About $600,000 of the money will be used to repay the cost of cleaning up the February 2003 oil spill, which stretched 12km along the coastline, covering 24 penguins, three of which died as a result. The oil also affected a cormorant, nine silver gulls and five endangered hooded plovers.
Environment Protection Authority prosecutor Paul Willee, QC told the court the defendants had been knowingly sailing the ship with leaking oil tanks and structural problems in Australian waters.
The owner of the ship, Reederi Suderelbe GMBH & Co Schiffahrts KG (RSS), was also ordered to pay $260,000 to the Phillip Island Nature Parks, as well as $42,000 towards installing composting toilets at one of the affected beaches.
Magistrate Frank Jones convicted and fined the company a maximum $50,000 for one charge, although he said the fine was too small.
The shipping company pleaded guilty to three charges relating to the incident.
Penalties for the remaining two charges were adjourned to allow the shipper to pay $28,000 to compensate Victorian surf lifesavers, for their help in cleaning the oil from the beach, rather than face a fine of the same amount.
The ship's master Erhard Heinz Schuschan, 60, of Germany, pleaded guilty to one charge of being master of the ship when a discharge of oil or oily mixture occurred in Bass Strait.
He was convicted and fined $20,000.