Vernon v Taranaki Regional Council [2018] NZHC 3287 (13 December 2018)

Last Updated: 19 December 2018

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE

CRI 2018-443-14 CRI 2018-443-15 [2018] NZHC 3287

BETWEEN	JOHN SPENCER VERNON AND ALISON LAURA VERNON Appellants
AND	TARANAKI REGIONAL COUNCIL Respondent

Hearing:	20 November 2018 (via AVL)
Counsel:	P J Mooney for Appellants K J L De Silva for Respondent
Judgment:	13 December 2018

JUDGMENT OF ELLIS J

[1] Since the 1990s, dairy cow numbers in New Zealand have increased by 69 per cent.¹ For every 10 New Zealanders there are now 13 dairy cows, and each cow has the potential to produce nine times the amount of effluent (by weight) as the average person. More particularly:

(a) the average dairy cow produces 70 litres of faeces and urine per day;

(b) ten per cent of this is generated during milking; and

1. All information in this paragraph comes from Forest & Bird Cleaning Up: Fixing compliance, monitoring and enforcement in the dairy sector (August 2018) at 2 - 3 citing Peter Gluckman New Zealand’s fresh waters: Values, state, trends and human impacts (Office of the Prime Minister’s Chief Science Advisor, 12 April 2017).

TARANAKI REGIONAL COUNCIL v VERNON [2018] NZHC 3287 [13 December 2018]

(c) depending on the efficiency of the wash down system, the total effluent generated in a cow shed is between 35-100 litres per cow per day.

[2] Farm dairy effluent (FDE) contains contaminants that can have adverse effects on water quality.² Although FDE management is a high-risk activity carrying significant consequences for human and environmental health if not handled properly,
FDE is also the most easily managed pollution source.³

[3] In New Zealand, Regional Councils and Unitary Authorities are responsible for monitoring FDE and for related compliance and enforcement matters. The Resource Management Act 1991 (the RMA) contains four compliance and enforcement mechanisms - abatement and infringement notices, applications for enforcement orders and prosecution.⁴

[4] Mr and Mrs Vernon, who are dairy farmers from Taranaki, were the subject of such enforcement action. The Taranaki Regional Council (the Council) charged each of them with an offence under s 338(1)(a) of the RMA. The charge was framed in the following terms:

... on dates between and inclusive of 3 September and 11 September 2017, at Midhurst ... did commit a continuing offence against s 338(1)(a) of the Resource Management Act 1991 (“the RMA”) in that [they] contravened section 15(1)(b) of the RMA in that [they] intermittently discharged a contaminant, namely farm dairy effluent from a pipe, onto land in circumstances which may have resulted in that contaminant:

- and any other contaminant emanating as a result of natural processes from that contaminant, entering water, namely ground water; and

- entering water, namely an unnamed tributary of the Rum Keg Creek,

when the discharge was not expressly allowed by a national environmental standard or other regulations, a rule in a regional plan, or a resource consent.

2. The contaminants of primary concern are various forms of nitrogen and pathogenic (disease causing) micro-organisms (such as faecal coliforms, E. coli and campylobacter). Farm dairy effluent (FDE) also contains concentrations of organic carbon, phosphorous, potassium and sulphur.

³ Above, n 1.

⁴ Resource Management Act 1991, pt 12.

[5] Notwithstanding the contingent expression of the charge (“may have resulted”) there is no doubt that in the Vernons’ case, the discharge of FDE did result in contaminant entering water.

[6] The Vernons pleaded guilty to the charge and were subsequently ordered by Judge Dwyer to pay (between them) a $45,000 fine.⁵ The maximum penalty for such an offence (if it is committed by an individual) is two years imprisonment or a
$300,000 fine, together with further fines of up to $10,000 per day if the offence is a continuing one, as it was here.⁶

[7] The Vernons now appeal the fine imposed on them. They say that the Judge wrongly failed to take into account their ability to pay, as required by s 40 of the Sentencing Act 2002 (the Act). They also say that the Judge erred in his assessment of the seriousness of the offending, and in failing to consider remorse and remediation. The submission is that one or more of these errors rendered their sentence manifestly excessive.

[8] Before turning to that issue, however, it is necessary to say a little more about the offending itself. The following account is largely taken from the agreed summary of facts.

Background

[9] The Vernons’ dairy farm is situated at an altitude of approximately 400 metres above sea level, in Midhurst, close to the park boundaries of Mount Taranaki. It comprises approximately 144 hectares of flat to undulating contour, of which around 120 hectares is effective pasture land. The Vernons live and work on the farm; they are responsible for the day-to-day management of the farming operation.

⁵ Taranaki District Council v Vernon [2018] NZDC 14037.

⁶ Resource Management Act, s 339. For bodies corporate, the maximum fine is $600,000 and

$10,000 per day.

[10] Running through the farm, in an easterly direction, are a number of natural streams and constructed farm drains. They discharge into the Rum Keg Creek within the Waitara catchment. The tributaries have been described as small rocky mountain streams of varying size up to approximately two metres in width.

[11] At the time of the offending, approximately 100 cows were being milked once daily, in a herringbone dairy shed on the farm.⁷ The volume of effluent and wash water produced from 100 cows per day on the yard is approximately 1800 litres.

The Resource Consent

[12] The Regional Fresh Water Plan for Taranaki requires that a resource consent be held for the discharge of untreated FDE onto or into land. The Vernons had been granted such a resource consent on 28 February 2003 and was renewed subsequently. It permits them to discharge untreated FDE by spray irrigation onto the land, subject to what are usual conditions prohibiting the ponding of effluent and any discharge into surface water.

The Effluent System

[13] At the relevant time, the Vernons’ effluent system comprised:

(a) a sand trap to capture sand/grit from the yard and farm dairy;

(b) a small sump and pump which captures effluent directed from the sand trap; and

(c) a travelling irrigator that is designed to discharge the pumped untreated effluent to land in a controlled manner.

[14] There was no storm water diversion in place.

⁷ This was less than the usual number of cows milked, which was between 230–240.

Compliance history

[15] Council officers undertake annual inspections of dairy farms in the Taranaki Region. The officers record the outcome of each inspection in an inspection report.

[16] Between 2003 and 2017, inspection reports for the Vernons’ farm identified a number of issues about the capture, containment and controlled disposal of untreated FDE. Of particular note, non-compliance was recorded on 25 January 2006 and significant non-compliance was found on 3 December 2009 and on 6 December 2013. This latter finding resulted in the issue of an abatement notice on 17 December 2013 requiring works to be undertaken to ensure all FDE was captured and applied to land in an appropriate manner.

The offending

[17] On 11 September 2017 two Council officers undertook the annual inspection of the effluent system on the Vernons’ farm. They found:

(a) a travelling irrigator which had been disconnected from its hose in a paddock;

(b) the travelling irrigator had grass growth around the wheels indicating that it had not been moved for an extended period of time;

(c) untreated FDE had been discharged from a pipe onto a paddock;

(d) this discharge had resulted in significant ponding in at least two places;

(e) the ponding was of varying depths up to 20 cm, and covered a total combined area of approximately 200 square metres;

(f) FDE from the ponded areas had flowed, and was still flowing, into a tributary of Rum Keg Creek which was located approximately 35 metres from the end of the open pipe;
(g) the tributary was approximately one metre wide, 20 cm deep at the point of discharge and flowed at a slow rate;

(h) there was significant discolouration at the point of discharge into the tributary with discolouration and odour extending for approximately 400 metres downstream; and

(i) the tributary flowed for approximately 2.2 km until it entered the Rum Keg Creek.

[18] The officers took photos and video footage of what they had found and collected samples during the inspection. An in-stream sample was taken at the point of discharge and a further sample was taken approximately 360 metres downstream of the discharge point into the tributary. The samples were later tested and the results recorded in a report.

[19] A card advising of the inspection was left at the farm dairy after the inspection and an inspection notice was posted to Mr and Mrs Vernon on 12 September 2017. The next day the Vernons were served with an abatement notice requiring them to undertake works to ensure compliance with their resource consent.

[20] By 18 September 2017, there had been compliance with the abatement notice.

The Vernons’ explanation

[21] Council sent a letter to the Vernons giving them an opportunity to provide an explanation. By letter dated 25 October 2017, Mr Vernon advised (inter alia):

(a) The Vernons had been concerned with the effluent management on the farm prior to the Council inspection due to a busy calving schedule and unusually wet weather.

(b) Wood chip bedding used in the calf shed was found to be tracking onto the yard and subsequently into the effluent disposal system. This had caused blockages with the effluent pump and irrigator nozzles.
(c) To prevent blockages the pipe was removed from the irrigator and effluent was discharged directly onto the ground from the open pipe.

(d) The pipe was moved on a regular basis.

(e) Planning was underway to upgrade the effluent system to ensure on-going compliance.

Adverse Effects

[22] Reports on were subsequently prepared by:

(a) Mr Garv Bedford, the Council’s Director-Environment Quality on the results of analyses of the samples and the adverse effects resulting from the discharge; and

(b) Ms Jane Harvey, the Council Environmental Scientist (Hydrogeology), explaining the likely effects on groundwater resulting from the ponding of effluent.

The sentencing

[23] After summarising the facts, Judge Dwyer noted that Mr Mooney had, on the Vernons’ behalf, taken issue with a number of the adverse effects which had been asserted in the Council reports. In particular, he submitted that it was not possible fairly to measure those effects because there had been no sampling of the creek or the estuary before the discharge had occurred. The Judge said:

[9] It is apparent that the area where your farm is situated is a particularly wet area and was receiving high levels of rainfall in the period leading up to the offending. I accept that stormwater likely contributed to the ponding seen by Council officers and would have had a diluting effect on the ponded effluent, that seems apparent. Accordingly, I accept that the effluent on the paddock would have been diluted and that the precise effects of this particular discharge cannot be determined with any precision.

[24] But then he went on:

[10] What we also have to accept however, is that dairy effluent is rich in nutrients from animal faeces, urine and milk. It contains a range of contaminants including organic matter, nitrogen, phosphorous, suspended solids and pathogens which are seriously detrimental to the health of the waterways they enter and the aquatic life that lives in them, the stock which may drink it and humans who come into contact with it.

[11] It is commonly the case that adverse effects from any one effluent discharge cannot be established with certainty. As you have heard me discuss this morning the matter of concern to the Court is the cumulative effect of many possibly insignificant discharges whose individual effects might be minimal if they can be identified at all. But in combination they lead to the deterioration of our water bodies.

[25] After noting the clear deterrent purpose of the high maximum penalty for the offending, the Judge noted that Ms de Silva for the Council had submitted that there should be a joint starting point of a $70,000 fine.⁸ Mr Mooney had said somewhere in between $30,000 to $40,000 was appropriate. He referred to categories of seriousness identified by the District Court in Chick,⁹ noting that Mr Mooney had suggested the Vernons’ offending fell within the least serious category, or lay between the least and the moderately serious end of the spectrum. Ms de Silva had submitted the offending fell somewhere between the moderately and most serious categories.

[26] I set out the remainder of the Judge’s reasoning more or less in full. He said:

[15] I make the point that both the least and moderately serious categories require that there be no, little or at the worst a moderate adverse effect on the environment. If serious adverse impact of dairy effluent pollution is established that almost automatically lifts the offending into the most serious category. I accept that has not been shown to have happened here. Level 1 offending where Mr Mooney has put the offence encompasses accidental or one off offences and I have to tell you that I do not consider that is what has happened in this case.

8. As to this “joint” approach, the Judge said “I agree with counsel's approach of taking a joint starting point of the two of you. You are a married couple, farming in partnership so that what comes out of the pocket of one, comes out of the pocket of the other. So, effectively I am going to impose one fine.”

⁹ Waikato Regional Council v GA and BG Chick Ltd (2007) 14 ELRNZ 291 (DC).

[16] What the information before the Court establishes is that your farm is situated in a high rainfall area where there are obvious issues and potential problems in managing effluent. The farm had no effluent storage capacity at all, as we have heard. The need for significant upgrades had been identified by the Regional Council as long ago as 2013 and was known to you, but you did not have the money to fix things and your bank at that time would not advance sufficient funds to you to enable an adequate effluent storage system to be established.

[17] Accordingly the farm was totally dependent on effluent irrigation, notwithstanding the obvious difficulties in a wet area. As we have heard the effluent pipe had got blocked with wood chips from the calf sheds. I think that raises a management issue as to how well things were being run. The pump was cleared but the irrigator could not work. You continued to use the effluent pipe to discharge effluent directly to land without the benefit of it being spread by irrigation and that had the consequences we have heard about. Those consequences were foreseeable and inevitable.

[18] This is a high rainfall area where rain not only dilutes effluent as Mr Mooney has pointed out, but also mobilises it and carries it into the water courses where rain water goes. That is precisely what happened here. Mr Mooney’s defence of your actions is essentially that you could not do anything else because of your financial circumstances at the time. I accept that is true but carrying on farming without an adequate effluent storage and irrigation system in place can only be described as reckless. Whatever the cause of that situation might be, the reality is that you took the risk that things would be okay and they were not.

[19] I accept that the Council took a liberal attitude towards you to the extent that it did not require you to close down straight away when it became apparent that you had difficulties. The point that I made during my discussions with counsel is imagine what would have been said if the Council told you to stop farming tomorrow because you cannot meet the terms of your resource consent. It would have been regarded as acting very harshly. The fact is the Council enabled you to keep going without trying to make you stop and you effectively ran the risk that things would be okay.

[20] In my view this offending clearly falls into the moderately serious band. It involved a delay in rectifying an inadequate effluent system over a period of three or four years and a discharge which caused little or at the most a moderate identifiable effect on the environment. Penalty starting points for offending in this band range between $40,000 and $80,000.

[21] Counsel have referred me to a number of comparative cases as a reference to fix starting point. I am aware of the need to be consistent in sentencing and the Court endeavours to achieve that, but it must be recognised that the myriad of circumstances which come before the Court make it difficult to draw precise comparisons. It also needs to be recognised that there has been a gradual but ongoing rise in starting points and fines as regional authorities and the Court endeavour to deter dairy effluent offending which continues to come before the Court.

...

[23] Having regard to all of those factors I consider that the sum of $60,000 is the appropriate starting point in this case. I acknowledge that you recently obtained funding from your bank which will enable an upgrade of your effluent systems. I understand that is going to cost in the order of $250,000. I am not going to give any credit for that in my sentencing calculations as what that does is bring the farm up to the standard at which it should have been. That need was identified some years ago. I am making no allowance for past good character. Although you had no previous convictions you have a past history of non-compliance and the issue of an abatement notice in 2013. I am making a reduction from starting point of 25 per cent on account of your prompt guilty pleas.

[24] Accordingly, I determine as follows. Each of you is fined $22,500. ...

The appeal

[27] As noted earlier, Mr Mooney advanced three grounds of appeal against this sentence:

(a) the Vernons’ inability to pay a fine in the amount ordered;

(b) error by the Judge in his assessment of the seriousness of the offending; and

(c) failure to take account of remorse and remediation.

[28] As I indicated to Mr Mooney at the hearing, my clear view is that only the first of these grounds is seriously arguable. I therefore address the second and third only briefly.

[29] As to the relative gravity of the offending, Mr Mooney said that the offending was less serious than the Judge found, because:

(a) this was a “one off” incident which resulted from an unhappy combination of machinery failure and excessive rainfall;

(b) there was only a limited impact on the environment;

(c) it was not offending of a recurring nature and the Vernons were not reluctant to address the need for a safe system of effluent disposal; and
(d) it was wrong to suggest that the wood chips raised a management issue.

[30] But I agree with Ms de Silva that the Judge made no obvious error in any of these respects. More particularly, and in turn:

(a) regardless of whether it was a “one off” incident, as the Judge held, it involved recklessness on the part of the Vernons, the results of which were (as he said) inevitable;

(b) the Judge expressly recognised the difficulties around assessing the impact on the environment and did not take environmental impact into account as an aggravating factor;¹⁰

(c) the offending was, in fact, reoccurring; it was charged as a continuing offence over a nine-day period (despite the fact that no daily fine was imposed) and occurred in the wake of past breaches;

(d) regardless of how it was that the Vernons had come to use the woodchips,¹¹ the Judge’s view that their use (in combination with the Vernons’ other acts and omissions) raised a management issue was one that was plainly open to him on the facts.¹²

[31] As far as remorse is concerned, Mr Mooney’s point was that, in accordance with s 10(1)(d)(iii) or s 10(1)(e) of the Act, there should have been some recognition of the money subsequently spent by the Vernons on upgrading their effluent system. But as Ms De Silva said, the focus of the first of those provisions is on measures that “make good the harm that occurred”. And fixing the cause of the harm does not remediate its effects, at least in the present case. And while it is arguable that the new system could (in terms of s 10(1)(e)) constitute “remedial action ... in relation to the

¹⁰ Taranaki District Council v Vernon, above n 5, at [15].

¹¹ Originally, the calf shed had wooden grating which became slippery if wet and so the Vernons used sawdust to mitigate that. They were advised by the Ministry of Primary Industries that the sawdust was adhering to the calves and damaging their pelts and it was suggested that they try wood chips. The Vernons subsequently decided to replace the wood chips with a fibreglass grating which had been ordered but had yet to be cut to size to be installed.

¹² Taranaki District Council v Vernon, above n 5, at [17].

circumstances of the offending”, that ignores the point made by the Judge at [20] of his decision, namely that it was merely compliance action which was (regardless of the offending) required and should have been undertaken much earlier.¹³

[32] More globally, the reality is that the $60,000 starting point adopted by Judge Dwyer was only 20 per cent of the maximum available penalty (or 10 per cent if account is had to the fact that the Vernons were individually charged). He imposed no daily fine. The massive damage done to New Zealand waterways by FDE, and the environmental and financial ramifications of it, should not need to be repeated. In setting the sentencing levels as it has, Parliament has expressly recognised a particular need for deterrence and the Courts must act accordingly. The fine here was well within the available range.

Ability to pay

[33] Although Judge Dwyer noted in the course of his sentencing that it was the Vernons’ financial difficulties which had caused them to delay undertaking the necessary work on their effluent system, it appears that the issue of their ability to pay the fine imposed was not directly canvassed in the District Court. There was certainly no statement of means provided to the Judge.

[34] In light of the Vernons’ signalled intention to appeal on this ground, however, the Council sought leave to adduce expert financial evidence on the appeal. Leave was granted by consent by Churchman J on 19 September 2018, on the condition that the Vernons could call rebuttal evidence. Accordingly, I received and heard evidence from both Mr Dennis Parsons (a forensic accountant engaged by the Council) and from Mr Valdimar Einarsson (who is the Vernons’ accountant and is the independent trustee of their family trusts).¹⁴

13. See the discussion in Thurston v Manawatu-Wanganui Regional Council HC Palmerston North, CRI 2009-454-024, 27 August 2010 at [66] – [70].
14. For those reasons (and without for one moment doubting his integrity) it would not be right to view Mr Einarsson as an independent expert.

[35] But I do not intend to go into their evidence in any significant detail here. The outcome of this appeal cannot sensibly depend on the Court examining the minutiae of the Vernons’ accounts, the fluctuations in milk solid pay-outs or making calls about whether they might conceivably spend less money on stock feed. It is necessary, I think, to deal with the issue at a higher level of generality.

[36] The starting point is that the Vernons run a moderate sized dairy operation; a business and it is that business that is at the heart of their offending. They are not, for example (and by contrast with many of the offenders in the relevant “fines” cases) beneficiaries.

[37] That said, however, I accept that the Vernons are (as Mr Parsons described it) effectively on a “credit watch” with their bank. I also accept that, having just loaned them over $200,000 to bring their effluent system up to scratch, the bank has declined to lend them further funds to pay the fine. There was no direct evidence, however, that they are unable to borrow from a second or third tier lender, or that their bank would not release some of their security for that purpose.¹⁵ But I acknowledge that it may well not be easy for the Vernons to pay the full amount of the fine immediately.

[38] As I have said, s 40 of the Act makes ability to pay is (if raised) a mandatory (although not necessarily controlling)¹⁶ consideration when determining the amount of a fine. The underlying policy is obvious.

[39] There is, however, a distinction to be drawn between cases in which a fine is, by dint of the relevant statute, the only sentencing option and those where other sentences are available.¹⁷ In the former kind of case, the Court may have no real choice but to impose a fine in a lesser amount that is otherwise available. But in the latter kind, the possibility of some alternative sentence may well be in play.¹⁸

¹⁵ Although Mr Einarsson’s view was that the bank would not do so.

¹⁶ Difarn v Commerce Commission (1994) 6 TCLR 80 (HC).

¹⁷ Such as Ministry of Agriculture v Finn (1994) 12 CRNZ 127 (HC).

18. Bearing in mind, of course, the obligation to impose the least restrictive sentence that is appropriate in the circumstances: Sentencing Act 2002, s 8(g).

[40] Here, a fine was not the only sentencing option. The other possibilities range from a sentence of up to two years imprisonment down through the various types of sentence that rank below imprisonment in terms of the hierarchy in s 10A of the Act. Mr Mooney was at pains to stress, however, that none of those options was suitable as they would involve taking the Vernons away from their farm which (he said) would adversely affect their already shaky farming enterprise. And so, he said, this was a case where a lower level of fine should simply be imposed.

[41] It must be said that this proposition is an unattractive one. The Court below was required to sentence the Vernons for regulatory offending of a very serious kind. The principal cause of that offending was (it seems) their financial inability to maintain their effluent system to the required standard. The offending was, necessarily, of some benefit to their farming business, because it involved deferring the capital outlay required to operate lawfully. And now they seek to argue both that a fine is the only appropriate penalty (because it is the only penalty that enables them to keep running their farm) but also that it cannot be set at the otherwise appropriate level because of the same impecuniosity that caused them to offend in the first place.

[42] In my view, the answer cannot lie in that direction. Reducing the fine imposed here runs a real risk that it becomes no more than a licence fee. And as Ms de Silva said, arrangements can be made to pay fines by instalment. Although, historically, it was thought that it was unduly burdensome to require that such instalments to continue for more than a year, the law now allows for up to an instalment period of up to five years.¹⁹ If (for example) the $45,000 fine were able to be paid over five years that would require an additional monthly outgoing expenditure of only $750. And I bear in mind Mr Mooney’s acceptance (both before Judge Dwyer and before me) that a fine in the order of $20,000 to $25,000 would be manageable.

[43] In my view, the fine imposed in the District Court was appropriate and should not be reduced on account of the Vernons’ financial circumstances. While it is open to me to make an order now under s 81 of the Summary Proceedings Act 1957 allowing payment of the fine to be made by instalments I think it prudent to allow the Vernons

¹⁹ Summary Proceedings Act 1957, s 86.

time to explore their preferred options with their accountant and, potentially, with possible lenders. I think the appropriate course is simply to make a direction under s 81(1)(b) that the Registrar of the District Court at New Plymouth is to determine whether to enter into an arrangement with the Vernons allowing them greater time to pay the fine or to pay it by instalments and I do so now.

[44] Subject only to that order, the appeal is dismissed.







Rebecca Ellis J