Linc Energy: Special leave refused by High Court

In the final instalment of the Linc Energy Case,[1] the High Court has refused to grant the Queensland State Government special leave to appeal a decision of the Queensland Court of Appeal with respect to the liability of liquidators to comply with an environmental protection order (EPO).

Background

The litigation has been ongoing since 2016 and concerns the obligations of the liquidators of Linc Energy Ltd (Linc) to comply with an EPO regarding Linc’s coal gasification plant in Chinchilla, Queensland. This was after the liquidators disclaimed the land and property related to the plant pursuant to section 568(1) of the Corporations Act 2001 (Cth) (Corporations Act) (Disclaimer).

The particular EPO issued by the Queensland Department of Environment and Heritage Protection (DEHP) was narrow in scope and issued expressly to ensure future compliance by Linc with its “general environmental duty” under section 319(1) of the Environmental Protection Act 1994 (Qld) (EP Act).

Supreme Court of Queensland

At first instance, the liquidators argued that the Disclaimer terminated all of Linc’s liabilities (including those of the liquidators as “executive officers”) in respect of the disclaimed property. The State and DEHP argued that due to the paramountcy provisions in section 5G of the Corporations Act, the Disclaimer did not terminate Linc’s liability under the EPO and that the liquidators were consequently liable.

Court of Appeal

The decision at first instance was unanimously overturned by the Queensland Court of Appeal, which found it particularly relevant that the State had admitted the Disclaimer and had taken over control of the property from the liquidators. This effectively made it impossible for them to comply with the EPO. The Court of Appeal held that section 5G(11) of the Corporations Act did not have the effect of dis-applying the operation of the disclaimer provisions and preventing the termination of the liquidators’ liabilities as, by doing so, this would lead to the unsatisfactory circumstance that the liquidators had no interest in the disclaimed property but would nonetheless remain liable to satisfy the EPO.

The DEHP and the State subsequently applied to the High Court for special leave to appeal.

Special Leave Application

Ultimately, the special leave application was refused.

It was expected by many to be granted as it arguably presented the Court with an opportunity to consider the issue of how the conflicting state and federal laws relating to disclaimers and environmental protection orders are to be applied.  However, the High Court refused to grant special leave due to issues faced by the State and the DEHP in establishing the liquidator’s liability under the EPO. This was the first hurdle to be established prior to considering whether section 5G(11) of the Corporations Act could dis-apply the operation of the federal disclaimer provisions in favour of the state environmental protection provisions.

The High Court expressed doubts as to whether there were activities to which the “general environmental duty” under section 319 of the EPA Act attached and against which the EPO could be enforced. Since section 319 of the EP Act only applies to prospective harm and any environmentally-damaging activity had not been conducted by Linc or its liquidators since the State accepted the Disclaimer and took control of the property, the Court viewed this issue as the threshold question which was required to be overcome if special leave was to be granted.

In light of this approach, the High Court considered that the State and DEHP did not have sufficiently strong prospects of overcoming this question and establishing the enforceability of the EPO against the liquidators. The High Court considered that the more significant issues in the case relating to the application of the state and federal legislation would not need to be determined and consequently that the case was not an appropriate vehicle to examine those issues. The liquidators submitted that if those issues were as important as was submitted by the State and DEHP, they were bound to soon come before the Court in a case without the significant threshold question faced in the present case.

Key takeaway

The Court of Appeal decision remains authority as to the liability of liquidators, as “executive officers”, in respect of environmental obligations in circumstances where the property has been disclaimed and that disclaimer has been accepted by the State.

It is without doubt that the question arising from the apparent conflict between the federal disclaimer provisions and the state environmental protection provisions will be tested again in the High Court in the future.

[1] Attorney-General for the State of Queensland; Chief Executive, Department of Environment and Heritage Protection v Longley, Sparks and Ford as Liquidators of Linc Energy Limited (In Liquidation) & Anor [2018] HCA Trans 185.

Authored by:
Susan Forrest, Partner