Environment Protection Authority v Virotec International Limited

Land and Environment Court (NSW)|2002-07-12|Before: Talbot J

CITATION : Environment Protection Authority v Virotec International Limited [2002] NSWLEC 110 PROSECUTOR Environment Protection Authority PARTIES : DEFENDANT Virotec International Limited FILE NUMBER(S) : 50074 of 2000 CORAM: Talbot J KEY ISSUES: Prosecution :- offence proved - whether change in company structure is mitigating factor - application of s 10 Crimes (Sentencing Procedure) Act 1999 to corporation Clean Waters Act 1970 s 16 Crimes (Sentencing Procedure) Act 1999 s 10, s 10(1)(a), s 10(1)(b), s 16, s 95, s 96 LEGISLATION CITED: Land and Environment Court Act 1979 Land and Environment Court Regulation 2000 Protection of the Environment Operations Act 1997 s 120(1), s 241, CASES CITED: Veen v The Queen (No. 2) (1987-1988) 164 CLR 465 DATES OF HEARING: 27/06/2002, 28/06/2002 DATE OF JUDGMENT: 07/12/2002

PROSECUTOR Mr G J Plath (Solicitor) SOLICITORS Environment Protection Authority LEGAL REPRESENTATIVES: DEFENDANT Mr A L Hill (Barrister) with Mr D A Caspersonn (Barrister) SOLICITORS Greg Judd & Associates

Environment Protection Authority Prosecutor v Virotec International Limited Defendant

On 14 December 2001 the Court determined that the defendant was guilty of the charge that on or about 3 November 1999 at or near Drake it committed an offence against s 120(1) of the Protection of the Environment Operations Act 1997 ("the PEO Act") in that it polluted waters. The Court found that compliance with a 1999 Mining Rehabilitation and Environmental Management Plan ("MREMP") did not provide a defence to a charge under s 120(1) of the PEO Act nor that alleged complicity of the Environment Protection Authority ("the EPA") in what occurred on 3 November 1999 could in any way constitute a defence. The Court found that although the MREMP was required as a condition of Mining Purposes Lease No. 259 under the mining legislation, it did not have the effect of avoiding the requirement for a licence to pollute any waters within the mine site.

It was established at the hearing that the mine at Drake went into a care and maintenance mode in 1990. The act of pollution which gave rise to the charge was the overflow of Waste Rock Dam No. 4 ("WRD 4") into a gully leading to Humphries Creek which discharges to Humphries Creek Dam. WRD 4 is the last in a series of dams constructed to collect run-off and lecheate from waste rock dumps. The run-off from the waste rock dumps contain cadmium, copper, iron, lead, manganese, sulphur and zinc. The water discharged from WRD 4 contained a number of heavy metals at concentrations likely to be rapidly lethal to most aquatic life. However, there is no evidence of actual environmental harm. The gully does not flow on a regular basis and is not regarded as providing habitat for aquatic life. By the time the discharge had flowed into Humphries Creek and thence to the dam, the dilution effect reduced the metal concentrations to safe levels for aquatic life. Approximately 150,000 tonnes of waste rock has been disposed into four separate stockpiles above the series of dams, including WRD 4.

The prosecutor asks the Court to take the following matters into account when assessing an appropriate penalty:- (1) Following the mine going into a care and maintenance phase in 1990 the defendant did not undertake any effective rehabilitation of the waste rock dumps;

(2) The company was more concerned about economic integrity and potential for the mine over any attempt to rehabilitate the waste rock dumps and to prevent the generation of contaminated waters from the site. It adopted a temporary solution by pumping from WRD 4 to a tailings dam in order to contain any rise in the level of WRD 4;

(3) The reason why the EPA, as the regulator, did not consider granting a licence to discharge water from the site is that the defendant was reluctant to prepare and implement a proper rehabilitation plan;

(4) The defendant was aware that the Humphries Creek catchment, including Humphries Creek Dam, was relatively pristine compared to the alternative catchment discharging from the site into Sawpit Creek;

(5) The attempts by the defendant to rely on the MREMP as an excuse for discharging to Humphries Creek Dam is a recent invention and was not raised until the commencement of these proceedings;

(6) Although the MREMP was designed for an operating mine, the company was still bound to comply with the law not to allow a discharge of polluted water to Humphries Creek Dam;

(7) The failure to undertake any effective rehabilitation of the waste rock dam shows a reluctance to undertake measures designed to improve the environmental management of the mine; and

The defendant, on the other hand, submits that the EPA was complicit in the way in which the mine site was managed after it went into care and maintenance or, at least, stood by and failed to intervene by providing any positive assistance, advice and direction.

In a letter to the Department of Mineral Resources ("the DMR") on 29 September 1999 the EPA did urge urgent action at the site to avoid any unnecessary environmental damage. However, in that letter the EPA also stated that the DMR is "now the prime regulatory agency responsible to control the site" .

Earlier in June 1999, the EPA had informed the company, then known as Tin Australia N.L. ("Tin Australia"), that urgent works were required on the tailings dam but that the EPA would not be prepared to issue a licence to allow discharges from the tailings dam until there was a commitment to water management strategies and a mine site remediation program. This letter confirmed the approach taken by the EPA in an earlier letter dated 5 March 1999, where it is made clear that the EPA had become concerned about the inflow of water into the tailings dam. Ultimately, following heavy rainfall in late 1999, it became necessary for controlled discharge to occur from the tailings dam to prevent overtopping and damage to the dam wall.

Following a suggestion by the DMR in 1994, the company installed a pump to transfer water from the bottom of WRD 4 to the tailings dam. Because of the heightened concerns in relation to the safety of the tailings dam wall, on about 22 October 1999 the pump, which pumped water from WRD 4 and discharged it to the tailings dam, was subsequently turned off.

The offence occurred on 3 November 1999. On 4 November 1999 the defendant's project manager turned the WRD 4 and toe dam pumps back on following a direction by the EPA. Pumping from WRD 4 continued on 6 November 1999, pursuant to a direction from an officer of the DMR. This was despite reluctance on the part of the defendant's employee to place more water into the tailings dam. This reluctance was based on his concern that the tailings dam would burst.

In summary, therefore, the events leading up to 3 November 1999 gave rise to concerns that the tailings dam wall would burst and overflow. This concern was heightened by significant unseasonable rainfall. The defendant's employee ceased pumping from WRD 4 to the tailings dam to limit the amount of water entering the tailings dam in circumstances where the EPA had refused to entertain a request to discharged water from the tailings dam.

Throughout the proceedings it was not made apparent to the Court why the EPA elected to prosecute the defendant for the relatively minor occurrence of the discharge from WRD 4 while not pursuing a more significant controlled, but nevertheless unauthorised, release from the tailings dam at approximately the same time.

The prosecutor has raised the antecedents of the company as an issue. It is claimed by the prosecutor that the history of the company and, in particular, its operations at Mount Carrington, Drake shows that it has not been a good corporate environmental citizen.

The company was originally known as Mount Carrington Mines N.L. ("Mount Carrington Mines") and was incorporated in June 1984. The physical extraction of ore commenced at the site in July 1988. In March 1990 operations ceased at Mount Carrington.

During May and June 1990 Mount Carrington Mines entered into a joint venture with CRA to explore the Drake area. The subject mine area was placed into care and maintenance.

In November 1991 the company changed its name to Norminco N.L. Receivers were appointed in March 1997. The receivers retired in May 1998 and the name of the company was again changed, this time to Tin Australia.

Tin Australia changed its name to Virotec International Limited ("Virotec") in February 2000.

It is apparent from the above outline of history that the corporate entity, the defendant in these proceedings, remains the same corporate entity which was first incorporated in June 1984 as Mount Carrington Mines.

In 1998 Tin Australia agreed to support a proposal by Southern Cross University ("SCU") to establish a mine site rehabilitation centre at Drake. At about the time the company changed its name to Virotec, the company provided SCU with money to start work on the remediation of the tailings dam.

The Court has heard evidence from Professor David McConchie, who became a non-executive director of Virotec on 10 July 2000. The Professor is also a shareholder in the company. Since 1988 he has become very familiar with the subject site having visited it on numerous occasions and carried out substantial fieldwork and general work at the mine.

Professor McConchie did not accept, when it was put to him in cross-examination, that there is commonality between the company formerly known as Mount Carrington Mines and Virotec notwithstanding that it is technically the same legal entity. In his eyes, it is not logical to regard the company as it is today as the same company because the majority shareholders and its operators are now different and the financial structure has changed.

Professor McConchie was present at the site during November 1999 when the crisis which gave rise to the charge occurred. He observed that the water in the tailings dam was about five centimetres below the top of the wall and there was grave danger of it overflowing. In his opinion, there was a grave risk of a total collapse of the tailings dam wall. It is common ground that would have been a catastrophe. In his view, it would have been grossly irresponsible, given the situation, to keep pumping the water from WRD 4 across to the tailings dam. In his opinion, the company had no other choice but to stop pumping from WRD 4 during the crisis situation. Professor McConchie says the only solution was a substantial release of water from the tailings dam to lower the level immediately. This was done.

Professor McConchie agrees that if the company had been able to rehabilitate the waste rock dumps then that could have accounted for 20 per cent of the water contamination problem on the site. However, although there had been many plans since 1989 to rehabilitate the waste rock dumps, in his opinion, none of them were practical.

Professor McConchie also provides an explanation of a new technology developed by him and others associated with SCU and commercial companies, including the defendant. The technology known as "bauxsol" uses neutralised bauxite refinery residue to treat acid mine drainage and tailings dam waters. The bauxite residue is colloquially called "red mud". Analytical work undertaken with his colleagues shows that the properties of the red mud make it suitable for use in environmental applications. Virotec agreed to enter into field trials of the technology at the Drake site. The toe dam below the tailings dam was used as a pilot scale trial before work started on the larger tailings dam. The tailings dam was treated with bauxsol from March 2000 to July 2000. Since the treatment of the tailings dam, flora and fauna have been observed around the dam for the first time since it was constructed.

Bauxsol slurry has also been used to treat the contaminated water sitting in the four waste rock dams. The treated water in the waste rock dams has then been pumped to the tailings dam system for release. There is now about two metres freeboard in the tailings dam. At present, the four waste rock dams are empty. They serve as a "buffer" to catch contaminated water that flows from the waste rock dumps which is then treated with red mud.

The company has spent approximately $1.1 million on treatment at the Mount Carrington site.

According to Professor McConchie, Virotec is the major sponsor of research in Engineering and Environmental Geochemistry at SCU and is currently sponsoring the following:- (a) Three Southern Cross University students per year with Honours Scholarships for 12 months. Total cost $21,000 per year

(b) Two research post-doctoral fellows, namely Dr Malcolm Clark and Dr Chuxia Lin, each for a term of two years. Total cost $220,000.

(d) Three undergraduate internships. Total cost $5,000.00 plus supervision and training.

(e) Two research assistants, Mr Tom Ryffel (B. App. Sc.) and Ms Sarah Pope (M. Sc.) and one specialist personal assistant with Ms Fiona Davies-McConchie (B. Sc.)(Hons. And a Ph.D candidate). Total cost about $180,000 per year.

The Mount Carrington mining site is to be used by SCU as a field laboratory. Further research is being conducted into the bauxsol technology with Virotec's support.

Despite agreeing in cross-examination that the rehabilitation of the waste rock dumps could eliminate the necessity for the waste rock dams, the Professor's opinion is that the only solution at the subject mining site is to develop a technology that will treat the water to a non-polluted level so that it can be released. In his view, bauxsol offers that solution for the tailings dam. Based on the water treatment system at Mount Carrington, Virotec has developed a Mines Operations Plan ("MOP"). The DMR approved the final draft of the MOP in December 2000. In about February 2001 the company was advised by the DMR that the EPA rejected the MOP. A further draft MOP to accommodate the EPA guidelines was submitted to the DMR for approval in about October 2001. There has not been any further developments in respect of the MOP at this stage.

On 17 June 1996 the company entered a plea of guilty to two charges heard by Stein J. There were two offences alleged under s 16 of the Clean Waters Act 1970. One of the charges related to a discharge of pollutants from the waste rock dams into Humphries Creek. The other charge related to a discharge from the toe dam. The company was convicted and fined the sum of $15,000 in respect of each offence and ordered to pay costs as agreed in the sum of $4,000. Relevant parts of an Agreed Statement of Facts and an uncontested statement of mitigation are reproduced at par 69 and par 70 of my judgment in these proceedings delivered on 14 December 2001. The evidence before Stein J was that the company had severe liquidity problems and had been kept solvent by two directors selling down their shareholding in the company to provide on-going funding for daily operations. It is submitted by Mr Hill, on behalf of the defendant, that the company, having regard to its financial circumstances at the time, had no alternative but to plead guilty. He refutes any suggestion that the failure to raise a defence in respect of the MREMP in 1996 shows that it is a recent invention.

The defendant contends that because the company has effectively been "born again" its previous association with the problems at the subject mine site, including the earlier prosecution proceedings heard before Stein J, can be disregarded or, presumably, given little or no weight. According to Mr Hill, it is appropriate that the company be regarded as a responsible and environmentally conscious corporation that participates in research and development towards building a modern and effective technique for the rehabilitation of abandoned mine sites, not only in New South Wales and Australia but also throughout the world. Although the present interests which control the company were indirectly involved at the time of the offence in November 1999, he claims they were not complicit in the earlier history extending from the mid-1980's up to that time and, in particular, when the site was allowed to go into care and maintenance. On any view, during that earlier period the company must be regarded as having little consideration for rehabilitating and preventing the escape of pollutants from the site to the adjacent waterways. Furthermore, the defendant says that the events leading up to the offence were affected and to a large extent dictated by exceptional weather conditions and the company's actions at that time were controlled and supervised by the principal regulatory authority, namely the DMR. Although the EPA took an interest in the site, it is submitted, on behalf of the defendant, that its role was as an observer and critic rather than an interventionalist.

Mr Hill further argues that Tin Australia could have walked away from the site and allowed the company to go into liquidation as a consequence of the financial difficulties experienced during the early 1990's. Instead of allowing that to occur the management revised the role of the company and developed a scheme and program for rehabilitating the site and treating polluted water so that there could be safe discharges from the tailings dam, including the contents transferred from WRD 4 after treatment. He, therefore, submits that the Court should consider applying s 10 of the Crimes (Sentencing Procedure) Act 1999 ("the Crimes (Sentencing Procedure) Act").

The Court perceives a threefold purpose for the course taken by the company in the most recent years:- (1) Development of the bauxsol process by field experimentation;

(2) Rehabilitation of the Drake site; and (3) Restoration of the economic viability of the site as a future mine.

No pollution event can be regarded as trivial. Nevertheless, for the purpose of s 10, the defendant is entitled to the benefit of the fact there were no adverse environmental consequences beyond the neutral effect on the immediate environs of WRD 4 in the gully below the dam.

It is not usual for a Court to lift the corporate veil in order to determine the character and antecedents of a company. However, the circumstances presented in this case are unusual. The evidence shows that the principals presently behind the company have changed the philosophical approach to the conduct of the business enterprise. In one sense, it could be only coincidental that the same corporate structure is before the Court on a second occasion and charged with a similar offence. Moreover, the control of the company at the date of sentencing is claimed to be distinct from that prevailing at the date of the offence.

Mr Hill urges the Court to treat the corporation as a young company which could suffer a severe loss of reputation as an environmentally sensitive and responsible company. The maintenance of that reputation is essential to the continued development and marketing of the bauxsol process. There is a superficial attraction in the submissions made by Mr Hill. Nevertheless, the Court must decide whether the fundamental principles of sentencing, including general and personal deterrence and even-handedness together with the period of time over which the site has remained in its degraded state, outweigh the positive elements of the defendant's submission. Any agreed solution to the ultimate remediation of the site, including the waste rock dumps, remains extant.

Having found the offence proved, s 10(1)(b) of the Crimes (Sentencing Procedure) Act allows the Court to discharge a person on condition they enter into a good behaviour bond.

Section 16 of the Crimes (Sentencing Procedure) Act makes special provision for a court to impose a fine on bodies corporate for offences punishable by imprisonment only. The legislature has not made an equivalent recognition in relation to the application of s 10(1)(b) to a corporation. It is probable, therefore, that it is open for the Court to release the company on a good behaviour bond even though parts of s 95 and s 96 of the Crimes (Sentencing Procedure) Act are referable only to non-corporate persons.

In order to overcome any prospect of doubt that the Court has the power to proceed in accordance with s 10(1)(b) in the case of a company, the same objective could perhaps be achieved by deferring the final determination of the question whether to enter a conviction and impose a penalty (if that ultimately becomes necessary) for a period of, say, 18 months. At the end of the period if the company has maintained good behaviour in an environmental context and shows a continuing commitment to remediation of a site the Court could make a final determination by finding the offence proved but nevertheless make an order that the relevant charge be dismissed pursuant to s 10(1)(a) of the Crimes (Sentencing Procedure) Act.

However, Mr Plath, on behalf of the EPA, makes a strong submission against the invoking of s 10, notwithstanding the evidence in respect of the new "red mud" technology, to the following effect:- i. it is not relevant to the objective gravity of the offence committed by the defendant on about 3 November 1999;

ii. despite the defendant's fortune increasing since it became involved in the 'red mud technology', the defendant has still not undertaken the necessary rehabilitation to prevent the continued contamination of run-off etc through the waste rock dump.

iii. The defendant's involvement in this 'technology', does not reflect on its character, it is purely a commercial venture as was its operation of the mine. It is not involved in this technology for some benevolent reason.

iv. If the court is of the view that its venture into 'red mud technology' is relevant to the defendant's character, given the defendant's priors and other factors listed above, very little weight should be given to it.

(i) The defendant has 2 prior convictions for pollute waters offences, one for an event of exactly the same nature as this offence;

(ii) The offence did not occur in extenuating circumstances. There was a long period of warning that if the defendant did not take remedial steps overtopping of the banks of the tailings dam c ould occur.

(iii) The offence was not trivial and was committed as a result of a deliberate decision made by the defendant.

There is no evidence to substantiate the extent of the capital or management restructuring of the company, which is alleged to have occurred in recent years. The evidence by Professor McConchie only assists the Court to understand his involvement without relating it to the total infrastructure of the company. Moreover, there is no evidence of a discernable effort to remedy the source of the acid water flow, namely the waste rock dumps. The Court has heard evidence about a proposed scheme involving vegetating the dumps and isolating them from inflow of surface water. This prima facie relatively simple option has not been adopted. Professor McConchie dismissed any proposed scheme put forward to date as not being practical. Elaboration about the lack of practicality has not been proffered. Rather than dismissing any action to remediate the waste rock dumps, the company should be looking to the way of solving the problem by means other than treating the consequences. The evidence is that the collection of the waste rock dumps run-off in the waste rock dams and the transfer of the contents of WRD 4 to the tailings dam was only ever intended as a temporary measure. The treatment of the liquid in WRD 4 by bauxsol methodology is yet another temporary solution whilever the waste rock dumps remain in place. The reluctance of the EPA to grant a formal licence to discharge from the dams is justified on the basis that the company has never come forward with a commitment to water management strategies and a mine site remediation program.

Therefore, preferring the submissions made on behalf of the prosecutor in all of the circumstances, the Court is not prepared to apply s 10 of the Crimes (Sentencing Procedure) Act.

Section 241 of the Protection of the Environment Operations Act 1997

The Court has already observed there was no actual environmental harm. Humphries Creek Dam is within the mine site. Some attempt has been made to suggest the dam is used for recreational purposes. The Court is not satisfied there has been any general public use of the dam and if there has been it is limited and without any formal arrangement in that respect.

It is not disputed that acid mine drainage kills plants and animals and inhibits bacterial decay of organic material in waters thereby allowing large quantities of organic matter to build up in streams. There is some substance in the defendant's submission that Humphries Creek Dam facilitates a polishing process. The prospect of polluted overflow from WRD 4 being carried beyond the mine site is remote.

Some of the practical measures available to prevent, abate or mitigate harm have been discussed earlier. Beyond remediation of the waste rock dumps by revegetation and isolation there is a prospect that the excess water could have been distributed by an effective spray irrigations system. The prosecutor submits the evidence discloses that the decision to turn off the WRD 4 pump transferring water to the tailings dam was not justified as the volume of water would have made little difference to the level in the tailings dam. The evidence supports this last submission.

The real prospect is that the defendant may have obtained a licence to allow limited discharge from the storages on the site if it had presented an effective water management and rehabilitation plan in response to the EPA's demands in that respect.

The whole system in place was based on the prospect of an uncontrolled general discharge of acid water from the waste rock dumps. It cannot, therefore, be suggested that the defendant could not have foreseen the prospect of harm likely to be caused by the commission of the offence. The defendant was at all times in control of the site and, to the extent already explained, had the capacity to make decisions which could have prevented the discharge.

The defendant has pleaded not guilty. The employee in charge of the site when the offence occurred did not co-operate with the enquiries made by EPA officers. Instead, he misled them by denying responsibility for some crucial actions.

Apart from the prospect of damage to its own reputation as a "born again" company, the defendant has not expressed remorse or contrition. Its primary position is either that the MREMP justified the action or that the EPA was in some way complicit in the whole affair. Neither case has been established to the Court's satisfaction.

There are really no extenuating circumstances which weigh in favour of the defendant except to the extent that it did not "walk away" from its responsibility for the site when receivers were appointed to Tin Australia, but instead it persevered with a programme designed to prevent any polluted discharge from the site. The programme coincidentally had the benefit of experimenting with and developing the new "red mud" technology for commercial gain.

The purpose of imposing a penalty includes an element of general as well as personal deterrence. The object of the legislation providing for the offence is to prevent pollution by persuading industry to adopt preventative measures. It is appropriate, therefore, that the defendant be required to pay a penalty by way of a fine which is sufficiently substantial to recognise these principles. The defendant is fortunate that no actual environmental harm has occurred and that the potential for harm outside the mine site was, in practical terms, remote.

The subsequent change in direction of the company's philosophy and objective is admirable to the extent that its commercial enterprise is focused on a process which offers some prospect of benefit to the welfare of the environment of the mine site and generally. Nevertheless, the company must be held accountable for its past actions. The earlier convictions must be considered in the light of the observation made by the High Court in Veen v The Queen (No. 2) (1987-1988) 164 CLR 465 at 477.

The maximum penalty for the offence is $250,000.

The Court has given deliberate consideration to all of the matters referred to throughout these reasons and has concluded that an appropriate penalty in the circumstances is a fine in the sum of $30,000.

It is also appropriate that an order be made that the defendant pay the prosecutor's costs to date, which exceed $100,000.

The formal orders of the Court are as follows:- (1) The Court finds the offence proved.

(2) The defendant is convicted. (3) The defendant is ordered to pay a penalty by way of a fine in the sum of $30,000. (4) The defendant is ordered to pay the prosecutor's costs in such sum as is agreed or determined in accordance with the Land and Environment Court Act 1979 and the Land and Environment Court Regulation 2000. (5) The exhibits may be returned.

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At a glance

Court

Decision date

Before

Source

Judgment (78 paragraphs)

Parties