On 9 December 2022, the long-running prosecution of Grafil Pty Limited (Grafil) and its director Mr Mackenzie by the NSW Environment Protection Authority (EPA) came to an end with a unanimous judgment of the Court of Criminal Appeal (CCA) on an EPA sentence appeal.
The CCA fined Grafil $100,000 for the offence of using land as a waste facility without lawful authority contrary to section 144(1) of the Protection of the Environment Operations Act 1997 (POEO Act), while confirming the orders of the sentencing judge in the Land and Environment Court (LEC) in respect of Grafil’s conviction and its payment of 25% of the EPA’s legal costs and 25% of its investigation costs. The CCA dismissed the appeal in respect of Mr Mackenzie’s sentence, with the sentencing judge having dismissed the charge against him pursuant to section 10(1)(a) of the Crimes (Sentencing Procedure) Act 1999.
From 2018 to 2022, JWS acted for Grafil and Mr Mackenzie. In this article we offer our insights and reflections on what is the most significant waste and resource recovery case in recent years in NSW. While the years’ long prosecution may be over, it is clear that serious questions remain over the workability of the EPA’s recycling and resource recovery system which have been brought to the fore in these proceedings.
In this article, we will provide an outline of what we consider to be the four key takeaways of the prosecution:
Trading as Macka’s Sand and Soil, Grafil operates a sand extraction facility in Salt Ash, which is located in the Port Stephens LGA. Grafil’s primary business involves the supply of sand and sand products to the Sydney region for a range of purposes such as horticulture, turf grass, and building and construction.
Grafil obtained approval under the former Part 3A of the Environmental Planning and Assessment Act 1979 in 2009 for the “Macka’s Sand Project”, which allowed for the extraction of sand from two lots – a larger Lot 218 DP 1044608 (Lot 218), comprised of Worimi land adjoining the coastline, and a smaller Lot 220 DP 1049608 (Lot 220), located just inland and separated from Lot 218 by the Worimi National Park – and for the creation of internal access roads to Lots 218 and 220, including across Lot 8 DP 833768 (Lot 8), being the land at the centre of this prosecution.
In late 2012, Grafil began accepting loads of fill material which it intended to use for the construction of the access road to Lot 218. Grafil stockpiled the material on Lot 8 pending its application as road base. Grafil accepted two recycled products, namely recovered fines, a soil/sand substitute derived from the processing of mixed construction and demolition waste, and excavated natural material (ENM), being naturally occurring rock and soil (including materials such as sandstone, shale, clay and soil) that has been excavated from the ground and contains predominantly natural material. In the period from 29 October 2012 to 15 May 2013 (the charge period), Grafil accumulated a volume of somewhere between 24,000 – 44,000 tonnes of material from a number of suppliers in Sydney.
If the recovered fines and ENM received and stockpiled by Grafil were “waste” within the definition of the POEO Act – this was to become a key issue in the proceedings – then Grafil would ordinarily have required an environment protection licence (EPL) under that Act for those purposes, and also for its later application as road base (the storage and land application of waste at this volume being scheduled activities for the purpose of the POEO Act). However to increase the re-use and recycling of certain types of waste materials and divert them from landfill, the EPA offered an alternative pathway to the producers and consumers of that material, being a system of resource recovery exemptions. Subject to compliance with certain conditions designed to minimise the risk of potential harm to the environment, a consumer in the position of Grafil could be relieved from the ordinary requirement to obtain an EPL. In accepting the fill material, Grafil sought to make use of the EPA’s regulatory system.
During the charge period, the EPA observed the stockpiling of recovered fines/ENM on Lot 8, before raiding the Grafil premises on 15 May 2013, along with simultaneous raids of the office of Grafil’s accountant and of the head office of Bingo in Sydney, Bingo being one of the suppliers of fill to Lot 8. As at the date of the raid the material was being temporarily stockpiled pending its use as a road base, but had not yet been applied for that purpose.
The EPA charged Grafil as the occupier of Lot 8 of using Lot 8 as a waste facility without lawful authority contrary to section 144(1) of the POEO Act. Mr Mackenzie, a director of Grafil during the charge period, was also charged with an offence by reason of the executive liability provision in section 169(1) of the POEO Act. After conducting sampling of the two stockpiles of material on Lot 8, the EPA detected very small quantities of asbestos, totalling about 635 grams.
Both defendants pleaded not guilty to the charge and after a 20-day hearing in the LEC, were found not guilty on 28 June 2018. The primary decision was one of several lengthy judgments in the litigation, some 576 paragraphs, however the essence of the Court’s decision was that the material delivered to Lot 8 during the charged period was not “waste” as defined by the POEO Act.
Despite their initial success at trial, the defendants’ fortunes were reversed in the CCA.
At the EPA’s request, the primary judge stated 15 questions of law to the CCA, addressed not only to the fundamental issue of the proper interpretation of waste under the POEO Act, but also to the issues of the onus of proving certain elements of the section 144(1) offence and, importantly, the interpretation of the EPA’s resource recovery exemptions, the consequences of their contravention by a producer or consumer, and the legal consequence of the presence of asbestos in stockpiled fill.
After the CCA found in favour of the EPA on all but a few of the questions in the stated case (the remainder determined to be unnecessary to answer), and after an unsuccessful bid by the defendants for special leave to the High Court on the interpretation of waste under the POEO Act, the defendants were found guilty of the offence on remitter and sentenced following a 6-day sentencing hearing. On the same day that the sentence was handed down, being 5 November 2021, the EPA announced that it would be commissioning an independent review into the NSW resource recovery framework (Independent Review).
On 9 December 2022, almost a decade after the charge was laid, the prosecution finally came to a close, again in the CCA, following a partially successful sentence appeal by the EPA.
With the dust having now settled, what’s clear from the EPA v Grafil litigation is that the recycling industry in this State, as regards the beneficial re-use of not only recovered fines and ENM, but of a range of other recycled products, has been left in a precarious position following the rulings of the CCA. We consider the key takeaways to be as follows:
The defendants were found not guilty at first instance on the basis that the material supplied to the Grafil premises was held by her Honour not to be “waste” within the relevant definition of the POEO Act. Central to her Honour’s conclusion on that issue was that as the material in question was a “processed, recycled, re-used or recovered substance produced wholly or partly from waste” within the meaning of limb (d) of the definition of waste, there was no basis as a matter of statutory construction for applying any other paragraph of the definition of waste.[1] In order to be waste, the materials had to meet the other relevant precondition in limb (d), namely they had to be “applied to land … in the circumstances prescribed by the regulations”, and her Honour found that the depositing of the materials on Lot 8 for temporary stockpiling pending their future application to land as road base did not constitute application to land in the relevant sense. Her Honour held that if the material could be waste under one or more of the other paragraphs of the definition, the express qualifications in paragraph (d) would be circumvented and would have no work to do.[2] This interpretation was consistent with the explanation by the former Department of Environment and Climate Change (DECC) in the NSW Waste Avoidance and Resource Recovery Strategy 2007 (WARR Strategy 2007) of the amendment to the POEO Act definition of waste which introduced limb (d), being to clearly delineate where waste or waste derived substances that are land applied no longer need to meet the regulatory requirements for waste and to thereby provide greater certainty to those involved in resource recovery operations.[3]
The CCA, on the other hand, found that a substance that is processed, recycled, re-used or recovered can be waste not only by meeting the criteria in paragraph (d), but also by meeting the criteria in any one or more of the other paragraphs of the definition of waste,[4] several of which are extremely broad. As for the qualifications in paragraph (d), the CCA held that the deposition of the materials on Lot 8 at the time of their receipt by Grafil constituted “application to land”, as opposed to their temporary storage awaiting their application to land.[5] The same act of deposition also constituted the scheduled activity of waste storage. The practical implications of this finding, as observed by her Honour on sentence, may be that no temporary stockpiling of materials otherwise covered by the resource recovery exemptions can be undertaken without an EPL, notwithstanding the fact that the ability to temporarily stockpile material before its final use would seem to be a practical necessity for consumers.[6]
Given the very expansive definition of waste in the POEO Act, including in relation to processed, recycled, re-used or recovered materials such as ENM and recovered fines, consumers should be very cautious to either:
We note that the Independent Review reported that stakeholders thought that the definition of waste in NSW was too broad and that the orders and exemptions do not go far enough in ensuring that recovered materials are removed from the waste framework.[7] It also reported that industry, local government and waste associations argued that although the order and exemption framework reduces waste regulatory requirements, the retention of a waste label still has significant market and regulatory implications.[8]
The EPA designed the resource recovery exemption system to allow processors and consumers of waste to redirect materials that would otherwise be sent to landfill towards beneficial purposes such as, in the case of recovered fines (being the predominant make-up of the stockpiles in question in the proceedings), road construction. As explained by the DECC in the WARR Strategy 2007, exemptions could be made by regulation for wastes or waste derived materials applied to land where it was shown that the proposed application was of benefit, did not cause harm and was fit for purpose. The promulgation of exemptions was intended to further stimulate recycling and resource recovery whilst minimising the risk of potential harm to the environment by requiring the processors and consumers of waste materials to comply with a number of conditions.
During the charge period, the Continuous Process Recovered Fines Exemption 2010 (CPRF exemption) was subject to a condition that recovered fines could not exceed certain chemical and particle size requirements. Under the CPRF exemption, compliance with these requirements rested, on a literal reading of the exemption, with both the processor and consumer. However, as identified by the primary judge, it was impossible for a consumer to comply with these requirements, given that they were entirely within the control of the processor.[9] Under the CPRF exemption, testing by processors is carried out on a “continuous” basis as the material progresses along with the assembly line so that it is tested before being loaded into particular batches and trucks. It is impossible for a consumer to carry out this kind of testing.
Notwithstanding this practical impossibility, the CCA held that the CPRF exemption is to be read literally, with the consequence that a consumer can be supplied with certified recovered fines that have been subject to processor testing, for it later to be discovered on further analysis at the receival site that one of the chemical/particle size requirements has been exceeded, depriving the consumer of the benefit of the exemption and exposing that consumer to potential criminal liability and consequential clean-up orders.
In short, consumers should be aware that their ability to rely on a resource recovery exemption may depend on the fulfilment of testing requirements by processors that are outside of their control. Consequently consumers should carry out careful due diligence in relation to the testing capabilities and environmental track-record of their suppliers.
At trial, the primary judge held that Grafil had breached a condition of both the CPRF exemption and the Excavated Natural Material Exemption 2012 requiring it to keep records of the quantity of material received at Lot 8 along with the suppliers’ name and address for three years. However her Honour rejected the EPA’s argument that non-compliance with this requirement, and indeed a failure to comply with any condition of the exemptions, meant that Grafil was precluded from relying on them, with retrospective effect. Instead, her Honour held that only a fundamental or significant breach of the exemptions would deprive the consumer of their benefit.[10]
The CCA, on the other hand, opted to take a literal reading of the exemptions, holding that a failure to comply with any condition of an exemption, however minor, and at any point in time (including, for instance, during the 3-year period in which records are required to be kept by a consumer), results in the exemption having no application, thereby exposing the consumer to potential criminal liability and consequential clean-up orders.[11] As her Honour observed on sentence, the EPA’s prosecution on this case highlights some of the very real legal and financial risks for consumers under the statutory scheme the subject of the charges under the POEO Act.[12] This is particularly so, given the Independent Review reported that stakeholders generally considered that the current framework is complicated, and the orders and exemptions were often difficult to understand.[13]
One of the most significant aspects of the Grafil litigation was the EPA’s approach to the presence of small quantities of asbestos that were ultimately discovered in the stockpiles of combined recovered fines and ENM on Lot 8, some 635 grams across stockpiles totalling between 24,000 to 44,000 tonnes of material. On the CCA’s construction of the definition of “asbestos waste” in the POEO Act, the presence of any quantity of asbestos, however miniscule, in a stockpile of waste, however large, is sufficient to render the entire stockpile asbestos waste, thereby attracting the expensive waste levy that comes with the disposal of asbestos waste to an appropriate facility licensed to receive it.[14]
As the primary judge observed at trial, asbestos is ubiquitous in Sydney building waste.[15] This is an issue well-known to the construction and waste industry, and indeed well-known to the regulator. As explained by the DECC in the WARR Strategy 2007, although construction and demolition waste had been reduced significantly at that time, substantial quantities of some materials were still being disposed of, driven in part by the contamination of demolition wastes with asbestos.[16]
Despite the EPA’s awareness of the ubiquitous presence of asbestos in recovered fines as far back as 2007, the CPRF exemption (and also the ENM exemption) did not require, and continues not to require, processors to test the material received from building sites in skip bins for asbestos.[17] As her Honour observed at trial and again on sentence, once recovered fines are received by a consumer, checking for the presence of asbestos is impractical if not impossible not least because once fines are reduced to the required particle size of less than 9.5mm to satisfy the definition of “continuous process” recovered fines, asbestos is not visible to the naked eye.[18] Yet as this prosecution demonstrated, once the EPA detects the presence of asbestos, apparently irrespective of the environmental harm that it might cause, it appears to be its policy to require the removal of the entirety of the contaminated material to an appropriate facility.
In this case, as her Honour observed on sentence, throughout the eight years of the proceedings up until the penultimate day of the sentencing hearing, the EPA sought to place on the defendants the onerous financial burden of removing the material stockpiled on Lot 8 at a cost of between about $15-$20million, out of all proportion to the risk and extent of environmental harm likely to be caused by that asbestos in situ.
Unlike in other jurisdictions which permit some degree of leeway in relation to the presence of asbestos in waste streams, especially those waste streams known to routinely contain at least trace levels of asbestos (for example in Western Australia, construction and demolition waste may be reused provided it contains less than 0.001% weight-for-weight asbestos),[19] the Grafil prosecution is a timely reminder of the zero tolerance approach adopted by the EPA with regards to the presence of asbestos in waste streams, including those waste streams known to routinely contain at least trace levels of asbestos. Therefore until an alternative policy is adopted, reflective of the realities faced by industry, consumers should be particularly astute to the risk of receiving recycled and processed materials containing amounts of asbestos. For this reason due diligence of potential suppliers should extend to a rigorous analysis on procedures for detecting and managing the presence of asbestos in waste.
It has become evident from the course of the EPA v Grafil litigation that important reforms are due to the EPA’s resource recovery exemption scheme to reduce the legal and financial risks to processors and consumers of recycled waste products, and to allow for their efficient and effective operation in diverting waste streams from landfill.
Many of the most problematic issues were canvassed by the Independent Review, including that consumers often have little control over the quality of the recovered materials they receive, yet regulatory action is often focused on the end-use of materials, and the EPA’s zero-tolerance approach to the presence of any asbestos within other types of waste, in particular waste streams from the construction and demolition sector, both inhibits resource recovery/recycling and imposes a high cost burden on operators who unintentionally receive asbestos waste.[20] However unless and until concrete action is taken to address these issues that were brought to the fore during the Grafil litigation, it is clear that the processors and consumers of recycled materials should approach the resource recovery exemption system with caution, ensuring strict compliance with any associated conditions, and carrying out extensive due diligence and testing.
[1] EPA v Grafil Pty Ltd; EPA v Mackenzie [2018] NSWLEC 99 at [256] – [305], in particular [273].
[2] EPA v Grafil Pty Ltd; EPA v Mackenzie [2018] NSWLEC 99 at [281].
[3] WARR Strategy, pp 33-34.
[4] EPA v Grafil Pty Ltd; EPA v Mackenzie [2019] NSWCCA 174 at [115].
[5] EPA v Grafil Pty Ltd; EPA v Mackenzie [2019] NSWCCA 174 at [157].
[6] EPA v Grafil Pty Ltd; EPA v Mackenzie (No 4) [2021] NSWLEC 123 at [204] – [205].
[7] Independent Review Report, Dr Cathy Wilkinson, p 16.
[8] Independent Review Report, Dr Cathy Wilkinson, p 17.
[9] EPA v Grafil Pty Ltd; EPA v Mackenzie [2018] NSWLEC 99 at [377].
[10] EPA v Grafil Pty Ltd; EPA v Mackenzie [2018] NSWLEC 99 at [376].
[11] EPA v Grafil Pty Ltd; EPA v Mackenzie [2019] NSWCCA 174 at [287].
[12] EPA v Grafil Pty Ltd; EPA v Mackenzie (No 4) [2021] NSWLEC 123 at [206].
[13] Independent Review Report, Dr Cathy Wilkinson, p 11.
[14] EPA v Grafil Pty Ltd; EPA v Mackenzie [2019] NSWCCA 174 at [325].
[15] EPA v Grafil Pty Ltd; EPA v Mackenzie [2018] NSWLEC 99 at [353].
[16] WARR Strategy, p 43.
[17] EPA v Grafil Pty Ltd; EPA v Mackenzie (No 4) [2021] NSWLEC 123 at [163] – [165].
[18] EPA v Grafil Pty Ltd; EPA v Mackenzie (No 4) [2021] NSWLEC 123 at [177(1)].
[19] Independent Review Report, Dr Cathy Wilkinson, p 23.
[20] Independent Review Report, Dr Cathy Wilkinson, p 23.
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