In September 2018, the High Court dismissed an application to hear the Linc Energy case made by the Queensland government. That means the Court of Appeal decision stands - so it’s possible for company liquidators in Queensland to disclaim future environmental responsibilities and for remediation costs to fall back on the State.
As previously published, liquidated energy company Linc Energy Pty Ltd, and Stephen Graham Longley, Grant Dene Sparks and Martin Francis Ford as liquidators of the company, have been involved in a number of legal actions this year. EDO constantly advocates for law and policy reforms to ensure mining companies clean up their own sites but EDO has not been involved in these actions. However the Court decisions will have wide reaching effects in holding companies and directors to account for environmental damage.
In the most recent decision in September 2018, the High Court has dismissed the Queensland's Government's special leave request to overturn the Queensland Court of Appeal's decision relating to disclaimer provisions in the Corporations Act. So the Court of Appeal decision made in March 2018 stands. This allows company liquidators to disclaim onerous property such as their Environmental Authorities, leaving the State exposed to picking up rehabilitation costs.
Background to Linc Energy from court documents
Court documents show that in 1999 Linc Energy established an underground coal gasification (UCG) pilot 20km south-west of Chinchilla in the western Darling Downs. Around 35,000 tonnes of coal was gasified at a depth of 120m below the surface during a 30-month test period, with the produced synthetic gas being flared into the atmosphere.
Between 1999 and 2013 five gasifers were conducted on the site, where oxygen is pumped through a well directly into a coal seam and then ignited, creating synthetic gas. During the second gasifer in 2007, the high level of pressure fractured the rock beneath the land and released chemicals into the air, soil and groundwater.
Gasifer 2 was decommissioned in 2007, around which time the Department of Environment and Heritage Protection allege Linc Energy allowed contaminants to escape as a result of the operation. During the period 2007-2012 the plant was the subject of some complaints from staff ranging from gas leaks causing illness to witnessing bubbling of groundwater around the site. Following a nine month investigation, the Department of Environment and Heritage Protection filed charges against the company.
The site was decommissioned in 2013, and in 2016 then Environment Minister Steven Miles said UGC would be banned by Queensland, which was legislated by the Palaszczuk Government in August 2017.
Environmental Protection Order (EPO) enforcement
Court documents reveal that on 15 April 2016 the company was placed in voluntary administration.
On 13 May 2016, DEHP issued an Environmental Protection Order (EPO) to Linc Energy, ordering it to comply with its environmental duty, specifically to “take all reasonable and practicable measures to prevent or minimise the harm” when undertaking activities in its experimental underground gasification project at Hopeland, near Chinchilla in the western Darling Downs.
The EPO obliged Linc to comply with the conditions of its Environmental Authority (EA) including a general duty of care not to harm the environment. The EPO was not issued under the new Chain of Responsibility Amendments (CoRA) to the Environmental Protection Act 1994 (Qld), which came into effect two weeks later.
On 23 May 2016 Linc Energy creditors unanimously voted to liquidate the company.
30 June 2016 saw liquidators give notice disclaiming the Chinchilla land, mineral development license (MDL309), Petroleum Facility Licence 5 (“PFL5”) and the EA, under s 568(1) of the Corporations Act 2001 (Cth). The net effect of disclaiming the land, licenses and EA was that Linc Energy shed itself of any current and ongoing liabilities that may delay the liquidation, meaning the Crown resumed the lease and any costs for remediation for the land. The liquidators then sought directions from the Court confirming that Linc Energy would not be compelled to comply with the EPO issued in May 2016.
At first instance, Queensland Supreme Court Judge, Justice Jackson held that the liquidators would be liable for any clean-up and remediation costs, and that insolvent companies in Queensland would not be able to avoid costs associated with repairing environmental damage through disclaimer.
However, the liquidators appealed the decision, and the Queensland Court of Appeal (QCA) decision overturned Justice Jackson. The QCA decision turned on a complicated assessment of whether a state law could prevail over a Federal law, and whether the EA was “property” that could be disclaimed, with the QCA ultimately finding that Linc Energy could legitimately disclaim its obligations to comply with the terms of the EA and the general duty not to harm the environment.
The Queensland Government sought special leave from the High Court of Australia to overturn the QCA decision, which was heard in Brisbane on 14 September before Justices Gaegler and Keane.
The Court was unconvinced by the arguments of the State, and dismissed the appeal. As a result , the QCA decision stands. This means that in Queensland insolvent companies are able to divest themselves of the future cost of environmental clean-up and rehabilitation if they disclaim the lands and licenses requiring remediation.
Environmental Protection (Chain of Responsibility) Amendment Act 2016 (Qld) (CoRA)
In 2016, the Queensland Government introduced amendments to the Environmental Protection Act 1994 (Qld), which broadly speaking provide the Government with expanded powers to oblige companies and related parties to bear the cost of cleaning up and rehabilitating sites.
The new powers do not change the ability of the Government to issue an EPO, but they provide expanded scope regarding to whom the EPO can be issued, allowing the Government to oblige parent companies, landowners and persons with a “relevant connection” to the company to bear the costs associated with environmental clean-up.
The Court of Appeal decision therefore does not test the validity of the CoRA provisions, however it does highlight that the Qld Government may not be in a position to enforce the CoRA provisions in their entirety.
Related person CoRA
Former Chairman and Managing Director of Linc Energy Limited (Linc), Peter Bond, was one of the first reported cases of a CoRA EPO to be issued under the expanded “related person” provisions.
Court documents show the EPO obliged Bond, personally, to bear the costs of remediation and rehabilitation of the damaged Chinchilla lands and provide a bank guarantee worth $5.5m.
Mr Bond unsuccessfully appealed the EPO to the Planning and Environment Court (P&E Court), which was unpersuaded by his arguments that he was not a related person and that he was denied procedural fairness. Mr Bond then sought leave from the Queensland Supreme Court to appeal the decision, which was granted, however the appeal was dismissed.
Criminal litigation against Linc
On March 11 2016, Linc was committed to trial on five criminal charges pertaining to allegations of wilfully damaging the environment. The prosecution was brought by Qld Department of Environment and Heritage Protection (DEHP) alleging that fugitive gases from the site - including carbon monoxide, hydrogen and hydrogen sulphide - polluted an area more than two metres underground from approximately 2007 to 2013. The Department is continuing to monitor soil contaminants around the area.
On 9 April 2018, Linc Energy was found guilty of five counts of causing serious environmental harm relating to its underground coal gasification (UCG) plant 20km south-west of Chinchilla in the western Darling Downs, and the resultant environmental damage.
After a 10 week trial in the District Court in Brisbane, heard by Judge Michael Shanahan, the jury returned a guilty verdict on the five charges of wilfully and unlawfully causing environmental harm between 2007 and 2013. Sentencing took place on 11 May 2018, and Linc was fined $4.5 million. See our analysis here.
In addition to the serious environmental harm charges against the company, Linc Energy directors were separately charged over the plant’s operations in a matter which is expected to come before the Court mid this year. Further, commercial law firm Slater and Gordon is investigating a potential class action on behalf of landholders who may have suffered contaminated lands around the plan; and the company has been before the courts twice about fulfilling the terms of an Environmental Protection Order (EPO).
The directors of Linc have additionally had criminal charges laid against them by the Queensland Department of Public Prosecutions. The matter was heard by the Magistrate's Court in July.
Possible class action for landholders
Slater and Gordon law firm are currently investigating the possibility of a class action representing landholders in the Darling Downs who may be affected by the contaminated emanating from the Chinchilla plant.
Slater and Gordon allege that up to 320 square kilometres of agricultural land around Chinchilla may be at risk from contamination by chemicals and gases, due to alleged mismanagement of underground burning by Linc Energy.
Landholders wanting more information on the Chinchilla and Hopeland Land Contamination potential class action should go here.
EDO’s view on mining rehabilitation reforms
The Queensland Government’s responsibility for the environmental harm caused by Linc Energy, following the successful disclaimer of its Environmental Authority, provides further weight to introducing regulatory processes that can protect the taxpayer from footing the bill for potentially millions of dollars in costs for the environmental clean-up of resources sites. The Queensland Government is currently undertaking Mining Rehabilitation Reforms, to improve rehabilitation and financial assurance outcomes in the resources sector.
EDO Qld supports the Government’s efforts to introduce much needed reforms shifting responsibility back onto the resources sector to pay for the clean-up and rehabilitation of mines sites for damage caused during mining operations. However, the reforms need to go further. Strict milestones for rehabilitation need to be enforceable and all final land forms need to be rehabilitated by the operator. Further, the case of Linc Energy demonstrates clearly that all high risk activities, including not only all resource activities but also refineries like Queensland Nickel, should be subject to financial assurance requirements. This will help prevent the need for significant and complex legal actions to enforce legislation and to protect the state from footing the bill to clean up after failed operators.