Environmental Protection Agency v Caltex Australia Petroleum Pty Ltd [2017] NSWLEC 8 

Caltex Australia Petroleum Pty Limited (Caltex) has been convicted and ordered to pay $400,000 under an Environmental Service Order, as well as costs of $450,000, for the offence of negligently spilling petrol at its Bankstown fuel terminal in the Port Botany Industrial Precinct, near Sydney Airport. The $400,000 penalty is a record for a single prosecution brought by the NSW EPA and was imposed under circumstances where an intoxicated employee was responsible for the spill and the spill was contained within a bunded area. The EPA successfully argued, however, that the spill would not have occurred had Caltex followed its rigorous "Operational Excellence Management System", irrespective of the intoxication of the employee. This case demonstrates the importance for companies to follow the strict risk management and assessment procedures that they have in place at all times.

What happened

In the early hours of the morning on 12 July 2016, more than 157,000 litres of fuel escaped vertically, like a "geyser" and showered into a bunded area at Caltex's Banksmeadow Terminal. The spill was contained within the bund, however a vapour cloud of petroleum formed in the vicinity. This caused workers from neighbouring industrial premises to be evacuated, and local roads were closed due to the potential risk of fire or explosion. The firefighters were concerned that the situation was at the high end of extremely dangerous and determined that the risk to the public warranted sending an officer to wade through the knee-deep fuel and fire fighting foam in the bund to shut off the valve on the tank, which they did.

Caltex argued that the spill occurred as one of Caltex's contractors undertook the product transfer when he was intoxicated and incorrectly fitted and failed to properly secure the head of the hose to the petrol tank. The contractor was later tested and recorded a blood alcohol level of 0.267%.

The EPA's position, however, with which the Court agreed, was that the circumstances of the transfer were such that it never should have proceeded. In particular, the transfer was carried out:

• without any risk assessment, which was contrary to Caltex's management system,

• utilising a temporary arrangement of pumps, hoses and fittings, at night under inadequate lighting

• in the knowledge that the tank in question contained in excess of 2 million litres of product.

Caltex plead guilty to the offence of negligently causing a substance to escape in a manner that harmed or was likely to harm the environment, in contravention of s116(2)(d) of the Protection of the Environment Operations Act 1997 (NSW). This charge is classified as a Tier 1 offence, being the most serious class of environmental offences. The Land and Environment Court applied the usual sentencing considerations in accordance with the Crimes (Sentencing Procedure) Act 1999 (NSW) and section 241 of the Protection of the Environment Operations Act 1997 (NSW).

Sentencing considerations

In assessing the penalty to be imposed, the Court considered that:

1. The incident was a major spill event which involved large volumes of an inherently dangerous and highly flammable substance.

2. Caltex failed to follow its own rigorous "Operational Excellence Management System", which was a primary cause of the incident.

3. The harm caused to the environment, mainly air and to human health, was generally minor and transient.

4. Caltex had complete control over the causes giving rise of the offence, and was well aware of the practical measures that it could have taken to prevent or mitigate harm by following its own safety procedures.

5. Caltex has a culture of valuing safety and the environment, it provided assistance to and cooperated with the EPA investigation, and entered an early guilty plea.

6. The prospects of Caltex reoffending were slight and the need for specific deterrence was comparatively low.

Orders

Caltex was ordered to:

• Pay $400,000 under an Environmental Services order towards two environmental initiatives in Botany Bay;

• Pay legal costs of $450,000; and

• Place publication notices detailing the offence in the Australian Financial Review, Sydney Morning Herald, Southern Courier and Caltex's next Annual Report.

Caltex also disclosed to the Court that:

• The cost of the clean up was over $1,100,000, of which it was able to recover approx. $700,000 from its insurer, but it expected that its insurance premiums would increase as a result.

• The value of lost product was approx. $100,000.

• Caltex made an Enforceable Undertaking to SafeWork NSW, which would cost Caltex approx. $800,000 to comply with.

• A conviction would have an adverse effect on Caltex' reputation, would impact upon Caltex' ability to win or be shortlisted for tenders and expressions of interest and would be taken into account by the EPA when calculating licence fees.

Lessons learnt

This case highlights the importance of companies both having and following strict risk management and assessment procedures for all their operations. Having effective procedures on paper is just not enough. They must be understood and followed by all staff at all times.

It is critical to note that simple mistakes may create significant impacts and risks to safety and the environment, as well as leading to significant costs. For this reason, it is important that companies and businesses be proactive in carrying out regular risk analysis in relation to their operations, and that they develop foolproof policies and training programs to prevent serious harm occurring from simple mistakes that can be avoided.