Minister for Sustainability, Environment, Water, Population and Communities v Fairglen Pty Ltd - [2014] FCA 273 - FCA 2014 case summary — Zoe

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Minister for Sustainability, Environment, Water, Population and Communities v Fairglen Pty Ltd

[2014] FCA 273

Federal Court of Australia|2014-03-25|Before: Streeton J

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Source facts

Court

Federal Court of Australia

Decision date

2014-03-25

Before

Streeton J

Source

Original judgment source is linked above.

Judgment (20 paragraphs)

[1]

OTHER MATTERS: The Court was informed that the parties had agreed to enter into an enforceable undertaking in the form attached at Annexure A. THE COURT ORDERS THAT:

That the Applicant's name be changed to the Minister for the Department of the Environment.
A declaration under s 21 of the Federal Court of Australia Act 1976 (Cth) that the Respondent, by supplying diesel on 30 May 2013 and 20 June 2013 from its premises at Liberty Braybrook, 236 Ballart Road, Braybrook, VIC that did not comply with the Fuel Standard (Automotive Diesel) Determination 2001, engaged in conduct that was in contravention of s 12AA of the Fuel Quality Standards Act 2000 (Cth).
An injunction pursuant to s 65(1) of the Fuel Quality Standards Act 2000, or s 39B(1A)(c) of the Judiciary Act 1903 (Cth) and s 23 of the Federal Court of Australia Act 1976 (Cth) restraining the respondent, whether by itself, its employees or agents or any of them or otherwise howsoever from supplying diesel in Australia that does not comply with the Fuel Standard (Automotive Diesel) Determination 2001 for a period of 2 years from the date that this order is made.
That the Respondent pay civil penalties as follows: (a) in relation to the contravention of s 12AA of the Fuel Quality Standards Act 2000 on 30 May 2013, $28,000 (b) in relation to the contravention of s 12AA of the Fuel Quality Standards Act 2000 on 20 June 2013, $5,000.
That the Respondent pay the Applicant's costs in the sum of $27,000.
That the civil penalties and costs ordered in orders 3 and 4 above, be paid on or before 30 May 2014. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ANNEXURE A

[2]

[8]

Agreed Facts 10 Fairglen has no history of criminal or civil contraventions. Prior to the incidents which gave rise to the proceeding, Fairglen had not been the subject of regulatory action. 11 The Lambeski family has operated the service station since 1991. Initially, it was a "FoodPlus" service station. In December 2004, Fairglen entered a supply agreement with Liberty Oil Corporation Pty Ltd ("Liberty") which, in essence, allowed Fairglen to trade using Liberty's branding, and restricted Fairglen to purchasing fuel from Liberty. The service station thereafter operated under the Liberty brand. 12 Since executing the supply agreement, Fairglen purchased fuel only from Liberty, which conducted regular checks to ensure that Fairglen was not using or selling fuel purchased from any other source. Liberty carried out a regular "reconciliation" in which it calculated the quantity of fuel purchased by Fairglen from Liberty in a given period, subtracted the quantity of fuel sold over the same period, and reconciled the remainder with the quantity left in the tank. 13 Under the supply agreement, Fairglen ordered fuel from Liberty on 24 hours' notice at a price determined by Liberty in accordance with the supply agreement. Liberty then arranged for its driver to deliver the fuel to the Service Station, where the driver would offload the fuel into a tank. 14 There are three tanks at the Service Station, one of which is used for diesel. There are six pumps. Four are for petrol, one is for LPG and one is for diesel. Pump 11 is the diesel pump, and is the only pump connected to the diesel tank. 15 When delivering fuel to Fairglen, and offloading it into Fairglen's tanks, the Liberty driver always provided Fairglen with a document containing a bill of lading which, inter alia, stated the quantity and source of each fuel product. 16 The document always contained a signed guarantee that the fuel contained in the tanker complied with the requirements of the Fuel Act. 17 Until the events of May 2013, the Lambeskis assumed that all the fuel they sold complied with the Fuel Act, as they only purchased fuel from Liberty and the Liberty driver invariably provided a document guaranteeing that it complied with the Fuel Act.

[9]

The First Inspection - 10 May 2013 and 29 May 2013 18 On 10 May 2013, two fuel inspectors ("the First Inspectors") from the Department of Environment ("the Department") visited the Service Station on a random site inspection in the area. 19 On observing that diesel was being sold and supplied by Fairglen to members of the public from Pump 11, the First Inspectors entered the Service Station and spoke to George Lambeski. They presented him with their identity cards and informed him that they were on site to take a sample of diesel under s 41 of the Fuel Act and gave further information about their inspection processes. The full details of the site visit by the First Inspectors were set out in the affidavit of Robert Scott Sinclair Robertson sworn on 13 June 2013. 20 The First Inspectors took and paid for a sample of two litres of diesel from pump 11. They assigned the sample the number 15415. 21 On 10 May 2013, the diesel from pump 11 was subject to the Diesel Determination, which is a fuel standard determined under s 21 of the Fuel Act. 22 Section 5(2) of the Diesel Determination states that diesel must not have a flash point temperature lower than 61.5°C. 23 The flash point temperature of the diesel fuel sample taken from Pump 11 on 10 May 2013 was 34.5°C. The test result was received by the Department on 29 May 2013. 24 On 29 May 2013, Clare Watson from the Department telephoned George Lambeski and informed him: (a) that a diesel sample taken from the Service Station on 10 May 2013 did not comply with the Diesel Determination, as the flash point temperature was 34.5°C; (b) the flash point was the temperature at which diesel vapour would combust with an ignition source, and a low flash point temperature was a public safety hazard; (c) Fairglen was required to immediately cease supply of diesel that did not comply with the Diesel Determination; and (d) she would forward him a warning letter which contained important information about the non-compliant diesel sample, including a copy of the laboratory report. 25 George Lambeski told Ms Watson that any problem with the diesel must be the fault of his supplier, Liberty, which he would contact and inform of the problem with the diesel. Ms Watson advised George Lambeski that regardless of why the diesel was non-compliant, the Fuel Act prohibited him from selling non-compliant diesel. Ms Watson requested an email address so that she could send him a warning letter explaining what she had just told him. George Lambeski provided his email address: fairglenptyltd@bigpond.com. 26 Following the telephone conversation, Ms Watson forwarded a copy of the warning letter to the email address provided by George Lambeski. 27 The 29 May 2013 warning letter: (a) advised that a sample of diesel collected at an inspection of the Service Station on 10 May 2013 did not comply with the Diesel Determination, in that the flash point temperature was 34.5°C, while the Diesel Determination gave for a minimum flash point temperature of 61.5°C; (b) set out that the supply of diesel that does not comply with the Diesel Determination is a breach of s 12 of the Fuel Act and a contravention of s 12AA of the Act, and detailed the penalties that may apply; (c) enclosed a copy of the Diesel Determination; (d) enclosed a copy of the laboratory report; (e) advised that a low flash point is a public safety issue and can lead to fire or explosion; and (f) directed George Lambeski to "immediately stop the supply of non-compliant fuel and take all steps necessary to ensure that you do not further supply non-compliant fuel". 28 The Department, on the Minister's behalf, also sent the same letter to George Lambeski at Fairglen's registered office.

[12]

Fairglen's action in response to the Second Inspection 40 George Lambeski, having put the "out of order" sign on pump 11 on 30 May 2013, took steps to determine the cause of the low flashpoint and rectify it. 41 On 31 May 2013, George Lambeski telephoned Steve Boyson, the State Manager of Liberty, and told him what had happened. 42 The following day, Mr Boyson visited the service station. George and Zoran Lambeski asked Mr Boyson for instructions on how to rectify the problem. 43 Mr Boyson conducted a fuel reconciliation to check that the fuel in tank 11 had been purchased from Liberty. He concluded that the low flashpoint was not due to adding another supplier's fuel. The Lambeskis and Mr Boyson agreed that Liberty would remove the diesel product remaining in the tank and replace it with fresh diesel. 44 On 3 June 2013, a tanker driver from Just Fuel Petroleum Services Pty Ltd arrived and removed 5110 litres of diesel from Fairglen's diesel tank, leaving 290 litres in the tank. The driver then offloaded a fresh load of diesel of about 6000 litres. 45 Mr Boyson was present during the replacement process. When it was completed, he took a sample of the diesel from tank 11. He told the Lambeskis that he would send the sample to be tested by Intertek Testing Services (Australia) Pty Ltd ("Intertek"), which also conducted the tests the Department used in this proceeding. 46 On 12 or 13 June 2013, Mr Boyson telephoned George Lambeski and advised him that Intertek's analysis showed that the diesel "has passed". 47 Mr Boyson then sent an email to Fairglen and George Lambeski stating (among other things): Sample results taken on Monday night 3rd June 2013 (collected by Mauro 'technician') Result: contaminated diesel- failed Replaced diesel - passed (62 degree flash point) Please contact the govenmnet [sic] this morning 48 The email attached a test report by Intertek addressed to Liberty, showing that sample 53173-2 had a flashpoint result of 62.0. 49 At that point, Fairglen had not sold diesel since the Second Inspection.

[14]

The Third Inspection - 20 June 2013 52 On 20 June 2013, two fuel inspectors ("the Third Inspectors") from the Department visited the Service Station to monitor Fairglen's compliance with the Fuel Act. The Third Inspectors observed that diesel was being sold and supplied by Fairglen to members of the public from pump 11. 53 They presented Mr Lambeski with their identity cards and informed him that they were on site to take a sample of diesel under s 41 of the Fuel Act. 54 The third inspectors took, and paid for, a sample of two litres of diesel from pump 11 and assigned the sample the number 15577. 55 On 20 June 2013, the diesel supplied from pump 11 was subject to the Diesel Determination. 56 The flash point temperature of the diesel sample taken from Pump 11 on 20 June 2013 had a flash point temperature of 44.0°C. 57 On 20 June 2013, Timothy Francis from the Department telephoned George Lambeski and informed him: (a) the diesel sample taken that day did not comply with the Diesel Determination, in that the flash point temperature was 44.0°C; (b) flash point is the temperature at which diesel vapour will combust with an ignition source, and a low flash point temperature is a public safety hazard; and (c) Fairglen must immediately cease supply of diesel that does not comply with the Diesel Determination. 58 It was not disputed that Mr Lambeski had assumed, based on the test results provided by Liberty, that the diesel fuel met the standards. He stated that he would stop selling diesel and would contact Liberty again to try to find out why the diesel was non-compliant. 59 On 20 June 2013, Mr Francis forwarded a copy of a warning letter to the email address: fairglenptyltd@bigpond.com. The warning letter: (a) advised that a sample of diesel collected at an inspection of the Service Station on 20 June 2013 did not comply with the Diesel Determination, in that the flash point temperature was 44.0°C, when the Diesel Determination allows for a minimum of 61.5°C; (b) advised that the supply of diesel that does not comply with the Diesel Determination is a breach of s 12 of the Act and a contravention of s 12AA of the Act, and gave details of the penalties that may apply; (c) stated that "the alleged supply of non-compliant fuel may also be in breach of the injunction ordered by the Federal Court and further action may be taken against you for that breach"; and (d) directed Mr George Lambeski to "immediately stop the supply of non-compliant fuel and take all steps necessary to ensure that you do not further supply non-compliant fuel". 60 Following the delivery of the warning letter by email on 20 June 2013, Fairglen ceased selling and supplying diesel fuel.

[15]

Fairglen's actions since 20 June 2013 61 Fairglen did not sell diesel after 20 June 2013. 62 On 25 June 2013, Zoran Lambeski telephoned the Minister's solicitors and advised that he had arranged for the diesel fuel tank to be tested by Jim Wilde from Fleetwood Petroleum Installations, who would produce a report which would confirm that Liberty was responsible for the non-compliant fuel and that the diesel fuel pump at the Service Station was not at fault. On 26 June 2013, Zoran and George Lambeski sent the department a copy of a letter from Mr Wilde dated 24 June 2013 and claimed that the report cleared Fairglen of any wrongdoing. 63 Mr Wilde's letter stated his belief that the tank had been installed on an angle which would not allow for the complete removal of any originally contaminated fuel from the tank. Mr Wilde also observed that there was a large build-up of sediment in the base of the tank and suggested that the tank be cleaned. 64 After 20 June 2013, Fairglen took a number of steps and incurred various expenses and losses in attempting to rectify the problem. They were as follows: (a) 3000 litres of non-compliant diesel fuel was removed from the diesel tank. The cost of fuel lost was $4,500.00 and the cost of fuel removal was $500.00; (b) Leighton O'Brien was engaged to clean out the diesel fuel tank at a cost of $4,958.25; (c) Intertek was engaged to conduct on-going fuel testing at a total cost of $768.63; (d) The on-going loss of profit from diesel fuel sales since 20 June 2013 was estimated to be $320.00 per month; (e) On 7 October 2013 Fairglen arranged for DJ Petroleum Pty Ltd to carry out further rectification works to the diesel tank at a cost of $2,915.00. 65 The agreed statement of facts stated: 70. Fairglen continues to seek to identify the cause of non-compliance. They intend to investigate fully and ensure that the problem is fixed, before selling diesel again. 71. As a result of this proceeding, and the very significant sum it has and will cost them in penalties and costs, the Lambeskis are now keenly aware of their obligations under the Fuel Act, and the consequences of breaching them. 72. They recognise the potential risk to the public caused by them holding, and selling, non-compliant diesel, and are sorry to have played a part in the existence of that risk. 73. For these reasons, the Lambeskis have no intention of breaching the Fuel Act again. However, given Fairglen's past non-compliance, the Lambeskis recognise that the Department and the Court may want more than a simple assurance. For that reason, they have agreed to consent to an injunction for two years, which reinforces the requirements of the Fuel Act with respect to the sale of diesel. Furthermore, they have agreed to enter in to an enforceable undertaking, in the form of Annexure B, to ensure that The Department is able to test at regular intervals any diesel it sells or supplies.

[19]

Civil Penalty 75 The Minister also sought orders that a civil penalty be paid pursuant to s 12AA of the Fuel Act in relation to two breaches of s 12AA of the Fuel Act on 30 May 2013 and 20 June 2013 respectively. 76 Subject to the Court's overriding discretion, the parties reached agreement on the civil penalty that should be awarded by the Court for each breach. In Secretary, Department of Health & Ageing v Pagasa Australia Pty Ltd [2008] FCA 1545, Flick J considered the factors relevant to determining an appropriate penalty, including the parties' agreement on the civil penalty and its appropriateness. 77 His Honour observed at [38]: Agreement between the parties as to both those facts relevant to a conclusion as to contravention of a civil penalty provision, and the quantification of any penalty to be imposed, is a course which has long been embraced (and encouraged) by this Court in respect to other statutory regimes. 78 Flick J nevertheless stated at [42]: The requirement for the Court itself to be satisfied as to the appropriateness of a penalty is a responsibility which ultimately derives from s 71 of the Commonwealth of Australia Constitution Act and is not a responsibility which can be circumscribed by private agreement. 79 In the present case, the parties invited the Court to make the agreed orders, on the basis that they have been arrived at after extended discussions, and were reasonably open on the basis of the agreed facts. 80 In Minister for Sustainability, Environment, Water, Population and Communities v De Bono [2012] FCA 643 at [15], North J observed: Where parties have come to an agreement over civil pecuniary penalties and other orders the court will accept the agreement provided that the outcome is within the range of outcomes reasonably open on the material before the court. It is not the role of the court to determine whether it would have come to the same conclusions as the parties. This approach, with its in built flexibility, is designed to encourage parties to negotiate reasonable solutions and avoid complex and protracted litigation. There is a consequent benefit to the public in conserving the time and resources of the courts and regulatory bodies that are charged with investigating suspected contraventions. The agreement of the parties in this case is therefore examined with this approach in mind. 81 The parties jointly submitted that the following factors were relevant in this case: (a) In relation to the 30 May 2013 breach: (i) the maximum penalty that can be ordered is 2,500 penalty units, or $425,000; (ii) the flash point of the diesel that was sold on 30 May 2013 was 23°C which was significantly below the required flash point of 61.5°C and gave rise to a potentially significant safety risk to the public and the environment; (iii) there was no actual known loss or damage caused by the breach; (iv) Mr George Lambeski had been requested to stop supplying the non-compliant diesel both verbally and in writing on the evening of 29 May but Fairglen continued to sell diesel on 30 May, and Mr Lambeski claimed that the non-complaint diesel was the responsibility of his supplier, Liberty; (v) when approached by the inspector on 30 May, Mr Lambeski claimed not to have received the email from the Department and not to have understood that diesel sales were to cease. Mr Lameski was then asked to show his emails which revealed that the email from the Department had been received and that the warning to cease supplying non-compliant diesel was stated clearly; (vi) after the inspector's visit on 30 May, the Respondent stopped supplying the non-compliant diesel and took steps to have the diesel removed and replaced by Liberty; (vii) Liberty arranged for testing of the diesel which, by test results provided by Intertek to Liberty on 12 June 2013, and by Liberty to Fairglen on 13 June 2013, showed that the sample taken following the replacement of diesel in tank 11 had a compliant flashpoint of 62.0; (viii) Liberty encouraged Fairglen to contact the Department in relation to these test results; (ix) Fairglen contacted the Department, on 13 June 2013, to inform it of the test results and of Fairglen's intention, on the basis of those results, to recommence supply of diesel, and advised the steps it had taken to dispose of the non-compliant diesel. It also cooperated with the request to provide the results of the testing of the replacement diesel and sale records for the period between 30 May and 13 June; (x) the Respondent acted incorrectly on the assumption that the quality of fuel delivered had been the cause of the non-compliant diesel. It did not have the tank tested or proactively monitor ongoing compliance between 13 June, when it received the Intertek test result from Liberty, and 20 June when the Third Inspectors returned to the Service Station; (xi) the Respondent's actions proved to be inadequate, in that non-compliant diesel was again detected on 20 June 2013. (b) In relation to the 20 June 2013 breach: (i) the maximum civil penalty that can be ordered is 2,500 penalty units, or $425,000; (ii) the flash point of the diesel being sold was 44°C which gives rise to a significant safety risk to the public; (iii) there was no actual loss or damage caused by the breach; (iv) the breach was also a breach of the interim injunction that was in place (although no charge has been made seeking a penalty for the breach of the injunction); (v) the Respondent had innocently relied on the test result it had obtained on 13 June 2013 showing that the replacement diesel was compliant and acted on the belief that the diesel it was selling after that date complied with the flashpoint requirement in the Diesel Determination; (vi) the respondent took no steps between 13 June and 20 June 2013 to monitor its own compliance and had the Department not returned to the site, would have continued to sell non-compliant diesel; (vii) having been told about the further non-compliant test result, the Respondent initially continued to maintain that the non-compliance was not its fault. It provided a "report" dated 24 June described as a "document to clear Fairglen from any wrong doing" demonstrating that the Respondent still had not accepted responsibility for the breaches. (viii) However, since obtaining legal representation, and in the course of discussing an appropriate outcome, Fairglen (through the Lambeskis) now appreciates that the Fuel Act effectively requires a seller or supplier of fuel to independently to ensure that the fuel complies with the standards made under the Fuel Act, and may not simply rely on assumptions based on supply of fuel. (c) In relation to both breaches: (i) Although the respondent did not attend the Court on 4 June 2013, it has since obtaining legal advice has [sic] been cooperative and willing to reach agreement on all matters before the Court; (ii) Given the size and financial position of Fairglen, the penalties, and costs, order [sic] by the Court will have a significant impact on it. 82 The parties agreed that the following civil penalties, to be made on or before 30 May 2014, were appropriate: (a) in relation to the 30 May 2013 breach, $28,000; and (b) in relation to the 20 June 2013 breach, $5,000. 83 The respondent consented to an order that it pay the Minister's costs, limited to the sum of $27,000.

[20]

Consideration 84 In Minister for Sustainability, Environment, Water, Population and Communities v Gas Point Guildford West Pty Ltd [2013] FCA 621 ("Gas Point"), Rares J imposed a combined pecuniary penalty of $22,500 in respect of a breach of standards made under the Fuel Act. Rares J also ordered costs (of approximately $80,000) in favour of the Department. Rares J considered the combined total of penalty and costs in making his decision. 85 In Gas Point, the Department advised the respondent on 15 February 2013 that diesel it had tested earlier that day was non-compliant as it contained excessive sulphur. 86 Rares J accepted that respondent's director intended to take steps to replace and not sell the non-compliant diesel, but he did not require confirmation from the supplier of the replacement fuel that it was compliant. Further, due to the director's misapprehension about tank connections, the new fuel did not effectively replace the old fuel. 87 Rares J rejected the respondent's submission that no pecuniary penalty should be imposed given its good record, poor financial position, the fact that no loss or damage was suffered by any other person and in this regard no customers complained, and appropriate response to being notified of the non-compliance and the merely accidental nature of its further non-compliant supply. 88 His Honour considered the purpose of the standard (made under the Fuel Act) and the likely familiarity of service station operators with the regime under the Fuel Act. He observed that the respondent provided no evidence of the provenance of the non-compliant fuel and did not take adequate steps to satisfy itself that each delivery of fuel complied with the Fuel Act and standards. Moreover, the respondent's steps to remedy the position, although real, betrayed carelessness. 89 Accordingly, his Honour made declarations of the contraventions and ordered that the respondent pay a pecuniary penalty and be restrained from supplying diesel in Australia for two years that did not comply with the relevant standard and pay the applicant's costs. 90 In Minister for the Environment v Shri Ganesh Associates Pty Ltd [2013] FCA 1118 ("Shri Ganesh"), the Minister sought declarations and injunctions in relation to the respondent's contravention in selling and supplying diesel with a flash point temperature lower than that prescribed on two occasions. Although the Minister initially sought the imposition of a civil penalty under s 12AA of the Fuel Act, it did not press for, and the Court did not impose, such an order. 91 In Shri Ganesh, the respondent immediately and voluntarily took appropriate steps and effective steps to rectify the problem and ceased to sell or supply the diesel. 92 In the present case, Fairglen did not respond immediately, diligently and appropriately to being notified that the diesel was non-compliant but initially continued to supply and sell it. The sale or supply of the non-complying fuel posed a significant risk to public safety. 93 Despite its unsatisfactory initial reaction, Fairglen, within a very short space of time, cooperated with the Department and took genuine steps to rectify the problem. At the time of the hearing, the cause of the non-compliance remained unknown. 94 I accepted that Fairglen's second supply or sale of non-compliant diesel was unintended and that the respondent was not, on that occasion, without grounds for its incorrect assumption that the diesel fuel complied. Nevertheless, Fairglen at that point still failed to appreciate and acknowledge the nature and extent of its responsibility under the Fuel Act. Fairglen was, however, ultimately fully cooperative, took all necessary steps in an attempt to rectify the problem, appropriately acknowledged its responsibilities under the Fuel Act and incurred expenses, which were very significant relative to the modest scale of its assets and business. 95 I was satisfied that, as the parties submitted, the sum of $33,000 sought by way of penalties in this case was broadly consonant with the approach in Gas Point and other comparable cases. Further, the sum was reasonable, particularly taken together with the injunction and the enforceable undertaking. I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton.