EPA v Caltex Australia Petroleum Pty Limited

Contaminated Land Management Act 1997 LEGISLATION CITED: Crimes (Sentencing Procedure) Act 1999 Protection of the Environment Operations Act 1997

APPLICANT Mr P Barley, solicitor SOLICITORS Department of Environment and Climate Change LEGAL REPRESENTATIVES: RESPONDENT Mr C J Leggat SC SOLICITORS Freehills

THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

ENVIRONMENT PROTECTION AUTHORITY Prosecutor

CALTEX AUSTRALIA PETROLEUM PTY LIMITED Defendant

JUDGMENT Jagot J: 1 The defendant, Caltex Australia Petroleum Pty Ltd (Caltex), has pleaded guilty to two offences against the Protection of the Environment Operations Act 1997 (the POEO Act) as follows: (1) that it polluted waters contrary to s 120(1) of the Act in that, being in control of pipework at the depot at Gosport Street, Moree (depot), and/or failing to ensure the integrity of pipework at the depot such that hydrocarbons consistent with diesel fuel leaked from the pipework into a position where they descended or were likely to descend into groundwater; and

(2) that, while carrying on an activity during the course of which a pollution incident occurred so that material harm to the environment was threatened, it failed to notify the appropriate regulatory authority as soon as practicable after it became aware of the incident and to provide all relevant information about the incident, contrary to s 148(2) of the POEO Act.

2 It is apparent that the offence against s 120 depends on the wide definition of "water pollution" in the Dictionary to the POEO Act, which extends in sub-para (d) to: placing any matter (whether solid, liquid or gaseous) in a position where: (i) it falls, descends, is washed, is blown or percolates, or (ii) it is likely to fall, descend, be washed, be blown or percolate, into any waters, onto the dry bed of any waters, or into any drain, channel or gutter used or designed to receive or pass rainwater, floodwater or any water that is not polluted,…

3 These offences arose from the same incident which occurred some time between April 2001 and May 2002 at premises in Moree operating as a bulk fuel depot. Sentence must now be determined.

4 The prosecutor (the Environment Protection Authority (the EPA)) and Caltex agreed all of the material facts. I have considered those facts and record below matters of particular importance.

5 The depot is a bulk fuel depot, meaning it is used for the storage and distribution of bulk quantities of petroleum products. The majority of the depot is paved with concrete. The bunds are constructed of concrete block with a hard non- porous clay base. The bunds are designed to both mitigate the potential for lateral spread of product across the land and also inhibit the infiltration of product to the soil from infrastructure within the bunds in the event of a leak.

6 At all relevant times the State Rail Authority of NSW (the SRA) owned the land on which the depot is located. Caltex leased the depot from the SRA. Caltex licensed the depot to Boland Petroleum. This or a similar arrangement has been in place for over 40 years. Under this arrangement Caltex had to maintain the depot (including piping) "in good and safe working condition" and keep the equipment supplied in "good repair and safe working order". Other land also owned by the SRA adjoins the depot. This land is occupied by an entity related to Boland Petroleum and used as a tank farm. Caltex has no involvement in the operation of the tank farm.

7 In 1970 a fire at the depot resulted in a large spill of diesel. Tests in the 1990's showed significant hydrocarbon contamination of the groundwater. Caltex engaged environmental consultants to remediate the contamination and these works continued between 1992 and 1996. They ceased when it became apparent that the remediation techniques being utilised were no longer effectively removing phase-separated hydrocarbons from the aquifer. The EPA was notified about and knew of this remediation project.

8 An underground pipeline ran from a fill point at the depot to the diesel tanks located at the tank farm. Caltex installed this pipe in 1992 as part of a major upgrade of the depot. The pipeline was used when Boland Petroleum wished to store petroleum products received at the depot in the tanks located on the tank farm. The truck which delivered the petroleum products to the depot would pump the products into the fill point to which the pipeline was connected. The pipeline transported the product to the tanks located on the tank farm.

9 Sometime in 2001 a principal of Boland Petroleum had the meters on the pumps that operated the pipeline calibrated. This indicated that the meters were not functioning properly. Caltex then arranged for the pipeline to be pressure tested. Caltex was verbally informed that the pipeline passed the pressure test, indicating that it was not leaking.

10 On 23 May 2002 Mr David Machin, Caltex's Regional Health, Safety, Security and Environment Manager for Queensland, was carrying out a routine audit of the depot. He spotted some staining in the inside of the bund that surrounded the above ground storage tanks located at the depot, which he identified as likely to be from diesel. He made inquires of the depot manager employed by Boland Petroleum. He was informed that there had been no unexplained product losses. Nevertheless, Mr Machin was concerned and began an investigation to determine the source of the staining in the bund. Caltex thus caused a further pressure test to be carried out. The pipeline did not pass this pressure test, indicating that it was likely to have been leaking. Caltex accepts that hydrocarbons leaked from the pipeline such that they were placed in a position that they were likely to descend into the perched water. The EPA accepts that there is no evidence to say how much leakage there was.

11 Caltex took this incident seriously. (a) Mr Machin prepared a report of the audit which noted the need to identify the source of the product in the bund at the depot.

(b) Mr Machin informed Mr Frank Miles, then Caltex's National Distributor and Commercial Engineer, of the staining in the bund at the depot. Mr Miles conducted the investigations into the staining which included arranging for a pressure test to be conducted on the pipeline.

(c) Mr Miles arranged for a contractor to disconnect and decommission the pipeline and replace it with a new aboveground pipeline. This cost Caltex $21,000.

(d) Other senior management were informed and the incident was noted in the Reseller and Card Weekly Marketing Minutes for the weeks ending on 19 July 2002, 26 July 2002 and 30 August 2002.

(e) Mr Machin engaged environmental consultants in August 2002 to investigate the extent of contamination at the depot. This investigation resulted in a report that concluded the pipeline had leaked and the leak had infiltrated the perched water. Subsequent investigations indicate that this conclusion was not supportable. Caltex also then implemented a remediation and monitoring program. As at 26 July 2007 Caltex had incurred costs of $237,616.00 in implementing the remediation and monitoring program. The remediation and monitoring program being carried out at the depot remains ongoing. The program implemented to date has involved the following: (i) the installation of skimmer pumps in selected monitoring bores to remove product from the ground; (ii) undertaking multi-phase extraction of product; and (iii) the periodic monitoring of wells. The EPA is satisfied that the remediation and monitoring program is adequate to address the contamination at the depot. (f) On 23 September 2002 the incident was reported internally via an electronic incident report form on the marketing incident database. (g) In an email dated 29 October 2002 from Mr Machin Caltex reported the incident to the SRA as lessor under the lease. This email attached a copy of the October 2002 report from the environmental consultants and states that: Caltex wishes to formally advise that we have experienced a failure in an underground diesel fuel line which has resulted in contamination of the Moree Depot. …. As discussed Caltex is preparing a SROH notification and we are committed to proactively managing the remediation of the site to minimise environmental impacts as far as practicable. (h) In addition Mr Machin prepared a draft notification to the EPA of the contamination but this draft notification was not sent.

12 Caltex did not notify either Moree Plains Shire Council or the EPA of the incident. Its Marketing, Environment, Health & Safety Compliance Manual issued March 1996 provided that: Serious incidents with immediate environmental consequences were to be notified to the relevant state environmental authority as soon as possible by an onsite Ampol staff member who has knowledge of the incident. Incidents where the environmental consequences are not immediate or less serious are to be notified to the relevant state environmental authority by the Marketing Environment Health and Safety Specialist.

13 Mr Machin prepared a draft notification to the EPA but requested a contact address from another manager. He then intended to send the letter but did not do so by reason of oversight. He did not realise this oversight until gathering documents to be provided to the EPA under statutory notices at a much later time. Mr Machin addresses a large number of environmental issues within Caltex at any one particular time, he went on leave shortly after the draft letter was prepared and, on his return from leave, as well as continuing with all the activities he normally undertakes for Caltex, he also commenced working on a new major project which ran through until the beginning of 2003. I note that the appropriate regulatory authority is the Council and not the EPA. Nevertheless given the immediate and detailed steps Mr Machin took to identify and rectify the problem his is a cogent explanation of the omission. The more serious issue is not so much this omission, but the fact that Caltex's general reporting systems did not highlight the error and require its rectification even though the fact that no report had been made was disclosed by its information systems.

14 The EPA first became aware of the situation at the depot in December 2005 when a copy of an environmental report prepared for the Roads and Traffic Authority (the RTA) was forwarded to the Contaminated Sites Section of the Department of Environment and Conservation. The RTA was examining the route of a bypass and referred to the report obtained by Caltex in 2002. The EPA then served notices on Caltex requiring information at which time Caltex's failure to notify the incident came to light. The EPA wanted certain additional investigations carried out and Caltex voluntarily complied with all of the EPA's requirements.

15 It is not known why the pipeline, which was 10 years old, did not pass the pressure test or what the magnitude of the leak from the pipeline was likely to have been. Mr Boland, a principal of Boland Petroleum, has no record of lost product and says that had there been any consistent losses, he would have certainly raised the issue with Caltex as they would represent lost money to Boland Petroleum. As noted, subsequent investigations show that the conclusions in the 2002 report cannot be sustained for reasons that need not be recorded. In the result, it is agreed that there is no evidence of any water pollution having actually resulted from the incident and there is evidence which suggests that the contamination of the 12 metre aquifer at the depot is not the result of the incident. Again, it is not necessary to record the reasons for that evidence.

16 Despite the absence of evidence that actual water pollution occurred as a result of the incident, it had the potential to result in further contamination of the groundwater at the depot. It is not considered likely that the potential leak from the pipeline could have migrated to the groundwater that is extracted for drinking purposes in Moree. Some hydrocarbons contain known carcinogens such as benzene. However, as: (a) the pipeline was only used for diesel and aviation fuel which do not contain any benzene;

(b) contamination at the depot is not migrating off site;

(d) no ground water at the depot is extracted for use nor is it likely to be so in the future given low permeability of the ground and the pre-existing contamination at the depot, there is little likelihood of exposure pathways occurring. Furthermore, the EPA considered actual and potential risks and has stated that the contamination at the depot does not represent a significant risk of harm within the meaning of the Contaminated Land Management Act 1997. 17 Since the date of the incident, Caltex has implemented a number of measures aimed at improving its environmental performance. Improvements that have been implemented by Caltex since the date of the incident include the implementation of: (a) Caltex's Loss Prevention System which: · provides for a highly structured and disciplined approach to incident investigation; · provides for the centralised reporting of all incidents (as opposed to the decentralised or local responsibility approach which applied at the time of the incident); and · clearly defines the accountabilities of Caltex personnel; and (b) monthly & weekly Caltex Marketing leadership team review of all incidents by the Caltex Marketing leadership team.

18 Further, in 2006 Caltex commenced the implementation of the Operational Excellence Management System developed by Chevron. The Operational Excellence Management System is an integrated management system designed to ensure reliable and safe operations by primarily preventing incidents from occurring but, secondly, by reducing the risk of an incident which has occurred not being reported to an appropriate regulatory authority.

19 The EPA and Caltex agree that if the incident occurred now the procedures adopted by Caltex under the Loss Protection System and the Operational Excellence Management System would ensure that the incident was reported to the appropriate regulatory authority.

20 Senior officers of Caltex, Mr McMenamin (Acting General Manager Marketing) and Mr Ross (National Manager Reseller) provided affidavits and attended Court today. They both frankly acknowledged Caltex's default and expressed its and their own grave concern and disappointment about the incident and failure to notify it as required by s 148 to the Council. Their evidence recorded that Caltex's board of directors has been kept informed about this matter at its request and the various steps taken to prevent any recurrence, generally as already recorded. In addition, Mr Ross explained that Caltex had committed $2.5 million for the period 2007 and 2008 for an enginering review of all remaining Caltex depots. Its current estimate is that required upgrades will cost $300,000 per site for 65 sites over 3 to 5 years.

21 The objects of sentencing are contained in s 3A of the Crimes (Sentencing Procedure) Act 1999. They are: (a) to ensure that the offender is adequately punished for the offence, (b) to prevent crime by deterring the offender and other persons from committing similar offences, (c) to protect the community from the offender, (d) to promote the rehabilitation of the offender, (e) to make the offender accountable for his or her actions, (f) to denounce the conduct of the offender, (g) to recognise the harm done to the victim of the crime and the community.

22 In determining sentence regard must be had to both the objective seriousness of the offence and circumstances of the individual offender. A significant factor in assessing the objective seriousness of an offence is the maximum penalty. In this case, the maximum penalty for each offence is $250,000. This shows that offences against s 120 and s 148 are inherently serious.

23 Other factors must also be considered. Under s 241(1) of the POEO Act matters are nominated that must be taken into account. In this case, it is easy to apply those factors to the offence against s 120 but less easy to apply them to the offence against s 148. Be that as it may, there is no evidence of actual harm by reason of the offence against s 120 but some evidence indicating likely harm albeit limited in extent. Caltex could have taken practical measures to prevent both offences and indeed has now done so. Both offences involved a reasonable foreseeability of the likely harm to the environment such as it was. Caltex had control over the causes of both offences.

24 I also accept the EPA's submissions that when assessing the offence against s 148 of the POEO Act the circumstances surrounding and reasons for the commission of that offence must be significant. In this case, those circumstances show that the offence against s 148 falls at the lower end of the scale of potential culpability. There cannot be and is not any suggestion that Caltex deliberately withheld information from any regulatory authority. The fact that it informed the SRA, provided the SRA with the 2002 report and plainly intended to notify the EPA about the incident demonstrate that its failure was the product of an unintentional and now very much regretted oversight. As the EPA submitted, systems should have been in place to ensure the oversight was corrected. As Caltex submitted, it had systems in place but they were inadequate. That inadequacy led to the offence to which Caltex has pleaded guilty but must be measured against a proper acknowledgement of the evidence showing that Caltex became aware of the problem though its own audit procedures, actively investigated the problem further despite the apparent fact that the licensee was unaware of any loss of product, obtained professional advice and assistance for the remediation, informed the SRA about the issue, and in fact carried out and continues to carry out the remediation. All of this conduct is consistent with Caltex's later full cooperation with the EPA.

25 General and specific deterrence are always relevant considerations. The evidence indicates that specific deterrence should be given limited weight in this case. General deterrence is a more weighty consideration because those carrying out such activities must understand the need to take measures to prevent environmental harm and to have adequate systems in place to ensure compliance with reporting requirements. With respect to the latter I generally accept the EPA's submissions about the important function s 148 plays in the POEO Act, a function protective of the environment and the community. This policy objective is not necessarily dependent on the seriousness of the particular incident being reported. However, general deterrence cannot lead to a disproportionate penalty and the seriousness of the incident is not disconnected from the objective seriousness of any breach of s 148.

26 Caltex identified nine matters in its submissions which it said should be given weight, being (i) its early plea of guilty, (ii) the clear evidence of its genuine remorse, (iii) its high level of cooperation with the EPA, (iv) the costs it incurred in replacing the pipeline, (v) the costs it incurred and will incur with respect to its remediation and other commitments to environmental improvements, (vi) its agreement to pay the EPA's costs as agreed or assessed which are likely to be in the order of about $20,000, (vii) the efficient way in which it dealt with the prosecutions saving Court time and money, (viii) its good prior record, where the EPA fairly acknowledged that its one prior conviction for a tier one offence relating to a different site was years ago (in 1995), and (ix) its agreement to both a publication order as proposed by the EPA and for the penalty to be directed to a nominated environmental restoration project.

27 I generally accept the relevance of all these factors relied on by Caltex, albeit recognising that some overlap. I also record that in my view Caltex's very good prior record, particularly having regard to the number of sites it controls in NSW, is a material factor. Further, I accept and give weight to the isolated nature of the incident and reporting failure, and Caltex's good character.

28 Overall I am satisfied that both offences are at the low end of the scale of objective seriousness. I consider that, although monetary penalties are required for each offence, the subjective circumstances weigh in favour of a penalty towards the lower end of the range. I have given Caltex a full discount of 25% for its early guilty pleas. I also accept that there is some scope in the circumstances of the offences described for the application of the principle of totality, namely, that there must be appropriate relativity between the totality of the criminality and of the offences that might not be reflected in a straightforward arithmetical addition of the sentence for each offence.

29 Having regard to all the considerations recorded above I consider that penalties of $15,000 for the offence against s 148 and $12,000 for the offence against s 120 of the POEO Act should be imposed. I accept the agreed position that the order should be framed as one under s 250(1)(e) of the POEO Act which enables the Court to order the offender to pay a specified amount to an environmental organisation for the purposes of a specified project for the restoration or enhancement of the environment. The Moree Plains Shire Council is proposing to carry out the Mehi River Corridor Restoration Project as described in Exhibit E. It is appropriate that the penalty be directed to this end in accordance with the agreement between the EPA and Caltex.

30 For these reasons the Court orders that: (1) The defendant is convicted of the offence charged in each of proceedings 50023 of 2007 and 50024 of 2007. (2) The defendant is fined the sum of $12,000 in proceedings 50023 of 2007 and $15,000 in proceedings 50024 of 2007 . (Deleted)

(3) In lieu of a fine, the defendant is ordered to pay the sum of $27,000 to Moree Plains Shire Council for application towards the Mehi River Corridor Restoration Project.

(4) The defendant, within 28 days of this order, is to place a notice in the form of Annexure A in the first four pages of the Moree Champion and Border News at a minimum quarter page size.

(5) The defendant is to pay the prosecutor's costs as agreed or assessed.

(6) The exhibits are returned other than Exhibits A and E. ***************************

On 3 October 2007, Caltex Australia Petroleum Pty Ltd pleaded guilty to two offences brought by the Environment Protection Authority (EPA) in the Land and Environment Court. The offences concerned the discovery of a leak in pipework at the Caltex Depot in Gosport Street Moree which resulted in diesel being placed into a position where it would be likely to descend into groundwater and a failure to notify Moree Plains Shire Council of this pollution incident. As a result, the Land and Environment Court ordered Caltex to contribute $27,000 to the Mehi River Corridor Restoration Project - a project designed to reinstate the Mehi as a major feature of Moree. There is no evidence to suggest that the diesel which leaked from the pipeline at the Caltex Depot caused any pollution or contamination of Moree's town water supply or the water utilised for Moree's artesian spas.

This advertisement was placed by order of the Land and Environment Court.

The EPA is part of the Department of Environment and Climate Change.

05/10/2007 - Slip Rule (Pt 15 r 9(e) of the Land and Environment Court Rules 1996). Relating to s 121(1) of the Fines Act. - Paragraph(s) Paragraph 30(2) and 30(3)

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