard note to signify the danger that existed. There is no doubt in my mind that the tanker delivery driver and the console operators at the premises should have been more alert. But I take into account in this regard that Shell was not operating without procedures. It had in existence before this incident, training systems, written manuals, a contract with John L Pierce, which required compliance with its environmental management systems and the training of officers including the drivers who were required to hold appropriate licence qualifications in relation to dealing with hazardous items such as petrol. Accordingly, when I speak about practical measures having not been as tight as they could, I note that there were measures in place and that they have now been tightened up. I will deal with that in more detail later.

The third matter which I am required to take into account pursuant to s 241(1)(c) is 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. Handling of a product such as petrol must inevitably involve a certain hazard or risk. It was reasonably foreseeable that, had a spill occurred, it would have entered the stormwater drainage system and perhaps entered natural waters. I do not think the defendant denies that the spill was reasonably foreseeable but Mr Brennan put to me that the risk was, in this case, low. There were systems in place. There was a warning put on the fill point (although, as I have said, it was rudimentary). Furthermore the drivers had been instructed that if they saw abnormal conditions at a site they should not decant the load. Those matters do go to the risk involved, but I still consider that the spill that occurred was reasonably foreseeable.

I should refer to the operator of the site, that is, the company that holds a licence from Shell to operate the site. Its name is Net Effect Management Pty Ltd. I am informed by Mr Kelly that no proceedings have been taken against any other persons who may have been involved in this spill and in particular, no proceedings have been taken against Net Effect. I make no finding in relation to it. I do not know from the evidence what its operators were told and whether the operator who had a conversation with the integrity testing contractor was in fact the person on the site on the evening of 22 June 1998. Net Effect is not a party to these proceedings and I take nothing in relation to that company into account.

The fourth matter which I am required to take into account pursuant to s 241(1)(d) is the extent to which the person who committed the offence had control over the causes that gave rise to the offence. This is a significant matter in this case because Shell, by its plea of guilty, has admitted all elements of the offence. That is an admission of vicarious liability for the actions of its contractors because no direct employees of Shell were involved. Those involved were, first, the integrity testing contractor, who was a contractor; secondly, the console operator at the premises, who was an employee of the licensee; thirdly the tanker driver, who was an employee of the company that operated the delivery services for Shell. I take into account, therefore, although Shell was in control in the sense that it has a responsibility for its contractors as well as its direct employees, this was an incident that arose out of the actions of its contractors.

There are a number of mitigating factors which I take into account. The most important of these is the fact that Shell has no prior convictions for an environmental offence. This is a significant matter in this case. It is significant because Shell operates 700 outlets throughout Australia and in 1998/1999, it supplied 29 per cent of the fuel retailed in Australia. It has been fined once. That occurred in the Northern Territory and the fine was imposed without proceeding to a conviction. Those proceedings took place in February of this year and the fine imposed in relation to an escape of fuel in Alice Springs, was $75,000.

I take into account and accept that the defendant has a strong environmental commitment. That is evidenced by the integrity testing system which it undertakes and which the evidence establishes goes beyond existing standards. It is a more stringent procedure that the defendant has itself developed.

It has contacted the Australian Institute of Petroleum about the fact that there is no requirement or procedure which is industry wide for the tagging and locking of the fill points in circumstances such as these. It has indicated its willingness and commitment to increasing standards Australia wide. It has a system of environmental training, and it provides manuals. After the incident had occurred, Shell increased and extended the awareness of its environmental procedures through its newsletter and through direct education and training of its contractors and its staff.

I take into account Shell's co-operation with the prosecutor. It not only furnished an investigation report of the incident, but it furnished three other reports on a voluntary basis which examined the extent of the possible harm and to which I have earlier adverted. The investigation report is a very detailed one and more detailed than this Court normally sees.

I take into account, as I am required to do, Shell's early plea of guilty. I also take into account Shell's agreement to pay the costs of the prosecutor which have been agreed in the sum of $8,000. I take into account Shell's contrition expressed in the investigating report by the authors of that report which states that Shell regrets the occurrence of the incident.

The maximum penalty in this case is $125,000 in the case of a corporation.

I have been referred to two previous cases; one by Mr Brennan and one by Mr Kelly. Dealing first with the case Mr Brennan referred me to, which is Environment Protection Authority v Bituminous Products Pty Ltd [1999] NSWLEC 247, I note that the offence there was under the same section of the Clean Waters Act and it involved a spill of oil into a stormwater canal. Taking into account all the matters which Talbot J pointed out in his judgment, his Honour convicted the defendant and imposed a fine of $5,000.

The difficulty with looking at other cases was pointed out by Badgery-Parker J in Axer Pty Ltd v Environmental Protection Authority (Court of Criminal Appeal, 22 November 1993, unreported). His Honour at p 10 and p 11 said: There is always a difficulty in attempting to compare the penalty in one case with the penalty in another because of the wide divergence of facts and circumstances; that task is difficult enough when one has the full text of all the relevant judgments and more difficult where the material is provided in this summary form.

I take into account Shell's contention that Environment Protection Authority v Bituminous Products is a relevant case, but I note that the harm there did not seem to be of the level that occurred in this case, and I refer particularly to par 17 where Talbot J said: Although no actual harm may have been caused, or at least the actual harm was minimal, there was nevertheless some potential for harm to be caused by any discharge from the premises.

I think the present case is different. It is also a different case to the case to which Mr Kelly referred me which is Environment Protection Authority v Wyong Shire Council (Stein J, NSWLEC, 18 September 1996, unreported). That was a case where significant quantities (significant though not calculated) of oil and water escaped from a storage tank into a watercourse. His Honour imposed a fine of $18,750 and stated at p 5 as follows: In this respect there undoubtedly was harm to the immediate environment of the unnamed creek extending from the depot area to the culvert and beyond. Fortunately the catchment is small and the effects were localised. There was no harm to the environment beyond the immediate catchment. 27. I bear in mind the necessity to be even handed and to impose a fine which is consistent with fines generally imposed for offences of this kind. I think that, in the circumstances, taking into account all the facts I have enumerated, the appropriate penalty is $20,000. I propose therefore to make the following formal orders:

(1) The defendant is convicted of the offence with which it is charged. (2) The defendant is fined the sum of $20,000 to be paid to the Registrar of the Court within one month of today's date. (3) The defendant must pay the sum of $8,000 to the prosecutor being its costs as agreed. (4) The exhibits may be returned.

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