Canterbury Regional Council v Steelbro New Zealand Limited HC Christchurch Cri-2006-409-232

[2007] NZHC 1681

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CRI-2006-409-000232

CANTERBURY REGIONAL COUNCIL

Appellant

v

STEELBRO NEW ZEALAND LIMITED

Respondent

Hearing:         28 February 2007

Counsel:         P J Shamy and H van der Wal for Appellant

P M James for Respondent

Judgment:      28 February 2007

ORAL JUDGMENT OF PANCKHURST J

An informant’s appeal against sentence

[1]      This appeal brought by the Canterbury Regional Council (CRC) constitutes a challenge to the adequacy of a monetary penalty, a fine of $10,000, imposed in the context of an environmental event which affected the Heathcote River and the Estuary.  It is said by Mr Shamy on behalf of the CRC that the penalty imposed by Judge Smith was clearly inadequate.

[2]      The respondent, Steelbro New Zealand Limited (Steelbro) faced two charges. The first alleged that on 4-5 February 2005 it discharged diesel onto land without a consent  or  permission  to  do  so.    This  was  an  offence  against  s15(1)(d)  of  the

Resource  Management  Act  1991.    The  second  and  related  charge  was  that  the

CANTY REGIONAL COUNCIL V STEELBRO NZ LTD HC CHCH CRI-2006-409-000232  28 February 2007

defendant (now respondent) discharged diesel in circumstances that resulted in a contaminant entering water.  This was likewise an offence against the same Act.

[3]      These, of course, were offences of strict liability.  They were the subject of a defended hearing in the Environment Court in September 2006.   Necessarily the basis of the defence run by Steelbro was that the relevant event was beyond its control on account of being attributable to sabotage, that it could not reasonably have foreseen and provided against the occurrence, and further, that after the event it had adequately mitigated or remedied the environmental impacts.   Those are the requirements of a defence pursuant to s341(2)(b) of the Act.

[4]      In the event Judge Smith found the charges established in a reserved decision delivered on 27 September 2006.  He was satisfied that the discharge of diesel was foreseeable and could have been provided against if certain appropriate measures had been taken by the company.  On the other hand he was satisfied that the effects had been largely mitigated, or remedied against, after the event by Steelbro.

[5]      In substantial part his liability decision was devoted to factual findings which were  of  less  moment  to  the  issue  of  conviction,  but  of  real  significance  with reference to penalty.   These were findings which related to the amount of the discharge and whether the company was responsible for its full extent.   I shall explain this dimension in a moment.  Although the discharge occurred overnight on

4-5 February 2005, the contamination of the river and the Estuary did not occur until fully a week later, for reasons which I will also shortly explain.

The facts of the case

[6]      Inevitably these are fundamental to an understanding of the issues raised by this appeal.

[7]      Steelbro operates from premises on the corner of Parkhouse and Treffers Roads in Christchurch.  The back boundary to their extensive industrial site borders Curletts Road, which is a motorway ending at Blenheim Road, a short distance

away.   Importantly, the premises are not enclosed.   There is no perimeter fence preventing access of third parties onto the yard itself.

[8]      A diesel bowser or pump is sited to the rear of the main building.  Beyond the pump there is a sealed yard area which runs towards the Curletts Road boundary. Being sealed there is provision for drainage of this area, with the result that run-off storm water is eventually discharged into an open drain which runs in a generally southerly direction adjacent to Curletts Road.  It does so for a distance and then there is a right hand turn and the water is channelled into a culvert which runs under the motorway.  Once through that culvert, which runs for about 50 metres, storm water is discharged into another open drain system which in due course, a few kilometres away, discharges into the Heathcote River and eventually into the Estuary.

[9]      On the night of 4-5 February thieves accessed the diesel pump.  It seems that they stole a quantity of diesel and then left the pump running.  The tank capacity was of the order of 8,000 litres.   The pump was able to expel 40 litres per minute. Ordinarily the pump had a cut-off mechanism which came into operation after 10 minutes.  Given the pump capacity the cut-off mechanism would ensure that a spill of no more than 400 litres could occur.   However that mechanism was not functioning.  A report had been made to the diesel supplier but the mechanism had not been repaired.

[10]     In addition there was no padlock on the bowser itself to prevent unauthorised usage.  If that was not enough, a further precaution that could have been taken was not in place on the relevant night.  That was the isolation of the power supply to the pump which could have been achieved by flicking a switch within the premises. Finally, there was no system designed to prevent hydrocarbons entering the storm water system which drains into the open culvert.

The Judge’s decision

[11]     Judge Smith was satisfied that theft and sabotage of the kind which occurred was not only foreseeable but preventable.  A more difficult issue which he had to confront was the extent of the spill and who was responsible for it.  On the morning

of Saturday, 5 February staff at Steelbro alerted the appropriate authorities.    A mitigation plan was promptly implemented.   Several thousand litres were pumped from the culvert comprising a mix of water, debris and, as it later transpired, about

400 litres of diesel.  By the end of the day officers of the CRC were satisfied that the spill had been contained and Steelbro was in effect told that no further mitigation action was required on its part.   Needless to say, however, the CRC continued to monitor the situation.

[12]     There was no significant rain until the following weekend, 11-12 February. A reasonably heavy fall at that time, however, precipitated the release in all probability of some few thousand litres of diesel into the open culvert on the far side of Curletts Road and eventually into the river and the Estuary.  A number of birds were affected.  Volunteers working under the control of the CRC treated 356 birds of which 86 had to be euthanased on account of their poor condition.  Judge Smith was also satisfied that at least 50 birds “in the wild” died as well.  He accepted the need for a major environmental clean-up operation as was mounted by the CRC.

[13]     What then was the cause of the week’s delay between the act of theft and sabotage and the full environmental impact?  And was it Steelbro’s diesel which was spilled into the river and Estuary a week on?  These questions became a major focus of the liability hearing although in reality they were more relevant to the question of penalty.  The culvert under Curletts Road to which I have referred had a lateral sewer pipe passing through it, that is at right angles to the culvert itself.  This pipe was to the far end of the culvert.   It transpired that it was at a level where it blocked anything which  was  floating on  top  of  the then  water  level  within  the  culvert. Unbeknown to the CRC there was a significant gathering of diesel on top of the water within the culvert, which remained there blocked by the sewer pipe until the significant rain the following weekend.   Needless to say, with the rain, the water level rose, the diesel was then released over top of the sewer pipe and could enter the open culvert to the other side of Curletts Road.

[14]     The  Judge  was  satisfied  that  of  the  order  of  3,000  litres  of  diesel  were released in this way.   I note that during the intervening week there had been a complaint made to the CRC of a smell of diesel in the vicinity of the culvert.  This

was apparently the subject of an inspection but in the event the presence of the diesel was still not discovered.

[15]     Following the liability decision in late September there was a sentencing hearing on 1 November.  Contentious issues still remained to be resolved.  To that end evidence was called and extensive submissions were made by counsel on both sides.

[16]     In his oral sentencing decision the Judge arrived at a fine of $10,000 as appropriate to mark the offending.  He did so from a starting-point of $80,000, albeit the Judge described this as possibly on the high side.   He added at that point a comment that “Because of the significant mitigating factors it made little difference in the end” if he adopted the $80,000 figure which seemingly he adopted on the suggestion of counsel, Mr van der Wal.

[17]     Having  established  this  starting-point  the  Judge  referred  to  matters  of mitigation.  He described these as the absence of deliberateness on the part of the offender.  He saw the failures as acts of omission, rather than commission, and he also described the company’s role as limited because the prime offender in his view was the thief or thieves who were not, of course, before the court.  Bringing these matter of mitigation into account the Judge said that a fine of the order of $30,000 -

$40,000 would be appropriate.   But then he took into account two further sums which were in effect deducted in order to arrive at the final penalty of $10,000. These were an amount of $20,000 which was ordered to be paid by Steelbro towards the cleanup costs and a further $16,000 which the company was to pay to meet what the Judge termed remediation costs.  I shall refer to these two figures again shortly. With reference to the fine the Judge directed that 90 per cent of it be paid to the CRC.

The appellant’s argument in support of the appeal

[18]     Mr Shamy made in effect three main points.   The first was that deterrence was not recognised as a prime sentencing consideration by the Judge.  Second, he submitted that in imposing an enforcement order and having ordered reparation, the

Judge arrived at a fine which reflected these payments, whereas the appropriate course was to impose both a substantial fine, and impose reparation and an enforcement order, cumulatively.  That is that it was wrong in principle to reduce the level of fine in light of the other imposts.

[19]     Thirdly, Mr Shamy argued that s8(e) of the Sentencing Act 2002 had been lost sight of in that the penalty in this case was inconsistent with that in other comparable cases.

[20]     It may be that each of these complaints enjoys a measure of substance.  But for reasons which I shall shortly explain I am satisfied that the basic approach of the Judge to the sentencing exercise was misplaced.  I think that the difficulties with the sentencing outcome can best be considered under the headings which follow.

Which comes first, reparation or a fine?

[21]     At least in cases of this nature which involve a corporate defendant and the need to confront major cleanup expenses, I think it may prove convenient to begin a sentencing exercise by first considering the issue of reparation.

[22]     Section 7 of the Sentencing Act 2002 does not mandate an approach in those terms.   Rather, reparation is the fourth purpose identified in s7(1).   As it happens reparation comes before denunciation and deterrence in the list.  But s7(2), for the avoidance of doubt, provides that the order of appearance of the various purposes in the preceding subsection does not imply what weight is to be given to any one or more of them.

[23]     Section 12(1) of the Act provides:

If a court is lawfully entitled to impose a sentence of reparation, it must impose  it  unless  it  is  satisfied  that  the  sentence  would  result  in  undue hardship for the offender or the dependants of the offender, or that any other special circumstances would make it inappropriate.

The balance of that section includes a requirement that if a sentence of reparation is not imposed the Judge must give reasons for not doing so.

[24]     And s14(2) I also regard as relevant:

If a court considers that it would otherwise be  appropriate to impose  a sentence of reparation and a sentence of a fine, but it appears to the court that the offender has or will have the means to pay a fine or make reparation, but not both, the court must sentence the offender to make reparation.

[25]     For completeness I refer as well to s338(5) of the Resource Management Act

1991.  It is headed “Penalties” and subs (5) provides:

Where a person is convicted of an offence against section 338, the Court may, instead of or in addition to imposing a fine or a term of imprisonment, make any or all of the orders specified in section 314.

That section provides for the making of enforcement orders, one of which was made in this instance.

[26]     Against this statutory background it is my view that it was inappropriate to fix a sentencing start point, bring to account conventional mitigation factors and then reduce the fine, effectively on a dollar by dollar basis, in accordance with the cost of the remedial work and the cost of the reparation order.  That approach, I accept, was rational to the extent that in this case at least, the reparation figure was based on the cleanup costs and cleanup costs represent an expense incurred to repair the environment.  Given that damage to the environment is clearly a factor in assessing culpability, there is some logic in deducting the reparation figure when calculating the fine.  Put colloquially, I suppose it can be said that the reparation represents a direct fine for the actual cost of the environmental impact.

[27]     But nonetheless I consider that reparation and assessment of the appropriate fine must start as separate exercises.  Reparation in these circumstances is the sum necessary to repair the environmental damage.  It represents an actual out of pocket expense.  Absent special circumstances (or an inability to pay which is not relevant in this case), reparation should be ordered: s12(1).

[28]     By  contrast,  a  fine  is  a  penalty.    Its  purpose  is  to  hold  the  offender accountable, to denounce their conduct and to deter both the particular offender and others.  Given these different purposes it makes sense, I think, to approach the two as separate issues.  But that said, there is always a need for a sentencer to stand back

and ask whether the combination of the two will not produce a sentencing response which is disproportionate in all the circumstances.

[29]     For  these  reasons  I  think  that  the  Judge  erred  in  adopting  a  sentencing starting-point, which even he considered was on the high side, and then (after consideration of mitigating factors), effectively deducting from it on a dollar by dollar basis the cost of reparation and of remedial work to be undertaken by the offender.    Rather,  the  proper  approach  was  to  view  reparation  and  the  fine  as separate issues but at the end of the exercise, to stand back and look at the impact of the two in combination.

What is the appropriate reparation figure?

[30]     In the Environment Court CRC sought an amount of $44,656.38.  The greater part of that sum represented wages paid to volunteers who had been engaged in the cleanup operation in caring for birds which had been harmed.   There were also amounts which were paid for veterinary expenses and to procure materials which were required in the course of the exercise.  The figure was adjusted downwards by the exclusion of GST.  Nor did the $44,656.38 include an allowance for direct costs incurred by CRC.  That is the expenditure of the Council on staff wages and general overheads were not factored into the calculation.   Dr Freeman who is the CRC director of regulation, provided affidavit evidence at the sentencing hearing.  He said that if staff costs and overheads were included then the total figure for the cleanup would have been “in the vicinity of $80,000”, but no exact breakdown of the additional amount was provided.  I should observe as well that Dr Freeman described this  as  the  “largest  freshwater  contamination  event”  which  he  had  experienced. About 50 people were involved in the cleanup operation and over a period of about two weeks.

[31]     The Judge determined that the appropriate amount to award for reparation was $20,000.  He did so in these terms:

[43]   I turn now to the question of the actual clean-up costs.  The essential proposition for  the  Regional Council  was  that  the  Court  should  or  was obliged to reimburse the Council for its actual and total costs and that none of these should be borne by the ratepayer.   Essentially I do not

agree with that proposition in the circumstances of this case.  There was significant public interest in these ducks being dealt with appropriately and the urgent action of Dr Freeman was entirely appropriate, recognising that public interest.

[44]   Furthermore,  some  of  the  costs  may  have  more  to  do  with establishing a long-term relationship with the organisation involved than being an actual reflection of the best and lowest cost service the Council could have obtained.  Again I make no criticism of Dr Freeman because his choices are limited in an emergency situation.  However, I think Dr Freeman fairly accepted that that was a decision that he made, recognising that not all of those costs would be recoverable.

[45]   Having said that, a proportion of those costs should be borne by the defendant  company,  in  my view,  and  I am not  persuaded that  they  are entirely mitigated. (emphasis added)

Mr Shamy challenged this process of reasoning.   Mr James, on the other hand, supported it.  He pointed out that the Judge had heard evidence and that he had the feel of the case which I, of course, cannot match on appeal.  Mr James also relied on the circumstance that there was here a belated spill of a large volume of diesel, a week after the event.  During that period there had been a number of visits to the culvert by CRC staff.  CRC also had a complaint from a member of the public as to a smell of diesel in the relevant vicinity.  The Judge considered that had a grate been lifted at the far end of the culvert, and had the water within the culvert been dipped, then in all probability the presence of diesel floating on the top of the water would have been discovered.  In that event it would have been possible to pump the diesel out of the culvert and prevent its release into the Heathcote River and Estuary, as occurred when the significant rainfall occurred the following weekend.

[32]     Despite these findings the Judge did not take the view that Steelbro was not responsible for the eventual spill.  In my view he was right not to do so.  The issue was one of causation.   There was an opportunity to minimise the extent of the environmental impact.  Indeed it may be said that an element of fault lay with the Regional  Council  in  not  finding the  source  of the  smell  during the  intervening period.  But in my view the major cause of the accident remained the omissions of the respondent, in not ensuring that diesel on their premises was secure from the type of mishap which occurred.  This remained the dominant causative factor.  The failure of someone in the position of a Regional Council to discover a means to avert the

major environmental impact was unfortunate, but not a matter which should have affected the approach to reparation.

[33]     Do the other factors which the Judge relied upon justify his decision to reduce the reparation figure to $20,000?  He did not agree with the approach that the offender should meet the total cost so that none was borne by the ratepayer.  He said that there was a “public interest” in the ducks being saved, seemingly a suggestion that therefore it was appropriate that the public (in the form of ratepayers) should bear some of the cost.

[34]     The Judge also expressed the view that the expenditure seemed to be related to the establishment of a long-term relationship with the organisation which provided the volunteers who became closely involved in the cleanup process.   Although he made no criticism of the involvement of the volunteers or of the expense which was incurred, he nonetheless brought the possible cultivation of the relationship to bear in arriving at the final reparation figure.

[35]     With respect, I think it is difficult to see that any of these factors, even in combination, justified the approach which the Judge took.  $44,656 was not the total cost of the cleanup.   It had already been discounted to quite a significant extent before the sentencing hearing.  I am clearly of the view that this is a case where the appropriate course was to apply s12(1) of the Sentencing Act and order reparation in the sum that was sought.

What was the level of culpability?

[36]     To my mind this issue subsumes the balance of Mr Shamy’s arguments.  In a revised submission, and assuming that full reparation was to be paid, Mr Shamy argued that the appropriate starting-point for the imposition of a fine was $50,000. After taking account of the mitigating factors he argued that the appropriate range for a fine would remain of the order of $30,000 - $40,000.  The mitigating factors were that Steelbro was a first offender, that it had taken appropriate and prompt mitigation  steps  the  day after  the  mishap  and,  generally,  that  it  was  adopted  a responsible attitude with reference to its responsibilities.   Mr Shamy, of course,

pointed out that there had been no plea of guilty and hence that there could be no discount on that account.  He criticised the fine of $10,000 as inadequate, lacking any deterrent sting and out of step with penalties in other comparable cases.

[37]     Mr James, predictably, disagreed.  He argued that the penalty was within the range available to the Judge.   Rightly he pointed out that this was an informant’s appeal and therefore that the factors advanced in support of increasing the penalty must speak louder than those which would enable a Judge to review a sentence downwards.  In addition he said that the sentence was not out of line with those in other cases, once such cases were analysed in relation to their particular factual circumstances.

[38]     It seems to me that the real issue here is the degree of carelessness.  As to that Mr Shamy argued that the Judge erred by characterising the failings as mere omissions, involving no deliberateness and by placing a considerable emphasis on the fact that it was the intervention of a thief, or thieves, which precipitated the diesel spill itself.   He said as well that the approach the Judge took was at odds with a finding that this was “an event waiting to happen”.  That was a phrase used by one of the expert witnesses and it certainly appears in the liability decision, but whether it was adopted as a finding I think is debatable.

[39]     In  any event  I am  certainly  of  the  view  that  this  was  a  case  involving significant failure.  There were a combination of factors at play.  In the first place the diesel pump was exposed and available to third parties who ventured onto the property.  The automatic cut-off mechanism was not operating to the knowledge of the company.  No padlock had been installed to prevent removal of the hose from the pump itself.  In addition, isolation of the power supply to the pump could have been simply achieved, but was not.  That combination of factors indicates to me it was readily foreseeable that a criminal third party could become involved in the very course of events which unfolded, that is the theft of diesel and then effectively vandalism by leaving the pump still spilling diesel.

[40]     The other matter relied upon, although may be it is a counsel of perfection, is that the company had no system to prevent hydrocarbons entering the storm water

system following run-off from the sealed yard.  That is about to be remedied.  The enforcement order requires the construction of a system, being in effect an underground sump, which will isolate contaminants contained in storm water. Steelbro presently awaits the issue of a resource consent and it will then embark upon the installation of the system at a cost of $16,000.  Mr James indicated that his instructions were that none of the other industrial sites in the vicinity had a sophisticated system of this kind and, hence, it can be said that Steelbro will have perhaps a state of the art system in the near future.   With reference to culpability Mr James emphasised that it was the intervention of a thief, or thieves, and the further circumstance that the pump was left running which triggered the ultimate outcome.

[41]     I have considered the respective arguments.   It may well be that another Judge would have imposed a higher fine.  The fine imposed is, I note, 5 per cent of the maximum.   I agree that this was a case which involved significant failures. There was also a unique set of circumstances at play.  There had not been an incident prior to the present one.

[42]     Having reviewed the cases, and in particular the case of  Auckland Regional Council v McBreen DC Auckland, 21 January 1997, I do not think that this penalty is out of line with that in other cases.  In McBreen the offender pleaded guilty, had paid reparation for cleanup costs in the sum of about $55,000 and was fined $4,000 by Judge Bollard.  That was a similar case involving a spill of diesel (a lesser quantity), but likewise after the intervention of a criminal third party.

[43]     Stepping back, looking at the reparation order that I am substituting, the enforcement order which was made by Judge Smith and the fine, I do not find the latter  to  be  clearly inadequate.    To  my mind  the  sentencing  outcome  not  only provides appropriate recompense to the Regional Council, but also meets the need for deterrence once one looks at all elements of the sentence as a package.

Result

[44]     For these reasons, then, the appeal is allowed to the extent that I substitute the increased figure by way of reparation, but the fine of $10,000 shall stand and, of

course, the direction that 90 per cent is payable to the Council.

Solicitors:

Raymond Donnelly & Co, Christchurch for Appellant

Saunders & Co, Christchurch for Respondent