Environment Protection Authority v Integral Energy Australia Pty Ltd

[2006] NSWLEC 141

Land and Environment Court

of New South Wales

CITATION:	Environment Protection Authority v Integral Energy Australia Pty Ltd [2006] NSWLEC 141
PARTIES:	PROSECUTOR Environment Protection Authority DEFENDANT Integral Energy Australia Pty Ltd
FILE NUMBER(S):	50034 of 2005
CORAM:	Pain J
KEY ISSUES:	Prosecution :- water pollution due to oil leak - lack of bunding - sentencing principles where state-owned corporation is defendant - plea of guilty - mitigating factors
LEGISLATION CITED:	Crimes (Sentencing Procedure) Act 1999 s3A, s21A(3)(i) Energy Services Corporation Act 1995 s5 Protection of the Environment Operations Act 1997 s6(2)(c), s120(1) State Owned Corporations Act 1989 s8, sch.5
CASES CITED:	Axer Pty Ltd v Environmental Protection Authority (1993) 113 LGERA 357; Camilleri's Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683; Environment Protection Authority v Allied Industrial Services Pty Ltd [2005] NSWLEC 501; Environment Protection Authority v Coe Drilling Australia Pty Limited [2005] NSWLEC 719; Environment Protection Authority v Excel Fuels Pty Limited [2002] NSWLEC 160; Environment Protection Authority v Olex Australia Pty Ltd [2005] NSWLEC 475; Environment Protection Authority v Sydney Water Corporation [1999] NSWLEC 60; Environment Protection Authority v Tenterfield Shire Council [2000] NSWLEC 229 ; Environment Protection Authority v Timber Industries Ltd [2001] NSWLEC 25; Environment Protection Authority v TransGrid [2003] NSWLEC 18; JR Bentley v BGP Properties Pty Limited [2006] NSWLEC 34; R v Sharma (2002) 54 NSWLR 300; R v Thomson; R v Houlton (2000) 49 NSWLR 383
DATES OF HEARING:	27/03/2006
DATE OF JUDGMENT:	03/28/2006
LEGAL REPRESENTATIVES:	PROSECUTOR G. Furness SOLICITOR Environment Protection Authority DEFENDANT I. Lloyd QC SOLICITOR Clayton Utz

JUDGMENT:

THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALES

Pain J

28 March 2006

50034 of 2005 Environment Protection Authority v Integral Energy Australia

JUDGMENT

1 Her Honour: The Defendant has pleaded guilty to a charge under s120(1) of the Protection of the Environment Operations Act 1997 (POEO Act), that on or about 9 August 2004, at Minto, New South Wales, the Defendant polluted waters in McBarron Creek. The Amended Summons alleges that the Defendant caused water pollution by:

(a) being the occupier of premises at which transformer oil entered an underground cable bay and stormwater system and then McBarron Creek; and

(b) by operating the transformer known as transformer No 3 in an unbunded area at its Minto Zone Substation; and

(c) by not undertaking a routine maintenance inspection of the aluminium radiator fins on the transformer, which under the Defendant’s maintenance procedures was scheduled to occur on or about 22 July 2004.

2 The original summons was returnable on 23 September 2005. On 2 December 2005 the Defendant entered a plea of guilty which means that it has admitted the essential elements of the offence.

3 Section 120 of the POEO Act states:

(1) A person who pollutes any waters is guilty of an offence.
(2) In this section:
Pollute waters includes cause or permit any waters to be polluted.

The maximum penalty for the offence is $250,000.

Relevant facts

4 The parties agreed on a Statement of Agreed Facts which sets out the following: The Defendant is a state owned corporation established as an energy distributor under the Energy Services Corporations Act 1995 and listed in Sch 5 to the State Owned Corporations Act 1989 (“the SOC Act”). It is a statutory state owned corporation for the purposes of the SOC Act and has all the powers of a natural person. The Defendant is therefore a “public authority” for the purposes of the POEO Act. Section 6(2)(c) of the POEO Act provides that the Environment Protection Authority is the appropriate regulatory authority for activities undertaken by public authorities.

5 The Defendant currently operates 193 substations throughout its network franchise in New South Wales. As at 9 August 2004 it operated 189 substations in New South Wales.

6 The Defendant operates an electricity substation in an industrial area in a cul-de-sac at Huntsmore Road, Minto in south-western Sydney. The Minto Zone Substation was established in 1979 and has three transformers. Transformers No 2 and No 3 are sister transformers. Each transformer is surrounded by seven banks of fins each comprising 40 fins. As at 9 August 2004, transformers No 2 and No 3 had aluminium banks of fins. These were the only transformers among the Defendant’s stock Australia-wide that were fitted with aluminium cooling fins. The transformers, including the cooling fins, were around 25 years old. It is common to have transformers which are up to 40 years old operating at electricity substations. Transformer No 1 was a later model and had steel banks of fins. The capacity of the tanks associated with each transformer is around 17,000 litres. As at 9 August 2004 the transformers were not bunded.

The incident

7 Between approximately 7.40pm and 9pm on 9 August 2004 around 9000 litres of transformer oil escaped from a split in a cooling fin on transformer No 3. The oil flowed onto the ground and from there via grates in the cable pits to the stormwater system and McBarron Creek.

8 At around 9pm the Department of Environment and Conservation (“DEC”) was advised of the spill by the NSW Fire Brigades HAZMAT Unit (“HAZMAT”). HAZMAT requested that DEC attend the site as the oil had entered the stormwater system. A Regional Operations officer of the EPA, Deborah Cole, arrived at the premises at around 10.45pm on 9 August 2004.

9 The oil spilled from a fin located on a different part of the transformer from an earlier February spill. As the transformer was not bunded, the transformer oil seeped through the surrounding gravel and via the drainage grates located at the bottom of the cable pits into the stormwater system. The oil migrated off the premises through the stormwater system and entered McBarron Creek, which is an open concrete channel lined with some vegetation. The oil was dammed using six floating bunds in McBarron Creek between Culverston Road and its junction with Bow Bowing Canal. The oil was stopped before it reached Bow Bowing Canal.

10 The area in which the transformers are located is surrounded by gravel. Set into the ground between the transformers are rectangular pits with concrete walls. Circular holes cut into the walls of the pit allow pipes containing cables to pass through the pit. These cable pits permit access to the underground cables. In order to avoid water pooling around the transformers and cables, there are drainage conduits in the base of each cable pit. Subsoil drainage in the gravel area drains toward the base of the cable pits and from there to the stormwater system.

11 The stormwater system which collects run-off from the premises then passes underground in a westerly direction past several other premises, turning south-west and under Airds Road, before discharging into McBarron Creek via an open pipe. McBarron Creek then flows into Bow Bowing Canal which later meets the Georges River.

12 The immediate cause of the August spill was the splitting of a cooling fin on transformer No 3. The fin failed due to a combination of fatigue and/or manufacturing defect.

Bunding program

13 In 1997/98 and 2002/03 the Defendant conducted an environmental risk assessment in order to determine:

(a) substation sites at which it was appropriate to install a bund or upgrade a bund, and
(b) a risk ranking (either high, medium or low) for the bunding works by assessing the likelihood and potential consequences of an oil leak occurring at the site.

14 The Minto substation was assigned a high risk ranking by the 2002/03 environmental risk assessment.

15 In the 2003/04 financial year the Defendant began a 10 year substation bunding program. As at June 2004, 172 transformers at 70 substations remained unbunded and 122 further transformers at 43 substations required bund upgrades. As at 27 May 2005, 42 transformers at 19 substations were unbunded, while a further 94 transformers at 34 substations required upgrades to meet current standards.

16 The Defendant’s Environmental Management Plan dated December 2003 for 2003/04 recognised discharges from transmission substations as a “high” environmental risk.

17 A document TS035 generated by the Defendant and dated 15 June 2004 recognised the risk associated with deferral or cancellation to be:

… non-conformance with legislation. Increasing probability of fines from the NSW EPA if measures are not in place and oil escapes during a failure incident.

The bunding of the Minto substation was proposed for September of the 2004/05 year at a cost of $35,000.

18 According to the Defendant, one transformer additional to minimum energy requirements needs to available in case of transformer failure; therefore it was not possible in peak periods to take the three Minto transformers off-line. As a result the construction of bunds needed to take place in the lower energy demand periods of spring or autumn. Bunding was not installed at the Minto substation during the autumn 2004 lower demand period. The installation of bunds also requires consideration of physical factors (such as site layout and design and construction specifications) and safety issues.

Events prior to the offence date

19 On 28 February 2004 an alarm activated on transformer No 3 indicating a rapid flow of oil. Oil leaked from a split cooling fin resulting in a loss of approximately 3,800 litres of transformer oil. As a result of the split fin, transformer oil discharged onto the concrete foundation of the transformer and then onto the surrounding bitumen roadway. The oil entered into the site’s stormwater system from the bitumen driveway on the premises. Spill kits were used around the stormwater drains to reduce the volume of oil that entered the stormwater system.

20 Following the February 2004 incident the bank of fins from which the spill occurred was isolated by closing the valves to that bank, and that bank of fins was removed on 1 March 2004. The fin was visually inspected and a split of that fin was determined to be the source of the oil leak. An internal report prepared by the Defendant concerning the February incident noted that “the split appeared to start just above the spacer/clamp between the fins and extends to the top of the fin. There is a noticeable line running either side of the spacer.” The report did not propose checking whether the aluminium cooling fins could be prone to splitting. Nor did it recommend prioritisation of the installation of a bund at the substation, or the installation of temporary bunding.

21 Consideration was given to whether the scheduling of bund works at Minto under the bunding program was appropriate. The bund works were scheduled to take place in September in the 2004/05 financial year program. The Defendant’s General Manager Capital Solutions, Rod Howard, determined that this schedule was appropriate and based this decision on the following factors:

(a) the bund works at Minto were scheduled to go to the market in September 2004 which was early in the 2004/05 year program
(b) his knowledge and experience that there is usually a long lead time for bund works, so disrupting the planned schedule would impact on other projects
(c) advice from substation maintenance staff that the event at Minto substation that led to the February incident was considered a random event.

22 The Defendant took the following steps, inter alia, after the February incident:

(a) Turned off the valves connecting the radiator bank to the transformer, thereby removing pressure on the radiator bank and the split fin and stopping the oil leak.

(b) The radiator bank was removed from the transformer.

(c) A signature test was performed on the transformer which confirmed that the transformer was electrically sound and could return to service.

(d) The radiator bank was returned to Narellan Depot for investigation. These investigations were undertaken to identify the precise source of the leak.

(e) A thorough inspection of all remaining radiator bank fins on the subject transformer and its sister transformer was performed, which confirmed that there were no oil leaks on those fins and no signs of damage or leaks.

(f) Investigations were conducted across the Defendant’s network to ensure there were no other aluminium radiator fins on power transformers from different manufacturers.

(g) Arrangements were made for the disposal of the radiator bank.

(h) A verbal request was made for the installation of bunds at Minto (already scheduled to occur in the 2004/05 financial year) to be brought forward. The installation of those bunds was not brought forward for the reasons outlined in par 21 above. The first bund designs for the 2004/05 financial year arrived just prior to the incident on 9 August 2004.

23 The Defendant determined that the incident on 28 February 2004 was a random single event and that minimum potential existed for an incident of that nature to recur. Accordingly, the Defendant determined that removal of the faulty item, rather than a thorough root cause investigation, was the appropriate response to the incident on 28 February 2004. The Defendant’s determination to proceed in this manner was based on the fact that this incident was the first incident involving transformer No 3 in the approximately 25 years that it had been in service, and on the comprehensive and specialised experience of the Defendant’s personnel who were responsible for making that determination.

May 2004 inspection

24 Inspection records indicate that an oil leak was detected on a power transformer at the Minto substation in May 2004, but do not record from which transformer oil was leaking, or the location of the oil leaks. There are no records that indicate that any follow up action was taken and an opportunity to report the defect was not taken.

25 The Defendant’s expert, Mr Walter Wasinger, found there was no indication that the oil leak identified during the May 2004 inspection was anything other than a smear or common leak which he considered to be of minor significance and unrelated to the incident in August 2004.

Regular maintenance inspection

26 The next eight-weekly inspection that would have been due to occur on or around 22 July 2004 did not occur until 2 September 2004, after the incident the subject of the charge. The Defendant stated that the maintenance staff assigned to the inspection on 22 July 2004 were redirected to supervise tree removal works which were being undertaken in the vicinity of the Defendant’s equipment in Liverpool and that these works presented potential safety and network supply risks.

27 The only additional evidence was an affidavit of Karen Waldman, the General Manager of Regulatory and Corporate Affairs for the Defendant, sworn 10 January 2006. Her affidavit provides evidence of the Defendant’s active approach at Board level and senior management level to environmental policy, development of environmental management systems, the holding of an annual environmental risk assessment workshop, its Environmental Risk Register, and environmental training of employees. These policies and procedures were all in place prior to the offence. Annexure “U” to Ms Waldman’s affidavit is a policy formulated after the offence, and contains a specific substation environmental risk assessment procedure.

Finding

28 Under the POEO Act the matters in s 241(1) must be considered when imposing an offence against the Act.

(a) the extent of the harm caused or likely to be caused to the environment by the commission of the offence

29 Harm is defined in the dictionary to the POEO Act as follows:

Harm to the environment includes any direct or indirect alteration of the environment that has the effect of degrading the environment and, without limiting the generality of the above, includes any act or omission that results in pollution.

30 Transformer oil, while not particularly toxic, essentially smothers aquatic life it comes into contact with. The Agreed Statement of Facts states that:

The likely environmental harm can be considered to be of a minor short-term nature for the following reasons:
a) the bunding of McBarron Creek prevented movement of the spilt oil further downstream into Bow Bowing Canal.
b) The water in the creek as well as the soil and vegetation were removed in the days following the incident at the direction of the EPA.

31 It was agreed that McBarron Creek is a concrete lined canal in a heavily industrialised area. The likely actual environmental harm from the incident was restricted to a limited number of macro-invertebrate species and micro-organisms. The likely actual environmental harm was minimal and short-term in nature. The clean-up measures of the Defendant did contain the oil in the concrete section of the creek.

32 Clearly there was environmental harm of limited duration which was contained by the Defendant’s prompt actions.

(b) the practical measures that may be taken to prevent, control, abate or mitigate that harm
Prosecutor’s submissions

33 The Prosecutor argued that the Defendant could have bunded the transformer temporarily or permanently, accelerated the bunding program, carried out more rigorous testing including a root cause analysis following the oil leak of February 2004, taken action following the leak in May 2004 and inspected the transformer at the scheduled time in late July 2004.

34 The Prosecutor argued that the cost of the bund for the Defendant at the Minto substation was only estimated to be $35,000, as opposed to the average cost of bunding estimated in documents as $120,000. Therefore, the bunding could have occurred much earlier, since cost was not an issue.

35 Further, the Prosecutor submitted that there was a verbal recommendation that the bunding timetable be brought forward. Contrary to the Defendant’s suggestion that the failure to do so indicates a proper decision making process was in place, it actually indicates instead that the scheduling of the program was more important than the actual need for the bunding. The Prosecutor submitted a business decision was made that the Defendant could pay the fine under the POEO Act if an incident did occur, rather than bear the cost of the bunding at an earlier time.

36 Another practical measure that could have been taken was testing on the transformer fins to determine the reason for their failure. Since only two substations out of 189 had aluminium, as opposed to steel, fins, a practical measure would have been to replace these with steel fins.

37 Furthermore, there should have been an eight week inspection around late July 2004. This did not occur, notwithstanding the findings of the earlier report and leakage. If the inspection had occurred, the Defendant may have received information allowing the prevention of the incident.

Defendant’s submissions

38 The Defendant submitted that at the time of the offence, it had various measures in place to prevent, control, abate or mitigate the risk of environmental harm from transformer oil spills. It is further submitted that practical steps were taken after the offence to control and mitigate the harm.

39 The Defendant has an ongoing risk-based bunding program which provides for the retrofitting of bunds or bund augmentation works at all existing substations. The bunding program arose from an environmental risk assessment undertaken by the Defendant in 1997/98, and again in 2002/03, to determine substation sites at which it would be appropriate to install a bund or upgrade existing bunds.

40 The Defendant has a comprehensive preventative maintenance regime for transformers, which is based on the maintenance guidelines set out in various policy and procedure documents. The Defendant submitted that its maintenance practices are consistent with, if not more robust than, industry standards and are more stringent than most manufacturer’s guidelines.

41 Further, the Defendant submitted that it took a number of maintenance and investigative steps following the February 2004 incident at Minto, including:

(a) immediate maintenance steps to stop the leak and ensure the continued operation of the substation;

(b) investigations to identify the precise source of the leak;

(c) checking remaining radiator fins of the transformer and its sister transformer for signs of damage or leaks at the Minto substation; and

(d) investigations across the Defendant’s network to identify any other power transformers which included aluminium radiator fins.

42 The Defendant also submitted that, as agreed in the Statement of Agreed Facts, it took appropriate containment and clean-up measures at a cost of approximately $13,000 to abate the potential for environmental harm from the August 2004 incident.

Finding

43 There clearly were practical measures which could have taken place in terms of the construction of bunding which would have prevented the oil escaping from the transformer into the stormwater system and off the site. The Defendant was on notice of the necessity for these and indeed recognised that need itself through its own environmental programs. It should however have acted more quickly in implementing the programs given the February 2004 spill and the identification of the need for bunding at the Minto substation, and the identification of the issue as high risk.

44 I do not accept the Prosecutor’s submission that the Defendant chose not to implement the bund faster as a business matter and accepted the greater risk of committing an offence. I simply find that as a prudent operator it should have acted more quickly. Having said that I also accept that the Defendant was not acting recklessly when it made the decision not to speed up the construction of the bunding but was weighing up a number of factors including its belief that the February 2004 spill was an isolated incident unlikely to be repeated for the reasons set out in the Defendant’s submissions at par 38 – 40 and the agreed facts at par 20.

45 I accept that the Defendant took all the practical measures necessary to reduce environmental harm once the spill had occurred.

(c) the extent to which the person who committed the offence could reasonably have foreseen the harm caused or likely to be caused to the environment by the commission of the offence
Prosecutor’s submissions

46 The Prosecutor submits that the harm to the environment was foreseeable following the leak which had occurred in February 2004 in the same transformer, after which oil had flowed via the underground stormwater system to McBarron Creek and into Bow Bowing Canal. In any event, the presence of 17,000 litres of oil in each transformer without bunding renders it reasonably foreseeable that oil could escape into a watercourse.

47 In submitting this, the Prosecutor relied on Environment Protection Authority v Transgrid [2003] NSWLEC 18 at [108] which states:

It is all very well to have in place written standards, policies and procedures; but they are of no use at all if they are then ignored by those persons who are directing operations on the ground. Similarly, it is all very well to have appropriate environmental training programs in place; but they are of no use at all if those who attend them do not put what they have learned into practice. I accept the Defendant’s good intentions. But good intentions alone are not good enough. They have to be accompanied by appropriate action. Particularly where there are, as here, plainly foreseeable consequences.

Defendant’s submissions

48 The Defendant submitted that the August 2004 incident was not reasonably foreseeable. The Defendant contended that a routine maintenance inspection of the kind normally carried out by the Defendant could not have detected the incident or prevented it from occurring, as there would have been no oil leak from the failure of the aluminium fin which could have been detected by a routine inspection prior to the incident. It is not beyond reasonable doubt that an inspection carried out in July would have prevented the August incident.

49 The Defendant further submitted that whilst it is true that a similar type of incident occurred in February 2004, the Defendant took adequate maintenance steps following that incident and determined that it was a random single event, with minimal potential to recur. That determination was based on the fact that the February 2004 incident was the first incident involving the transformer in the approximately 25 years that it had been in service. Further, the Defendant submitted that the maintenance steps taken were adequate, and its assessment of the February incident appropriate. Therefore, the occurrence of the February incident did not make the August 2004 incident reasonably foreseeable.

Finding

50 The Defendant had identified in its own environmental risk management processes that there were high risks associated with the lack of bunding around its transformers. Clearly the risk was foreseeable in this case, particularly in light of the February 2004 spill which had already occurred.

51 Apart from the oil leak in February 2004 I do not consider that there is sufficiently conclusive evidence that the inspection of the substation in May 2004 identifying an oil spill without further action being taken can be linked to the greater likelihood of the occurrence of the oil spill in August 2004. Nor do I consider that the failure to undertake the regular maintenance check in July 2004 has been proven to be related in any way to the oil leak giving rise to this offence. On the agreed facts the key factor giving rise to the offence was the lack of bunding around the transformer.

(d) the extent to which the person who committed the offence had control over the causes that gave rise to the offence,

52 It is agreed by both parties that the Defendant had full control over the causes giving rise to the offence.

(e) whether, in committing the offence, the person was complying with orders from an employer or supervising employee.

53 This is not relevant to the facts of this case.

54 The Prosecutor submitted that the Defendant is a state owned corporation. Section 8 of the State Owned Corporations Act 1989 provides that:

(1) The principal objectives of every company SOC are:
…

…

55 The Energy Services Corporations Act 1995 also applies to the Defendant. Section 5(1)(b) of the Act reiterates the principles laid out above in the State Owned Corporations Act. In addition to Environment Protection Authority v Transgrid, Environment Protection Authority v Tenterfield Shire Council [2000] NSWLEC 229 and Environment Protection Authority v Sydney Water Corporation Ltd [1999] NSWLEC 60 were relied on by the Prosecutor.

56 The Prosecutor submitted that having regard to this authority, the circumstances of the commission of the offence and the status of the Defendant as a state owned corporation should be regarded as aggravating factors in this case.

57 The Prosecutor submitted that both general and specific deterrence considerations apply here. It relied on the principles set out in JR Bentley v BGP Properties Pty Limited [2006] NSWLEC 34, where Preston J sets out general sentencing principles. In relation to general deterrence, the Prosecutor alleged that being a public body, it is important to send out a message to the community that environmental offences will be punished. In relation to specific deterrence, the Prosecutor argued that the principles laid down in the case of Axer Pty Ltd v Environmental Protection Authority (1993) 113 LGERA 357, apply here.

58 Referring to [161] of Bentley, the Prosecutor also argued that having regard to the objective circumstances of the offence, and the subjective circumstances of the Defendant, the circumstances of this case were quite serious and should be reflected in the penalty. In particular, the Prosecutor argued that the oil which leaked here reached a watercourse, that the leak from the split fin was foreseeable, that insufficient action was taken following the February incident, and that the failure to inspect in July 2004 are all factors to be added to the aggravating circumstance that this Defendant is a state owned corporation. Therefore, the offence before this Court is objectively serious.

59 The Prosecutor conceded that there are a number of mitigating factors in this case, including an early plea of guilty, co-operation with the prosecution, compliance with statutory notices and the clean-up of the oil. However, the Prosecution argued that the strength of its case against the Defendant is such that a full 25 per cent discount should not be given for the plea of guilty. Consistently with the principles in Bentley and the objective factors of the case, the Defendant should get a mid-range fine.

Defendant’s submissions

60 The Defendant argued that it co-operated fully with the Prosecutor at all stages of the investigation of the incident and the proceedings. It submitted that the penalty should be mitigated in recognition of such co-operation.

61 The Defendant has expressed contrition and remorse for the incident and this has been incorporated into evidence. This is demonstrated by:

(a) the Defendant’s co-operation with the Prosecutor

(b) the Defendant entering a timely plea of guilty to the charge and endeavouring to cooperate with the Prosecutor to mutually agree on a statement of facts

(c) the Defendant taking all reasonable and necessary measures to prevent further pollution of waters, immediately after it had been made aware of the incident, and

(d) taking since the incident active steps, and identifying and implementing procedures, to ensure that this type of incident does not happen again.

62 Therefore, the Defendant submitted that in accordance with Camilleri’s Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683 at 700 and s21A(3)(i) of the Crimes (Sentencing Procedure) Act 1999, that it is entitled to a further penalty discount.

63 In relation to the Prosecutor’s reliance on Bentley, the Defendant submitted that the case was not applicable here because it related to threatened species, and even the general comments made on sentencing were only the comments of one judge. The principles of evenhandedness should apply here.

64 In relation to the Prosecutor’s submission that this case involved aggravating circumstances, due to the fact that the Defendant is a state owned corporation, the Defendant submitted that it should not be placed higher or lower on a scale of offenders than anyone else, and that each offender should be viewed as equal in the eyes of the law. Sending a message to the community about environmental offences should not occur in this case. Rather, the penalty should reflect no more than is deserved.

65 In addition to the matters under s241(2) of the POEO Act above the Crimes Sentencing Procedure Act 1999 also sets out in s 3A those matters that must be considered on sentence. Section 3A states:

The purposes for which a court may impose a sentence on an offender are as follows:
(a) to ensure that the offender is adequately punished for the offence,
(b) to prevent crime by deterring the offender and other persons from committing similar offences,
(c) to protect the community from the offender,
(d) to promote the rehabilitation of the offender,
(e) to make the offender accountable for his or her actions,
(f) to denounce the conduct of the offender,
(g) to recognise the harm done to the victim of the crime and the community.

66 Sections (a), (b), (e), (f) and (g) are of particular relevance and are covered to some extent by the matters in s 241(1). While I agree that the decision in Bentley dealt with a different statutory regime and is not directly applicable here, the decision is a useful reminder of all the various factors that must be considered when sentencing for an environmental crime. I will refer to those factors to the extent they are relevant in this case.

Objective gravity of the crime

67 Regard must be had to the culpability of the Defendant and the objective circumstances which led to the commission of the offence. The sentence must be proportional to the gravity of the crime.

68 In determining the objective seriousness of the offence the Court is to have regard to the maximum penalty applicable, as this is an expression of the seriousness Parliament attributes to the offence: see Camilleri's at 698:

The task of a court is to assess the relative seriousness of the offender’s particular offence in relation to a worst case for which the maximum penalty is provided.

and at 701:
the more serious the lasting environmental harm involved the more serious the offence and, ordinarily, the higher the penalty.

69 The matters relevant to seriousness can be considered firstly in relation to the factors in s 241. A summary of the conclusions I reached in relation to each factor is that there was harm caused to the environment albeit of limited duration. The Defendant could have taken practical measures to ensure bunding was in place to remove the likelihood of this kind of incident occurring. The risk of harm was reasonably foreseeable, although I have held the Defendant did not act recklessly when it failed to install bunding in time to prevent the offence.

70 It was held in Axer at [359]-[360] that:

The legislation does not seek merely to prevent deliberate or negligent pollution. It envisages that, at least in many cases, proper precautions must be taken to ensure that pollution does not occur. Experience has shown that it is not enough merely to take care: accidents will happen. The legislation envisages that in many cases care must be supplemented by positive precautions; business must be arranged and precautions taken so as to ensure that pollution will not occur.

Precautions may be costly. The cost of precautions to avoid pollution will no doubt become accepted, in due course, as an ordinary cost of operating in an industry where, absent precautions, pollution may occur…But I believe legislation of this kind contemplates that, in general, the cost of preventing pollution will be absorbed into the costing of the relevant industries and in that way will be borne by the community or by that part of it which uses the product which the industry produces. In assessing the quantum of a fine considerations of this kind are to be taken into account. The fine should be such as will make it worthwhile that the cost of precautions be undertaken…

71 The Defendant has extensive policies and programs in place to manage environmental risk. The program of installing bunding around transformers was being implemented before the offence took place and continued after the offence. Bunding was placed around the transformer during August and September 2004, earlier than it otherwise would have been, so that the company did act promptly after the incident on 9 August 2004. While more could and should have been done to ensure that the bunding was in place I accept the Defendant was mindful of its environmental obligations and was in the process of implementing these. I consider the offence is in the low range of seriousness.

General deterrence

72 General deterrence has been held to be an important consideration in environmental offences and this was emphasised by the Prosecutor in submissions due to the importance of sending a message to statutory authorities about their environmental responsibilities. For environmental offences, the purpose of general deterrence in sentencing is important: Axer at 359; Camilleri’s at 701; Carlino v Leichhardt Municipal Council [2005] NSWLEC 198 (27 April 2005), at [31]. Persons will not be deterred from committing environmental offences by nominal fines: Bentley at [139] – [142], [150], [151].

73 In this case I consider regard must also be had to the fact that the Defendant is a state owned corporation, as identified in the cases relied on by the Prosecutor which emphasise the important responsibility such corporate bodies have to conduct their affairs in accordance with the statutory duties set out in the State Owned Corporations Act and the Energy Services Corporations Act.

74 In Environment Protection Authority v Sydney Water Corporation Ltd [1999] NSWLEC 60, at [71], Talbot J held that:

The defendant has a responsible role to play in the public interest. It is reasonable to expect that it, particularly having regard to its status as a state-owned corporation, adopt preventative measures in circumstances where the potential harm to the environment is manifest to itself and to the public in general.

A penalty of $40,000 was imposed for failure to comply with an obligation to maintain penstock controls in an efficient manner.

75 I do not consider however this is a case such as Transgrid where the Court found that there was a complete failure to apply the relevant policies of the corporation to the offences in that case. The defendant in that case, a state owned corporation, was found guilty of polluting watercourses by clearing of vegetation. Vegetation of easements had overgrown and deteriorated to a stage where they became a potential fire hazard. Emergency clearing ensued, however there was a failure to put in place sediment controls to prevent the bare earth from washing into the nearby waterways. It was found by Lloyd J in that case at [109] that the clearing should not have occurred at all in the manner in which it did, and at [108], that the consequences of the clearing were reasonably foreseeable and that the programs and policies in place were not enough where they are not accompanied by actions. Clearly the Defendant in the present case had in place environmental management policies and a program it was implementing to ensure that all transformers were appropriately bunded. Under that program the transformer from which the leak escaped would have been protected by a bund which was to built about one month after the incident giving rise to the offence. While I have held that the harm caused was foreseeable I also accept that the Defendant was taking active steps to correct the circumstances giving rise to this offence.

76 While general deterrence is relevant to consider in the context of statutory authorities I do not consider the circumstances warrant a penalty which takes into account specific deterrence for this Defendant.

Evenhandedness

77 Evenhandedness is an important consideration in sentencing. The Defendant referred to a number of cases it said were similar in terms of the objective seriousness of the offence which is low. In Environment Protection Authority v Olex Australia Pty Ltd [2005] NSWLEC 475, the pollutant overflowed into a stormwater drainage system and entered in a creek. This was caused by a faulty sensor alarm, a waste-pit pump failure and an isolation valve in the drainage system not being sealed. There was no actual environmental harm. In Environment Protection Authority v Timber Industries Ltd [2001] NSWLEC 25, run-off from a timber mill discharged into a drainage channel due to faulty repair works. The pollutant did not proceed to a natural watercourse downstream. There was no actual environmental harm and only limited potential harm. In Environment Protection Authority v Excel Fuels Pty Limited [2002] NSWLEC 160, oil was transferred by mistake into a tank already full. The overflow entered the stormwater system and travelled into a creek, causing limited environmental harm. In Environment Protection Authorityv Allied Industrial Services Pty Ltd [2005] NSWLEC 501, contaminated liquid escaped and travelled into a creek due to a blockage in the wastewater treatment system, causing limited likely environmental harm. In Environment Protection Authority v Coe Drilling Australia Pty Ltd [2005] NSWLEC 719, drilling works resulted in the discharge of a pollutant into a listed sensitive wetland, resulting in material actual environmental harm. None of these involved a statutory authority. Penalties imposed were in the range of $15,000 to $25,000 after mitigating circumstances were taken into account. The facts of these cases are generally analogous to the matter before me.

Penalty

78 In my opinion, the circumstances of the offence as outlined above warrant that a penalty of $35,000, representing 14 per cent of the maximum penalty, should be imposed.

Mitigating factors

79 There are a number of mitigating factors that should be taken into account to reduce that penalty. I accept that the Defendant pleaded guilty at the earliest opportunity taking into account clarifications sought from the Prosecutor in relation to the form of the summons, which resulted in the summons being amended. A plea of guilty entitles the Defendant to a discount in penalty under s 22 of the Crimes (Sentencing Procedure) Act 1999 in the range of 10-25 per cent: R v Thomson; R v Houlton (2000) 49 NSWLR 383; R v Sharma (2002) 54 NSWLR 300. I agree with the Prosecutor that given the high probability that a conviction would be obtained by the Prosecutor that the utilitarian value of the plea is somewhat reduced. I consider that a reduction is warranted but not to the extent of 25 per cent as sought by the Defendant.

80 The Defendant has demonstrated contrition and remorse through the affidavit of Karen Waldman dated 20 January 2006 and through its actions as identified by the Defendant at par 60. That affidavit also attests to the range of community activities the Defendant is involved in. It has demonstrated commitment to the broader community by its sponsorship and involvement in various conferences, business awards, and NSW Department of Education events.

81 The Defendant has cooperated with the Prosecutor during the clean up and investigation of the offence and in the lead up to these proceedings. The Defendant responded quickly to the incident and undertook the clean up promptly averting the possibility of greater harm to the environment.

82 The Defendant has agreed to pay the Prosecutor’s costs in the amount of $50,000. Another relevant consideration is the fact that the Defendant has not previously been prosecuted for an environmental offence, operating as a state owned corporation for some ten years with extensive operations and responsibility for a large number of substations.

83 In all the circumstances I think that the Defendant’s penalty should be discounted by a total of 25 per cent and consider that a fined of $26,250 is appropriate.

Orders

84 The Court orders that:

1. The Defendant is convicted of the offence with which it is charged.

2. The Defendant is fined the sum of $26,250 to be paid to the Registrar of the Court within 28 days of today's date.

3. The Defendant pay the Prosecutor’s costs of the proceedings of $50,000.

4. That the Defendant, at its expense and pursuant to the subsection 250(1)(a) of the Protection of the Environment Operations Act 1997 publish the contents of Annexure A to this judgment in the Environmental Performance section of the Defendant’s 2005-2006 annual report.

5. That the Defendant pursuant to s 248(1) of the Protection of the Environment Operations Act 1997 pay to the Prosecutor the sum of $2,471.25.

6. The exhibits may be returned.