Federal Court of Australia

Minister for the Environment v ACN 089 171 415 Pty Ltd [2020] FCA 1557

ORDERS

OTHER MATTERS:

1.    The Court notes that the Respondent undertakes to arrange, at its own cost, for the safe disposal of the Seized Cylinders and the Fifth Seized Cylinder (as each are defined in the Applicant’s Statement of Claim filed on 29 November 2019), including any HFC-227ea contained within them, at an approved destruction facility and as soon as reasonably practicable, and then provide the Department of Agriculture, Water and the Environment with a certificate of destruction.

THE COURT DECLARES THAT:

2.    Between 4 July 2018 and 12 October 2018, by the importation of a synthetic greenhouse gas (SGG) into Australia, specifically 5,000kg of HFC-227ea, without a licence under s 13A of the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth), the respondent contravened s 13(1)(a)(iii) of that Act.

AND THE COURT ORDERS THAT:

3.    Pursuant to s 65AC of the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth), the Respondent pay the Commonwealth a pecuniary penalty in respect of the contravention of s 13(1)(a)(iii) of the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth) in the amount of $500,000.

4.    The parties bear their own costs of and incidental to the proceedings.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MORTIMER J:

Introduction and Summary

1    The respondent, ACN 089 171 415 Pty Ltd, which I will refer to as the Company in these reasons, operated as a business that designed and supplied fire protection systems in Australia, New Zealand and the Asia Pacific region. Some of the substances the Company imported to Australia for the purposes of that business are regulated under the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth). By orders made today, and as a result of an admitted single contravention of s 13(1)(a)(iii) of the Act, the Court has imposed a significant penalty on the Company. The contravention committed by the Company was the importation of approximately 5 tonnes of a substance called HFC-227ea from China to Australia. The Court was informed that this is the first case to be brought under s 13 of the Act.

2    The Company has admitted the contravention, and has fully cooperated with the applicant in the proceedings. The Court’s orders are made on the basis of an agreed statement of facts, and amended joint submissions from the parties.

3    The Court finds the contravention proven, and considers it is appropriate to make the declarations and orders proposed by the parties.

Background

The regulatory regime

4    The Ozone Protection Act was introduced in 1989, in line with Australia’s international obligations under the Vienna Convention for the Protection of the Ozone Layer [1988] ATS 26 and Montreal Protocol on Substances that Deplete the Ozone Layer [1989] ATS 18. The Act provides for a regulatory scheme that governs the manufacture, import and export of, and discourages the use of, substances that contribute to climate change. HFC-227ea is a hydrofluorocarbon, which is a kind of synthetic greenhouse gas, and one of the substances regulated by the Act. Under s 13 of the Act, the importation of SGGs is prohibited unless pursuant to a licence issued under s 13A.

5    Relevantly to the current contravention, in 2016 at Kigali in Rwanda the Parties to the Montreal Protocol agreed to implement a phase down for HFCs by reducing their production and consumption. It was pursuant to this agreement that Australia introduced, on 1 January 2018, a HFC industry limit, regulated under Part IVA of the Act. This is explained in the joint submissions as follows:

From 1 January 2018, the Minister implemented a HFC phase-down by introducing a ‘HFC industry limit’, governed by Part IVA of the Act, intended to gradually reduce the amount of bulk HFCs permitted to be imported into Australia. Pursuant to s 18(1), Item 4, the overarching HFC industry limit is preserved by imposing individual HFC quotas as conditions on each individual licence.

The HFC industry limit is set in accordance with a formula, so that it will be reduced every second year through to 2036: see r 42 of the Ozone Protection and Synthetic Green Gas Management Regulations 1995 (Cth) (the Regulations).

In the relevant calendar year beginning 1 January 2018, the HFC industry limit was 8 megatonne CO2 equivalent, and 100% of the HFC industry limit was allocated to SGG licensees.

The importation of 5 tonne of HFC-227ea in 2018 was equivalent to the importation of 16,100 tonne of CO2, and represented a 0.2% increase over and above the volume of HFC to be imported/manufactured as contemplated by the HFC industry limit.

6    This last paragraph describes the contravening conduct of the Company and puts into some perspective the extent to which the unlicensed importation of 5 tonnes of HCF-227ea into Australia would affect the overall amount of importation in that year. While 0.2% cannot be said to be a large portion of the total HFCs imported, in the context of a regulatory scheme that seeks gradually to reduce the amount, it is nonetheless significant. As I explain later in these reasons, when the actual market context of the size of importation in 2018 is taken into account, the contravening importation was of a significant size.

The Company’s admissions and the Proposed Relief

7    There are some matters in the joint submissions which are not referable to any evidence before the Court. The sum of the evidence before the Court at the time of the hearing was contained in a statement of agreed facts, dated 7 August 2020. No agreed documents were attached to that statement. The statement was admitted into evidence pursuant to s 191 of the Evidence Act 1995 (Cth). Two scientific articles were also admitted by agreement.

8    The Court raised with the parties at the hearing the fact that there were some matters in the joint submissions which were not supported by any evidence. For example, the contention at [69] of the joint submissions about the number of years of industry experience of the Group Managing Director of the Company, Mr Harrington. There is a footnote to a document entitled “Company Profile”, but that document was not tendered. Some of the matters identified by the Court were the subject of amendments made to the joint submissions shortly before the hearing commenced. An amended form of the joint submissions was filed, and this reduced the discrepancies between the agreed statement of facts and the joint submissions.

9    On 22 October 2020 following a further request by the Court at the hearing, and after several requests for extensions of time, the parties filed further amended joint submissions, a supplementary statement of agreed facts and supplementary joint submissions on penalty. The supplementary statement of agreed facts is admitted pursuant to s 191 of the Evidence Act. The supplementary statement was accompanied by two documents relating to a review of the relevant legislative scheme, being the Review of the Ozone Protection and Synthetic Greenhouse Gas Management Program. The parties provided the Court with a copy of the terms of reference for the review and the resulting policy document: Measures to achieve Emissions Reduction and Efficiency and Effectiveness gains in the Ozone Protection and Synthetic Greenhouse Gas Management Programme. These documents were also admitted by agreement.

10    The amendments made to the further amended joint submissions served to correct some minor errors and further reduce the discrepancies between the agreed facts and joint submissions. The other documents addressed issues raised by the Court about the discrepancy between the maximum penalties prescribed for s 65AC(4A) and for other provisions.

The Company’s business

11    The Company operated a fire-safety business that included the sale of fire extinguishment systems containing HFC-227ea. During the relevant period, the Company held an Extinguishing Agent Trading Authorisation issued under the Ozone Protection and Synthetic Greenhouse Gas Management Regulations 1995 (Cth), which permitted the Company to store and otherwise deal with substances such as HFC-227ea but not to import them. There is no dispute that the Company did not hold the necessary licence to import HFC-227ea.

12    It is not entirely clear from the facts and submissions provided by the parties, but I infer the Company had previously purchased the substances it required for its fire extinguishment systems onshore, and had had no need to hold an importation licence. The agreed facts (at [50]-[51]) suggest there was some factual uncertainty whether HFC-227ea could be sourced domestically in 2018, however it is an agreed fact that at least one Australian entity has been able to supply HFC-227ea domestically in Australia since at least 1 January 2018.

13    In any event, it is apparent from the agreed facts and I infer that at some point around early 2018, the Company determined that it would import these substances itself. The parties in their statement of agreed facts describe what steps were taken by the Company to obtain a s 13A licence:

On 8 March 2018, Mr Harrington of the respondent sent an email to Sonja Desmond of Refrigerant Reclaim Australia referring to ‘our application for a HFC import licence’.

From at least 8 March 2018 (and prior to issuing a purchase order in relation to the Order), the respondent was aware of the need for, and was considering making an application to the Department to obtain, a Controlled Substances Licence authorising it to import HFCs.

On 7 August 2018, the respondent made an application to the Department for a Controlled Substances Licence and paid the licence fee in the sum of $15,000 to the Department. The respondent believed that the licence would be granted. However, the application was not granted and, in or about September 2018, the Department refunded the licence fee.

14    There was initially no direct evidence as to why the licence was not granted.

15    It was an agreed fact that

On about 23 July 2019, the Department returned the respondent’s application to the Department for a Controlled Substances Licence under s 13A(2) of the Act, and refunded the respondent’s application fee, because the respondent did not have a quota to import any SGGs.

16    There was no explanation for the gap between the refund of the licence fee in September 2018 and the return of the licence application in July 2019. I raised at the hearing whether there should be some additional facts about why it was that the respondent’s licence application was returned (not refused, as its counsel pointed out). The return of the licence appeared to be related to the respondent not having any importation quota for HFC-227ea. The parties agreed to clarify the matter with further agreed facts.

17    As noted above, on 22 October 2020 the parties filed the supplementary statement of agreed facts. This document explained that:

An allocation of an HFC quota from the HFC industry limit must be obtained before an applicant will be granted a Controlled Substances licence, and before they are entitled to import any bulk HFCs.

HFC quotas are allocated only every 2 years. At the time of the relevant licence application and contravention, there was no further quota to be allocated to a new licensee until the new quota period, commencing on 1 January 2020. There is no evidence whether or not the allocated quotas were used and the relevant substances imported and dispersed.

18    From these supplementary agreed facts, I infer the reason that the respondent’s licence application was returned was that there was no further quota available to be allocated at the time of the respondent’s licence application.

19    Approximately a month before its s 13A licence application in August 2018, the Company undertook to purchase a quantity of HFC-227ea, I infer on the expectation that a licence would be granted in sufficient time for its importation. The key facts surrounding the importation are detailed below.

20    It is an agreed fact that on 10 September 2019, the respondent ceased to be known as Fire Protection Technologies Pty Ltd, which I infer was its business name.

Admitted matters establishing the contravention

21    The contravention is admitted in full by the Company. The agreed facts are:

On 4 July 2018, the respondent issued purchase order 00031986 for the purchase of, among other things, 5,000kg of HFC-227ea from Mundanjiang Hali International Co Ltd also known as ‘Hali Gas’ (Hali Gas) in China for US$54,750 (Order).

On 19 July 2018, Hali Gas accepted and issued invoice no INVHC18071 for the Order.

On 27 August 2018, the Order left China for Australia by sea, under shipment by Logwin Air & Ocean Australia Pty Ltd (Logwin), with Bill of Lading reference NB061MEL805477.

On 11 September 2018, the Order arrived in Australia on the vessel Seoul Express.

On 14 September 2018, the Order was delivered to the respondent’s premises at Unit 1, 251 Ferntree Gully Road, Mt Waverley in the State of Victoria (Victorian Premises).

An employee of the respondent signed a Container Interchange Receipt – Container Delivery on 14 September 2018, as acknowledgment of receipt.

On around 12 October 2018, the respondent arranged to transport 1,000kg of HFC 227ea, that was part of the Order, from its Victorian Premises, to its premises at Unit 4, 35 Collin Jamieson Drive, Welshpool in the State of Western Australia (WA Premises).

The transfer was recorded in the respondent’s Stock Transfer Sheet dated 8 October 2018, and recorded as received on 12 October 2018

At all relevant times, and during the period 4 July to 12 October 2018, the respondent did not hold any licence under s 13A(2) of the Act for the importation of HFC-227ea, and was not otherwise authorised to do so.

22    I am satisfied that these matters are sufficient to establish a contravention of s 13 of the Act.

23    The respondent also makes the following admission:

By reason of the matters pleaded in paragraphs 7 to 15 above, the respondent admits that it:

a. imported 5,000kg of HFC-227ea into Australia in the period 4 July to 12 October 2018, without any licence to do so;

b. contravened s 13(1)(a)(iii) of the Act (the Contravention); and

c. is liable for the imposition of a civil penalty under s 65AC of the Act.

24    The remaining question before the Court is therefore the appropriate relief to be granted, including the penalty to be imposed.

The proposed relief

25    By their joint submission to the Court, the parties seek:

(1)    declaratory relief in respect of the contravention;

(2)    orders imposing a pecuniary penalty of $500,000; and

(3)    an order that the parties bear their own costs.

Applicable principles

The appropriate penalty is a matter for the Court

26    The Court’s determination has been assisted and informed by the parties’ joint submission that a penalty of $500,000 is appropriate, but the Court is not bound to give effect to that submission. The parties rely on Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 (DFWBII) to support their submission that the Court, if not bound, nonetheless ought generally to act on agreed penalty submissions. The plurality said at [57]-[58]:

[I]n civil proceedings there is generally very considerable scope for the parties to agree on the facts and upon consequences. There is also very considerable scope for them to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy. Accordingly, settlements of civil proceedings are commonplace and orders by consent for the payment of damages and other relief are unremarkable. So are court-approved compromises of proceedings on behalf of infants and persons otherwise lacking capacity, court-approved custody and property settlements, court-approved compromises in group proceedings and court-approved schemes of arrangement. More generally, it is entirely consistent with the nature of civil proceedings for a court to make orders by consent and to approve a compromise of proceedings on terms proposed by the parties, provided the court is persuaded that what is proposed is appropriate.

… Subject to the court being sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and … highly desirable in practice for the court to accept the parties’ proposal and therefore impose the proposed penalty.

27    The parties are correct that these principles must be kept in mind. However, these paragraphs were not all their Honours said on the matter in DFWBII and are not the last word in the development of the relevant principles in this Court. The plurality in DFWBII also stated of the Court’s task in assessing the appropriate penalty where the parties have made a submission as to what that amount ought to be (at [48]):

NW Frozen Foods and Mobil Oil do not suggest that the task of a judge faced with an agreed civil penalty submission is to determine whether the submitted penalty is ‘wholly outside’ the ‘range of penalties reasonably available’ or that the court is ‘bound to impose [an agreed] penalty irrespective of whether it is considered appropriate’. To the contrary, as was emphasised in Mobil Oil, those cases make plain that the court is not bound by the figure suggested by the parties. The court asks ‘whether their proposal can be accepted as fixing an appropriate amount’ and for that purpose the court must satisfy itself that the submitted penalty is appropriate.

(Footnotes omitted.)

28    While due weight is therefore to be given to the submission of the parties where, as is the case here, they have agreed on a penalty, it remains this Court’s task to undertake a genuine assessment of all the factors going toward the appropriateness of a particular penalty, and to come to its own conclusions. See also my decision in Australian Competition and Consumer Commission v Bupa Aged Care Australia Pty Ltd [2020] FCA 602 at [15]-[19] and the cases cited therein; Australian Competition and Consumer Commission v Sony Interactive Entertainment Network Europe Limited [2020] FCA 787; 381 ALR 531 at [53]-[57] (per Steward J); Australian Competition and Consumer Commission v Medibank Private Limited [2020] FCA 1030; 146 ACSR 181 at [10]-[15] (per Anderson J). I also accept, and respectfully agree with, the observations of Wigney J in Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2016] FCA 1516; 118 ACSR 124 at [104] that a proposed agreed penalty is likely to be the product of “compromise and pragmatism” between the parties, and this is a factor which weighs in favour of the Court accepting the proposed penalty. As to the factors which may be relevant to the assessment of an appropriate penalty, I refer to and adopt what I said in Bupa at [20]-[23]. Many of those factors are reflected in s 65AC(3). As I explain below, there are some additional factors which I consider relevant in the present circumstances.

29    Finally, in a case such as this which is the first occasion on which the Court is called on to impose a civil penalty under the Act, the Court should pay due regard to the Minister’s responsibility for the administration of the Act, and to her formal indication to the Court about what is the appropriate level of penalty to be set, in the circumstances of this particular contravention.

Appropriateness of the declaratory relief

30    It is uncontroversial that this Court has a wide discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth). As noted in the joint submission, s 13(1) of the Act does not require that the Court make a declaration where it is satisfied that a contravention has occurred, but the parties argue that it is appropriate to do so in this case. The parties submit that the granting of a declaration in this case would serve to:

 (a)    properly identify the contravening conduct;

 (b)    record the Court’s disapproval of that conduct;

 (c)    vindicate the environmental concerns on which the legislation is based;

 (d)    assist the Minister in carrying out the duties conferred by the Act;

 (e)    assist in clarifying the law, and

(f)    to communicate clearly to other would-be contravenors that the conduct in question is unlawful.

31    The parties have assisted the Court by providing a draft proposed form of the declaration they seek. The joint submission directs the Court to Australian Securities and Investments Commission v AXIS International Management Pty Ltd [2009] FCA 852; 178 FCR 485, a decision in which Gilmour J discussed the utility of granting declaratory relief from [26]-[43]. There is nothing in the reasoning of the High Court in DFWBII which suggests it is inappropriate for the Court to take a similar approach to the parties’ proposed declaratory relief as it is to the parties’ proposed civil penalty sum.

32    The principles governing this Court’s power to grant declaratory relief are set out in the recent decision of the Full Court in Clarence City Council v Commonwealth of Australia [2020] FCAFC 134; 382 ALR 273 at [57]-[75]. Relying on Forster v Jododex Australia Pty Ltd [1972] HCA 61; 127 CLR 421 at 437-438, the Full Court emphasised (at [70]) that the s 21 power is a wide discretionary power, which it is “neither possible nor desirable to fetter”.

Matters relevant to the quantum of a civil penalty

33    Section 65AC of the Act sets out a non-exhaustive list of factors to be considered in determining the amount of penalty:

65AC Civil penalty orders

(1)     If a designated court is satisfied that a person has contravened a civil penalty provision, the court may order the person to pay the Commonwealth a pecuniary penalty.

(2)     An order under subsection (1) is to be known as a civil penalty order.

Determining amount of pecuniary penalty

(3)    In determining the pecuniary penalty, the court may 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 or the regulations to have engaged in any similar conduct; and

(e)     the extent to which the person has co-operated with the authorities; and

  (f)     if the person is a body corporate:

(i)    the level of the employees, officers or agents of the body corporate involved in the contravention; and

(ii)     whether the body corporate exercised due diligence to avoid the contravention; and

(iii)     whether the body corporate had a corporate culture conducive to compliance.

34    I have considered each of the statutory factors below.

Nature and extent of the contravention

35    The contravention involved the importation of a regulated substance, HFC-227ea, to Australia without a licence as mandated by s 13 of the Act. In terms of the amount of HFC-227ea in the market in Australia at that time, this was a significant amount. It is an agreed fact that:

The 5 tonnes imported represented roughly one third of all HFC-227ea imported into Australia in 2018 (15.2 tonnes).

36    That quantity of HFC-227ea had a capacity to cause real environmental damage. The parties agreed that:

Schedule 1, Part IX of the Act provides a list of scheduled HFCs, and their respective 100-year global warming potential (GWP). HFC-227ea has a 100-year global warming potential of 3,220, making it the 5th most potent of the 18 varieties scheduled, and the single most potent variety that is commonly imported into Australia. Of the four scheduled HFCs with a higher GWP:

a. HFC-23 has a GWP of 14,800; however, only very small quantities are typically imported – 73.4kg in 2018 and 14.8kg in 2019.

b. HFC-236fa, HFC-143a and HFC-125 have GWPs of 9,810, 4,470 and 3,500 respectively; however, those HFCS were not imported at all in 2018 or 2019.

37    One third of the total importations of a gas that is considered the 5th most potent of the HFCs regulated by the Act is a material contribution to Australia’s importation of greenhouse gasses. The parties also invited the Court to draw a comparison between this amount of HFC-227ea and its equivalent in terms of harm caused by carbon dioxide emissions:

As noted above, 1 kg of HFC-227ea is equivalent to 3.22 tonnes of carbon dioxide (CO2). The importation and commercial use of an additional 5 tonnes of HFC-227ea is approximately equivalent to an additional 16,100 tonnes of CO2 emissions, or 0.2% of the 8 megatonne HFC industry limit, referred to above.

To put this 16,100 tonne CO2 equivalence in practical terms:

(a) In Australia, a typical passenger vehicle emits about 2.438 tonnes of CO2 in an average year. Accordingly, 16,100 tonne CO2 equivalence is equivalent to the annual emissions from 6,600 passenger vehicles, or the driving population of a medium-sized town.

(b) The average Australian household generates over 7 tonnes CO2 equivalent annually. Accordingly, 16,100 tonne CO2 equivalence is approximately equivalent to the annual impact of an additional 2,300 households.

(Footnotes omitted.)

38    I accept this comparison puts the nature of the contravening conduct in a practical and measurable perspective, revealing its seriousness.

Nature and extent of loss or damage resulting from the contravention

39    It is an agreed fact, and I accept, that the HCF-227ea that was imported by the Company was found by inspectors from the Department of Agriculture, Water and Environment in five cylinders. Four were found in the Company’s Victorian premises and the fifth in the Company’s Western Australian premises, having been transferred there by the Company. Three of the cylinders were full (each containing about 1000kg of HFC-227ea) and two were nearly empty, I infer because the gas that they had contained was sold for use, or used by the Company, in firefighting equipment.

40    The agreed facts stated:

HFC-227ea will only cause direct environmental harm if the gas is discharged. Where it is primarily used as a fire suppressant, the discharge of the gas is a necessary part of its use.

41    In other words, the Court can infer that the gas in the two cylinders which have either been used or sold has been, or is likely to be, discharged into the atmosphere when used as a fire suppressant by the end customer. To that extent there has been, or is likely to be, additional and unpermitted emissions of CO2 equivalence from one of the most potent HFCs regulated by the Act. The evidence in the supplementary statement of agreed facts is that

The harm that is caused by the emission of greenhouse gases into the atmosphere cannot be effectively repaired or remediated.

42    The cylinders with unused gas have been seized, and must now be disposed of. The Company, in cooperation with the Department, has:

f.    agree[ed] that it will arrange the disposal of the Seized Cylinders and the Fifth Seized Cylinder and any gas they contain, to the Department’s reasonable satisfaction, at its own expense (by which it will dispose of the HFC-227ea gas, evacuate each of the cylinders, and then crush each of the cylinders); and

g.    agree[ed] that the disposal of the Seized Cylinders and the Fifth Seized Cylinder will be by an approved destruction facility as required by the Regulations, and that the respondent will provide the Department with a certificate of destruction as evidence of the destruction.

43    The seized quantity of HFC-227ea, the parties submit, will be disposed of safely – that is, with no harm to the environment – with the Company to bear the responsibility for that task and for the cost of it. The parties submit that the cost to the Department of safe disposal would be at least $81,838, although that is not an agreed fact. Later in the joint submissions, it is contended disposal will cost the Company approximately $100,000. Counsel informed the Court the latter figure was the more recent and reliable estimate. Whatever the figure, it is obviously costly to safely dispose of the substance, in a way which avoids damage to the environment.

44    In respect of the two tonnes that had already been sold or used for firefighting equipment, the parties submit that the uncertainty about whether any emissions have occurred, or are likely to occur, undermines the integrity of the regulatory scheme:

The unregulated gas cannot be counted or controlled by the Department, for the purposes of monitoring and enforcing the quotas that apply under the Act and under the international treaty obligations which the Act is intended to implement. The purpose of the regime is to restrict and monitor HFCs, and similar substances, so as to phase them out. The circulation of unregulated HFCs fundamentally undermines that purpose.

45    I accept this submission.

46    The joint submissions contend that the regulatory scheme in question here is one directed “to the prevention of man-made global warming”. That may be an ambitious description of the intention of the regulatory scheme. Its objectives in s 3 are rather more conservatively framed:

The objectives of this Act are:

(a)     to institute, for the purpose of giving effect to Australia’s obligations under the Vienna Convention and the Montreal Protocol, a system of controls on the manufacture, import and export of ozone depleting substances and SGGs; and

(b)     to institute, and to provide for the institution of, specific controls on the manufacture, import, export, distribution and use of equipment that contains such substances or uses such substances in its operation; and

(c)     to use the best endeavours to encourage Australian industry to:

(i)     replace ozone depleting substances and SGGs; and

(ii)     achieve a faster and greater reduction in the levels of production and use of ozone depleting substances and SGGs than are provided for in the Vienna Convention and the Montreal Protocol;

to the extent that such replacements and achievements are reasonably possible within the limits imposed by the availability of suitable alternate substances, and appropriate technology and devices; and

(d)     to provide controls on the manufacture, import, export and use of SGGs, for the purposes of giving effect to Australia’s obligations under the Framework Convention on Climate Change and the Kyoto Protocol; and

(e)     to promote the responsible management of scheduled substances so as to minimise their impact on the atmosphere.

47    The joint submissions also contend that any harm caused by contraventions of the scheme will be “suffered incrementally by the entire population of the Earth, including its flora and fauna”. That may be an overly dramatic description of the nature of the harm caused, or likely to be caused, by this particular contravention – especially if the Court were to take judicial notice of the continuing range of carbon emitting activities presently occurring in Australia. For example, the report Prospering in a Low Emissions World: An Updated Climate Policy Toolkit for Australia, published by the Australian Government Climate Change Authority (2000) (admitted as exhibit A2), describes Australia’s carbon emissions in the following way:

In the year to September 2019, Australia’s emissions were 530.8 million tonnes (Mt) of carbon dioxide equivalent (CO2-e). Australia’s largest source of emissions is the generation of electricity, followed by other direct combustion emissions (for the generation of steam, heat or pressure) and transport.

Australia is the world’s 14th largest emitter and we account for around 1 per cent of global emissions. Successful global action on climate change will require the many countries with similar or smaller contributions to global emissions to take action to reduce those emissions, in addition to action taken by the largest emitters.

48    In this context, I do not accept that the Company’s contravening conduct has had quite the dramatic effect which some aspects of the joint submissions contend. I infer those parts of the submissions originate from the applicant, but with respect, I consider them to be something of an overstatement of the likely effect of the contravening conduct in the contemporary context of other carbon emitting activities in this country.

Circumstances in which the contravention took place

49    The circumstances in which the contravention took place are set out above at [11]-[20]. Relevantly to the appropriate quantum of penalty, the Company did take steps to apply for the necessary importation licence, and appeared to act on the assumption that the licence would be granted. The Company paid the relevant licence fee of $15,000 in August 2018. This demonstrates at least an initial intention to conduct this aspect of its business in compliance with the Act.

50    By taking steps to apply for a licence, the Company demonstrated that it was aware a licence was necessary for the legal importation of HFCs. The Company admits that it was aware of this requirement from at least 8 March 2018. Nevertheless, the Company proceeded with the importation in the period 4 July to 12 October 2018, regardless of the fact that it did not yet hold any licence. On this point, the parties agreed, and I accept, that:

On 8 August 2018, in an email sent at 2:04pm by Mr Harding of the Department to Mr Harrington of the respondent, the Department informed Mr Harrington that:

a. it is an offence under the Act to import bulk HFCs from 1 January 2018 without an HFC quota;

b. the respondent is not permitted to import any HFC into Australia until the respondent’s licence application has been approved by the Department.

51    By the time this email was sent, the Company had issued a purchase order for the HFC-227ea.

52    The Company admits that:

After receiving the email from the Department sent on 8 August 2018, the respondent:

a.    did not take steps to cancel the Order [for the importation of 5 tonnes of HFC-2227ea];

b.    did not take steps to prevent the unlawful importation of the Order;

c.    did not inform the Department of the Order;

d.    on 6 and 7 September 2018, as noted above, liaised with Logwin [the shipping company, Logwin Air & Ocean Australia Pty Ltd] in respect of the Order; and

e.    on 14 September 2018, accepted delivery of the Order at its Victorian premises.

53    Further, as some of the HFC-227ea had been used or sold by the time the gas cylinders had been seized by the Department, it follows that the Company also provided the gas to third parties, or used it in its own fire extinguishment products, in the knowledge that it had been illegally imported. The parties submit that discharge of this quantity of HFC-227ea can no longer be regulated, and poses a problem for the monitoring and enforcing of quotas that apply under the Act and under international law.

54    The joint submissions note that the Company stood to gain a “significant commercial advantage from the import in question” by importing without a licence and without as a result incurring the further costs associated with holding a licence. There is, however, little evidence about the nature of this asserted advantage. There is no evidence about whether the two cylinders were sold by the Company, or used by it. Thus there is no evidence whether the Company derived any income itself from the importation, nor whether it made any profit. There is evidence that since 2018 a quota system has operated on the importation of HFCs. This particular importation circumvented the quota system. I accept that can properly be described as a commercial advantage. There was also evidence, provided in the supplementary statement of agreed facts, that the cost of obtaining the substance from an overseas supplier was less than if the gas had been purchased in Australia. The agreed facts did not provide any further detail as to the significance of this difference in cost. Therefore I accept that the licence fee, which I discuss below, and some unspecified but real price differential did result in the Company gaining some “commercial advantage” from the importation.

55    The agreed fact is that the licence fee is $15,000. The Act also imposes some levies which are payable by licensees, but I infer that these would amount to less than $1000, and they are not significant in terms of the assessment of penalty. It is also an agreed fact that the Company paid the application fee when it applied for the licence, and that the fee was refunded at some later stage, although the agreed facts are unclear about when it was refunded. Therefore, although it is correct that the Company has avoided the expense of the licence fee, the evidence discloses it was willing to pay the fee.

56    The parties submit that these circumstances have the result that:

…the contravention ought to be regarded as a deliberate contravention, by an otherwise well-informed corporate defendant, which had in fact applied for, but did not currently hold, the licence required to import HFC-227ea into Australia. Further, the respondent had a clear opportunity to seek to prevent the contravening shipment from occurring after the prohibition on importing bulk HFCs had specifically been brought to its attention, or to raise the issue with the Department, and did not do so.

57    I accept it is appropriate to characterise the contravention as a deliberate one. Having set the order in train on 4 July 2018, and having been informed that a licence was required, and then having its licence application returned, the Company nevertheless elected to go ahead with the importation.

58    There is no evidence about why the Company went ahead with the importation in those circumstances, nor any evidence of the sum it paid for the HFC-227ea, nor whether would it have been able to cancel the importation without penalty. Without any such evidence, there is no basis for the Court to identify any ameliorating or mitigating factors or conduct to set against what on the evidence appears to have been a conscious decision to contravene the law as set out in the Act.

Previous similar conduct of the Company

59    It is jointly submitted that the Company has not been involved in any previous misconduct, or relevant contraventions of the law.

The extent of the Company’s cooperation

60    The Department’s email of 8 August 2020 could be described as a pre-emptive attempt to ensure the Company was aware of its obligations under the Act and complied with them. At this stage, the Company did not cooperate by cancelling the order and otherwise taking no further steps to import any substances regulated by the Act until it had been granted a licence to do so. If the Company had cooperated with the Department at this stage, it seems likely that no contravention would have occurred.

61    However, soon after the HFC-227ea was imported, and the importation was discovered, the Company did admit that its actions had contravened the Act. The evidence establishes the HFC-227ea was delivered to the Company’s premises in Mt Waverley, Victoria, around 14 September 2018. It is agreed that:

On 22 October 2018, Drew McLean, the Department’s Acting Director, Compliance, wrote to the respondent:

a.    stating that it ‘is an offence to import [Ozone Deleting Substances]/SGG without an appropriate licence or exemption, and substantial penalties may apply…’;

b.    informing the respondent that ‘information obtained indicates [the respondent] may have undertaken three (3) imports of bulk HFC-227ea between July 2016 and March 2018…’; and

c.    seeking ‘information about [the respondent]’s importation of goods and domestic acquisition of extinguishing agent…’

On 22 November 2018, the respondent:

  a.    responded to Mr McLean’s letter of 22 October 2018; and

b.    in that response, admitted that the respondent’s importation of HFC-227ea ‘resulted in our breaching of the regulations’.

62    From that point forward, it appears that the Company cooperated with the Department as much as it could have been expected to in the investigation of the contravention, the seizure of the remaining HFC-227ea, and in the prosecution of the contravention against it. The statement of agreed facts lists the cooperation as including:

a.    by its letter dated 22 November 2018, admitting to have imported HFC-227ea;

b.    on and after 18 December 2018, cooperating with the Department in relation to the seizure of the Seized Cylinders from its Victorian Premises, including in respect of logistical matters;

c.    on and after 21 February 2019, cooperating with the Department in relation to the seizure of the Fifth Seized Cylinder from its Western Australian Premises on 21 February 2019;

d.    making the admissions in its defence dated 14 February 2020;

e.    admitting the contravention and agreeing to joint submissions on penalty, as a result of the mediation conducted on 22 July 2020;

f.    agreeing that it will arrange the disposal of the Seized Cylinders and the Fifth Seized Cylinder and any gas they contain, to the Department’s reasonable satisfaction, at its own expense (by which it will dispose of the HFC-227ea gas, evacuate each of the cylinders, and then crush each of the cylinders); and

g.    agreeing that the disposal of the Seized Cylinders and the Fifth Seized Cylinder will be by an approved destruction facility as required by the Regulations, and that the respondent will provide the Department with a certificate of destruction as evidence of the destruction.

63    To this list can be added the Company’s agreement to the significant penalty sum. In DFWBII at [104], Keane J explained the relevance of a respondent’s agreement as to penalty:

In addition, as the Full Court rightly appreciated, a defendant’s agreement to meet a plaintiff’s claim for a penalty is relevant as an indication of the defendant’s acceptance of responsibility, in a way which is meaningful to the fixing of a proper penalty, for its departure from legal norms which gave rise to the claim. It has significance, of such weight as the court considers appropriate, as an assurance that the defendant may be relied upon not to transgress in that way again. It is relevant to the court’s assessment of what is required by way of specific deterrence to prevent departures by the defendant from those standards in the future.

(Footnotes omitted)

64    I accept that the Company has cooperated as much as it could be expected to have done. Indeed it has not only cooperated, but volunteered to undertake the task of disposal of the HFC-227ea, at a material cost. The fixing of an appropriate penalty should recognise this early and complete cooperation as a significant factor.

Factors relating to the Company’s status as a body corporate

65    The parties have provided little information about the internal operations of the Company that lead to the contravention; who was involved, the culture of the Company toward compliance, and investigations that may have been made internally to attempt to achieve compliance. Further, the joint submissions strayed beyond the evidence in terms of some submissions about Mr Harrington, not only about his industry experience, but also about his state of mind in relation to the contravening conduct.

66    It is clear however that the contravention involved Mr Harrington, who was at all relevant times the managing director of the Company. The parties submit that there is no evidence that the Company exercised due diligence to avoid the contravention; however this submission is made without any context about what could have been done, and was not. Indeed there is no evidence at all explaining why the contravention occurred. Nevertheless, the evidence does support the inference, which I draw, that the Company, and Mr Harrington as its controlling mind, were aware that the decision to import HFC-227ea without a licence constituted a contravention of the Act, but decided to go ahead, regardless of that fact. I have found above that the Company did gain some commercial advantage from the importation.

Deterrence: specific and general

67    The parties’ joint submission correctly identifies the objective of deterrence as the “the central purpose” for the imposition of a civil penalty. The parties raise six factors relevant to deterrence in the context of the present contravention. These factors may be summarised as follows:

(1)    Uncontrolled importation of greenhouse gasses such as HFC-227ea contributes to global warming and climate change, with serious global consequences. The parties in their submissions provided references to documents going to both the link between the discharge of HFCs and climate change, and the potential negative effects of climate change on the global community. One of the documents was in the nature of extrinsic material, and the other two were scientific papers tendered by agreement.

(2)    While the harm caused by the importation of HFCs is not “immediately observable”, environmental laws such as the Act are directed to “the protection of public welfare in the broadest possible sense” and “frequently directed to reducing the risk of harm”. The penalty for contravention should reflect the seriousness with which environmental laws should be taken.

(3)    A penalty is required for ensure compliance with Australia’s international obligations, by which I understand the parties to refer to the international agreements in [4] above. However, the parties do not identify any international agreement which imposes on Australia an obligation to establish a regime that includes civil penalties.

(4)    A penalty will go toward a “key purpose of environmental regulation”, being to “ensure that commercial entities bear the true costs of their industry, and that the costs are not externalised to be borne by the general public”. This was explained in oral submissions to refer to the licensing regime, and the associated fees and levies.

(5)    Failing to impose a penalty would result in unfairness to importers who comply with the licencing scheme and import HFC-227ea lawfully, which requires the payment of a $15,000 licence application fee, a levy on any quantity of HFCs actually imported, and that certain records be kept. A penalty is therefore required to maintain the integrity of the regulatory scheme.

(6)    Deterrence must be understood as especially important in this context as the damage caused by the emission of additional greenhouse gasses “cannot be effectively repaired or remediated”.

68    To a point, I accept these are relevant factors in considering what level of penalty is likely to achieve general deterrence. In particular I accept that the regulatory regime in the Act is directed towards avoidance of the risk posed by increasing greenhouse gas emissions, and therefore the object of a penalty in a situation such as this is to deter conduct which increases the risk of greater greenhouse gas emissions than the legislative scheme contemplates, and to deter additional emissions which are unregulated and therefore even harder to detect and monitor.

69    A factor not mentioned by the parties, but perhaps implicit in their submissions and the six identified factors, is the need to deter those who are subject to regulation under the Act (or, indeed, under any comparable regulatory schemes) from engaging in conduct in a manner which frees them from the very regulation the scheme intends be applicable. In other words, it is important to reinforce to all those who might be subject to licensing (or permission based) regimes designed to prevent harm to the environment that they must comply with the licensing or permission based requirements, and that there will be tangible and serious consequences if they do not.

70    Licensing and permission based regulatory schemes are the mechanisms Parliament has established to avoid environmental harm and they must be respected, and complied with.

71    As to the utility of specific deterrence, the parties submit that this is limited as the Company has ceased trading. The submissions refer to a number of factual matters about a new entity, which acquired the Company’s business and trading name in September 2019 and at least some extent has continued the Company’s business. However, there is no evidence about these matters in the agreed statement of facts. Nor was evidence about these matters provided in the supplementary statement of agreed facts. The submission, based on these factual assertions, is that a measure of specific deterrence can be achieved in respect of the new entity in these circumstances. Without evidence about the new entity, I do not propose to take this matter into account.

The joint submissions on the appropriate amount of penalty

72    It is agreed, and I accept, that the maximum penalty under the Act for a single contravention is $2.1 million, taking into account that at the time of the contravention a penalty unit was and presently remains fixed at $210. This maximum, for breaches of s 13(1)(a)(iii), is substantially higher than the general penalty for other offences under s 13 of the Act, which is $105,000.

73    Section 65AC(4A) singles out two kinds of contravening conduct for a higher penalty:

(a)    manufacture, import or export of an SGG (this case, s 13(1)(b)(iii)); and

(b)    import of ozone depleting equipment, or SGG equipment (s 13(1)(b)).

74    The joint submission offers no explanation for the legislative intention behind imposing penalties for these two kinds of conduct which are 20 times the maximum of the other kinds. Having looked at the extrinsic material to the Act which introduced the increased penalties for these two provisions, I raised this matter with counsel at the hearing, and neither counsel offered any explanation. Leave was granted for further joint submissions to be made on this issue if the parties wished to.

75    The parties filed a supplementary joint submission as to penalty on 22 October 2020, explaining the legislative context.

76    Sub-section 65AC(4A) was introduced to the Act by the Clean Energy (Consequential Amendments) Act 2011 (Cth). This Act was part of what the Explanatory Memorandum describes as the “Clean Energy Legislative Package”, establishing a “carbon pricing mechanism” which was said in the Explanatory Memorandum to be

part of the Government’s climate change plan, as set out in Securing a clean energy future: the Australian Government’s climate change plan.

77    It is clear from the extrinsic material to this Act that the amendments were introduced as part of a ‘carbon pricing package’ that introduced an economic cost to businesses causing carbon dioxide emissions. The Explanatory Memorandum describes (at p 5) how the Consequential Amendments Bill would make

consequential amendments to ensure

….

synthetic greenhouse gases are subject to an equivalent carbon charge applied through existing regulation of those substances.

That clearly included the regulation under the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth).

78    The amendments to the Act imposed a levy on the use of SGGs intended to be equivalent to that imposed on carbon. The penalty for importing SGGs was similarly increased to reflect an equivalence with the penalties imposed by the Clean Energy Act 2011 (Cth). While the Clean Energy Act was subsequently repealed in 2014 by the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 (Cth), the increased penalty on the importation of SGGs remained in place, although the original legislative policy basis for it had been removed.

79    The parties had jointly submitted that the disparity in penalty indicates that Parliament intended that the importation of SGGs be understood to be of “a much higher degree of seriousness than any other substance with is regulated by s 13”. The extrinsic material, and the context in which the higher penalties were introduced, suggests the increased penalties were designed to reflect how much Parliament considered contraveners should be required to pay for unlawful importations which, in effect, avoided the carbon price they would otherwise have been paying.

80    It is well established that the prescribed maximum penalty represents “the legislature’s assessment of the seriousness of the offence and for this reason provides a sentencing yardstick”: see Elias v The Queen [2013] HCA 31; 248 CLR 483 at [27]; also Markarian v The Queen [2005] HCA 25; 228 CLR 357 at [30]. At [31] in Markarian, the plurality said:

It follows that careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick. That having been said, in our opinion, it will rarely be, and was not appropriate for Hulme J here to look first to a maximum penalty, and to proceed by making a proportional deduction from it. That was to use a prescribed maximum erroneously, as neither a yardstick, nor as a basis for comparison of this case with the worst possible case.

81    The approach outlined for criminal sentencing has been regularly applied to the determination of an appropriate civil penalty, by reference to the maximum prescribed civil penalty for a given contravention: see CFMMEU v Australian Building and Construction Commissioner (The Broadway on Ann Case) [2018] FCAFC 126; 265 FCR 208 at [108]-[110] (per Bromwich J); Australian Competition and Consumer Commission v Reckit Benckiser (Australia) Pty Ltd [2016] FCAFC 181 at [154]-[156] (the Court).

82    The parties’ supplementary joint submissions refer to a review of the legislative scheme, being the Review of the Ozone Protection and Synthetic Greenhouse Gas Management Program announced in 2014 and the terms of reference for that review. They make the point, which I accept, that while this legislative scheme has been reviewed, there has been a conscious decision not to alter the terms of s 65AC(4A), and to retain the significantly higher penalties for this conduct.

83    Accordingly, I take into account the very significant maximum penalty, albeit that some or all of the rationale for the size of the penalty appears to have disappeared.

84    The joint submissions contend that the appropriate a “headline” penalty would be $1.1 to $1.2 million. Counsel for the applicant submitted that the adjective “headline” was used to indicate what might have been an appropriate penalty after a contested trial, given the seriousness of the contravention and the size of the maximum penalty.

85    The parties then submit that:

The headline amount should be very substantially discounted to account for the respondent’s high level of cooperation, early admissions, and its commitment to dispose of the remaining HFC-227ea at its own expense. The Minister and the respondent jointly submit that a penalty of $500,000 would be appropriate in this matter.

In arriving at that amount, the Minister has also had regard to the respondent’s costs associated with the safe disposal of the substance in question, which are likely to be approximately $100,000. Taking into account cumulatively:

(a)    the penalty of $500,000;

(b)    the clean-up costs of approximately $100,000; and

(c)    the cost of purchasing the gas that is now to be disposed of;

the effect is to impose a significant sanction on the respondent, and to send a clear deterrent message to others who might contravene the Act.

86    The result is that the parties seek a penalty amount of $500,000.

My reasoning on the appropriate penalty

87    Taking into account the matters to which I have referred to this point in the reasons, I did harbour some doubt that the appropriate penalty was as high as the penalty nominated by the parties. The apparent rationale of the higher penalty as it was introduced in 2014 – to deter attempted circumvention of the carbon price regime – no longer applies. It is difficult to see what other rationale exists. Nevertheless, Parliament has maintained the penalties as they were inserted after the 2014 amendments, so that is the law as the Court must apply it.

88    On the evidence as it presently exists, I am not persuaded that even after a contested trial, the Court would have come to the view that a penalty in the range of $1.1 to $1.2 million would have been appropriate. However, the evidence may have been quite different – it is not possible for the Court to know. Since it is not possible for the Court to know, and the Court must not speculate, I am unpersuaded that it would be an appropriate reasoning path to commence with a “headline” figure of $1.1 to $1.2 million and work downwards from there to take account of the respondent’s co-operation.

89    The “instinctive synthesis” approach requires the Court, in my opinion, to examine the evidence as it appears before the Court, and to reach a judgment about what is a proportionate penalty sum to the contravening conduct, viewed in all its context. That context includes early and complete cooperation.

90    Although I have accepted that the Company’s conduct involved a conscious decision to press ahead with the importation, knowing a licence was needed and knowing it did not have one, there is barely any evidence about the circumstances surrounding this decision, including (as I have noted) any evidence about whether it was able to cancel the contract with the Chinese company, and what financial consequences there might be for that, given that I infer the Company expected to be granted a licence to import the HFC-227ea, and had applied for one. However, the situation is there is no evidence which would ameliorate, explain or mitigate the conscious decision of the Company to go ahead and contravene the Act.

91    This is a case where there was complete cooperation, and admission, from the start. No previous misconduct on behalf of the Company has been disclosed. There is no evidence to suggest a culture of non-compliance or any factor of that sort.

92    The Company is paying to dispose of the remaining cylinders. The Court is asked by the parties to take the figure of $100,000 as the most up to date and reliable estimate of what that disposal is likely to cost. It is a significant sum – one fifth of the proposed penalty. The Company must also bear its own legal costs of this process. It has also lost the use of at least three cylinders of HFC-227ea, for which I infer it paid a material sum of money, along with all the shipping costs.

93    Some of these factors might have suggested a lower penalty than that proposed would be appropriate.

94    However, I must also consider the fact that the Court does not know the “full story”, as it might after a contested trial. It is not privy to the course of negotiations which led to the agreed position. As Wigney J observed, there are likely to have been compromises. Not all omitted facts may have favoured the Company.

95    It is a serious step for the Court to depart from the parties’ agreed position, notwithstanding it is open to the Court to do so. A departure is capable of undermining trust and confidence in negotiated outcomes, and is capable of affecting parties’ inclination to reach such outcomes in the future. Certainty and predictability in the administration of a regulatory regime is to be encouraged, insofar as it is compatible with the Court’s judicial function of determining for itself what penalty is appropriate. Departure from a negotiated outcome is also capable of undermining the positon of the regulator, or the person or entity with responsibility for the administration of the regulatory regime.

96    Counsel for the applicant emphasised in oral submissions that the plurality in DFWBII had found that the proposed agreed penalty need only be “an” appropriate penalty, not “the” appropriate penalty. Given the task is one of “instinctive synthesis”, there is force in such a distinction being made, without descending back into the very debates which were the occasion for the High Court’s decision in DFWBII. I note again the comments of the plurality in that matter extracted at [26]-[27] to the effect that the Court’s role, where a penalty is agreed, is to ask whether the proposed figure is an appropriate amount. After requesting the provision of additional facts and additional submissions, the Court is now satisfied of the adequacy of the factual basis for the findings made, and the clear legislative intention maintained by the Parliament about the high level of maximum penalties for this kind of conduct.

97    Giving particular weight to the factors to which I have referred at [94]-[95], and similar observations by the plurality in DFWBII, I am satisfied that the sum of $500,000 is an appropriate penalty for the respondent’s contravention, in the circumstances as revealed by the evidence.

Conclusion

98    There will be orders in the form sought by the parties.

Associate:

Dated:    27 October 2020