EPA v Cargill Australia Limited

Axer Pty Ltd v Environment Protection Authority (1993) 113 LGERA 357; Environment Protection Authority v Cargill Australia Pty Limited [1996] NSWLEC 260; Environment Protection Authority v Cargill Australia Limited [2004] NSWLEC 334; CASES CITED: R v Johnson [2004] NSWCCA 76 ; R v Thomson (2000) 49 NSWLR 383; Regina v Darrell Terry McNaughton (2006) 163 A Crim R 381; The Queen v Olbrich (1999) 199 CLR 270

APPLICANT Mr D Samuels, solicitor SOLICITORS LEGAL REPRESENTATIVES: RESPONDENT Mr J Robson SC SOLICITORS Henry Davis York

THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

ENVIRONMENT PROTECTION AUTHORITY Applicant

JUDGMENT Jagot J: A. Introduction 1 Cargill Australia Limited (the defendant) operates a livestock slaughtering and rendering plant in an industrial estate at Bomen near Wagga Wagga. On 30 January 2006 a pipeline carrying wastewater from the plant's operations cracked. About 20,000 litres of wastewater escaped from the cracked pipeline. The wastewater entered the Council's stormwater system in Bomen Road and discharged into the top of a wetland system constructed by the Council. The defendant entered a plea of guilty to the offence of polluting waters under s 120(1) of the Protection of the Environment Operations Act 1997. The maximum penalty for this offence under s 120(1) is $250,000 (s 123(a) of the Protection of the Environment Operations Act). These are my remarks on sentence.

B. Facts 2 Many facts were agreed. The defendant acquired the premises in 1991. The premises occupy about 63 hectares. The plant's capacity had increased after October 2005 so that the plant processed approximately 1200 head of cattle per day and employed over 520 people. The plant operates under an environment protection licence, which does not authorise any pollution of waters.

3 The plant's operations generate two wastewater streams known as the red and green streams. The red stream contains blood and animal products from the slaughtering process and spills from the rendering plant. The green stream contains effluent from cattle washing. The red stream passes through a contra-shear to remove solids and into a dissolved air filtration system that aerates the liquid allowing the fat to be skimmed off and sent to the rendering operation. The remaining liquid is transferred to a second dissolved air filtration device and then to waste pits known as the "save all". The green stream is passed over a shaker screen to separate solids. The liquid is transferred to the second dissolved air filtration device and then to the "save all". From the "save all" the combined wastewater stream is pumped through a pipeline uphill to a series of four treatment ponds through which the wastewater is progressively treated. After treatment the wastewater is reused within the plant or discharged to the Council's sewer. It may also be irrigated onto certain paddocks under the licence, but this is not the defendant's current practice.

4 The pipeline was a 225mm asbestos cement pipe about 900m in length. After cattle production had ceased on 30 January 2006, liquid wastewater continued to be generated from cattle washing, the hygienic wash down of the kill floor and, in minor amounts, from the rendering operation. A few minutes after 6.55pm, a security contractor left the entry gatehouse for a cigarette and saw a murky brown muddy coloured liquid flowing behind the gatehouse. He traced the flow to its source and saw that the liquid was spurting out of the ground between the bio-filter and the "save all". The security contractor could hear the pumps operating and called the plant engineering superintendent, Mr Sheridan, who instructed him to have the pumps shut down. The pumps were shut down by 7.10pm. Mr Sheridan called the defendant's contract plumber and then came to the site, arriving at 7.45pm. Wastewater was still entering the stormwater system at Bomen Road. Some time between 7.45pm and 11.30pm the defendant's employees placed sandbags in various locations. The contract plumber arrived and found a fissure in the pipeline about 1 to 5mm wide and 4m long. Mr Robinson of the Environment Protection Authority was contacted at about 8.30pm. Mr Sheridan observed the wastewater had a greenish tinge similar to cattle wash water. The contract plumber described it as a brownish clear liquid. Mr Robinson, who arrived at about 10.30pm, described the liquid entering the constructed wetlands from the pipe in the headwall as quite dark with an odour not dissimilar to abattoir effluent. Mr Robinson collected samples between 11.45pm on 30 January and 1.55am on 31 January 2006 and between 10.00am and 10.30am on 2 February 2006. By 2 February 2006, the liquid issuing from the headwall was completely clear, as was the flow in the channel.

5 The pipeline ruptured primarily due to water hammer, which is a surge in a pipeline caused by pumping that can result in premature catastrophic failure of pipes made from any material. The pipeline had ruptured four times before January 2006, twice in 2001 and twice in 2005. Those breaks did not cause any wastewater to escape from the premises. From 2000, the defendant was reviewing its wastewater system, particularly whether to continue to treat wastewater on the premises (and, if so, whether to de-sludge or replace one of the ponds) or discharge wastewater to a Council operated effluent treatment system.

6 In August 2001, the defendant's rendering supervisor forwarded an email to management containing the following recommendation: "Gents, it was a timely reminder yesterday when the effluent line from the save-all to no.1 pond burst, of how close we came to a major environmental spill….this line is old and fatigued and is breaking far to often it will bite us on the arse in a big way shortly, we need to fast track installation of the new line as a matter of urgency, spending $40,000 now would be money well spent, could save big bucks in EPA fines not to mention council charges."

7 The defendant obtained a quote to replace the pipeline at a cost of $48,400.

8 In September 2001, a consultant to the Council made the following recommendation to the defendant: "I continue to recommend that the question of desludging versus a new lagoon be resolved before the proposed pipeline size for the pipeline from the Saveall to the lagoons is confirmed. I recommend that no further action be taken with the bulk of the pipeline from the diversion for the emergency basin to the lagoons until the outcome of this study is known."

9 In December 2001, the Council's consultant made this observation in a further letter: "..the pipeline from save-all to the lagoons. I can understand the approach of the Company in deferring this replacement project, yet remain concerned that a major break….could cost the Company more in hydraulic and organic overland charges from council that the cost of replacing the pipeline. The nature of the breaks suggests that the pipeline has reached the point of continuous full pipe section failure." 10 The defendant advised the Council in April 2002 that it was not progressing the replacement of the pipeline until the future of the treatment ponds had been determined.

11 On 4 October 2002, the Council's consultant informed the defendant that: "The current condition of the pipeline to the lagoons means that an overland discharge of wastewater off the property via overfilled tailings dams is both possible and probable if site management and vigilance is not maintained. The mainly AC pipe needs replacement." 12 On 11 October 2002, the defendant wrote to the Council indicating that with respect to the replacement of the pipeline originally scheduled for completion by April 2002, the defendant was "currently assessing the condition of the pipeline, replacement options and sizing requirements", with the project now having a revised completion date of June 2003.

13 In 2004, when the defendant was increasing the overall plant capacity, it scheduled the replacement of the pipeline. The cost of $60,000 was an item in the defendant's capital plan for 2004 - 2006. The replacement of the pipeline was scheduled for the middle of 2006, a decision confirmed at a meeting of various employees of the defendant on the morning of the incident.

14 The defendant, further to the immediate actions of ceasing pumping and replacing the cracked section of the pipeline, cleaned up the site and the wetlands in accordance with Mr Robinson's instructions. This involved flushing the stormwater pipes and pumping some 2,762,000 litres of liquid out of the wetlands and scraping the land over which the wastewater had flowed. These rectification actions cost the defendant $7,697.55. Mr Robinson was satisfied with the clean up.

15 Subsequently, the defendant replaced the entire pipeline at a cost of $107,000. It has also carried out various works to its wastewater management system, including: - (i) installing a first flush basin designed to capture and treat run-off from the premises, at a cost of $204,315.61, (ii) upgrading the pumps at the "save-all" by installing a variable speed drive, resulting in a smoother flow and eliminating water hammer, at a cost of $67,500, and (iii) installing a relief line and pressure valve to prevent and monitor potential water hammer.

16 The defendant co-operated extensively with the prosecutor with respect to the investigation of the offence and the prosecution, including managing the incident, providing documents and arranging for employees to be available for voluntary interviews. The defendant entered its plea of guilty at the first practical opportunity and has agreed to pay the prosecutor its costs of the proceedings in the amount of $22,450 and investigation costs in the amount of $7,550.

17 The defendant has two prior convictions for environmental offences, one with respect to water pollution and the other with respect to odour (Environment Protection Authority v Cargill Australia Pty Limited [1996] NSWLEC 260 and Environment Protection Authority v Cargill Australia Limited [2004] NSWLEC 334). The water pollution offence involved about 10,000 litres of wastewater entering a stormwater pit as a result of the failure of two pumps in the "save-all", leading to an overflow from the "save-all". The Court imposed a fine of $20,000 (the maximum penalty at the time being $125,000).

18 The disputed facts were within a limited compass. Dr Kobayashi, environmental scientist, prepared an affidavit on behalf of the prosecutor. He analysed the samples collected by Mr Robinson, noting that the wetlands had been designed to treat run-off from the Bomen industrial estate, and concluded that: - (i) the concentration of ammonia nitrogen in the wastewater discharged from the premises into the wetlands was extremely high (being 120mg/L at a pH of 9.4) and most likely to cause toxic effects including mortality of aquatic organisms in the receiving waters, (ii) the concentrations of ammonia nitrogen in the wetlands remained relatively high at 2 February 2006 (8.8mg/L at pH 8.5 near the headwall and 23mg/L at pH 7.7 near the dam), with a likelihood of causing toxic effects between these sample points (known as WP 355 and WP 357) at least until 2 February 2006, (iii) the concentrations of total Kjeldahl nitrogen and phosphorus in the wastewater discharged from the premises into the wetlands was high compared to typical stormwater run-off and had the potential to stress the wetland, and (iv) the wastewater discharged from the premises into the wetlands was thought to have a chemical oxygen demand of 1600mg/L, which has the potential to cause organic pollution and reduce oxygen concentrations, thus adversely affecting the health of aquatic organisms particularly in the upper part of the wetlands. Dr Kobayashi noted that there are small aquatic organisms not able to be seen by the naked eye. These are ubiquitous and important in maintaining the functioning of aquatic ecosystems and constitute a basis of food chains. When he inspected the wetlands on 29 June 2006, he saw substantial growth of water plants around the edge of the dam and small aquatic animals less than one centimetre in length swimming among the water plants and near the bottom sediment.

19 Mr Claus, environmental engineer, prepared an affidavit on behalf of the defendant. Mr Claus concluded that the likely effect of the incident on 30 January 2006 was minimal as: - (i) the receiving environment was a constructed wetland made up of channels and dams, designed and constructed specifically to treat stormwater run-off as defined in the Bomen industrial estate stormwater management plan, (ii) the mass of pollutants was small compared to the capacity of the wetlands, (iii) the wetlands accept hundreds of times more nitrogen and phosphorus in rain events each year than they did during this incident, (iv) there is no evidence that aquatic organisms were harmed during the incident, and (v) the background water quality in the channels and dams is poor. Mr Claus observed that the area between WP 355 and WP 357 is a constructed channel about 280m long, with a flow area about 5m wide, and that no dams are located between the two points. Further, as the wetlands were likely to have high average ammonia concentrations, any aquatic organisms would be likely to be used to these concentrations or not be present.

20 Neither Dr Kobayashi nor Mr Claus was cross-examined.

21 Mr O'Hare, the defendant's Group Engineering Manager, prepared an affidavit. He was notified of the incident at about 8.35pm on 30 January 2006 and attended the premises at about 9.30pm that night. He inspected the break in the pipeline and the clean up and returned the next day for the same purpose. Mr O'Hare observed that the wastewater in the pipeline was not raw effluent, but had been subject to primary treatment removing the majority of solids and fats. The slaughtering ceases at 4.20pm and the boning by 5.00pm. Outside these hours the activities generating wastewater are cattle washing, hygienic wash down and rendering, the majority being generated by cattle washing. Hence, the volume and constituents of the wastewater change significantly after the slaughtering and boning operations cease, with a lower concentration of fat and biochemical oxygen demand. When the ruptured pipeline was discovered, slaughtering and boning operations had ceased. The rupture was located about 40m from the "save all" in a section of pipeline about 1.5m underground. The previous breaks were in an effluent irrigation paddock, which drains to a tailings dam about 400 to 600m from the "save all". After one break in 2001 an internal camera inspection did not reveal any sign that the pipeline would rupture again. The defendant intended to replace the pipeline, but other matters received priority, so the pipeline was scheduled for replacement in mid 2006. The defendant manages capital funds for environmental management on a "highest environmental impact first" basis so issues which may affect the community or are required to achieve compliance receive priority. At the time of the incident, six dams would have operated to receive any effluent from a break in the pipeline except for a 70 metre section between the "save all" overflow basin and the truck access road, which was not protected by a surface water containment structure. The break occurred in that unprotected section. The defendant had been planning to capture all surface water within a first flush system. It submitted a development application for this system on 10 November 2005. That system has now been installed. Had it been in place at 30 January 2006, it would have prevented the wastewater flowing off the premises. These works were completed in October 2006. The defendant has an ongoing commitment to invest in environmental improvement and implementing best practice environmental management. It has also set resource efficiency goals to be met by 2010. Mr O'Hare was not cross-examined.

22 Mr Crapp, the defendant's Director of Operations, prepared an affidavit. He is responsible for environmental compliance. He described the defendant as "extremely proactive" in dealing with environmental issues and a good corporate citizen of Wagga Wagga. Environmental expenditure represents a significant proportion of overall expenditure of the base capital to run the business, with about $5 million spent since 2002 on environmental matters. The defendant prides itself on its environmental performance and deeply regrets the event. As one of the largest employers in Wagga Wagga, the defendant's reputation was critical to its community standing and was affected by this type of incident. The incident had reinforced within the management team an urgency to act to prevent incidents occurring, thus leading to an increased focus on proactive measures. The defendant was taking such measures when the incident occurred, including the first flush basin project and the planned pipeline replacement, but did not take the measures soon enough. The defendant is now developing an environmental management system to achieve accreditation under the ISO 14000 series of standards and is developing further programs to improve environmental performance. With the measures now in place, Mr Crapp believed that this type of incident could not and would not again occur. Mr Crapp was not cross-examined.

23 Mr Kelley, the defendant's General Manager, prepared an affidavit. He apologised for the offence on behalf of the defendant and observed that it greatly regretted the incident as the defendant prides itself on its environmental performance and takes its obligations seriously. As a wholly owned subsidiary of Cargill Inc (a US registered private company) the defendant had reporting obligations. This incident was reported on 31 January 2006 and head office was kept informed thereafter. Both operations take the matter very seriously. The defendant has an international environment, safety and health policy focused on environmental protection and training. Since 2002, the defendant spent in excess of $50 million on the facility, of which $5.2 million involved capital environmental systems including a bio-filter system and upgraded odour collection systems that had substantially improved its environmental performance. The defendant now employs an environmental supervisor as part of its chain of command for environmental management. It is also committed to carrying out measures to enable certification under ISO 14001. The defendant's commitment to improving its environmental performance was shown by its operation environmental management plan prepared in August 2005 in consultation with the Council and the Department of Environment and Conservation. The detailed provisions of the plan cover each stage of the production process and potential for environmental impacts. Staff acted in accordance with the detailed requirements of this plan when they discovered the ruptured pipeline on 30 January 2006. The plan contains operational checklists and standard responses that are practical tools to enable environmental performance to be monitored and for issues to be raised and resolved.

24 Mr Kelley considered that the works to the wastewater systems since the offence substantially reduced the likelihood of any breakage. The defendant had almost completed the work of upgrading towards a state of the art facility and modern production system and had now developed a comprehensive environmental management system. Such an incident is extremely unlikely to occur again. As the largest employer in Wagga Wagga, the defendant was acutely aware of its public profile and was working to avoid any repeat of an incident like the present one. Mr Kelley gave evidence in which he explained that the defendant had not replaced the pipeline earlier as it was considering the diversion of wastewater treatment from the site to the Council or the upgrading of the systems on site, including the first flush system that was thought to provide far more encompassing protection to the whole operation. The breakages in 2005 were in an area on the side of a hill where ground movement had occurred and they did not have a concern about the pipeline in the location it broke in January 2006. Protection was in place for the areas of the previous breaks in the pipeline and had the first flush system been in place, it would have prevented this incident.

C. Sentence considerations Protection of the Environment Operations Act 25 The maximum penalty for this offence is $250,000.

26 Section 241 of the Protection of the Environment Operations Act specifies matters to be considered in imposing sentence for an offence against that Act.

Extent of the harm (s 241(1)(a)) 27 Any facts adverse to the defendant over and above the essential legal elements of the offence must be proved beyond reasonable doubt (The Queen v Olbrich (1999) 199 CLR 270 at [27]). As noted, Dr Kobayashi and Mr Claus were not cross-examined, although their opinions about the potential for environmental harm were irreconcilable. I am not bound to accept either competing opinion. I prefer to resolve the issue of environmental harm by reference to the primary facts, including those that were agreed and those supported by documents unconnected to the offence.

28 I am satisfied beyond reasonable doubt that about 20,000 litres of wastewater escaped from the pipeline, flowing down the stormwater system to the wetlands. The wastewater was discoloured and was perceived by Mr Robinson to smell. As a consequence, the defendant pumped some 2.7 million litres of water out of the wetlands and scraped the land over which the wastewater flowed. The area of the wetlands affected was a channel of limited length and width. The wetlands were constructed to accept run-off from an industrial estate. The concentrations of ammonia, phosphorous and nitrogen in the wastewater as it entered the wetlands were high. By 2 February 2006, the liquid issuing from the headwall was completely clear, as was the flow in the channel. It is apparent from these circumstances that although the extent, duration and character of the impacts on the wetlands was relatively minor in all the circumstances, the pollution of waters was not a trivial incident. A not insignificant volume of wastewater escaped from the premises, travelled a not insignificant distance and wound up in the top part of the Council's wetlands. The wetlands, although intended to accept and treat run-off from industrial premises, were plainly not intended to deal with primary treated effluent from the defendant's operations. The pollution involved actual harm for these reasons, albeit minor overall, and a potential for more significant harm.

Practical measures (s 241(1)(b)) 29 I accept that the defendant was taking practical measures to prevent the potential for harm to the environment by reason of water pollution, particularly by developing its first flush system. Nevertheless, it is clear that other practical measures were available to prevent the harm. The pipeline could have been replaced much earlier. When it was not immediately replaced, some interim containment measures could have been provided for the unprotected section of the pipeline.

30 Once the break in the pipeline had occurred, I accept that the defendant did what it could do, promptly and effectively, to mitigate the harm to the environment caused by the commission of the offence.

Foreseeability (s 241(1)(c)) 31 The defendant accepted that, had it acted earlier to replace the pipeline, the offence would not have occurred. Nevertheless, it characterised the break as an "unforeseen accident" particularly by reason of the location of the earlier breaks and the containment structures available. Although I accept that the defendant was focused on the overall question of wastewater management from 2001 onwards, it is obvious from the agreed facts that the events of 30 January 2006 were foreseeable. I do not accept the submissions to the contrary. The defendant had received a warning about the pipeline in 2001 from its own rendering supervisor in the clearest possible terms. The Council's consultant, after an initial recommendation to the contrary, described the pipeline as having reached the point of continuous full pipe section failure in December 2001. The pipeline had broken twice as recently as 2005. As Mr O'Hare and Mr Crapp indicated, the defendant did not perceive replacing the pipeline as having the same priority as other environmental projects. However, the defendant had an issue with potential for off-site pollution it knew or ought to have known about. It should have acted more quickly than it did to address the issue. It did not do so because it was focused over time on other environmental projects including the first flush system intended to function as a comprehensive solution to potential off-site water pollution. The defendant's focus on these other environmental projects explains its failure to act with appropriate urgency but does not, in my view, justify or excuse it.

32 The prosecutor described the defendant as having taken a "commercial gamble" with the pipeline. Insofar as this submission implies a deliberate decision to save money by risking environmental harm, I do not accept it. The cost of replacing the pipeline was not substantial compared to the environmental improvements the defendant was planning and making before the offence. The defendant's conduct in all respects other than the offence itself discloses the importance it places on environmental compliance. The inference I draw is that the defendant seriously misjudged the risk of water pollution presented by the pipeline. Had it correctly assessed the risk, I am satisfied that the defendant's policy and practice would have dictated swift action. The defendant's judgment was not wholly inexplicable given the pattern of breakages and the containment structures available, but was imprudent in the circumstances of the advice it had received (both internal and external) and regrettably failed to meet the high standards the defendant set for itself. The defendant's judgment continued to be imprudent in 2005 when the pipeline ruptured twice, albeit in different locations from the 2006 break.

Control over causes (s 241(1)(d)) 33 The defendant had control over the causes that gave rise to the commission of the offence.

Other considerations 34 Under s 21A(2)(d) of the Crimes (Sentencing Procedure) Act, a record of previous convictions is a relevant aggravating factor. This section cannot be applied in a manner that results in a penalty disproportionate to the present offence. The defendant's prior convictions are relevant to the assessment of the appropriate weight to be given to other sentencing considerations, particularly deterrence (Regina v Darrell Terry McNaughton (2006) 163 A Crim R 381; R v Johnson [2004] NSWCCA 76 at [32] to [36]). I consider the odour conviction of limited relevance in this context. The water pollution conviction arose from different circumstances, but demonstrated the capacity for wastewater to escape from the "save all" off the site and into the stormwater system in Bomen Street. The break in the pipeline leading to the present offence occurred about 40m from the "save all" and the wastewater entered the Council's stormwater system in Bomen Street and flowed to the wetlands. Accordingly, the prior water pollution conviction is relevant. In assessing the weight to be given to this issue, I also take into account the size and nature of the defendant's operations. The defendant runs a large business and has done so since 1991. It has implemented substantial environmental improvements to the premises over that time, working towards what Mr Kelley described as a state of the art operation. The defendant is a person of good character and, by reason of its actions subsequent to the offence, is unlikely to re-offend (s 21A(3)(f) and (g) of the Crimes (Sentencing Procedure) Act).

35 Under ss 21A(3)(k) and 22 of the Crimes (Sentencing Procedure) Act a plea of guilty, and the timing of the plea, are mitigating factors to be taken into account on sentence. The defendant entered its plea of guilty at the first opportunity. I am satisfied that the defendant should have the benefit of a discount of 25% on account of the utilitarian value of its early guilty plea (R v Thomson (2000) 49 NSWLR 383 at [151] - [161]).

36 Specific and general deterrence are relevant considerations (s 3A(b) of the Crimes (Sentencing Procedure) Act). In this case, I consider both aspects of deterrence have a material function. The defendant has implemented measures that should be effective to prevent any recurrence. But as the prosecutor submitted, the defendant continues in its business and maintenance of a risk averse approach to environmental harm is necessary. The important deterrent function of fines in "persuading the industries concerned to adopt preventive measures" is also relevant to the defendant's business (Axer Pty Ltd v Environment Protection Authority (1993) 113 LGERA 357 at 359).

37 The defendant took prompt and effective action when it became aware of the incident. I do not accept the prosecutor's submission to the contrary. The actions the defendant took shortly after the incident were also effective in reducing the potential for environmental harm. The long-term actions the defendant has taken are also significant. All of these circumstances, as well as the defendant's extensive co-operation with the prosecutor at all times, early entry of a plea of guilty and the evidence from its senior officers, particularly that of Mr Kelley its General Manager, show its genuine remorse and contrition for the offence and the circumstances which enabled it to occur. The defendant's agreement to pay the professional and investigation costs of the prosecutor in the amounts of $22,450 and $7,550 respectively is also relevant.

38 I have considered the other decisions referred to by the parties, recognising the importance of the principle of even-handedness. Having regard to all the circumstances to which I have referred I consider that a penalty of $37,500 should be imposed, which includes the discount of 25% for the guilty plea as indicated.

39 The defendant submitted that I should consider making an order under s 250 of the Protection of the Environment Operations Act and require the penalty to be paid to the Council as a contribution to a proposed restoration of Wollundry Lagoon. Although I accept that the defendant's suggestion was made with the best intentions, I do not accede to it. I do not consider that option appropriate, as there is insufficient information to satisfy me about the project, its environmental benefits or the value of such a contribution.

D. Orders 40 Accordingly, I make the following orders: (1) The defendant is convicted of the offence charged. (2) The defendant is fined the sum of $37,500. (3) The defendant is ordered to pay the prosecutor's costs of the proceedings agreed in the sum of $22,450 and costs of the investigation agreed in the sum of $7,550. ****************************

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