23 January 2018

Re-enforcing environmental compliance in Australian energy, mining and resources projects

Written by Matthew Austin, Anna Vella, Julian Ilett and Johnathon Hall.

As we look into 2018, it is important to begin the year with a clear understanding of some of the key developments in relation to environmental enforcement and regulatory compliance over the past 12 months. This alert looks at the key learnings from various legal proceedings determined in 2017 and explores the:

  • tension between Commonwealth corporate laws and State environmental laws and the ability for liquidators to disclaim property, particularly in relation to rehabilitation obligations for mining activities;
  • regulatory requirements which must be complied with for the issuance of an environmental protection order to a ‘related person’ in Queensland;
  • circumstances in which a clean-up notice issued by the regulator under the Environmental Protection Act 1994 (Qld) (EP Act) is considered to be inappropriate (particularly where pre-existing and ongoing contamination issues exist); and
  • importance of constantly monitoring environmental regulatory developments, to minimise the risk of regulatory non-compliance issues arising for both new projects and existing operations.

Relationship between State environmental rehabilitation obligations and liquidator’s powers

Linc Energy Ltd (in Liq) v Chief Executive Department of Environment & Heritage Protection [2017] QSC 053 (Linc Energy Case)

  • Under the Corporations Act 2001 (Cth) (Corporations Act) a liquidator can, at any time, disclaim property (e.g. a mining or resource activity) on behalf of a company if it may give rise to a liability (e.g. financial rehabilitation obligations).
  • The liquidators of Linc Energy Ltd (Linc) sought to disclaim land associated with Linc’s pilot underground coal gasification project. This included disclaiming the associated environmental authority (EA), mineral development licence, petroleum facility licence and the project’s rehabilitation obligations. The disclaiming operated in direct opposition to an environmental protection order (EPO) previously issued by the Department of Environment and Heritage Protection (DEHP) to Linc that prohibited the altering or disposal of site infrastructure required for site rehabilitation.
  • The Supreme Court of Queensland held that non-compliance with an EPO was an offence and impaired the liquidators’ right to disclaim the site infrastructure as onerous property.[1]
  • The liquidators of Linc were ordered to fulfil their environmental obligations as set out in the EA prior to resolving liquidator’s remuneration, employee entitlements and other unsecured creditors.
  • However, the Court refrained from determining whether an EA will constitute property capable of being disclaimed under the Corporations Act and whether EPOs issued following (rather than prior to) a disclaimer notice will have effect.

Key learnings

  • While the Linc Energy case may inform future decisions when considering the relationship between State environmental obligations and the Corporations Act, the judgment’s limited scope still presents a level of uncertainty with respect to:
    • whether an EA (or other key approval) is property capable of being disclaimed by liquidators; and
    • how EPOs issued following a disclaimer notice should be treated and their effect on liquidator obligations.

Extending rehabilitation liability to a ‘related person’

Bond v Chief Executive, Department of Environment and Heritage Protection [2017] QCA 180 – (Bond Case)

  • Former Chief Executive Officer of Linc, Peter Bond, argued against the issuance of an EPO to him as a ‘related person’ of Linc (under the EP Act ‘chain of responsibility’ provisions) submitting that:
    • the EPO did not comply with the requirements of the EP Act and was unlawful; and
    • there were ‘special circumstances’ which warranted a longer application period for internal review of the EPO’s issuance and that, by failing to identify these circumstances, the DEHP failed to provide procedural fairness.
  • The primary judge dismissed the application and Bond appealed that decision to the Supreme Court of Queensland.
  • When considering the procedural requirements for issuing an EPO, the Supreme Court held that the DEHP is not obligated to enquire with an EPO recipient as to whether any special circumstances exist or make a determination as to the those special circumstances. The EPO was held to be valid as there was no requirement on the DEHP to identify any special circumstances faced by Bond.

Key learnings

  • The Bond Case is one of the first cases to consider the issuing of an EPO to a ‘related person’ under the EP Act in relation to ensuring rehabilitation obligations of a company are performed.
  • While a further appeal of this decision is expected in 2018, the judgment details the procedural requirements the DEHP must follow when issuing an EPO to a related person. It highlights the importance of acknowledging enforcement processes under the EP Act and taking appropriate action within prescribed time periods.

Inheriting contaminated land: clean-up notices and the ‘appropriateness’ test under the EP Act

Hungtat Worldwide Pty Ltd v Chief Executive of the Department of Environment and Heritage Protection [2017] QPEC 62 (Hungtat Case)

  • A clean-up notice was issued to Hungtat Worldwide (Hungtat) under the EP Act for ongoing contamination caused by an incident which occurred prior to Hungtat’s purchase of the land.
  • Hungtat appealed against the issuance of the clean-up notice, arguing that the contamination had occurred prior to Hungtat’s acquisition and the ongoing release of acid sulfates from its land only formed part of the larger contamination issues in the area.
  • The Planning and Environment Court held the issuance of a clean-up notice by the DEHP is discretionary and should only occur in appropriate circumstances.
  • The clean-up notice was found to be inappropriate as Hungtat had inherited a pre-existing problem. It was held that neither Hungtat’s knowledge of the contamination nor its failure to prevent it from manifesting constituted ‘permitting’ the contamination to occur under the EP Act.
  • The works required to be undertaken pursuant to the clean-up notice were unjustifiably disproportionate to Hungtat’s involvement and it was determined that those works were unlikely to remedy the contamination. The Court set aside the clean-up notice.

Key learnings

  • The Hungtat Case provides comfort to landowners who acquire contaminated parcels of land that clean-up notices may be inappropriate given the recipient’s potential lack of involvement in release of the contaminant.
  • However, the Court reiterated that future decisions will turn on the individual facts of each case.

Shifts in the regulatory landscape: the Coal & Allied Operations Pty Ltd enforceable undertaking

Coal & Allied enforceable undertaking

  • In March 2009, Coal & Allied Operations Pty Ltd (Coal & Allied) obtained project approval for the Hunter Valley Operations South open-cut coal mine. This included approval to clear vegetation from the Central Hunter Valley Eucalypt Forest and Woodland (CHVEFW).
  • In May 2015, the CHVEFW was classified as a threatened ecological community under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act).
  • Between May and December 2015, Coal & Allied cleared 31.5 hectares of vegetation from the CHVEFW.
  • In late 2017, Coal & Allied entered into a $2 million enforceable undertaking with the Commonwealth Minister for the Environment and Energy to establish ecological offsets and provide related conservation and management efforts in response to the EPBC Act non-compliance.

Key learnings

  • The enforceable undertaking between Coal & Allied and the Commonwealth Minister demonstrates the importance of ongoing regulatory awareness and implementing an effective compliance regime which considers both state and federal environmental requirements.
  • Both State and Commonwealth governments are likely to continue pursuing enforcement and compliance outcomes and promote consultation with government throughout the life of a project.

Looking forward to 2018

These decisions during 2017 shine new light on the landscape of environmental enforcement in Queensland and New South Wales.  

Continued monitoring of regulatory developments and implementing an effective compliance system remains critical to all proponents undertaking major projects and existing operations. Ongoing regulatory reform (particularly in Queensland in relation to progressive rehabilitation and closure planning for mining projects) will undoubtedly provide new compliance challenges which will need to be proactively managed.

Should you wish to know more about the status of Australia’s environmental reforms, or have a better understanding of how these developments may impact you or your business, please don’t hesitate in contacting us.

[1] Section 9(1) of the Corporations Ancillary Provisions Act 2001 (Qld) declared Sections 358 and 361 of the Environmental Protection Act 1994 (Qld) (the EPO relevant provisions) to operate despite the conflict with the provisions in the Corporations Act.

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