Natural Resources Access Regulator v Lidokew Pty Ltd

Nature of proceedings

1. Lidokew Pty Ltd (the Defendant) had been charged with six offences against the Water Management Act 2000 (NSW) (WM Act). The Defendant pleaded not guilty to each of the offences and after a hearing I determined in Natural Resources Regulator v Lidokew Pty Ltd [2023] NSWLEC 130 (Lidokew No 1) that the Defendant was guilty with respect to three of the offences. These proceedings relate to the sentencing of the Defendant with respect to the three charges.

Facts

1. The relevant facts relating to the determination of the appropriate sentence are those agreed between the parties and tendered as admissions in the sentence proceedings, as summarised below. The offences 1. On 28 November 2023, Lidokew Pty Ltd ACN 002 942 289 (the Defendant) was found to have committed three offences against s 911(2) of the Water Management Act 2000 (the Act), namely taking water by means of a metered work while its metering equipment was not operating properly. Each offence concerned the same charge period, the period 29 January 2019 to 28 April 2019. The Defendant 1. The Defendant is an Australian company registered on 4 June 1985. Mr Gary Phelps is the Defendant's sole director and secretary. The Defendant is a proprietary company limited by shares, with a share capital comprising 77 ordinary shares. Havana North Pty Ltd is the majority shareholder, holding 75 ordinary shares in the Defendant. The remaining 2 ordinary shares are held by Mr Phelps. The Property 1. The offences occurred at a property located at 1563 Doreen Lane, Wee Waa NSW (Lot 1 DP 1128755) known as "Havana North" (the Property). The Defendant was the registered owner of Havana North, which is approximately 1,225 hectares in size. Image 1 above is an aerial map showing the boundaries of Havana North. 2. Havana North is located near Wee Waa in Northern NSW, approximately 41 kilometres north­west of Narrabri. The relevant Local Government Area is Narrabri Shire. At all relevant times, the Defendant used the property primarily for cotton production. 3. At all relevant times, the Defendant took bore water from the Lower Namoi Groundwater Source by using three metered works installed at Havana North. At the relevant time, the use of that groundwater source was regulated by the Water Sharing Plan for the Upper and Lower Namoi Groundwater Sources 2003 (WSP). Application of Part 2 and 3 of Chapter 3 of the Act 1. At the relevant time, Parts 2 and 3 of Chapter 3 of the Act applied to the Lower Namoi Groundwater Source. Part 2 of Chapter 3 of the Act provides for a system of access licences (known as Water Access Licences (WAL)) in respect of water sources to which it applies. Water access licence and approvals 1. At the relevant time, the Defendant held WAL 12400. The share component of WAL 12400 was 494 units, with an available water determination of 1ML/unit. The annual use limit for WAL 12400 during the charge period was 988ML. 2. The location of the three metered works the subject of the offences correspond with the location of groundwater bore sites on Havana North as follows: the Diesel Pump (extraction site 17637); the Electric Pump (extraction site 105552); and the House Pump (extraction site 17636). Each pump was, and remains, an approved water supply work for the purposes of the Act. At all relevant times, the Defendant held combined approval 90CA806356 for those three water supply works. The indicative location of the three metered works is shown in Image 1 above. Investigation of meter offences at Havana North 1. On 4 December 2018, investigators with the Natural Resources Access Regulator (NRAR) attended Havana North for the purposes of inspecting the three meters associated with the Diesel, Electric and House Pumps respectively. Each of the meters was a Davies Shephard mechanical flow meter. 2. On 4 June 2019, each of the three meters were seized by NRAR investigators in order to test their accuracy. Testing of meters 1. On 25 June 2019, the three meters were taken to Manly Hydraulics Laboratory (MHL) for testing and inspection. Each of the three meters was inspected at MHL by Andrew Judge, an approved signatory for the National Association of Testing Authorities and National Measurement Institute, with expertise and experience in hydraulic and metering testing. In Mr Judge's opinion, each of the meters felt rough when turning the impeller, implying that some of the bearings in the units may be worn or used. In his opinion the wear and tear on the units was consistent with their age. All three units were showing their age but appeared to be sealed with no leakage. 2. The House Pump impeller was new and had the price tag on it. The Diesel Pump impeller and Electric Pump impeller were clearly scuffed and showed signs of discolouration and wear and tear. 3. The meter body, stem and propeller and unit base plate were delivered to Mr Judge. The installed meter pipes connected to the meters when in situ at Havana North were not delivered to him as the meters were welded to long steel pipes. MHL manufactured replica PVC pipes to enable testing. Mr Judge ran each meter through a test rig at low, medium and high flow rates with a calibrated magnetic flow meter as the point of reference. Results showed that each of the three meters was inaccurate across a range of flow rates, as set out below: 1. The product documentation for the relevant Davies Shephard meters specified an accuracy of ± 3%. Accordingly, compared to the factory margin of error, the meters were under-recording by ranges of: 8-8.11% (the Diesel Pump); 6.08-8.97% (the Electric Pump); and 4.98-23.04% (the House Pump). This error rate on each pump meter was likely caused by the wear and tear on the component parts of the meters over time. Recorded water use over the charge period 1. The Defendant's Water Account Statement for the 2018/2019 water year showed usage of each of the three metered works over the period 29 January 2019 to 28 April 2019. The following table shows the recorded water usage, along with calculations of the amount of additional water that could have been taken based on the error rate at each meter being at the lowest and highest ends of the above ranges (that is, taking account of both the factory error rate and the lowest and highest error ranges identified by Mr Judge): Recorded interview with Gary Phelps on 19 December 2019 1. On 19 December 2019, Mr Phelps participated in an interview with NRAR Investigators as the nominated corporation representative for Lidokew. During the course of the interview, the following matters relevant to sentencing were recorded: 1. The meters installed on each bore were old Davies Shepherd meters. They have been there, in Mr Phelps' words "forever"; 2. Mr Phelps had no set maintenance regime for the meters. If he happened to go past them, he would check whether the wheel was turning and make sure they're functioning, and "that's about the limit of it"; 3. Maintenance was only performed when it was brought to Mr Phelps' attention by the meter reader, in which case he would remove the meters and take them to an authorised repairer and get them fixed; 4. This had not occurred very often as far as Mr Phelps was concerned, generally the meters had been pretty reliable. In terms of his water usage, Mr Phelps relied exclusively on the meter readings; 5. On one occasion when a meter reader told Mr Phelps the meter was not functioning, Mr Phelps recalled that he turned the meter straight off and said he would get it attended to. He knew that the meters had been working fine a week earlier as he had checked them. As soon as anything like that was brought to his attention he would respond straight away; 6. As soon as things to do with the meters were brought to his attention he responded. He did not think it was his place to be pulling them out at whatever schedule and checking them. Mr Phelps checked them when driving past to make sure the little wheel is turning and at least he knows they're functioning. That was all he did, not being able to do anymore. He would stop as he was going past, pulled up and read the meter. The meters were repaired or inspected earlier in 2019. He could not tell whether there's something wrong with it or not until it ceases operating. He did not pull them out to see if they're mechanically sound or not. He was not aware of any requirement to remove the meters and send them off to Gunnedah or wherever for accuracy checking and never had to do this. He only replaced impellers when he was asked to pull them out for maintenance. He was of the view that generally the meters were pretty reliable. Normally he did not have to do anything with them. Generally, they're pretty maintenance free. On one occasion recently he was told the meter on Doreen Lane was not working and turned the pump straight off and pulled the meter out and it was repaired. As soon as things were brought to his attention to do with anything with the meters he would respond. He did not think it was his place to be pulling them out at whatever schedule and checking them. "The only thing I do, I check them when I'm driving past to make sure the little wheel is turning and I, at least I know they're functioning. That's all I can do really"; and 7. Mr Phelps believed it was illegal to pull the meters out to have them tested. Mr Phelps never removed the meters for testing. He believed he was not obliged to do so as long as he checked that they were working. Mr Phelps checked the meters on a regular basis to see if they were working.