Environmental Protection Authority v Caltex Refineries

Crimes (Sentencing Procedures) Act 1995 s22, s23 LEGISLATION CITED: Marine Pollution Act 1987 s27 Pollution Control Act 1970 s17D(9) Protection of the Environment Operations Act 1997 s64, s120, s124(b), s126, s129, s241

Axer Pty Ltd v Environment Protection Authority (1993) 113 LGERA 357; Camilleri's Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR ; Environment Protection Authority v BHP Steel (AIS) Pty Limited (2004) 132 LGERA 213; Environment Protection Authority v Bluescope Steel (AIS) Pty Limited [2004] NSWLEC 400; Environment Protection Authority v Burrangong Meat Processors Pty Limited [2003] NSWLEC 102; Environment Protection Authority v Cargill Australia Limited [2004] NSWLEC 334; CASES CITED: Environment Protection Authority v Illawarra Coke Company Pty Limited (2002) 118 LGERA 451; Environment Protection Authority v Nationwide Oil Pty Limited [2002] NSWLEC 201 ; Environment Protection Authority v Port Kembla Copper Pty Limited (2001) 115 LGERA 39; Environment Protection Authority v Rethmann Australia [2003] NSWLEC 351; Environment Protection Authority v Shoalhaven Starches Pty Limited [2003] NSWLEC 107 ; Environment Protection Authority v Yolarno [2004] NSWLEC 764 Environmental Services Pty Limited [2003] NSWLEC 351; R v Sharma (2002) 54 NSWLR 300; R v Thomson; R v Houlton (2000) 49 NSWLR 383

PROSECUTOR LEGAL REPRESENTATIVES: Mr T Howard instructed by the Environment Protection Authority DEFENDANT Mr C Leggat SC instructed by Freehills

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

50050 of 2005, 50051 of 2005 Environmental Protection Authority v Caltex Refineries (NSW) Pty Limited

JUDGMENT 1 Her Honour: Caltex Refineries NSW Pty Ltd ("the Defendant") is charged with one offence of causing air pollution contrary to s 124(b) of the Protection of the Environment Operations Act 1997 ("the POEO Act") in proceedings 50050 of 2005. The Defendant operates a large fuels refinery at Kurnell ("the premises"). The offence charged is that between 17 and 21 October 2004 at Kurnell, the Defendant operated plant on the premises in such a manner as to cause air pollution because of its failure to operate the plant in a proper and efficient manner. 2 The air pollution particularised in the summons is the emission of odour. The Defendant pleaded guilty to the offence at the first mention of the proceedings on 9 December 2005.

3 Section 124(b) states: The occupier of any premises who operates any plant in or on those premises in such a manner as to cause air pollution from those premises is guilty of an offence if the air pollution so caused, or any part of the air pollution so caused, is caused by the occupier's failure: … (b) to operate the plant in a proper and efficient manner. The maximum penalty applicable to offences under s 124(b) of the POEO Act is $250,000 for a corporation. Facts 4 The parties have provided an agreed statement of facts which sets out the complex industrial processes at the Defendant's Kurnell refinery which lead to the commission of this offence.

Foul condensate system 5 Foul condensate (or sour water) is a waste by-product of various processes at the refinery, generated when water comes into contact with sulphur rich liquid or gaseous hydrocarbon streams. Foul condensate looks like grey water and is characterised by its rotten egg odour. 6 At the premises foul condensate is stored in large fixed roof storage tanks 216 and 217 prior to being processed. These tanks are located in Area 1 of the refinery. They operate on a weir/loop seal system which allows excess oil to be skimmed from the surface of tank 216 and decanted to tank 218. Sometimes an aqueous layer, called a "water bottom", can build up below the oil layer in tank 218. If an unusual amount of water bottom builds up in tank 218, it may be transferred to a slops tank, such as tank 12, although such a transfer (from tank 218) is not a regular occurrence. 7 Foul condensate is processed in plant known as the "sour water stripper" ("SWS") (or the back up plant known as the "foul condensate unit" "FCU"). The SWS and FCU are essentially distillation columns, their primary function being to process foul condensate that has been generated as part of the oil refining process. The FCU is used when the SWS is being maintained or when there is excess foul condensate. It operates in much the same way as the SWS. 8 Foul condensate is first pumped from tanks 216 and 217 to the SWS accumulator. The accumulator incorporates a series of baffles and weirs which allow any residual oil to be separated out from the foul condensate. The foul condensate is then preheated and fed into the SWS column. The column uses steam to strip hydrogen sulphide and ammonia from the foul condensate. The mixture of gas and steam produced in the column is then routed to the waste gas incinerator. Incineration of hydrogen sulphide and ammonia produces, among other things, water vapour, sulphur oxides and nitrogen oxides. The stack serving the incinerator (as well as four other emission streams) is known as F10. The stripped foul condensate/water from the SWS column is then piped so that a proportion of it goes back into the crude oil feed lines while the majority goes to the desalters where it is used to strip salt from the crude oil.

Slop disposal system 9 Refinery products are transferred by submarine pipeline across Botany Bay from the premises (located on the southern shore of Botany Bay) to the Banksmeadow oil terminal (located on the northern shore of Botany Bay). 10 The individual products are transferred to the Banksmeadow oil terminal through the pipeline in "slugs". The interface between each slug flow produces "slop" (that is, mixed material which does not meet required product specifications). Following slug flows, slop is transferred by submarine pipeline (referred to as the "pipeway A" slop transfer line) from the Banksmeadow oil terminal back to the premises for reprocessing. If the slops have a higher water content, they are "wet" slops and transferred to the "wet" slop tank.

Transfer of foul condensate to slop system 11 For operational reasons it was decided to transfer the remnants of the batch of foul condensate, a water bottom in tank 218, from the foul condensate system to the slop system, where it could be initially stored and then disposed of via an alternative method. The remnants of the batch of foul condensate was the water bottom in tank 218. 12 Some hours prior to 8.15am on 17 October 2004, the water bottom was transferred from tank 218 to tank 12 ("the water bottom transfer"). Importantly, the transfer required the opening of a particular pipeline valve known as "jumpover valve A". Jumpover valve A links the pipeway "A" slop transfer line and the foul condensate system. It is located in plant 32 and is opened and closed manually. 13 The transfer of water bottom from tank 218 to tank 12 was non-routine. Accordingly, a one-off written instruction known as a "special work procedure" was prepared for the water bottom transfer which was to be carried out on 17 October 2004. The special work procedure was prepared by the operations specialist responsible for the transfer. It specifically required that jumpover valve A be open before commencing the transfer. and then required it to be closed after the transfer was completed in a general instruction to "place all lines & systems back to normal". 14 The water bottom transfer should have been done in accordance with the special work procedure entitled "T/F of Water Bottom Tk 218 to Tk 12" which was specifically prepared for that transfer.

15 Jumpover valve A did not come under the oil movement centre's ("OMC") control. Accordingly, the OMC could request that jumpover valve A be closed but it could not close the valve itself. After the water bottom transfer was completed, an OMC technician, Mr John Dodd, telephoned the technicians responsible for plant 32 and requested that jumpover valve A be closed. While the request was accepted it was not carried out. The failure by the Defendant's personnel to close jumpover valve A was a mistake.

Wet slop transfer 16 At 8.15am on 17 October 2004 Caltex commenced a transfer of 550kl of wet slop from its Banksmeadow Terminal to wet slop tank 11 at the premises. The transfer was completed by 2.20pm on 17 October 2004. The slops were intended to be transferred exclusively to tank 11 but, owing to the fact that jumpover valve A had been mistakenly left open after the water bottom transfer, about half of the slops accidentally flowed to foul condensate tank 216. Because the OMC (which manages transfers of this type) monitored a steady rise in tank 11 throughout the slops transfer, they did not suspect that some of the slops transfer was mistakenly flowing to tank 216. 17 Tank 216 has a capacity of 840kL. For four and a half hours from 8.15am the level in tank 216 rose at an unmanageable rate of 10 per cent or 70kL per hour. On noticing the rapid rise in level in tank 216, the Area 3 technician responsible for monitoring the tank incrementally increased the feed rate from tank 216 to the SWS. He did this in order to try and manage the rising level of tank 216, unaware that slop (not foul condensate) was entering tank 216 and thus containment of the material entering tank 216 was beyond his control. From 9.19am to 9.45am the technician increased the feed rate from tank 216 to the SWS in steps from 16 to 22m3/h. At 12.05pm the technician again increased the feed rate in steps from 22 to 32m3/h. 18 Between approximately 1pm and 2.20pm tank 216 overflowed. As a result, approximately 100kl of slop and foul condensate overflowed into the tank bund surrounding tanks 216, 217 and 218 ("the overflow liquid"). The overflow liquid was isolated in the tank bund and did not reach the main refinery oily water sewers or the waste water treatment plant. 19 A high level alarm set on tank 216 to detect overflows was set at a rate that did not detect this overflow. Black smoke was emitted from the furnace because slop had entered the SWS causing material to be burnt which caused black smoke. This was the first indication that there was a problem in the plant and action was taken within minutes of seeing the smoke to stop its emission. The smoke lasted for about nine minutes.

Cause of incident 20 The cause of the incident is described in the statement of agreed facts as: (i) the failure to close jumpover valve A during the transfer of the water bottom from tank 218 to tank 12, (ii) the transfer of slops from the Banksmeadow Terminal to Tank 11 when the jumpover valve A was open causing slops to flow into the foul condensate system including tank 216, and (iii) a technician's failure to realise that the rate of rise in tank 216 was unmanageable.

Complaints 21 There were a number of complaints about the odour and/or smoke from numerous residents of Kurnell, to the Environment Protection Authority ("the EPA") and the Defendant which commenced at 10.17 pm on 17 October 2004 and continued until 7.20 pm on 21 October 2004. Thirty-one people made 38 complaints. Physical symptoms complained of were nausea, headaches and diarrohea. A few complainants suffered from shortness of breath and tightness in the chest and exacerbated asthma symptoms.

22 Specifically, the agreed statement of facts states that in the early afternoon of 17 October 2004, some nearby residents (Andrew Holbrook and Lisa Griffiths) took action against a smell described by them as a "rotten egg" smell, which made them nauseous, by closing all doors and windows in an attempt to exclude the odour from the house. Other residents (Angela Williams, Donna East and Carolyn Howard) saw smoke and complained of a similar smell on this occasion. In the evening of the same day, another resident (Danielle McKenzie) who was pregnant at the time became concerned about the strong smell and contacted the Caltex hotline.

23 On 18 October 2004, in the early morning, a resident (Carolyn Howard) contacted the Defendant by telephone, concerned about the strong offensive odour she smelt and the potential effect this may have on her grandchild who was staying with her at the time. The Defendant advised the resident to remove the child from the house. Later that same morning the daughter of another resident (Donna East) complained that the odour was so strong it made her feel sick. Ms East herself complained that she could taste the odour in her mouth. Around the same time, Pamela Rugless closed the doors and windows and turned the air conditioning on in her house to lessen the offensive odour. Complaints were made by various people in the vicinity from 6am to after 5pm on that occasion.

24 On 19 October 2005, seven residents complained the odour persisted and Pamela Rugless, an asthmatic, stated that she had to continually use her asthma nebuliser in order to breathe. At about 10am on that day Ms Rugless left her house and stayed with her daughter in Cronulla for two nights. Marion Gerard kept her eldest son home from school that day because of an asthma attack she attributed to the odours from the Defendant. Janice Wentworth-Perry, also an asthmatic, stated that the odours that day made her feel tight in the chest, and this was accompanied by a feeling of nausea. Carol Calverly stated she experienced a lingering migraine that same day.

25 On 20 October 2004, Pamela Rugless stated that the odour persisted at her home, and she suffered diarrhoea, vomiting and continued asthma symptoms.

26 On the 21 October 2004, Pamela Rugless stated that at about midday the odour returned, and that she felt ill all day and had difficulty breathing. She made a complaint to the EPA at 12.40pm. Action taken to prevent recurrence of incident 27 Since the incident occurred, the Defendant has made the following changes to the way OMC work procedures are written and signed off: (i) Procedures must include a comprehensive checklist of specific steps that need to be taken, including each step required to reverse a previous step. (ii) When preparing procedures that involve separate areas of the refinery, the procedure is prepared with input from representatives of all relevant areas. (iii) Where the procedure involves any valving that is in another area the Area 1 shift manager (who is responsible for the OMC) must check and sign off that the valve is in the correct position. The reason the Area 1 shift manager does this is because the OMC is the area that links other areas of the refinery together, via piping and tankage. 28 The Defendant has also developed a tool to gauge the rate of rise or fall in tanks 216 and 217 in terms of kL/hr for display on the Distributor Control System (DCS). The DCS is the interface used by the operators to monitor and control refinery operations. At the time of the incident, the only tank information available to the operator monitoring the SWS was the unused capacity of tanks 216 and 217, expressed as a percentage. The new rate of rise tool was developed and implemented in March 2005 and is now in use on the DCS together with the percentage tool.

Analysis of environmental harm 29 The Prosecutor relied on the evidence of a consultant physician Dr Kenyon, and the Defendant relied on the evidence of an environmental chemist Dr Howell. They prepared a joint statement of matters about which they agreed and disagreed, a useful process in which the Defendant fully cooperated. They agreed that the symptoms experienced by residents resulted from the foul condensate spill on 17 October 2004 and that the psychological impact of the offensive odour could cause the physical reactions reported. They disagreed on whether some of the adverse physical reactions were the result of exposure to toxins in the odour, that is, as to whether there were toxicological effects. Dr Kenyon stated: … (ii) A second type of health effect experienced by the residents is most likely to be due to the action of the chemical components on tissues, particularly mucous membranes, eg, the eyes, the throat and respiratory tract. Examples of such effects are asthma attacks, irritated eyes and sore throats. These are regarded as true toxicological effects. (iii) It is my opinion that the health effects suffered by Marion Gerard's son (asthma attack and home from school), Pamela Rugless (asthma attack and away from home two nights), Janice Wentworth-Perry (watery eyes and asthma symptoms) and Caroline Howard (sinusitis) are more likely than not to be caused by the action of hydrogen sulphide gas, or other contaminant gases, on mucous membrane tissues. (iv) In the absence of any quantitative data on the composition of the spilt material, I rely more heavily on the residents' reports of health effects and conclude that it is probable that the concentrations of hydrogen sulphide in the community were sufficient to have caused these effects by a toxicological mechanism, that is, by the direct action of hydrogen sulphide (and other gases) on tissue. 30 Dr Howell stated at par 25: … (ii) Highly odorous compounds have been shown to cause a range of symptoms including those described in the residents' complaints without having a direct toxicological effect on the tissue. (iii) The specific circumstances of the incident, namely the distance from the residents and the actions taken to reduce the rate of volatilisation by Caltex are such that it is more likely that the concentrations of hydrogen sulphide were less than those associated with direct toxic effects but greater than the odour threshold.

Dr Howell also stated in oral evidence that he would defer to Dr Kenyon on matters related to the physical impacts on residents. Evidence in relation to risk assessment 31 The Prosecutor relied on the evidence of Mr Court, chemical engineer and consultant to industry, in relation to issues of risk assessment in industrial processes. The Defendant relied on Mr Knight, the Defendant's Risk Superintendent. He took up this position after the date of the offence. A joint report was prepared by these two experts which identified those matters about which they agreed and disagreed, a useful process in which the Defendant fully cooperated. That report identified a number of issues.

(i) Whether closure of valve A after the transfer is specifically called for in Non-routine Uncontrolled Document "T/f of Water Bottom Tk218 to Tk12" 32 Mr Knight advises that the need to close valve A is included in the general requirement of Task 6, second set of instructions, and that a refinery technician made a phone call for valve A to be closed. Mr Court however considers that Task 6, second set of instructions is not well drafted and should have been explicit as to the operation of valves and responsibilities for this. The document relevantly states:

first set of instructions When Plt2 SWS is shut down, & Plt 45 SWS is on line, carry out the following: …5 (OMC) Check the Plt 2 SWS feed line & jumpover to slop is open… second set of instructions When the transfer is complete… …6 (OMC & SEPS) Place all lines & systems back to normal. (ii) Safety Performance Self Assessment (SPSA) procedure for risk assessment for the non-routine transfer of water bottom tank 218 to tank 12 33 Mr Knight advised that non-routine uncontrolled procedures are written by experienced and knowledgeable operators in specialist roles. He stated the team of refinery technicians responsible for completing the task and reviewing the procedure are expected to raise any issues of concern with the author. The technicians would be expected to perform SPSAs and apply their knowledge and experience as they complete the task. Further, the SPSA is an undocumented process that is intended to make the person think about, and act on, the hazards or risks associated with each task. Mr Knight considered the potential downstream consequences of the failure to close valves are outside the scope of the generation and review of non-routine uncontrolled documents. 34 On the other hand, Mr Court considered the SPSA process is inadequate in itself for the purpose of preventing incidents such as occurred, because: (a) it is not documented - an impediment to thoroughness in assessment; and (b) it is unlikely to identify cascading-type problems such as occurred, that is, the transfer of slops from Banksmeadow to tank 11 resulted in the flow of slops to the SWS line via the open valve A which resulted in overloading the SWS plant producing black smoke and overflow of the foul condensate from tank 216 causing odours, (c) there is no evidence that it was conducted before the transfer from tank 218 to tank 12, (d) the SPSA, if performed prior to the transfer from tank 218 to tank 12 is not adequate, even taken with the RFC process, to assess the risk of the incident which occurred since it involved a cascading-type incident having downstream consequences.

(iii) Whether the RFC procedure assessed the risks involved in the non-routine transfer adequately 35 Mr Knight advised that the RFC process is a formal review and approval process that is intended to focus on identifying and addressing new risks produced from the change and to ensure that all changes are documented. He further stated that the RFC for the transfer of water bottoms from tank 218 to tank 12 used recognised risk assessment techniques and identified the need for a non-routine uncontrolled procedure. The potential downstream consequences of failure to close an existing valve is not a new risk associated with a change and therefore outside the scope of the RFC. 36 Mr Knight considered that there would have been some discussion of the method of transfer during the RFC, based on: (a) the need to consider if the change is technically possible during Pre-Approval, (b) his involvement with other refinery RFCs and (c) the checklists used in the Health and Safety Evaluation 37 Mr Court however considered the RFC process was inadequate because: (a) Some documented process for the assessment of risk for the transfer of foul condensate to tank 12 was warranted, since it involved interconnecting the main SWS line and the slops line, systems which are not normally connected and therefore subject to greater risk by the interconnection than experienced in normal operation. (b) It was general rather than specific in its consideration of how transfers of foul condensate would be made. (c) It did not consider the risks involved in interconnecting the SWS feed line and the slops line, although it did consider the emission of odour from tank 12 in some detail; an effect of the RFC was to highlight in the Non-routine Uncontrolled Document the need to preserve the "sponge layer" in tank 12 to control odours. (d) It specifically did not call for a HAZOP or equivalent analysis of the transfer operation. (e) It was not oriented to investigation of cascade-type incidents such as occurred. (f) There was no requirement to tag and sign valves in the tank 218 to tank 12 transfer, as would apply for a safety procedure. 38 Mr Court could not form an opinion on the adequacy of the process as identified by Mr Knight as there was no evidence of the discussion Mr Knight considered would have occurred. (iv) Risk assessment process generally 39 There was disagreement about whether the existing risk analysis procedures in place were adequate for the refinery in general. Overall, Mr Knight stated that Caltex's risk assessment processes were industry best practice world wide and that there was no legal obligation to undertake any greater level of assessment. Mr Court disagreed that the procedures in place were best practice. He considered that had appropriate systems been in place then the multiple causes giving rise to this offence may have been prevented as multiple defences would have been in place to protect against errors such as the failure to close jumpover valve A, and the failure to install adequate monitors on tanks to warn of overflow. Mr Court stated that a Process Hazard Analysis (PHA) should have been carried out promptly after the issue of the Australian Standard for Risk Management AS/NZS 4369:1999.

40 Section 241 factors to be taken into consideration in imposing a penalty (so far as they are relevant):

(a) the extent of the harm caused or likely to be caused to the environment by the commission of the offence

Prosecutor's submissions 41 The Prosecutor argued that the environmental harm caused was very serious given the physical impacts on a number of Kurnell residents, albeit of short duration. The evidence of Dr Kenyon, consultant physician, should be preferred to that of Dr Howell, an industrial chemist. Dr Kenyon's evidence suggests the impacts were serious. Dr Howell agreed in cross-examination that he deferred to Dr Kenyon in relation to the physical symptoms reported by residents.

42 On a plea of guilty the Prosecutor has to prove matters adverse to the Defendant beyond reasonable doubt; R v Olbrich (1999) 199 CLR 270. The Prosecutor accepted its onus of proof under Olbrich but argued that it had proved beyond reasonable doubt actual harm to residents in relation to psychological impacts and that toxicological effects were likely to have been caused. Defendant's submissions 43 Dr Howell considered it was unlikely there was sufficient concentration of chemicals in the odour to cause an actual physical reaction, that is, a toxicological effect (see par 30). Applying the onus required of the Prosecutor in Olbrich there was not proof beyond reasonable doubt that there was a toxicological effect caused or likely to be caused to residents. This suggests the extent of the environmental harm is not as serious as the Prosecutor argued. The Defendant admitted that the offensive odour caused suffering to residents, which was not long lasting. No one is reported as requiring hospitalisation or medical treatment as a result of the incident. Finding 44 Dr Kenyon's evidence (par 29) is that the health effects of some complainants were more likely than not to be caused by the action of certain gases on mucous membrane tissues. Dr Howell considered it was more likely that chemical concentrations were less than those associated with direct toxic effects. In the absence of data to analyse concerning the concentration of chemicals it is difficult for either expert to be definitive on this issue. However Dr Kenyon stated that he relied on the residents' reports of health effects to conclude that it was more probable that these were toxicological impacts on human tissue. 45 It is clear the Prosecutor has proved there was a psychological impact on numerous residents which caused immediate and unpleasant physical reactions. The evidence does not demonstrate to the requisite standard of proof that toxicological effects were actually caused nor does the Prosecutor argue that. In the absence of actual data about the composition of the gas causing the odour has the Prosecutor discharged the onus it bears of proving there was a likelihood of actual toxicological harm beyond reasonable doubt? Dr Kenyon considered it was more probable than not that some of the physical symptoms were caused by a toxicological impact based on the reports of the residents' complaints. I do not accept that the Prosecutor has proved beyond reasonable doubt by the evidence of Dr Kenyon that there was a likelihood that toxicological impacts were caused in light of that evidence. The harm caused is reasonably serious but short term with no evidence of long lasting impacts and no evidence that medical assistance was sought by the complainants. (b) the practical measures that may be taken to prevent, control, abate or mitigate that harm Prosecutor's submissions 46 The Prosecutor submitted there were a number of practical measures that could have been taken including physical inspection of jumpover valve A to ensure it was closed after the transfer of foul condensate from tank 218 had taken place. Defendant's submissions 47 The first cause of the incident was the failure by a Caltex technician to close jumpover valve A despite a specific request to do so. 48 The Defendant submitted that as there were 23,000 valves at the Kurnell refinery it was difficult to implement additional measures such as physical inspection. In this case a specific telephone call was made to ask that the jumpover valve A be closed after the transfer procedure but this was not done. It is not practical to expect a physical inspection of every valve.

49 Measures were undertaken immediately after the incident to reduce the impact of the spill by covering the spill with sand. Finding 50 Clearly there were practical measures which could have been taken to prevent the incident, in relation to the failure to close jumpover valve A and the failure to have an adequate warning system in place in relation to the overfilling of tank 216. 51 I note that in the statement of agreed facts, set out at par 27 and 28, a number of measures have been implemented since the offence in terms of a procedure requiring physical checking of valves and additional monitoring equipment on tanks. The Defendant's counsel suggested these were in part a response to the prosecution rather than practicable measures given the size of the Defendant's operation. 52 The Defendant runs a large complex industrial plant and should have in place appropriate measures to ensure this kind of offence does not take place. Particularly where non-routine procedures are undertaken, the measures now implemented to prevent a recurrence appear reasonable. I do not accept that these are unduly onerous given the nature of the operation, the responsibility of the Defendant to ensure that pollution does not escape from the refinery, and that the Defendant is a large well resourced corporation. (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 53 The Defendant accepted that it could have reasonably foreseen the harm caused as a result of the offence. (d) the extent to which the person who committed the offence had control over the causes that gave rise to the offence 54 The joint report of the experts on risk assessment identified a number of areas of disagreement in relation to risk assessment processes as set out at par 31 - 39. The processes undertaken by the Defendant were a request for change (RFC) process and Safety Performance Self Assessment ("SPSA") process. The only written procedure produced was the Non-Routine Uncontrolled Document "T/F of Water Bottom Tk218 to Tk12". See par 14, 32. Prosecutor's submissions 55 The Prosecutor argued that the Defendant had inadequate risk assessment processes in place which had resulted in a failure to have proper procedures to identify particular risk areas in the conduct of this non-routine procedure. The only written evidence of any risk assessment is the special work procedure. That document contains no risk assessment processes. The direction in the second set of instructions (see par 32) to "return everything to normal" is inadequate as it lacks specificity and does not specify what is "normal". The Prosecutor relied on the evidence of Mr Court, set out above in relation to (ii) and (iii) (par 34, 37, 38), to demonstrate the inadequacies of the risk assessment processes of the Defendant in relation to the particular process undertaken and, at (iv) (par 34), partly generally at the refinery.

Defendant's submissions 56 The Defendant admitted that it had control of the causes giving rise to the offence but argued that it had in place risk assessment techniques aimed at minimising the risk of such an incident. Mr Knight gave evidence that he believes there would have been discussion of risk in the SPSA and RFC as set out above at par 33 and 35. He also gave evidence that the risk assessment processes generally at the refinery were adequate; par 39.

Finding (i) non-routine uncontrolled document (see par 32 above) 57 I accept the evidence of Mr Court that the written instructions for the non-routine transfer were inadequate given the non-routine process undertaken. The special work procedure document lacks specificity and its instructions to "return everything to normal" are ill-defined. Reliance on a telephone call from one area of operation (OMC) to another area over which it does not have direct physical control is inadequate. The new procedures now implemented (see par 27), which require physical checking confirm this, as I have already noted above.

(ii), (iii) - RFC/SPSA processes (see par 33 - 38 above) 58 Mr Knight was not directly involved in the processes the RFC and SPSA about which he was giving evidence, having assumed his position after the offence dates. He stated that the purpose of the RFC and the SPSA is to identify risks for the transfer of the water bottom from tank 218 to tank 12 and a written procedure was required as a result, hence the special work procedure document. I have held this document is inadequate. As identified by Mr Court, there is otherwise no evidence of what risk assessment analysis was undertaken in the RFC and SPSA processes which can be considered. 59 The Prosecutor bears the onus of proving beyond reasonable doubt that the Defendant's risk assessment processes are inadequate. I consider that based on the evidence of Mr Court there are inadequacies in the Defendant's processes in relation to the non-routine procedure which gave rise to this offence, as he outlines in par 34, 37 and 38. In weighing up this evidence with that given by Mr Knight about processes he was not involved in, I am unable to conclude that these processes were adequate for a non-routine procedure undertaken in a large, complex refinery operation given the lack of specific evidence about these. (iv) risk assessment generally (see par 39 above) 60 The Defendant argued in part that the refinery's processes were best practice and that there was no legal obligation to do more. The Defendant's practices accord with best practice worldwide according to the evidence of Mr Knight. Mr Court disagrees with that opinion and gives extensive reasons why, including identifying a specific procedure, PHA (see par 39) which should have been undertaken. Given the disagreement between the experts on the adequacy of the risk assessment processes generally at the refinery and the necessity for the Prosecutor to discharge the onus of proof beyond reasonable doubt, I make no finding here on this issue but make the following observations. I do not consider the argument of the Defendant that it was not legally obliged to undertake any further risk assessment such as a PHA procedure as persuasive. There is a responsibility on operators of large industrial plant to undertake risk assessment processes adequate to their operation. Whether such procedures are specifically required by law is an inadequate measure of their necessity. It is common for there to be industry codes of practice or national/international standards which are adopted widely within an industry without necessarily being required by law. Mr Court referred to the Australian Standard for Risk Management AS/NZS 4369:1999 as one example of this.

(e) whether, in committing the offence, the person was complying with orders from an employer or supervising employee. 61 Not relevant. Consideration of penalty 62 The Prosecutor submitted this was a very serious matter in the upper end of the statutory range and the result of a simple foreseeable error, in that jumpover valve A was left open in the first instance. I have held that the Prosecutor has demonstrated reasonably serious short term environmental harm and inadequate risk assessment processes in relation to the non-routine procedure which resulted in jumpover valve A being open. 63 The Defendant argued its criminality was low because the offence occurred only because three unlikely events occurred together, the technician ignoring a specific request to close the jumpover A, being a specific oral request made in a telephone call by another technician, the one-off transfer caused there to be an open pipeline between the Banksmeadow terminal and tank 216 and a technician monitoring tank 216 acted in an aberrant and inappropriate manner by failing over a three and a half hour period to alert his supervisor to the excessive rate of flow into the tank. The Defendant argued that the offence was properly characterised as being at the low end of the mid-range, that is 30 per cent of the maximum penalty.

Gravity of the crime Culpability 64 Regard must be had to the culpability of the Defendant and the individual circumstance which led to the commission of the offence. These have been considered in relation to the s 241 matters. The sentence must be proportional to the gravity of the crime.

65 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: see Kirby P, Camilleri's Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683 at 698 and 701 respectively: 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… ..the more serious the lasting environmental harm involved the more serious the offence and, ordinarily, the higher the penalty. 66 The matter is serious given the factors I have referred to in s 241 in terms of harm to the environment, that the offence was reasonably foreseeable and that the Defendant had control over the causes of the offence.

General deterrence 67 It is recognised that sentencing under the environment protection legislation must embrace powerful considerations of general deterrence: see Axer Pty Ltd v Environment Protection Authority (1993) 113 LGERA 357, per Badgery-Parker J at 367. In Axer, Mahoney JA stated at 359: 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.

Specific deterrence 68 The statement of agreed facts outlines a large number of prior offences committed by the Defendant, starting from offences committed in 1967 through to the present offence in 2004. While there are numerous prior environmental offences the Prosecutor has not sought to argue that specific deterrence is a relevant sentencing consideration. Evenhandedness 69 This is the first prosecution as far as the Prosecutor is aware under s 124(b) of the POEO Act. There have been a number of Tier 2 prosecutions under other sections of that Act in relation to odour, particularly s 64, s 126, and s 129 and these can be considered as comparable. Section 64(1) concerns offences for breach of an environmental protection licence. While the Defendant is not charged under that section it is the holder of an environment protection licence for the refinery site. Due to an administrative error the particular area the subject of this offence was not included in the transfer of that licence to the Defendant, however subsequent to the incident the Defendant lodged an application for the transfer of the licence with the EPA and is now the holder of the licence; see SOAF paragraphs 14-15. This is presumably why s 124(b) was proceeded under rather than other sections of the POEO Act.

70 The Prosecutor provided a table of cases of prosecutions for odour offences under these sections. Ten cases have been determined where the maximum penalty was $250,000; one case under s 126 of the Act (Environment Protection Authority v Yolarno [2004] NSWLEC 764 and 765); four cases under s 129(1) of the Act (Environment Protection Authority v Cargill Australia Limited [2004] NSWLEC 334; Environment Protection Authority v Burrangong Meat Processors Pty Limited [2003] NSWLEC 102; Environment Protection Authority v Nationwide Oil Pty Limited [2002] NSWLEC 201 and Environment Protection Authority v Illawarra Coke Company Pty Limited (2002) 118 LGERA 451); and five cases under s 64 of the Act (Environment Protection Authority v Bluescope Steel (AIS) Pty Limited [2004] NSWLEC 400; Environment Protection Authority v BHP Steel (AIS) Pty Limited (2004) 132 LGERA 213; Environment Protection Authority v Rethmann Australia Environmental Services Pty Limited [2003] NSWLEC 351; Environment Protection Authority v Shoalhaven Starches Pty Limited [2003] NSWLEC 107 and Environment Protection Authority v Port Kembla Copper Pty Limited (2001) 115 LGERA 39). Before discount, these cases suggest a wide penalty range of approximately $50,000 to $125,000 for more serious offences.

71 There is some assistance to the Court in reviewing some of these matters. In Environment Protection Authority v Illawarra Coke Company (2002), three charges were brought against the defendant under s 129(1) of the POEO Act for causing or permitting the emission of an offensive odour from occupied premises at which a scheduled activity is carried out under authority conferred by a license. On three separate occasions, the EPA received complaints from the public about odours emanating from the works. There was evidence of strong odours. There was a definite link between the odours and adverse health and lifestyle effects [34]. On one of the days where the emission of the odour was complained of, people at a nearby school suffered from the known physical effects of the odour, such as headaches, itchy noses, eyes and throats, and nausea [32]. The defendant pleaded guilty to all three charges, and out of a maximum penalty of $250,000, was fined $55,000 for each respective offence, reduced for mitigating circumstances. The defendant had a previous record of conviction, and was found to have some measure of control over the events which occurred [44].

72 In 2003, in Environment Protection Authority v Rethmann two charges were brought against the defendant under s64(1) of the POEO Act, in that it contravened a condition of an environment protection license. Condition 4.01.1 stated: "Licensed activities must be carried out in a competent manner." The license authorised the defendant to transport hazardous, industrial and waste materials in nominated vehicles. On 15 February 2002 an employee of the defendant collected wastewater using a vacuum pump. An odour was detected coming from the truck which was filled with this wastewater, leading eventually to the evacuation of the whole premises. The same employee later on the same day also collected wastewater from a different premises and again, offensive odour was released. Some people on the premises were seriously affected by headaches, nausea and other illnesses, and were admitted to hospital for tests. It was found by Talbot J at [42] that the defendant was vicariously liable for this employee. The offence was a serious one. Actual harm was suffered by several people. It was found the defendant failed to investigate the cause of the offence, was late in co-operating with the prosecutor and did not respond adequately with measures designed to prevent future offences occurring. Out of a maximum penalty of $250,000 per offence, an amount of $100,000 was awarded for each charge before discount, which became $20,000 and $50,000 respectively after discount for mitigating circumstances. That offence involved more serious environmental harm than the matter before me.

73 In Environment Protection Authority v Shoalhaven Starches (2003), the defendant pleaded guilty to two separate charges alleging contravention of a condition of an environment protection licence. Each charge was bought under s 64(1) of the POEO Act. The contraventions related to the mismanagement of irrigation areas, and the ponding of wastewater, which resulted in very strong odours being noticed on two separate occasions. Pearlman J found at [27] that environmental harm was undoubtedly caused in both offences. There was evidence from neighbouring residents of the impacts of the odours. Numerous people felt nauseous, and had to close windows and doors, and switch on air-conditioning. It was found at [32] that alternative practical measures, such as storing wastewater as opposed to irrigating it, could have been done by the defendant. It was held at [35] that the harm caused was reasonably foreseeable. Pearlman J emphasised the prior convictions of the defendant at [41] and [46]. Between 1978 and 2001, it had been convicted of 16 environmental offences, nine of which were for contravention of a licence condition and two of which related to odour offences. At [49], Pearlman J also emphasised the fact that contravention of a pollution licence involves a breach of public trust. She stated at [49] that:

The defendant is entrusted, by its pollution licence, to pollute and that places it in a special category so far as other members of the public are concerned. But that permission is conditional upon the standards and limits specified in the pollution licence… 74 It was held at [61] that the offences were serious, there was actual physical harm, they were not isolated incidents and the offences were indicative of a "pattern of non-compliance with licence conditions". Therefore, 50% of the maximum penalty, or $125,000, was applied prior to discount for each offence. A discount of 20% was then applied to each penalty for the plea of guilty, in light of mitigating factors, reducing each amount to $100,000. Applying the totality principle, the first offence remained at $100,000, and the second offence was reduced to $60,000.

75 In 2004, in EPA v BlueScope Steel, Bluescope Steel was charged with an offence contrary to s64(1) of the POEO Act, for failure to comply with a license condition. It failed to maintain an electrical circuit breaker in a proper and efficient condition, thereby causing severe voltage disturbance. Because of the resulting power supply blackout, the exhaust machines which draw raw gas away from the coke oven batteries failed. This meant that gas was discharged into the atmosphere from various coke ovens batteries during the space of about four hours. Expert evidence on the environmental/health harm caused by the emissions was that no associated health effect was caused the gas. People with a sensitivity to atmospheric contaminants, such as asthma sufferers, may have experienced acute respiratory effect but there was no evidence of that having occurred. It was found there were various things which could have been done to avoid the incident. It was held by Talbot J at [31] that although the extent of the harm was limited to a visual impact, and adverse health affects were unlikely, the environment was still degraded. The measures taken after the incident show there were practical measures available to the defendant to prevent the incident [32]. A contravention of a condition of a licence is serious [35]. It does not matter that there is no actual environmental harm. The holder of a licence has a heightened responsibility to carry on its operations within the parameters set by the licence [35]. Although the offence was not in the most serious category, nor was it trivial or inconsequential [63]. The offence was unintended but not unforeseen [63]. Specific and general deterrence was taken into account, and the penalty given was $70,000 after discount for mitigating factors. That case has a number of similarities with the matter before me although the environmental harm in this matter is more severe.

76 In reviewing these cases this offence is not the most serious matter in terms of environmental harm caused and the circumstances of this offence do not display a higher level of culpability than any of the cases considered above. I do not consider a penalty greater than that awarded to date for the most serious offences ($125,000) is warranted.

77 The agreed statement of facts records 25 prior environmental offences for which the Defendant as now or previously constituted has been convicted in this Court or the Local Court. The Prosecutor submitted that only the last three offences, which were before this Court, should be given weight. These were: (i) An offence under s 27 of the Marine Pollution Act 1987. The Defendant was fined $20,000 and ordered to pay costs by this Court. (ii) An offence under s 17D(9) of the Pollution Control Act 1970. The Defendant committed an offence on 7 January 1997 was fined $25,000 and ordered to pay costs. (iii) An offence under s 120 of the POEO Act committed in September 2004. The Defendant was fined $45,000 and ordered to pay legal costs. The Defendant admits these offences were all committed at the Kurnell refinery. 78 In Shoalhaven Starches the Defendant's extensive prior record of offences was taken into account fully as a relevant factor to consider on penalty. In that case two of the prior convictions were related to odour offences. In this case there are no previous odour convictions. In light of the Prosecutor's submissions that only the last three convictions should be considered relevant I will not increase the penalty to the extent I otherwise might have in light of the lengthy history of minor and less minor environmental offences committed by this Defendant.

Penalty 79 In my opinion, the circumstances of the offence warrant that a penalty of $110,000, representing 44% of the maximum penalty, should be imposed.

Mitigating factors 80 There are a number of mitigating factors that should be taken into account to reduce that penalty. The Defendant relied on the affidavits of Edward Tomp, Refinery Manager for Caltex, sworn 9 March 2006; Belinda Patterson, Environment Protection Superintendent for Caltex, sworn 10 March 2006 and Kathryn Gotham, EHS Specialist for Caltex Petroleum Pty Limited, affirmed 19 May 2006 in relation to mitigating factors. Guilty plea 81 The Prosecutor accepts that the Defendant pleaded guilty at the earliest opportunity. This is a matter required to be taken into account under the Crimes (Sentencing Procedures) Act 1995, s 22. A plea of guilty entitles the Defendant to a discount in penalty under s 22 in the range of 10-25 per cent: R v Thomson; R v Houlton (2000) 49 NSWLR 383; R v Sharma (2002) 54 NSWLR 300.

82 The Defendant has expressed contrition and remorse through the affidavit of Mr Tomp, Refinery Manager, sworn 9 March 2006, and I accept his statements to that effect. 83 There has been full cooperation with the Prosecutor in relation to the incident, and in relation to the preparation for this hearing as evidenced by the expert joint reports a relevant matter to consider under the Crimes (Sentencing Procedures) Act 1995, s 23. 84 The Defendant responded quickly to the incident and cleaned up promptly. Further it has implemented voluntarily an environmental management system to ISO 14001 standard by 2007. It has also implemented an environmental risk reduction program at a cost of $13.2M between 2005-2007. 85 The Defendant argued that these offences were not surprising given the nature and size of the operation at Kurnell conducted over 50 years. These offences did not suggest that Caltex has a continuing attitude of disobedience of the law and I accept that submission.

86 The Defendant has agreed to pay the Prosecutor's costs of $81,311.

87 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 penalty of $77,000 is appropriate. I note that the parties wish to consider asking the Court for an order under s 250(1)(e) of the POEO Act and I will make no order in relation to penalty in this judgment but will stand the matter over for 28 days to enable the parties to determine if they wish an order made under s 250. 88 The Prosecutor informed the Court that a second charge in matter no 50051 of 2005 should be dismissed.

Orders 89 The Court orders that:

1. The Defendant is convicted of the offence with which it is charged.
2. The Defendant must pay the Prosecutor's costs of the proceedings in the sum of $81,311.
3. The exhibits may be returned. Matter no 50051 of 2005 90 The charge in matter 50051 of 2005 is dismissed.

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