Environment Protection Authority v BHP Steel (AIS) Pty Ltd

[2000] NSWLEC 19

Land and Environment Court

of New South Wales

CITATION:	Environment Protection Authority v BHP Steel (AIS) Pty Ltd [2000] NSWLEC 19
PARTIES:	PROSECUTOR: Environment Protection Authority DEFENDANT: BHP Steel (AIS) Pty Ltd
FILE NUMBER(S):	50137, 50138 and 50139 of 1998
CORAM:	Talbot J
KEY ISSUES:	Prosecution :- pollution of waters - plea of guilty - mitigation - costs and penalty
LEGISLATION CITED:	Clean Waters Act 1970 s 16(1) Environmental Offences and Penalties Act 1989 s 9 Land and Environment Court Act 1979 s 52 Pollution Control Act 1970 s 17DD(9) Protection of the Environment Operations Act 1997 s 241
CASES CITED:	EPA v BHP (AIS) Pty Ltd (1996) 89 LGERA 358; Veen v The Queen [No 2] (1987-1988) 164 CLR 465
DATES OF HEARING:	15/12/99, 16/12/99, 21/12/99, 22/12/99
DATE OF JUDGMENT:	02/08/2000
LEGAL REPRESENTATIVES:	PROSECUTOR: Mr D Buchanan SC SOLICITORS: Environment Protection Authority DEFENDANT: Mr M Brennan (Solicitor) SOLICITORS: Blake Dawson Waldron

JUDGMENT:

IN THE LAND AND Matter No. 50137-9 of 1998
ENVIRONMENT COURT Coram: Talbot J
OF NEW SOUTH WALES Decision Date: 8 February 2000

Environment Protection Authority
Prosecutor

v
BHP Steel (AIS) Pty Ltd

Defendant

REASONS FOR JUDGMENT

1. The defendant company appears to face three charges as follows:-


(i) That on or about 24 November 1997 at Port Kembla it committed an offence against the Environmental Offences and Penalties Act 1989 in that it being the holder of a licence issued under the Pollution Control Act 1970 did contravene condition S3(a) to maintain all plant and equipment in a proper and efficient condition contrary to s 17D(9) of the Pollution Control Act 1970.

(ii) That on or about 24 November 1997 at Port Kembla it committed an offence against the Environmental Offences and Penalties Act 1989 in that it did pollute the Ironmaking East Drain; and/or Inner Harbour of Port Kembla with ammonia; and/or cyanide contrary to s 16(1) of the Clean Waters Act 1970.

(iii) That on or about 25 November 1997 at Port Kembla it committed an offence against the Environmental Offences and Penalties Act 1989 in that it did pollute Flat Products East No. 1 Drain; and/or Inner Harbour of Port Kembla contrary to s 16(1) of the Clean Waters 1970.

The facts

2. On 24 November 1997, the Port Kembla Steelworks suffered a power failure which resulted in a total power loss to all plant. Initial investigation and subsequent reports attributed the initiation of the power loss to a cable failure in the high voltage terminal box of the transformer connected to circuit 4.005.

3. It is not in dispute that the propagation of the failure resulted in a total plant blackout, which precipitated consequential environmental emissions, equipment damage and business losses.

4. An internal report prepared in 1997 attributes the initial failure to a short circuit fault in the terminal box. Because the transformers were overburdened, the instantaneous overcurrent and earth fault relays failed to operate. The oil circuit breaker feeding the short circuit and inverse overcurrent relays on the incoming feeders did not trip with the consequence that the high voltage (HV) cable carried excessive current resulting in spot fires. Oil leaked from the transformers and was ignited by arcing at the end of the cable which detached from the cable box. Burning oil from the transformer set fire to low voltage (LV) cables in the trench behind the transformer bays.

5. The report identified the fact that circuit 4.005 was energised but not in active service as a contributing factor in the incident. Two considerations were identified as having brought about the practice of leaving HV circuits energised as follows:-


_ the reliability of a hot standby supply is improved when needed if it remains energised. The reason is, if a fault develops it is recognised early;

_ paper insulation, employed in paper insulated cables is hygroscopic. It has been common practice to reduce the load on such cables and keep them in active service to prevent moisture ingress.


6. Immediately prior to the commencement of the hearing, the defendant informed the prosecutor that, notwithstanding an earlier presumption to the contrary, the re-energisation of circuit 4.005 was not authorised by its Energy Services Power Distribution Team.

7. The company agrees that had the circuit not been energised, the fault would not have occurred.

8. Although it is not absolutely clear how it occurred, the fault in the cable was as a result of moisture entering the cable box.

9. There is considerable conflict in the evidence from experts regarding technical matters and alleged defects in the plant electrical system.

10. There is consensus among the experts that the installation of an interposing current transformer (CT) in 1963 deprived the primary CT in circuit 4.005 of its protection function. This was demonstrated by tests that were carried out and recorded in 1963. Although in the context of an inspection carried out during normal maintenance the defect would have been latent, nevertheless, the error could have been discovered by resort to the results of the testing undertaken in 1963.

11. However Larry Stephen Parkes, the Chief Electrical Engineer, Engineering Technical Services, Flat Products Division of the defendant company, gave evidence that other circuits at the defendant’s premises using the same 15 Class CTs have tripped on inverse overcurrent and operated the circuit breaker.

12. The prosecutor has not established beyond reasonable doubt how the offending moisture entered the transformer box. There is some evidence of corrosion on the top of the transformer which is inconclusive because it is based upon an inspection which took place some 12 months after the incident occurred, during which time the transformer had been standing in the open. There is some contemporary evidence which confirms that the compound filler spout cap bolts on the transformer were corroded and Mr Parkes recognises that it is possible that moisture entered the transformer at that point, although he also postulated the possibility that there may have been other means by which the moisture entered.

13. Professor Blackburn, Associate Professor of Electrical Engineering and Telecommunications at the University of New South Wales, was asked by the prosecutor to examine the circumstances involved in the electrical systems failure. He was critical of the lack of knowledge of the exact prospective fault currents in the power circuit to ensure a fast response and rapid isolation of the faulted circuit from the supply to minimise damage. Mr Parkes agreed that a reasonably accurate knowledge of prospective fault levels is required for complex protection systems but for very simple circuits, such as a motor feeder, a more general figure for prospective fault levels will often be sufficient. It is Mr Parkes’ belief that if the CT had not been overburdened, the instantaneous overcurrent relay would have operated. He acknowledged that the protection for the subject motor circuit was set without reference to fault levels because precise fault levels are not necessary to set the protection for a circuit as simple as 4.005.

14. Gary Brennan is responsible for Integral Energy’s transmission, mains and technology systems. He reviewed a large number of documents provided to him by the solicitor for the EPA and inspected the steelworks at Port Kembla on 2 November 1998. Mr Brennan unremarkably concluded that water ingress into the transformer cable termination box was the most probable cause of the initial fault and that the inadequacy of the CTs resulted in a non-functioning of the protection circuit of 11 KV circuit 4.005. In his opinion the water ingress may have been avoided by carrying out routine preventative maintenance and that a review of the commissioning data of circuit 4.005 should have identified the inadequacy of the CTs.

15. Mr Parkes identified the root cause of the incident as an error in design and commissioning when the interposing CT was installed in 1963. This caused a latent defect in the protection system that could not have been identified by routine maintenance or testing since that date. It appears that the engineer who implemented the modification in 1963 was not aware, for reasons not known to Mr Parkes, of the shortcomings caused by interposing the CT.

16. Mr Parkes does not agree with Mr Brennan that routine maintenance may have detected that moisture was entering the cable box. All 411 high voltage transformers at Port Kembla are part of a programmed maintenance schedule. He says that even if the subject transformer had not been treated as decommissioned and was still subject to the maintenance programme routine, maintenance may not have detected the moisture penetration.

17. Further, in Mr Parkes’ opinion, the type of CT installed did not contribute to the protection system design error. In his opinion, the actual cause of the incident was an error in design and commissioning when the interposing CT was installed in 1963. This caused a latent defect in the system that could not have been identified by maintenance or testing since that date.

18. It is the Court’s conclusion that the failure to detect the defect in the protection system on circuit 4.005 led to the total power failure in the plant when the short circuit occurred in the cable box of the CT attached to circuit 4.005. Although the circuit was listed as “spare” after the pump connected to it had been decommissioned and removed, the circuit had been re-energised since 1996. Irrespective of the circumstance that the circuit may have been re-energised without authority, the company nevertheless was required to maintain that part of its plant and equipment in a proper and efficient condition and it failed to satisfy this requirement under the licence.

19. Notwithstanding that the defendant has entered a plea of guilty to each charge, the hearing has taken four days during which time the prosecutor spent a significant amount of time seeking to prove that the actions of the defendant aggravated the offence beyond the extent to which the company had confessed. This required the Court to become unnecessarily embroiled in complicated and confusing technical evidence.

20. Ultimately the prosecutor’s “cause” was taken no further. The underlying catalyst for the shutdown was the failure of the protection system on circuit 4.005 to operate in the circumstances where the transformers were overburdened.

21. Following the short circuit in the transformer box, cable detached from the cable box. Arcing at the end of the cable burnt holes in the transformer allowing oil to leak from the transformer bay. Burning oil set fire to cables in the trench behind the transformer bay.

22. The consequences were that fires along the cable route caused damage to other cables resulting in short circuit failures and loss of interconnections between No 1 and No 2 works. Ultimately all imported power supply to the works was disconnected when the incoming feeders protection schemes interpreted a short circuit in the pilot protection cable as a feeder failure, causing circuit breakers on the incoming feeders to trip.

The environmental consequences of the plant failure

23. It was reported that a loss of steam as a result of the power failure precipitated the loss of the exhausters at the coke ovens which allowed the discharge of some un-flared coke oven gas into the atmosphere. Bleeders ignited within several minutes of the failure and stand pipes that were opened to reduce pressure on the batteries were also ignited. For safety reasons a decision was made to extinguish six stand pipes. These caps were opened, unignited for a period of one hour. The bleeders were ignited on the batteries for about seven hours. A heavy emission of yellow/brown smoke from the northern end of the No 6 coke ovens was observed.

24. There was a further minor red roof emission for several minutes when the loss of power stopped the de-dusting system in No 3 furnace.

25. The evidence from the prosecutor’s expert witnesses is that coke oven emissions contain substances including particulate matter, sulphur compounds, polycyclic aromatic hydrocarbons and other organic chemical compounds such as benzine, all of which have the potential to cause adverse effects on human health, particularly on the respiratory system. There is no evidence of any increase in the rate of daily report for respiratory problems to Illawarra emergency departments following the event.

26. A brown discolouration in Allans Creek was caused by discharges of salt water from the plate mill and the dust collecting system overflowing at the Basic Oxygen Steelmaking Plant.

27. To maintain the integrity of the collector main at the coke ovens, fresh water was added to the Flushing Liquor System. This in turn, caused an overflow of flushing liquid to both the No 4 blast furnace settling pit and to the coke oven recovery basin which discharges to the Ironmaking East Drain.

28. A white milky discharge was observed in the Flat Products East No 1 Drain.

29. An oily water discharge from a cooling unit also occurred through the Flat Products East No 1 Drain following the sudden pressure increase when the power resumed.

30. Sampling showed the release of cyanide and ammonia in excess of licence authorised concentrations into the Ironmaking East Drain.

31. Although 24 dead fish were observed in the area of the Flat Products East No 1 Drain, their deaths have not been directly attributed to the observed discharges from the plant.

32. The Court accepts the evidence of expert ecotoxicologist, Fleurdelis Pablo, that the discharge containing ammonia and cyanide that ultimately drained into Port Kembla Inner Harbour would have caused a change in the chemical composition of waters in the drain itself and in the immediate vicinity of the discharge point, thereby causing moderate to highly acute toxicity in aquatic organisms. She would expect a mixing effect as the discharge from the drain enters the harbour so that the potential acute toxicity zone would have been a very small area localised around the discharge point.

33. John Colin Chapman, currently employed by the EPA as Manager of the Ecotoxicology Section, told the Court that a combination of smothering effects of the oil component and any toxic effects of the water soluble fraction of the oil would be a set back in the recovery of the Inner Harbour and Allans Creek environment. The oily material on the surface of the water would have caused direct toxicity from the more soluble low molecular weight oils and low volatility components and have the effect of a smothering of biota as it came into contact with the floating slick.

Practical measures to prevent, control, abate or mitigate environmental harm

34. I agree with the submission by Mr Buchanan SC on behalf of the prosecutor that it was open for the defendant to take practical measures whereby it could ensure the protection system for circuit 4.005 in fact worked. This could have been done by appreciating and understanding the record of the results of the testing performed in 1963.

35. To a lesser extent the defendant could have taken steps to ensure that the transformer was properly maintained and that corrosion did not permit moisture to enter any part of the box. However, the company’s failure to act in this respect is explained by the listing of the transformers as spare or decommissioned. Nevertheless, as a matter of practicality, the defendant should have in place systems and procedures which ensured the identification of all circuits that have been energised or at least that no circuit can be re-energised without authority.

36. The prosecutor, through Professor Blackburn, also suggested that the pilot protection cables should have been protected from the risk of fire damage by thermal coating or other covering. Professor Blackburn told the Court that while it is not uncommon for major power cables to be laid in the ducts or troughs, it is not normal to run the main protection pilot wires in the same ducts. However, if it is imperative to have the protection cables run in the same ducts as power cables, then at the very least in his opinion the protection cables should be of the high temperature type with mica tape insulation on the conductors.

37. Mr Parkes disagreed with this conclusion which he said would be valid if there was only one pilot protection cable and the consequence of a failure meant that the protection system would not fail to safety. He explained that most cables had been in place for more than a decade, and some would date back to the late 1950s, with no problems ever being reported. Further, the resulting failure of the pilot protection cable due to fire damage was a failure to safety. Mr Parkes assessed the risk of a fire caused by a cable fault as at least three or four orders of magnitude lower than a fire due to liquid, metal spills or hot work. Hazard and risk assessments undertaken in previous years identified segregation, by means of distance, as a suitable means of protecting the cables in the unlikely event of a fire caused by a cable fault.

38. The Court nevertheless accepts that thermal coating or other protection might be considered to be a reasonable option.

39. A subsequent review by the company highlighted that it is not possible to completely eliminate the risk of fire damage with any of the possible alternate routes available and that most of the routes introduce new hazard with potentially similar consequences.

40. The Court appreciates that the management of a steel plant the size of the Port Kembla works is a complex operation and that risk assessment is an ongoing process. The company plans to implement the installation or application of fire protective coatings to the pilot cables to reduce the risk of damage in the event of a fire during this financial year.

Foreseeability

41. The prosecutor is not seeking an order that any remedial action be taken in regard to the protection of the pilot cables.

42. It is suggested by the prosecutor that the defendant had not followed up on a promised modification to the bleeder and igniter systems noted by Pearlman J in EPA v BHP (AIS) Pty Ltd (1996) 89 LGERA 358 at 362. The evidence from the defendant is to the contrary. It has been explained that the exhausters which draw away the gases produced in the ovens can fail from time to time because of the loss of electric power or the loss of steam. When this happens the raw gases must be bled to the atmosphere through emergency relief valves referred to as bleeders. To prevent pollution by the raw gases it is desirable to burn the gases as they are emitted from the bleeders. The company says that it has spent over $300,000 on an electronic ignition system on four coke oven batteries. In the meantime, one other battery has ceased to operate. When the exhausters failed on 24 November 1997, 11 out of the 14 battery bleeders ignited within several minutes. Stand pipes that were open to reduce pressure on the batteries were also ignited. Six stand pipes were subsequently extinguished because of their proximity to several service mains for liquor, air, gas, steam and water.

43. The Court is not prepared to find on the evidence before it that the company has not proceeded with the modifications referred to by the Chief Judge in 1996.

44. Her Honour also noted that a checking program had been put in place in relation to circuit maintenance. It should be borne in mind that the initial protection circuit which failed to operate was, at the time, regarded as being out of service.

45. It is trite to say that the defendant could foresee that if a protection circuit failed, then consequential damage could occur within the electrical system including fires which might lead to a shutdown of the system.

46. Nevertheless the Court is impressed by the fact that following what must be regarded as a serious incident, various breakers and safety mechanisms within the system ultimately operated to close the plant down. It is not surprising that in the process some environmental consequence ensued. The limited emissions to the air and waters outside the plant in one sense must be regarded as a tribute to the diligent manner in which BHP attempts to discharge its responsibilities to minimise the extent of pollution as a consequence of its operations in the event of plant failure.

47. The limit to which the company has control over all contingencies must be assessed in the context of a steelworks which occupies an area of eight square kilometres with a workforce of around 6,900 persons and an electricity distribution network consisting of more than 1,000 circuits and including 411 high voltage transformers.

Finding the offence proved and mitigating circumstances

48. I agree with the submission made by Mr Brennan on behalf of the defendant that, because of the unauthorised re-energisation of circuit 4.005 after 1996, the offence is in fact the failure to reinstate that circuit to the maintenance regime. If reinstated the corrosion in the transformer box may have been detected and it is possible that the entry of moisture could have been prevented. It is however important to add that the protection function of circuit 4.005 was inherently faulty and accordingly the failure to appreciate, from the material contained in the company’s records, that the CTs were overburdened amounted to a breach of the condition that the equipment be maintained in an efficient condition. The lack of knowledge in regard to the re-energising of the circuit is only an explanation of why the equipment was dropped from the maintenance program. The fact that it was energised meant that the condition of the licence required that it be maintained. This was not done.

49. I also agree with Mr Brennan that although the flaring gas from the coke oven bleeders temporarily created a dramatic skyscape, the incident did not cause any significant environmental harm. There is no evidence of any direct injury or health impact to BHP employees or other persons on or off the steelworks site.

50. There is no evidence of any direct harm or death to any biota caused by either of the events the subject of the two water pollution charges. As I said earlier, there is no evidence to connect the death of 24 fish to either the discharge of flushing liquor to the Ironmaking East Drain or the discharge of oil to the Flat Products East No 1 Drain.

51. Since the subject incident occurred on 24 November 1997, BHP has reviewed its practice and policy associated with decommissioned circuits and stand by circuits so that they are locked out and cannot be re-energised without approval.

52. In relation to the oil discharge, it was not large, there was a prompt and effective clean up and any environmental impact was minor and of a temporary duration.

53. The actual amount of the discharge of flushing liquor was not determined. There were no observed deaths of any biota and the toxicity of the discharge was substantially diluted as it entered the Inner Harbour.

54. The Court agrees with the defendant’s submission that there is no evidence of any significant environmental impact caused by the red roof emission and that the emissions from the coke ovens caused no observed impact on any persons or biota.

55. The responsible officers of BHP reacted openly to the investigation by the EPA and detailed reports were promptly commissioned and provided.

56. It is fair to say that the incident has been fully and thoroughly investigated, following which a series of recommendations have been made and implemented to ensure that impacts in the future can be minimised.

57. The defendant has incurred substantial financial costs as a result of the incident, currently quantified as exceeding $10 million. This figure includes the cost of repair and replacement of plant and equipment and the implementation of the recommendations made in its own internal report.

58. It is obvious therefore that the company has already incurred a significant financial burden.

59. According to the analysis undertaken by Mr Brennan on behalf of the defendant, the list of prior convictions furnished to the Court indicates that since 1961 the defendant has been convicted on 26 occasions, including multiple charges arising from the same incident. The Court takes into consideration the nature and size of the Port Kembla Steelworks, the number of persons employed and the number of discharge points authorised by its pollution control licence which flow into Port Kembla Inner Harbour. The Court agrees with Mr Brennan that it is unsurprising that the defendant has a record of prior convictions. They do not sustain a submission that the company has manifested a continuing attitude of disobedience of the law or that it has a dangerous propensity which requires a need to impose condign punishment ( Veen v The Queen (No 2) (1987-1988) 164 CLR 465 at 477).

60. There is evidence before the Court which shows that BHP is already acutely aware of its responsibilities under the environmental legislation and that it takes those responsibilities seriously.

61. The Court is not satisfied beyond reasonable doubt that it may, in the circumstances of this case, act upon any aggravating factors.

62. Following a review of other judgments on penalty for similar charges, the Court agrees with Mr Brennan’s submission that based on the principles of even handedness a fine in the range of up to $25,000 in respect of the breach of licence charge and each of the water pollution charges would be appropriate.

63. After assessing the overall criminality involved in all of the offences which arose out of the same incident, I am of the view that the total penalty should be not less than $40,000. In reaching that conclusion, I have taken into account the extent of environmental harm, the antecedents of the defendant, the mitigating circumstances referred to and identified above and each of the matters formerly in s 9 of the EOP Act but now found in s 241 of the Protection of the Environment Operations Act 1997.

Costs

64. The first return date for the summons in each case was 5 February 1999. A plea of guilty was entered by the defendant on 26 August 1999 when the matter was set down for hearing following confirmation by the prosecutor that all of the material upon which it proposed to rely at the hearing had been made available to the defendant and further that it was not seeking the orders under s 14 of the EOP Act referred to in the summons.

65. The affidavit evidence of Mr Parkes was not sworn until 15 December 1999 and was filed in Court on 16 December 1999. This caused the prosecutor to reconsider its position and ultimately a further affidavit by Professor Blackburn was sworn on 20 December 1999 and leave was granted to deal with the matters raised by Mr Parkes where necessary by oral evidence.

66. Notwithstanding the late presentation of the evidence by Mr Parkes, including the novel disclosure that the re-energisation of 4.005 was unauthorised, the EPA was acutely aware of the company’s response to the incident well before the summons was filed. The BHP internal report and responses to notices issued by the EPA were credible and supported by technical information and expert opinion.

67. It should have been obvious to all concerned at all times that there was a problem with the protection function in circuit 4.005.

68. Mr Brennan made a submission that the hearing on penalty was protracted by the efforts of the EPA to prove aggravating factors in relation to the charge under s 17D of the Pollution Control Act. To that extent at least the defendant submits that, the prosecutor has failed to achieve its objective and accordingly the Court should apply a discount factor to costs to take account of the unnecessary expansion of the hearing time.

69. The consequence of this submission is that there is no agreement as to costs between the parties.

70. The Court agrees that the aspirations of the prosecutor in that regard have, in general terms, been frustrated.

71. Although there can be no criticism of a prosecutor who pursues a result commensurate with the seriousness of the offence, it is reasonable to expect that where there is a plea of guilty and the seriousness of the offence is not generally in dispute, every effort should be made to be economical with the Court’s time and the expense to the parties.

72. The extension of the hearing from the original two days to the four days which it took to complete the matter was in some degree a reflection of the late disclosure of the formal evidentiary response by the defendant. I am not satisfied therefore that this is a case where a proportionate costs order should be made.

Orders

73. The formal orders of the Court are:-


1. In matter No 50137 of 1998 the defendant is convicted of the charge set out in the summons that it committed an offence by contravening a condition of its licence contrary to s 17D(9) of the Pollution Control Act 1970.

2. In matter No 50137 of 1998 the defendant is fined the sum of $25,000.

3. In matter No 50138 of 1998 the defendant is convicted of the charge set out in the summons that it committed an offence in that it did pollute waters contrary to s 16(1) of the Clean Waters Act 1970.

4. In matter No 50138 of 1998 the defendant is fined the sum of $12,000.

5. In matter No 50139 of 1998 the defendant is convicted of the charge set out in the summons that it committed an offence in that it did pollute waters contrary to s 16(1) of the Clean Waters Act 1970.

6. In matter No 50139 of 1998 the defendant is fined the sum of $8,000.

7. In each of the matters 50137 of 1998, 50138 of 1998 and 50139 of 1998 the defendant is ordered to pay the costs of the prosecutor as agreed or if there is no agreement in accordance with the regulation made under the Land and Environment Court Act 1979.

8. The exhibits may be returned.