Australia – High Court Locks The Gate On Linc Energy Appeal.

What you need to know

 

The High Court has decided not to hear an appeal about the ability of the Linc Energy Limited (Linc Energy) liquidators to disclaim property of the company – this means the liquidators could disclaim that property, including any obligations under the specific environmental protection order (EPO) issued under Queensland's environmental legislation. The current position stands that the disclaimer notice had the effect of avoiding obligations of both the company and its liquidators under the EPO.

 

This leaves the decision of the Queensland Court of Appeal in March 2018 as the answer on the points directly raised by the Linc Energy situation. We explained the Court's reasoning, and its limitations, in our earlier alert.

 

It is important to observe that the Court refused special leave on narrow grounds, because of the particular basis on which the EPO had been issued to Linc Energy. Had the EPO been issued relying on other grounds under the Environmental Protection Act 1994 (Qld) (EPA), however, it appears that special leave to appeal to the High Court might have been granted.

 

So, overall a good outcome for the liquidators of Linc Energy. Continued caution by insolvency professionals dealing with contaminated land in Queensland is needed – there remains some lingering uncertainty about the disclaimer power, which the High Court has not yet finally determined.

 

Why special leave was refused

 

The trial judge in the Queensland Supreme Court held that the legislative backing of the State authority for the EPO issued to Linc Energy liquidators overrode their disclaimer power under the Corporations Act 2001 (Cth) (Corporations Act). The Linc Energy EPO was expressed on its face to be issued to ensure compliance with the "general environmental duty". The trial judge noted, without deciding, that there was an issue as to whether the general environmental duty under the EPA could be used as the basis for issuing an EPO directed to someone who was no longer carrying out an activity. The general environmental duty requires a person not to "carry out an activity that causes, or is likely to cause, environmental harm, unless the person takes all reasonable and practicable measures to prevent or minimise the harm".1

 

The Court of Appeal, overturning the trial decision, made reference in passing to the issue. It noted that once the mining tenement and underlying land had been disclaimed, the ability to carry out any activity for which the EPO had been issued ceased.2

 

The High Court considered that the EPO, relying on the general environmental duty, was itself unlikely to have continued operation once the mining tenement and the land had been disclaimed.

 

At that point the liquidators could not cause Linc Energy to carry out any activity associated with its coal gasification business at the site to which the EPO was directed. The High Court was therefore not prepared to hear and decide arguments about the interaction between the State environmental legislation and the liquidators' powers.

 

Good news for liquidators, but uncertainty remains

 

Comments made by High Court judges in failed special leave applications are not recognised by the Courts as having particular value in understanding the law. That is because the Court weighs up a number of factors in deciding whether to give special leave, not just whether the decision of the Court below was wrong as a matter of law. Comments made by the judges therefore have to be treated with caution. However, there are some important consequences flowing from the rejection of the proposed appeal.

 

The rejection of this application leaves the decision of the Queensland Court of Appeal in March 2018 as the answer on the points directly raised by the specific EPO issued to the liquidators of Linc Energy. We explained the Court's reasoning, and its limitations, in our earlier alert.

 

The conclusions at first instance, and then the Queensland Court of Appeal, turned on the correct interpretation of provisions in the Corporations Act intended to resolve problems of contradiction between State and Commonwealth legislation. Their correct interpretation of critical provision in the Corporations Act, which address any contradiction, however, has been the subject of differing interpretations by Courts in New South Wales and Victoria.

 

A definitive answer over those matters would have wider implications for Australian companies and insolvency law, well beyond the particular EPO issued to Linc Energy. Despite that important issue, the High Court refused to hear the appeal. The judges did not comment on the correctness or otherwise of the Court of Appeal on that point. The judges' concern was that there was a more basic issue for the Linc Energy EPO which meant that key point may not need to be decided. It was an "inappropriate vehicle" to decide important as yet unresolved issues of law.

 

The outcome therefore emphasises that there are unresolved matters in the interaction between insolvency law (and company law more generally) and environmental regulation in Queensland (and potentially other States). Liquidators can rely on the Court of Appeal decision to assume that an EPO, sufficiently related to property which they disclaim, will cease to have effect.

 

However, they can also assume that that position may be challenged by the Department until the High Court resolves the issue definitively.

 

 

For further information, please contact: 

 

David Walter, Partner, Baker McKenzie

david.walter@bakermckenzie.com