Landmark IPC prosecution rocks Agency enforcement policy

The Environment Agency and oil recycling firm Petrus Oils are locked in one of the most complex and bitter battles yet seen in UK environmental litigation. Since Petrus commissioned a new refinery in Staffordshire two years ago, the Agency has issued a record number of prohibition and enforcement notices - and is now seeking to revoke the company's integrated pollution control (IPC) authorisation. However, Petrus' claims that it has been "harassed and hounded" by the Agency have been bolstered by a recent Crown Court ruling which dismissed a key prosecution charge as "manifestly unfair and oppressive". The controversial judgment could have wide repercussions for environmental enforcement policy.

Since the last Government's deregulation drive five years ago, it has become common for bodies such as the Environment Agency to speak in terms of providing a regulatory "service" to industrial "customers". It is difficult, however, to conceive of a less apt description for the highly confrontational and litigious relationship that has developed between the Agency and Petrus Oils.

Trouble over novel process
Petrus' refinery, at Burslem near Stoke-on-Trent, was initially operated by Interline, a joint venture between UK waste firm Whelan Environmental Services and US company Interline Resources (ENDS Report 258, pp 10-11 ). The £3 million plant, which employs 24 people and has an annual capacity of 30,000 tonnes, makes lubricating oil and fuel oil from used engine oil and lubricants. It uses a novel process based on pretreatment of waste oils with propane solvent.

The venture hit trouble soon after the plant was commissioned in August 1996. The refinery - in common with similar units built by Interline in the USA, Dubai and Korea - was plagued with technical difficulties. In January 1997, John Whelan, former head of Whelan Environmental, became sole owner of the UK operation, later changing its name to Petrus Oils.

According to Petrus' Managing Director Chris Williamson, a further £2 million has since been invested in upgrading inadequate hardware, such as heat exchangers and vacuum systems, and in extended commissioning costs. Interline US went bankrupt in mid-1997, and Mr Williamson says that all other refineries using the technology have now shut down.

Ongoing odour complaints
The refinery's difficulties were far from purely technical and commercial. Within days of start-up, the Agency was deluged with complaints about unpleasant odours from the site. A prohibition notice served after a few days' operation led to a five-day shut-down. In a move that set the pattern for later confrontations with the Agency, the company reacted with hostility to the notice - and initially sought to appeal against it even after the plant was restarted.

Further major incidents occurred on 28 September and 17 October 1996, leading to a second prohibition notice and a warning from the Agency that it was considering a prosecution.

In the last five months of 1996, the Agency received 98 complaints about odorous emissions from the works. The number of complaints increased to 393 in 1997, falling back to 131 so far this year. Since the plant was commissioned, Transco has also received 253 complaints of natural gas leaks which have since been attributed to Petrus' emissions.

The Agency eventually brought 11 charges against the company. Six related to the incidents in autumn 1996. Five further charges - still before the courts at the time of writing - concerned alleged offences relating to incidents in April and July 1997. The Agency brought the case before the Crown Court, reflecting the seriousness with which it views the alleged offences.

Agency's abuse of legal process
However, on 18 June this year Petrus applied to Stoke Crown Court for one of the charges to be stayed, claiming that the Agency had abused the legal process. The charge, under section 6(1) of the Environmental Protection Act 1990, concerned an alleged breach of a standard IPC authorisation condition requiring the company to carry out the process using the techniques described in its application.

The technique in question was a flame failure device, which the application said would be fitted to the refinery's flare stack to detect failure of the pilot flame. The device was intended to reignite the flame, or failing that trigger an alarm. Judge Simon Tonking accepted Mr Williamson's evidence that the device and alarm were operational when the plant was commissioned.

The pilot flame was initially fuelled with impure propane from the process. On 5 September, an Agency inspector raised concerns that this practice may have been contributing to the odour problem, and agreed to a switch to bottled propane. However, Judge Tonking heard, this meant that the system containing the flame failure device and alarm was "deactivated or detached". He had "no doubt" that the Agency had "motivated" the change - leading to the central question of whether the Agency "either expressly or implicitly approved and allowed" the resulting breach of the authorisation.

Mr Williamson told the court that he had explained to the Agency that a switch to bottled propane would entail disconnection of the flame failure device. But the Agency inspector said that it was not until the end of December that he realised that the device was required by the authorisation, at which point he discussed the matter with senior officers. No minutes of these discussions exist.

Judge Tonking was unimpressed by the Agency's evidence, noting that it had neither notified the company of the breach nor sought to correct it by enforcement or prohibition notice. Moreover, the inspector apparently "did not understand until [the hearing] that [a flame failure device] had in fact been in position on the original system."

Prosecution starts to crumble
Overall, the judge concluded that "the actions and inactions by and the attitude of the Environment Agency...are such that, whilst I do not find them to amount to a promise not to prosecute, they are such that a prosecution for this matter would be wholly contrary to what the defendants were led to expect by the Agency." He dismissed the charge as an abuse of process. The move prompted the Agency to drop two of the remaining ten charges, both relating to alleged reporting failures by the company.

The dismissed charge was far from central to the prosecution's overall case. But the weakness of the Agency's argument on this point appears to have strongly influenced the judge's overall attitude towards the regulator - leading to the eventual collapse of all six charges relating to the pollution incidents in autumn 1996.

The full trial began on 9 September 1998, with Petrus pleading not guilty on all counts. The first matter to be dealt with was the firm's application to have a second charge knocked out on the grounds of abuse of process. This charge alleged that the existence of a pipeline - known as "line B" - discharging vapour to the flare stack was not authorised under the company's IPC authorisation.

Petrus claimed that the charge should be struck out on two grounds. Firstly, it argued that the pipework was implicitly required by the authorisation - in particular the "residual duty" to use the "best available techniques not entailing excessive cost" (BATNEEC) imposed on all operators by section 7(4) of the Environmental Protection Act 1990.

Residual BATNEEC duty
The company's IPC application showed that waste gases from the process were to be burnt in a fired heater, and that the flare stack was to be used only in an emergency. Process diagrams showed no provision for pipework to carry releases from vents to the flare stack.

The authorisation, granted in August 1995, specified only two authorised points for releases to atmosphere - the chimney from the fired heater and the flare stack. Petrus said it had interpreted this to mean that all releases must be via these two points. Judge Tonking concurred that the authorisation was "opaque" on this point, and that the company's interpretation was "an understandable and sensible construction."

When Petrus built the plant, it introduced several pipes taking vented releases to the flare stack - without seeking prior approval from the Agency. The company later argued that these pipes were needed to comply with its understanding of the authorisation. It also said that the arrangement fulfilled the residual BATNEEC duty, on the grounds that burning emergency releases in the flare was environmentally superior to releasing them directly to air.

But "line B" differed from the other "added" pipes as it came from a vacuum pump which routinely discharged gases to the refinery's fired heater. The Agency claimed that line B's true purpose was a convenient bypass of the fired heater which meant that the refinery could still operate even if the heater was out of action. Judge Tonking found that the BATNEEC dispute came down to whether or not shutdown of the fired heater constituted an "emergency", as Petrus claimed. The matter was ultimately for a jury to decide, he concluded - and he could not uphold the company's argument that line B "necessarily accorded with BATNEEC."

"Acquiescence" by the Agency
However, the judge accepted Petrus' second claim of abuse of process - namely that the Agency had effectively "agreed by its conduct" or "acquiesced" to the existence of line B. In doing so, he appears to have been strongly guided by sympathy for the firm's residual BATNEEC argument and by the earlier abuse of process hearing.

The judge did not appear concerned that the firm failed to notify the Agency of the departures from its application. Petrus - somewhat cheekily - argued that the Agency should have been "put on notice" of the need for line B by an inspector's visit to a similar refinery in the USA in January 1996. The company also asserted that Agency inspectors should have noticed the line in one of 14 visits to the Burslem site before 30 September 1996. However, Judge Tonking found that the Agency did not learn of line B until an inspection on 30 September 1996.

Nevertheless, he accepted the nub of Petrus' case - which, in essence, was that an unreasonably long time elapsed between the Agency's discovery of line B and its decision to prosecute for the unauthorised installation of the line. His logic ran as follows:

  • The inspector's note of the inspection of 30 September flagged up a breach of the authorisation - but for operational procedures rather than for the design of the pipework.

  • Further actions by the Agency over the following four months - including letters to the firm, incident investigations, internal memos and minutes of meetings - either did not deal specifically with line B, or suggested that any breach concerned only the use of the line in certain circumstances.

  • Not until 10 February 1997 did the Agency inform the company that the emission via line B was an unauthorised release. The judge complained that its letter "did not...suggest a remedy, nor did it suggest that if the matter were not put right enforcement - whether by notice or prosecution - would occur."

  • In March 1997, the Agency gave advance disclosure of its planned prosecution - but with no reference to prosecution for the existence of line B.

  • On 23 June 1997, the Agency issued a variation notice giving Petrus five weeks to disconnect line B.

  • The Agency issued a draft indictment on 27 July 1997. This was the first time that it had indicated its intention to prosecute over line B.

    An "affront to public conscience"
    Judge Tonking ruled that once the Agency knew of line B's existence, "if they took exception to it they were obliged to investigate the circumstances with due expedition." The Agency "could and should" have reached a view on whether the line was authorised "if not on 30 September then very soon thereafter."

    "Once the Agency had knowledge of line B and had the opportunity to decide whether or not it was, in their view, unauthorised," Judge Tonking concluded, "their failure to do anything about it is conduct which amounts to tacit consent - acquiescence."

    Moreover, the judge said that other actions by the Agency - notably a fundamental review of the process in May 1997 and a variation notice of June 1997 - do "not sit happily with a later decision to prosecute." In a bizarre ruling, he concluded that "the Agency made decisions - which could have involved consideration of the pipeline - which they then sought, unfairly, to revoke by prosecution." Under this logic, the Agency could find it impossible to prosecute for an offence which had already been the subject of less severe enforcement action.

    Overall, Judge Tonking said, the Agency's decision to prosecute Petrus over line B was "manifestly unfair and oppressive" and "an affront to public conscience." On 6 November, he took the highly unusual step of ordering that Petrus' costs must be met by the Agency rather than from central funds. The company is claiming costs of £155,000.

    Intolerable burden for a regulator?
    The Agency was "disappointed with the ruling", but declined to comment further in light of the ongoing legal proceedings. The costs claim will be settled at a further hearing on 15 December - at which the Agency will also decide whether to proceed with the remaining five charges.

    Judge Tonking's ruling forced the Agency to drop two charges relating to the unauthorised use of line B to discharge material. Ironically, these fell only because they had become interwoven with the contested charge over line B. Petrus' Chris Williamson concedes that "if the Agency had never bothered [with the contested charge], then the other two counts would certainly have to have been heard before a jury." But the upshot is that Petrus has escaped prosecution for the severe pollution incidents in the refinery's first few months.

    The Agency had argued in court that by expecting it to act more rapidly in bringing the prosecution, the judge was placing an "intolerable burden" on it as a regulator. The Agency's view is that several months were needed to identify the crucial role of line B because it needed to get to grips with a complex process new to the UK - at the same time as it was dealing with large numbers of complaints arising from other emission sources on the site.

    It seems clear that the Agency could have done more to ensure that it understood the precise requirements of the application and authorisation. However, the company's habit of making significant changes to the process design without notifying the Agency did not make the task any easier for inspectors. Moreover, the Agency's decision to introduce the contested charge at a relatively late stage is by no means unprecedented - particularly when that charge was not a radical departure from the broad substance of the prosecution case.

    ENDS understands that there is serious concern within the Agency about the implications for any future prosecution for a complex offence. Indeed, inspectors may be encouraged to leap into a prosecution at an early stage rather than risk seeing a charge knocked out for lack of urgency. The Agency is considering referring the case to the Attorney General in order to establish ground rules for reasonable behaviour by regulators.

    More litigation in the pipeline
    Petrus, however, reacted to the Judge Tonking's ruling with jubilation. Chris Williamson said: "We have been unfairly harassed and hounded by the full might of the Environment Agency for the last two years. Starting with a prohibition notice after only three days of start-up [sic] and the threat of prosecution after only two months, their weapons of last resort were used as a first line of attack."

    Mr Williamson's complaint is not without ironies - not least that the prosecution would not have collapsed had the Agency acted more quickly.

    Mr Williamson also complained that "harassment became a daily occurrence in the weeks leading up to the trial in September this year. This harassment has increased since the trial ended nearly two months ago. These recent actions on [the Agency's] part can only be regarded as sour grapes."

    The complaint refers to a spate of enforcement action this summer. Ten enforcement notices were served in a three-month period, linked to four incidents in July and October.

    The notices concerned Petrus' alleged failure to report emissions, "inadequate, incomplete and incorrect monitoring reports", failure to comply with the Agency's requests for operational records, use of the flare for "routine disposal of purge gases", failure to carry out environmental assessment of a process change, and breach of emission limits. One notice accused Petrus of "amending...process log books in a manner that prevents retrieval of the original record."

    Matters came to a head on 1 September, when the Agency served a notice of its intention to revoke Petrus' IPC authorisation - a move which would close the factory. Mr Williamson claims that the move was "an attempt to take our focus off preparation for the trial." The Agency says that it took the action because evidence of the firm's alleged shortcomings had reached a critical mass.

    Petrus' appeal against the revocation and enforcement notices will be heard in March. A judicial review of a prohibition notice served in May 1997 will come before the High Court in February. And in a final flourish of litigation, Petrus is seeking judicial review of a £115,000 bill charged by the Agency for its check monitoring programme at the site.

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