In a decision that saves them a possible $12 million in asbestos waste disposal fees, Land and Environment Court Justice Nicola Pain found the EPA’s case “consistently failed to recognise” a 2009 sand extraction approval that included road construction on the MacKenzie property.

The approval provided Grafil Pty Ltd, a company owned by Bruce and Robert MacKenzie, with a defence that tens of thousands of tonnes of Sydney demolition material was stockpiled to build the roads, rather than being dumped at an unlawful waste facility.

Justice Pain ruled the material was not waste as defined under NSW environment law, was temporarily stockpiled and not “deposited on the land”, and there was no requirement for Grafil to hold an environment protection licence.

Justice Pain also found Robert MacKenzie not guilty after he was charged with executive liability for operating a waste facility without lawful authority.

Grafil and Mr MacKenzie were charged with allowing trucks to unlawfully dump the demolition waste between October 2012 and May 2013. But during hearings in February and March the EPA was forced to reduce the estimated amount of material by almost half, from nearly 69,000 tonnes to 35,500 tonnes after Justice Pain found its assessment was “deeply flawed”.

The estimated tonnage was based on invoices that were double counted, loads that went to different Hunter locations and a lack of understanding of how some demolition company systems operated.

Justice Pain also rejected an EPA assessment that two large stockpiles of possibly 44,000 tonnes of demolition material was “special waste” because it contained asbestos after Grafil successfully challenged sampling and testing methods.

The court heard 634 grams of asbestos was found in 575 kilograms of material sampled, which Justice Pain described as “minor” and “very small”, while acknowledging “I am not seeking to downplay the significance of asbestos and attendant health risks”.

Any risk to human health was reduced if the material was used as road base, as intended, and was not screened, Justice Pain.

“Disposal of asbestos with its potential impacts on human health remains a significant waste management problem in and around Sydney as the overall context of this prosecution highlights,” she said.

“The broader challenge of managing asbestos in Sydney building waste is not addressed by this particular offence.”

Grafil was also successful in arguing the EPA incorrectly held it responsible for ensuring demolition material did not contain asbestos and other chemicals, rather than the demolition and recycling companies that generated and processed the material.

Grafil argued the EPA’s case produced an “absurd outcome” where “a consumer is potentially criminally liable for events over which he or she has no control” when asbestos in found in material certified compliant with current NSW exemptions granted when demolition material is recycled.

Accepting the EPA’s argument that Grafil was responsible meant “unwitting customers” who accepted material found to contain asbestos could be left with the costs of removal, Justice Pain said.

During the court case the EPA said it would seek orders forcing Grafil to remove the stockpiles, a move that potentially could have cost the company up to $12 million.

Justice Pain was critical of the EPA’s assessment that interactions between Bruce MacKenzie when he was Port Stephens mayor, his son, the council, the EPA and a consultant meant the MacKenzies “knew that building and demolition waste stored or disposed of (on the site) required development consent”.

“The EPA’s submissions attributed a particular mental state to Mr MacKenzie whereby he misled the EPA about what he intended to do on the lot.”

Justice Pain found there was nothing misleading in what Robert MacKenzie said or wrote to the EPA about his intentions for Grafil at the Salt Ash site. She found the EPA did not recognise the application of resource recovery exemptions in its case which allowed Grafil to accept and temporarily stockpile demolition waste from Sydney to use to build an internal road after a new sand extraction area was approved.

She rejected that Grafil had breached environmental law by allowing the stockpiled material near a waterway, but found the company had not kept any records of what was delivered to the Salt Ash site, contrary to its responsibilities under exemptions granted for accepting demolition material.

The EPA said it was disappointed with the decision and could appeal. Bruce MacKenzie declined to comment.