Australia: Linc Energy convicted of causing serious environmental harm, but avoids liability under EPO

On 9 April 2018 Linc Energy Ltd (in liquidation) was convicted of causing serious environmental harm at its pilot underground coal gasification facility near Chinchilla, Queensland.

Administrators were appointed to the company on 15 April 2016. On 23 May they were appointed liquidators after creditors resolved that the company be wound up.

The liquidators did not defend the charges brought against the company by the Department of Environment and Heritage Protection (now the Department of Environment and Science (DES)), consequently the conviction is unsurprising. The DES is now expected to pursue a number of executive officers (as defined in the Environmental Protection Act 1994 (EPA)) for offences under section 493 of the EPA (executive officer liability provisions).

Of more interest than the uncontested conviction is the liquidators' successful disclaimer of property under section 568 of the Corporations Act 2011 (Cth)(CA). On 9 March 2018, the Queensland Court of Appeal found that this had the effect of terminating the company's liability to comply with an Environmental Protection Order (EPO) issued to the Company on 13 May 2016 by the DES.1

While this is a decision of the Queensland Court of Appeal, the decision will be of interest to liquidators operating in various Australian jurisdictions where environmental laws allow regulators (through various means) to require works to be done to remediate contamination or to undertake other measures in connection with suspected contamination.

The DES is seeking leave to appeal to the High Court.

THE LINC PLANT AND THE EPO

Linc originally commenced a pilot underground coal gasification project with Queensland State Government approval (and originally, participation), on a large site near Chinchilla.

The coal gasification process involves igniting coal in what are called underground gasifiers and converting the gas into liquid fuel in an aboveground conversion plant. The process involves applying pressure to the gasifiers within certain limits. Linc was alleged to have caused contaminants from the gasifiers to spread beyond the gasifiers in ways not authorised by the site's Environmental Authorities issued under the EPA.

Linc held a number of mining and petroleum tenements in respect of the site under the Mineral Resources Act 1989 (Qld) and the Petroleum and Gas (Production and Safety) Act 2004 (Qld). These included a Mineral Development Licence (MDL) and Petroleum Facility Licence (PFL). Linc also held environmental authorities issued under the EPA associated with those resource tenures.

The EPO issued by the then Department of Environment and Heritage Protection (now DES) to Linc required it to comply with the general environmental duty under section 319 of the EPA. Section 319 requires that all reasonable and practicable measures be taken in connection with an activity to prevent or minimise risk of environmental harm.

Specifically, the EPO required certain things to be done including sampling and monitoring of gas and groundwater and maintenance of certain infrastructure which might be required for future remediation. The EPO did not specifically require remediation but the possibility of a further EPO requiring remediation was alluded to by the DES during the proceedings.

On 30 June 2016, the liquidators gave notice, disclaiming the land on which the pilot plant was being conducted, the MDL and the PFL and the Environmental Authorities Linc held for the site. The liquidators then sought directions under section 511 of the CA to the effect that, having so disclaimed, they would be justified in not causing Linc to comply with the EPO.

THE PRIMARY DECISION

The liquidators sought a judicial direction that they were justified in not causing Linc to comply with the EPO, or any other environmental protections orders that might be issued. The Chief Executive of DES was the respondent.

Before the primary judge (Jackson. J), the Chief Executive conceded that the liquidators had validly disclaimed the land (including equipment) and the MDL. The PFL had by this time expired and was no longer relevant. The Chief Executive contended that the environmental authorities were not property capable of being disclaimed. The primary judge determined that Linc's obligations under the EPO continued. This decision hinged on the application of section 5G of the CA operating to favour the application of the provisions of the EPA in the face of inconsistencies between Commonwealth and State law. Section 5G operates to avoid inconsistencies where they may arise between the CA and State laws.

Specifically, the primary judge held that a direct inconsistency exists between sections 568 and 568D of the CA and sections 319 and 358 of the EPA. Application of sections 568 and 568D of the CA would terminate the obligations of Linc and the liquidators under the EPO, however application of sections 319 and 358 of the EPA would oblige Linc to comply with the EPO (and require the liquidators to make efforts to ensure compliance). The primary judge determined that section 5G(11) applied, which section stipulates that a provision of the Corporations legislation does not apply in a State or Territory to the extent necessary to ensure that no inconsistency arises between the provision of Corporations legislation and the provision of State and Territory laws which would otherwise be inconsistent.

The primary judge held that application of the EPA would be preferred over the CA, and that Linc's compliance with the EPO (and the liquidator's obligation to cause Linc's compliance) remained.

THE APPEAL

The liquidators (appellants) argued on appeal that the acceptance of the disclaimer, which was pursuant to sections 568 and 568D of the CA, meant that section 568 should operate accordingly, and that no consideration of section 5G was necessary.

In the event that it was necessary to consider section 5G, the appellants relied on the considerations of Barrett J in HIH Casualty and General Insurance Ltd (in liq) v Building Insurers' Guarantee Corporation (2003) 202 ALR 610 (HIH). Barrett J considered that section 5G(11) could not be applied because of the interpretation of the term 'in a State or Territory' which suggests that the exclusion should be applied only where the implementation of the CA provisions takes on a character specific to a State or Territory.

Before the Court of Appeal, the respondents (DEHP, now DES), attempted to rely on section 5G(8) of the CA, which states that the provisions of Chapter 5 of the CA, which incorporates sections 568 and 568D, do not apply to the extent to which a winding up is carried out in accordance with a provision of a law of a State or Territory. The appellant countered that the relevant State law, being the EPA, is not a law providing for winding up, and is not a law under which the winding up of Linc was being carried out.

The following issues were considered by the court:

  1. The relevance of the stated ground of the EPO;
  2. Whether Linc's obligation to comply with the EPO should be characterised as a liability in respect of disclaimed property; and
  3. Whether section 5G of the CA could be applied to preference the application of the EPA over the CA.

THE RELEVANCE OF THE STATED GROUND OF THE EPO

The only stated ground of the EPO was to secure compliance by Linc with the general environmental duty. The EPO set out the facts and circumstances for the EPO, and outlined the obligations imposed on Linc by the EPO. Each requirement of the EPO required Linc to be on the site. Further, the EPO's stated purpose was to oblige Linc to comply with the general environmental duty, which duty is discharged only in the course of carrying out an activity. The EPO did not oblige Linc to carry on any relevant activity. The subject activity had ceased, and the State had taken control of the site.

WHETHER LINC'S OBLIGATION TO COMPLY WITH THE EPO SHOULD BE CHARACTERISED AS A LIABILITY IN RESPECT OF DISCLAIMED PROPERTY

That the land, equipment and MDL were disclaimed was not in contention. For clarity, section 568 of the CA gives a liquidator the ability to disclaim property. Section 568(1)(d) provides that a liquidator may at any time, on the company's behalf, disclaim property of the company that consists of property that may give rise to a liability to pay money or some other onerous obligation. For the purposes of the CA, property is defined as any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action. Section 568D provides that a disclaimer is taken to have terminated, from the day that it takes effect, the company's rights, interests, liabilities and property in or in respect of the disclaimer property, but does not affect any other person's rights or liabilities except so far as necessary in order to release the company and its property from liability.

A disclaimer terminates those liabilities which are 'in respect of' the disclaimer property. The respondents argued that the liabilities imposed by the EPO were independent of property owned by Linc. On appeal, it was determined that the relevant question was whether the requirements of the EPO in question imposed liability in respect of disclaimed property. By virtue of the fact that the EPO was issued specifically in respect of activities engaged in by Linc in accordance with the MDL (and the now irrelevant PFL), and as the land and MDL are accepted as having been disclaimed, Linc no longer had authority or ability to engage in the activities to which the EPO applied. The disclaimer, having been accepted by the Chief Executive, terminated Linc's rights and obligations to carry out activity on the land, rendering them incapable of discharging the general environmental duty, which requires the carrying out of activity.

WHETHER SECTION 5G OF THE CA COULD BE APPLIED TO PREFERENCE THE APPLICATION OF THE EPA OVER THE CA

In respect of the arguments related to section 5G of the CA it was found that the acceptance of the validity of the appellants disclaimer in accordance with section 568, affecting Linc's rights and interest in the property, necessarily gives effect to section 568D which affects Linc's liabilities in respect of the property. To give effect to section 568 but to disapply section 568D would mean that Linc would have no right or interest in the disclaimed property, but would still have liabilities with respect to the disclaimed property in relation to the EPO. The court held that this could not be an outcome intended by the Commonwealth Parliament in relation to the application of section 5G. In this respect the primary judge was found to have erred in failing to recognise the impact of the respondents' admission of the validity of the disclaimer. The court agreed with the appellant's arguments in respect of section 5G(8)

Having determined that section 5G was not applicable, the only question remaining for the court to determine was whether the requirements of the EPO imposed liabilities in respect of disclaimed property. As this was found to be the case, the court could only conclude that those liabilities had been terminated.

IMPLICATIONS FOR LIQUIDATORS

This case provides useful guidance for liquidators in determining whether obligations under an EPO (and possibly similar regulatory instruments in other jurisdictions), amount to liabilities 'in respect of' validly disclaimed property.

The outcome of the appeal confirms that in determining their obligations under a previously existing EPO, liquidators may have regard to the subject matter of the EPO and the relationship between the stated grounds of the EPO and any disclaimed property.

Subject to the outcome of the High Court appeal, where validly disclaimed property is the subject of the EPO, specifically where relinquishing rights to licences or authorities disables the company in liquidation from carrying out the activities which are the subject of the EPO on land the subject of the EPO, the company's obligations to comply with the EPO are terminated with the disclaimer.

This is the case unless an EPO specifically requires the company to continue to carry out the activities prescribed under the licences or other authorities or tenures, in a circumstance where those licences, authorities or tenures are not validly disclaimed.

Footnote

1Longley and Ors v Chief Executive, Department of Environment and Heritage Protection and anor 2018 (QCA 32).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Corrs Chambers Westgarth
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Corrs Chambers Westgarth
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions