Thoughts on waste in NSW Part 1: Stockpiling, waste disposal and the EPA

A further development in the multi-round match between the NSW EPA, a waste company and the resource recovery exemption regime: the EPA has appealed for a second time.

The Land and Environment Court criticised the EPA and its waste regime in the long-running Grafil prosecution. Subsequently, the Government has announced a review of the regime while at the same time the EPA is now appealing the sentencing decision.

The matter highlights the legal and financial risks of receiving recovered fines and the complexity of the waste regulatory regime in NSW.

Snapshot

1. The NSW Land and Environment Court (NSWLEC) handed down its sentencing decision in the long-standing dispute between the NSW Environment Protection Authority (EPA), Grafil Pty Ltd (Grafil) and one of Grafil’s directors, relating to Grafil operating a waste facility without lawful authority.
2. While Grafil was ultimately found guilty, Justice Pain found the statutory scheme for recovered fines to be problematic, as it exposes consumers of recovered fines to legal and financial risks.
3. The decision has prompted the NSW Government to review whether the resource recovery framework is practical, effective and fit for purpose.
4. The EPA has now appealed Pain J’s sentencing decision the NSW Court of Criminal Appeal (NSWCCA). This is the second time the EPA has appealed in this matter. The first resulted in the NSWCCA overturning Pain J’s original decision and finding Grafil guilty.

Background

The EPA charged Grafil with operating a waste facility without lawful authority pursuant to section 144 of the Protection of the Environment Operation Act 1997 (NSW) (POEO Act) from around 29 October 2012 to around 15 May 2013. One of Grafil’s directors, Mr Mackenzie, was charged with the same offence by virtue of the executive liability provisions in section 169 of the POEO Act.

The EPA alleged that the defendants had stockpiled material that was “waste” (as defined in the POEO Act) at a property in Salt Ash, NSW without an Environment Protection Licence.

The material was received from various recycling facilities located in Sydney.

At first instance, the NSWLEC found the defendants not guilty on the basis that the subject material was not “waste” as defined in the POEO Act, as the material was subject to the “Continuous Process” Recovered Fines exemption 2010 and the Excavated Natural Material exemption gazetted under the Protection of the Environment Operations (Waste) Regulation 2005 (NSW) (Waste Regulation).[1]

The EPA made a stated case to the NSWCCA, questioning a number of the NSWLEC’s findings. The NSWCCA found that the NSWLEC had erred in a number of its findings and ultimately concluded that the material was “waste”.[2] It also found that the onus for proving compliance with waste exemptions falls on the person seeking to rely on the exemption. As Grafil had not met the record-keeping requirements and had not received development approval for the road construction (which was the purpose of the stockpile filament), it could not rely on the exemptions.

The defendants made an unsuccessful application for special leave to appeal the NSWCCA’s decision to the High Court of Australia.

The proceedings were then remitted to the NSWLEC, where Justice Pain ultimately found the defendants guilty (on the basis of the NSWCCA findings).[3]

In November 2021, the NSWLEC handed down its sentencing decision.

In sentencing the Defendants, Pain J criticised the EPA for its investigation and litigation of the case, and more broadly, the workability of the resource recovery regime as a whole.

Her Honour ordered Grafil to cap the waste stockpiles but did not impose an additional penalty. Grafil was ordered to pay 25% of the EPA’s legal and investigation costs. The charge against Grafil’s director was dismissed pursuant to section 10(1)(a) of the Crimes (Sentencing Procedure) Act 1999 (NSW).

The EPA has appealed the decision with a preliminary hearing set down for 16 December 2021 in the NSWCCA.

Court criticises resource recovery regime as exposing consumers to legal and financial risk

Pain J found the statutory scheme for recovered fines to be problematic, as it exposed consumers of recovered fines to legal and financial risks which were largely out of their control. We have briefly summarised the Court’s concerns below:

1. No method for dealing with asbestos. Neither of the recovered fines exemptions in issue required suppliers of recovered fines to test for asbestos. However, a consumer might be subject to investigations and/or prosecution for receiving asbestos waste. The Court noted at [178] that “…the management of asbestos in the context of the resource recovery exemptions is highly problematic for unwitting consumers who can have no knowledge that they have received asbestos in recovered fines…”
2. Difficulties proving compliance with exemptions. The Court found that there were serious difficulties with proving compliance with certain requirements in the resource recovery exemptions. The Court noted at [187] that “[t]here is no practical way for a consumer to participate in or check the continuous process sampling and testing required by the CPRF exemption…”, as this must be done by suppliers. This risk is amplified by the fact that consumers bear the onus of demonstrating compliance with the exemptions.
3. Onerous record keeping requirements. The resource recovery exemptions set out requirements for consumers to keep records of materials that they had received. If records were not kept, consumers would not benefit from the exemption. The Court found that this placed a very onerous obligation on consumers to keep records, or otherwise face significant legal and financial consequences.
4. Ambiguity around whether temporary stockpiling permitted. The Court found that there was uncertainty around whether the resource recovery exemption regime permitted temporary stockpiling of material without an EPL being obtained. This could have a number of practical implications for consumers looking to use recovered fines, as such fines could not be temporarily stored before their final use.

Criticisms of the EPA

In her sentencing remarks, Pain J also criticised the EPA’s approach to the investigation and prosecution of Grafil and Mr Mackenzie.

In particular, Her Honour disapproved of the EPA’s approach to litigating the case, belatedly relying on the importance of record keeping when this was not the focus of their case at trial.

Pain J also discussed errors in the EPA’s evidence and calculation of the amount of material deposited. In determining costs, Her Honour noted that the defendants should not have to bear the cost of “inadequate evidence collection” by the EPA.

Independent review of Resource Recovery Framework

The NSW Government has announced an independent review of the EPA’s Resource Recovery Framework by the former head of the Victorian EPA, Dr Cathy Wilkinson. The Review is expected to be completed in 2022 and to inform the Government’s 20-year circular economy strategy: Waste and Sustainable Materials Strategy 2041.

Key takeaways

The Grafil cases provide important learnings from the courts and the EPA for the waste industry but also those adjacent to the waste industry – receiving recovered fines for various construction and other purposes:

• Receiving recovered fines requires a high level of due diligence:
  • If you receive material on site it is important to seek advice from qualified and experienced advisors on whether your proposed activities may amount to waste disposal or waste storage requiring an EPL and the qualities of the material received – you cannot rely on testing done by suppliers of recovered fines and fill.
  • If you intend to rely on a gazetted exemption from the requirement to hold an EPL, you have to prove that you have complied with all the conditions of the exemption, including the record keeping requirement.
  • It is important to keep accurate, fulsome records, detailing the quantity of the recovered fines received, and the name and address of the supplier of the recovered fines.
• Waste offences receive a high degree of scrutiny and regulator action: The EPA has demonstrated its willingness to investigate and prosecute companies and directors for waste related offences on a number of occasions. The EPA has identified ‘Waste’ as one of the five strategic focus areas in its Strategic Plan 2021-24. Out of the 18 EPA prosecutions completed under the POEO Act (excluding penalty notices) in 2019-2020, 5 were relating to unlawful treatment of waste, including unlawful transport of waste, unlawful depositing of waste and unlawful use of land as a waste facility.

• Personal liability for directors: The case is a good reminder of the EPA’s power under executive liability provisions in the POEO Act. Even though the charge against the Director was dismissed in this case, this was due to extenuating circumstances. Directors should frequently remind themselves of their duties under corporations law and environmental law, and the preventative steps and due diligence they should exercise when dealing with potential environmental liabilities.

The EPA has appealed the decision, which is the second time that the EPA has appealed against Pain J’s findings in the matter. It is rare for the EPA to appeal sentencing decisions which adds to the novelty of this series of cases. We will provide a further update once the NSWCCA has handed down its decision.

It remains to be seen how the resource recovery exemption regime might change as a result of the Grafil cases and the review that has been announced. We will continue to monitor the outcomes.

A copy of the decision can be found here: Environment Protection Authority v Grafil Pty Ltd; Environment Protection Authority v Mackenzie (No 4) [2021] NSWLEC 123

By Peter Briggs, Partner, Rebecca Davie, Senior Associate, Brigitte Rheinberger, Solicitor and Rachel Holland, Graduate.

[1] Environment Protection Authority v Grafil Pty Ltd; Environment Protection Authority v Mackenzie [2018] NSWLEC 99.

[2] Environment Protection Authority v Grafil Pty Ltd; Environment Protection Authority v Mackenzie (2019) 101 NSWLR 245; [2019] NSWCCA 174.

[3] Environment Protection Authority v Grafil Pty Ltd; Environment Protection Authority v Mackenzie (No 3) [2020] NSWLEC 90.