FEDERAL COURT OF AUSTRALIA Minister for Sustainability, Environment, Water, Population and Communities v Gas Point Guildford West Pty Ltd [2013] FCA 621 Citation: Minister for Sustainability, Environment, Water, Population and Communities v Gas Point Guildford West Pty Ltd [2013] FCA 621 Parties: MINISTER FOR SUSTAINABILITY, ENVIRONMENT, WATER, POPULATION AND COMMUNITIES v GAS POINT GUILDFORD WEST PTY LTD (T/A GAS POINT) (ACN 143 385 933) File number: NSD 251 of 2013 Judge: RARES J Date of judgment: 5 June 2013 Legislation: Crimes Act 1914 (Cth) s 4AA(1) Federal Court of Australia Act 1976 (Cth) Pt VB Fuel Quality Standards Act 2000 (Cth) ss 3, 12AA, 19, 21(1), 65(1), 65A, 65K, 66, Pt 4 Fuel Standard (Automotive Diesel) Determination 2001 (Cth) cl 3(1) Cases cited: Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (In Liq) [2005] FCA 1212 applied Lukatela v Birch (2008) 223 FLR 1 applied Markarian v The Queen (2005) 228 CLR 357 referred to Mill v The Queen (1988) 166 CLR 59 applied Pearce v The Queen (1998) 194 CLR 610 applied Date of hearing: 5 June 2013 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 33 Counsel for the Applicant: Ms K C Morgan Solicitor for the Applicant: Norton Rose Fulbright Australia Counsel for the Respondent: Mr T Pickering Solicitor for the Respondent: C K Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 251 of 2013 BETWEEN: MINISTER FOR SUSTAINABILITY, ENVIRONMENT, WATER, POPULATION AND COMMUNITIES Applicant AND: GAS POINT GUILDFORD WEST PTY LTD (T/A GAS POINT) (ACN 143 385 933) Respondent JUDGE: RARES J DATE OF ORDER: 5 JUNE 2013 WHERE MADE: SYDNEY THE COURT DECLARES THAT: 1. On 15 February 2013, the respondent, from Gas Point Guildford West, 54C Fairfield Road, Guildford NSW, contravened s 12AA of the Fuel Quality Standards Act 2000 (Cth) (the Act) by suppling diesel that did not comply with the Fuel Standard (Automotive Diesel) Determination 2001 (the Standard). 2. On 16 February 2013, the respondent, from Gas Point Guildford West, 54C Fairfield Road, Guildford NSW, contravened s 12AA of the Act by supplying diesel that did not comply with the Standard. THE COURT ORDERS THAT: 3. The respondent pay the Commonwealth of Australia a pecuniary penalty in the sum of $22,500.00 in respect of the two contraventions of s 12AA of the Act the subject of orders 1 and 2 above. 4. The respondent be restrained, by itself, its servants and agents for two (2) years, from supplying diesel in Australia that does not comply with the Standard as amended from time to time. 5. The respondent pay the applicant's costs as agreed or assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 251 of 2013 BETWEEN: MINISTER FOR SUSTAINABILITY, ENVIRONMENT, WATER, POPULATION AND COMMUNITIES Applicant AND: GAS POINT GUILDFORD WEST PTY LTD (T/A GAS POINT) (ACN 143 385 933) Respondent JUDGE: RARES J DATE: 5 JUNE 2013 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 Gas Point Guildford West Pty Limited trades as Gas Point and operates a service station in Guildford West, a Sydney suburb. The Minister for Sustainability, Environment, Water, Population and Communities seeks an order imposing a civil penalty of $110,000, as well as a declaration and injunction against Gas Point under the Fuel Quality Standards Act 2000 (Cth). Legislative Scheme 2 Importantly, the objects of the Act are set out at s 3: "3 Objects of Act The objects of this Act are to: (a) regulate the quality of fuel supplied in Australia in order to: (i) reduce the level of pollutants and emissions arising from the use of fuel that may cause environmental and health problems; and (ii) facilitate the adoption of better engine technology and emission control technology; and (iii) allow the more effective operation of engines; and (b) ensure that, where appropriate, information about fuel is provided when the fuel is supplied." 3 The Act provides that the Minister may determine, by a legislative instrument, a fuel standard in respect of a specified kind of fuel (s 21(1)). The Fuel Standard (Automotive Diesel) Determination 2001 (Cth) (the Standard) was, relevantly, an instrument made pursuant to that power. Item 2A of cl 3(1) of the Standard provided that, relevantly, the diesel should not contain more than 10 milligrams per kilogram of sulfur. 4 Section 19 creates an offence of strict liability if a supplier supplies fuel to a person who is not the end user of the fuel and in circumstances such as those in which Gas Point received supplies of diesel from its suppliers. The offence occurs if the supplier, within the period prescribed by the regulations, fails to provide to the person to whom the supply is made a document or documents containing: "(d) a statement as to whether or not the fuel complies with the standard …" 5 Critically, s 12AA provides: "12AA Civil penalty – supplying fuel that does not comply with fuel standards (1) A person contravenes this subsection if: (a) the person supplies fuel in Australia that is the subject of a fuel standard; and (b) in the case where the fuel standard specifies the circumstances in which the standard applies – the person supplies the fuel in Australia in those circumstances; and (c) the person is a constitutional corporation or a Commonwealth entity or the person supplies the fuel in the course of constitutional trade or commerce; and (d) the fuel does not comply with the standard; and (e) either: (i) if the person holds an approval that varies the standard in respect of the supply – the fuel does not comply with the standard as varied; or (ii) if another person holds an approval that varies the standard in respect of the supply by the person – the fuel does not comply with the standard as varied; and (f) the supply is not in order to comply with a direction or order under an emergency law. Civil penalty: (a) for an individual—500 penalty units; and (b) for a body corporate—2,500 penalty units. (2) However, the person does not contravene subsection (1) if the person believes on reasonable grounds that the fuel that is supplied will be further processed for the purpose of bringing the fuel into compliance with the standard or the standard as varied." 6 Part 3 of the Act gives the Court a broad range of powers. First, the Court can grant an injunction, if a person has engaged, is engaged or is about to engage in any conduct that would be either an offence against the Act or a contravention of the civil penalty provision (s 65(1)). Secondly, the Minister may apply to the Court, within six years of a contravention of a civil penalty provision, for an order that a wrongdoer pay the Commonwealth a pecuniary penalty, and the Court may order such a person to pay to the Commonwealth the pecuniary penalty for each contravention that it determines is appropriate (s 65A(1) and (2)). Relevantly, the rules of evidence in proceedings for civil matters apply in hearing and determining an application for an order under s 65A (s 65A(4)). Importantly, s 65A(3) provides: "Determining amount of pecuniary penalty (3) In determining the pecuniary penalty, the Court must have regard to all relevant matters, including: (a) the nature and extent of the contravention; and (b) the nature and extent of any loss or damage suffered as a result of the contravention; and (c) the circumstances in which the contravention took place; and (d) whether the person has previously been found by a court in proceedings under this Act to have engaged in any similar conduct." 7 If there are multiple contraventions of civil penalty provisions the Court has power to make a single order to pay a pecuniary penalty for all the contraventions described, not exceeding the sum of the maximum penalties that could be ordered if separate penalties were ordered for each contravention (s 65K). The Act also requires, in Pt 4, that persons who supply fuel in Australia, that is subject to a fuel standard, must keep and maintain records in relation to such supplies in accordance with the regulations and it creates offences and civil penalty provisions in respect of failures to do so (s 66). Background 8 On 31 January 2013, officers of the Minister's Department wrote to Gas Point advising it that it had tested premium unleaded petrol from the service station and found it to be non-compliant with standards set under the Act. 9 On 15 February 2013, two fuel inspectors from the Department visited the service station. They presented Leon Elias, a director of Gas Point, with their identity cards and informed him that they were on site to take samples of diesel under s 41 of the Act. Mr Elias provided his consent and cooperation for the inspectors to undertake that inspection. According to the records that Gas Point produced on subpoena and otherwise to the Department, the last delivery of diesel to it by United Petroleum occurred on 11 February 2013. The bill of lading for that delivery indicated the fuel was ordered on 8 February 2013, and that about 21,812 litres was delivered around 11.20 am on 11 February 2013. The bill of lading stated: "This product complies with Australian Standards". The Minister accepts that this statement sufficed to amount to a statement by United that the fuel complied with a fuel standard for the purposes of s 19(1)(d) of the Act. 10 There are only two tanks at the service station that contain diesel, being tanks 4 and 5. Those two tanks are connected and they supply diesel to both pumps 9 and 10. On 15 February 2013, diesel was sold and supplied by Gas Point to members of the public from both pumps 9 and 10, including three vehicles whose registrations are set out in the agreed facts. 11 The fuel inspectors took samples of two litres of diesel from pump 9 and another two litres from pump 10. Those samples were subjected to analysis. Automotive diesel of the kind in the tanks at Gas Point has to comply with the Standard. When subjected to testing, the sulfur content in the diesel taken from pump 9 was 29 milligrams per kilogram, and from pump 10 was 27 milligrams per kilogram, thus exceeding the 10 milligrams per kilogram permitted under Item 2A of cl 3(1) of the Standard. 12 Later on 15 February 2013, Gas Point was notified by letter of these results. Mr Elias understood, incorrectly, that tanks 4 and 5 were independent, and that tank 4 was connected to pump 9, while tank 5 was connected to tank 10. After he received the test results on 15 February 2013, he put "Out of Order" signs on each of the two diesel pumps and said that no further diesel was sold from either pump. The notification also led to Mr Elias contacting a supplier called Hi-Flow Pty Limited which was a bulk fuel distributor. 13 Hi-Flow delivered 6831 litres to Gas Point at about 2 pm on 16 February 2013. Mr Elias told the Hi-Flow tanker driver to empty tank 5 and put its contents into tank 4 and then to discharge the diesel fuel he had ordered into tank 5, which he understood would have a fresh supply of diesel that could be sold from pump 10. Gas Point was obviously desirous of being able to sell compliant diesel as soon as possible to maintain its business. Mr Elias believed that the non-compliant fuel had been removed from tank 5, except for a small quantity of about 200 litres, based on what the tanker operator had told him, and that tank 5 had been topped up with the 6,831 litres of what he believed to be compliant diesel. 14 However, there is no evidence that, when Hi-Flow supplied the diesel fuel on 16 February 2013, it provided a statement in any document in accordance with s 19(1)(d) of the Act. Within about an hour of the delivery by Hi-Flow, two different inspectors from the Department arrived at Gas Point's service station, identified themselves to Mr Elias and informed him that they were on the premises to take samples of diesel, pursuant to s 41 of the Act. Once again, Mr Elias provided his consent for the inspectors to undertake a fuel quality site inspection. He told them of the delivery by Hi-Flow of the 6,831 litres earlier that day into tank 5. There was an out of order sign still in place on pump 9. The inspectors took a sample of two litres of diesel from pump 10. It was an agreed fact that diesel had been sold and supplied by Gas Point to members of the public from pump 10 on 16 February 2013. When tested, the sample from pump 10 contained 32 milligrams per kilogram of sulfur. Shortly after Mr Elias or Gas Point became aware of the results of this test, an "Out of Order" sign was again placed on pump 10. 15 Mr Elias said that he was shocked when he received advice that the test on 16 February 2013 had revealed non-compliance with the Standard. After speaking to his fellow directors of Gas Point, he spoke to the lessor of the service station, Colin Makary. Mr Makary advised him that tanks 4 and 5 were linked by faucets that could control the drawing the diesel from them by pumps 9 and 10 and that each pump could draw diesel from either tank. This was news to Mr Elias who, until then, had thought that each of the tanks independently supplied the respective pumps as I have described above. He said that if he had been aware that pump 10 could draw from either of tanks 4 or 5 he would not have bothered to have the contents of tank 5 pumped into tank 4 and then replace them with diesel supplied by Hi-Flow on 16 February 2013. He said that he would have arranged instead for both tanks to have been emptied and replaced by a new supply of diesel. 16 Gas Point tendered an invoice from Hi-Flow for the delivery of 16 February 2013 that indicated that the amount charged by Hi-Flow for the diesel delivered on that day had not been paid. A notation was added to the invoice stating: "Load cancelled fuel picked up (pumped out). Returned cheque." I infer that the arrangement referred to in the note occurred prior to Mr Elias' conversation with Mr Makary in which he learned that both pumps 9 and 10 could be supplied by tanks 4 and 5. 17 On 18 February 2013, the Department's solicitors wrote to Gas Point informing it of the Minister's intention to commence proceedings for an interlocutory injunction under s 65 of the Act, and a declaration that Gas Point had breached, relevantly, s 12AA of the Act. 18 It was agreed that Gas Point did not hold an approval to vary the fuel standard in respect of the supply of diesel between 15 and 18 February 2013, and it was not required to comply with any direction or order under an emergency law between those dates, including any direction of the Liquid Fuels Security and Policy Section of the Department of Resources, Energy and Tourism. 19 Hi-Flow's accounts for the financial year periods ended 30 June 2011 and 2012 and the nine months ended 31 March 2013, indicate that its gross profit margin declined significantly over the periods they covered. The trading figures for the latest period are less healthy than those for the immediately preceding financial year where Gas Point made a modest profit of about $25,000 before tax. Those accounts show that at the present time Gas Point is trading at a loss before income tax, but has a guarantee of continued financial support from its directors, so as to warrant it being considered to be a going concern. 20 Although I had made directions for the parties to prepare an agreed statement of facts and to file submissions in an orderly way, it was only yesterday when Gas Point provided its submissions that it became apparent that it was relying on evidential matters outside those that the Minister had been aware of. I allowed Gas Point to rely on some evidence in affidavits and documentary form during the course of the hearing but refused to allow it to call further oral evidence, having regard to Pt VB of the Federal Court of Australia Act 1976 (Cth) and the potential need for the Minister to have to seek an adjournment in order to prepare to meet the rejected evidence. Gas Point's submissions 21 Gas Point argued that no pecuniary penalty should be imposed in the circumstances because having regard to its financial situation, a pecuniary penalty would be crushing. It argued that, as is common ground, it had not previously be found to have engaged in similar conduct by any court and that the contraventions were of a nature and extent that did not result in damage being suffered by or loss being caused to any other persons. In this regard, it referred to the absence of any complaints by its customers. Gas Point argued that it had responded appropriately, responsibly and in good faith to the notices of non-compliance that it received on 15 and 16 February 2013 by immediately placing "Out of Order" signs on the pumps. It argued that Mr Elias' action in arranging for Hi-Flow to provide its services to pump out tank 5 and deliver diesel to that tank afterwards, so as to enable fuel to be sold from pump 10 was again indicative of its good faith, and that the contravention that occurred on 16 February was, while unfortunate, accidental. It argued that it had been an unwitting recipient of non-compliant diesel based on the matters in evidence. In this regard, it noted that the sulfur level in the diesel recorded in the test of 16 February 2013 was even greater than either of the two samples taken on the previous day. It submitted that it was unlikely that it would deliberately have interfered with the fuel or sought to obtain a further non-compliant supply. 22 Gas Point submitted that it had co-operated at all times with the officers of the Department and, which is common ground, had given an early indication that it would not contest liability for relief sought by the Minister in these proceedings. However, it argued that no penalty should be imposed, no declaratory relief should be granted against it and that, in all of the circumstances, there was no necessity for an injunction. Finally, it sought to contend that no order for costs should be made. Consideration 23 The purpose of the Standard was directed to achieving the objects of the Act in s 3. The Act has been in force for over a decade and provides a regime with which service station proprietors and operators, such as Gas Point, must now be well familiar. It contains important regulatory mechanisms intended to achieve the objects of the Act by ensuring that fuel, including diesel, supplied within the industry from all points along the supply chain to the ultimate consumer complies with standards that have been set as to its quality and contents. The maximum civil penalty under s 12AA for a body corporate is 2,500 penalty units, which currently translates to $425,000, a penalty unit being $170: s 4AA(1) of the Crimes Act 1914 (Cth). This indicates that the Parliament regarded the remedy of a civil penalty as an important mechanism to enforce the industry's adherence to fuel standards for the purposes of achieving the objects of the Act. 24 It is not clear on the evidence that the diesel in tanks 4 and 5 that was tested on 15 February 2013 was, or consisted only of, the fuel supplied to Gas Point by United on 11 February 2013. There was no evidence from Gas Point that it had received no other intermediate supply. A striking feature of the evidence is Gas Point's failure to lead any evidence that it contacted United after learning on 15 February 2013 that the diesel in tanks 4 and 5 did not comply with the Standard. Nor is there any evidence from Gas Point that it required United to remove the non-compliant fuel by reason of its breach of what is effectively a warranty, in the form of the statement under s 19(1)(d), that the fuel supplied complied with the Standard. Indeed, Gas Point's apparent lack of complaint in respect of what would have been a breach of the Act by United had it supplied that diesel, stands in contrast to the way in which Gas Point appears to have reacted to the subsequent delivery by Hi-Flow. 25 The Minister argues that, among other matters, the records of Gas Point have a number of deficiencies that should be taken into account as matters of aggravation in the ascertainment of the penalty to be applied. I reject that submission. The keeping and maintenance of records is not an element of the civil penalty contraventions alleged against Gas Point in these proceedings to apply under s 12AA. On the other hand, I accept that it is relevant to an assessment of the seriousness of the contraventions as to whether or not Gas Point took steps to satisfy itself that each delivery of fuel did comply with the requirements of the Act and any standards. That includes whether or not a supplier such as Hi-Flow provided a statement under s 19(1)(d) in respect of the diesel supplied on 16 February 2013. I am not satisfied that Gas Point has been fully frank with the Court as to the circumstances in which the contravention of 15 February 2013 occurred. 26 It is not possible on the evidence before me to make any finding as to whether the fuel supplied by Hi-Flow on 16 February 2013 did or did not comply with the Standard. The only finding that it is safe to make is that there is no evidence that Gas Point satisfied itself by insisting on the provision by Hi-Flow of the statement required by s 19(1)(d) that the diesel did so comply. This indicates that Gas Point, at the very least, in seeking to address the difficulties it found itself in, was not aware of or paid no regard to the requirements in the Act relating to its obtaining supplies of fuel. Accordingly, I am not satisfied that Gas Point has acted in a way that could be excused without the imposition of an appropriate civil penalty. 27 The circumstances of the contravention on 15 February 2013 appear to me to be more serious than those on the day after. Gas Point gave no complete explanation of the provenance of the fuel that was in tanks 4 and 5 on that day. The absence of any evidence of remonstration by Gas Point with United leads me to infer that United was not the supplier of the non-compliant fuel. Contraventions of the Act of this kind are serious if allowed to occur in the industry generally. The objects of the Act would not be met and the proper regulation of the industry of supplying fuel in this country frustrated. I am of opinion that in all the circumstances, the appropriate penalty for the first contravention, if it were a single instance, is 100 penalty units, or $17,000. 28 The second contravention involved what I consider to be a real attempt by Gas Point to remedy the position, but one that betrayed a carelessness on its part in doing so. I think it can be excused from its failure to appreciate the interlinking of the two tanks. Nonetheless, Gas Point never explained what was proposed to be done with the diesel left in tank 9, particularly having regard to the matters I have taken into account in my findings above as to the likelihood of that diesel not having been supplied by United. It obtained a supply from Hi-Flow without appearing to have taken the precaution of ensuring that the new diesel was itself compliant. Nonetheless, I think it is safe to infer that Gas Point and Mr Elias believed that the new supply of diesel on 16 February 2013 would have been compliant, and were genuinely surprised when they found that a sample taken from pump 10 showed it did not. In all of the circumstances I consider that it is appropriate to impose a lesser penalty of 60 penalty units, or $10,200 for the second contravention. 29 However, it would not be appropriate to impose these amounts cumulatively as if there were two separate acts, independent of each other, that amounted to unrelated contraventions. Under s 65K the court can impose a single pecuniary penalty for both contraventions. I am of opinion that, in arriving at an overall penalty to impose, it is necessary to take account of the sentencing principles in criminal matters, including the totality principle, discussed in Mill v The Queen (1988) 166 CLR 59, Pearce v The Queen (1998) 194 CLR 610 and which I distilled in Lukatela v Birch (2008) 223 FLR 1; 164 ACTR 24 at 37-38 [75]-[79]; cf: Markarian v The Queen (2005) 228 CLR 357. 30 The two contraventions appear to be very closely related, albeit arising out of differently perceived circumstances from Gas Point's view. In my opinion, an overall penalty of $22,500 will appropriately recognise the seriousness of these as the first two contraventions of the Act by Gas Point. In arriving at this penalty I have had regard to Gas Point's current financial circumstances, the proximity in time of the two contraventions, the less serious nature of the second and all of the matters before me. Had its financial circumstances been more prosperous it would have been appropriate to consider a more significant penalty. But having regard to its current and past financial position, and the fact that I will order that Gas Point pay the Minister's costs, the overall financial impact on Gas Point will be, on the evidence before me, in the order of $100,000. That is a significant imposition for a small business of this kind operating on thin margins. 31 It is appropriate to make a declaration in these proceedings that on each of the two occasions, 15 and 16 February 2013, Gas Point contravened s 12AA by supplying diesel that did not comply with the Standard. Declarations of this kind in regulatory proceedings have an important public purpose to perform. Regulators are able to use such declarations as part of their public educative process in seeking to ensure compliance with legislation. Declarations and the consequential orders of a court made in respect of the circumstances of a contravention should be couched in language that make readily understandable to the public that the law must be obeyed and how others have been found not to have complied with their legal obligations. 32 I agree with what Lander J said in Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (In Liq) [2005] FCA 1212 at [150]-[151], that it is appropriate in regulatory proceedings of this kind for the Court to make declarations of contraventions. This power enables the Court to mark its disapproval of contravening conduct. The declaration is directed to the determination of the controversy between the parties and in making the public aware of Gas Point's contraventions of the Act. 33 I also consider that it is appropriate to grant an injunction in the terms sought by the Minister restraining Gas Point from supplying diesel in Australia that does not comply with the Standard. In my opinion such an injunction should remain in place for two years from today. That will be an adequate time for Gas Point to be able to order its affairs so as to ensure it develops compliance programs or mechanisms that observe the requirements of the Act and ensure that no further contraventions will occur. Gas Point should also pay the Minister's costs as agreed or taxed. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 21 June 2013