BY NICK SEDDON

This post introduces a very strange story. It is about the Western Australian government’s legislative attempt to shut down Mr Clive Palmer’s arbitration claims to an estimated $30 billion, an amount that is about equal to the state’s annual budget.

This is the first post that AUSPUBLAW is publishing on this extraordinary episode and provides the background story. Some of this is difficult to uncover because arbitrations are secret.

Western Australian State Agreements

The Government Agreements Act 1979 (WA) provides for individual legislated agreements to be made between the government and entities for mining or similar developmental projects. These are called State Agreements. The agreement legislated for by the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA) (the Agreement Act) is one such agreement between the state and seven companies controlled or directed by Mr Clive Palmer.

The legal status of legislated agreements is sometimes difficult to discern – are they legislation or contracts? There are various categories (see Seddon, Government Contracts: Federal, State and Local, para 3.9). It has been held in Mineralogy Pty Ltd v Western Australia [2005] WASCA 69 at [13] that the Agreement legislated for in the Agreement Act is contractual: “The Agreement is not to be interpreted like a statute”. The original Agreement appears in Schedule 1 to the Agreement Act, and a variation appears in Schedule 2 (this Agreement, as varied, will be referred to in this post as the 2002 Agreement). Under s 4 of the Agreement Act, the 2002 Agreement is ratified and its implementation is authorised.

These State Agreements have, according to the parliamentary debates, been controversial over the years. This story shows why. It is quite possible to implement these types of projects through non-contractual arrangements in which case the appropriate law would be administrative law. Of course no damages claim could then be made.

The 2012 proposal

Under State Agreements it is possible for the non-government party to submit proposals for new projects during the term of the Agreement. In such cases it is usual to have preliminary discussions with the relevant government parties to work out the details of a new project before a formal submission is made. In 2012, Mineralogy Pty Ltd and International Minerals Pty Ltd, without the usual pre-submission discussions, submitted a proposal for the Balmoral South Iron Ore Project (BSIOP). The events that followed were the basis for the arbitral claims.

The relevant decisions were:

  • On 4 September 2012 Premier Colin Barnett, who was also the responsible Minister, rejected Mineralogy and International Minerals’ first proposal to develop the BSIOP deposits. The proposal was, according to Premier McGowan in the recent parliamentary debates, “flawed and without appropriate detail” (Legislative Assembly debates, 12 August 2020, p 4786). Minister Barnett considered that it was not a proper proposal under the terms of the Agreement and therefore he did not consider the proposal. This decision was characterised in the first arbitration (see below) as a failure to give a decision within the two month time limit referred to in cl 7(2) of the 2002 Agreement and was therefore a breach of the Agreement. This gave rise to the first damages claim.
  • After the first arbitration, a subsequent response of the Minister on 22 July 2014 directed modification of the first proposal and specified 46 conditions precedent to the proposal. This was the basis for the second damages claim on the ground that the 46 conditions were so unreasonable that they amounted to a second breach of the 2002 Agreement. This action by the Minister was regarded by the arbitrator as an admission that the original proposal was valid. So the first breach (treating the first proposal as invalid) lasted from Sept 2012 to July 2014. The second damages claim runs from July 2014.
  • A second proposal was submitted and again rejected by the Minister on or about 22 August 2013. It is not clear whether this rejection has been the subject of arbitration.

The arbitrations

The first arbitration related to the Minister’s treatment of the first proposal as invalid. It was conducted by Michael McHugh QC, the former High Court judge. It is possible to glean from the parliamentary debates and from litigation (Western Australia v Mineralogy Pty Ltd [2020] WASC 58) that Mr McHugh made an award on 20 May 2014 in favour of the applicants (i.e. Mineralogy and International Minerals) on the basis of breach of the 2002 Agreement (the 2014 Award). Damages were not assessed. This was not appealed despite advice from State Solicitor Robert Mitchell SC to appeal (see letter dated 13 August 2020 from State Solicitor Nicholas Egan – Legislative Assembly Tabled Paper 3566).

There was then a long gap where the applicants did not take action to pursue their rights. There was disagreement between the parties as to the effect of the 2014 Award. By 2017 the state considered that it had lapsed. This precipitated a second arbitration in which Mr McHugh was asked to determine whether claims for damages could be assessed having regard to the delay and whether damages could be assessed for the alleged breach consisting of imposing 46 allegedly unreasonable conditions on the proponents. Mr McHugh handed down a second award (the 2019 Award) in which he held that the proponents had not engaged in inordinate and inexcusable delay and that damages for the breaches could be assessed.

The state sought to challenge the 2019 Award in the Supreme Court (Western Australia v Mineralogy Pty Ltd [2020] WASC 58). One of the issues was whether the repealed Commercial Arbitration Act 1985 (WA) or the current Commercial Arbitration Act 2012 (WA) applied. The latter includes much more restricted appeal grounds than the former. Justice Martin held that the latter applied to the 2019 Award and that the state could not appeal.

The arbitrations were registered in the Supreme Court of Queensland before the passing of the legislation discussed below. It is possible for a Supreme Court of a state to enforce arbitration awards from another state with some exceptions (see Commercial Arbitration Act 2013 (Qld), ss 35 and 36). The Western Australian government is seeking to have the registration in Queensland revoked. The hearing for this is, at the time of writing, 10 September 2020.

On 26 June 2020, Mr McHugh ordered that there be a hearing for the assessment of damages for 15 days commencing 30 November 2020 to enable him to consider his decision and assessment of damages over the Christmas and New Year period, with a view to providing an award in the new year. Presumably this has been put on hold since the passing of the legislation discussed below.

Iron Ore Processing (Mineralogy Pty Ltd) Agreement Amendment Act 2020 (WA) (the ‘Palmer Act’)

This is the Act that purports to prevent any further steps in the proponents’ claims for approximately $30 billion.

This amount is surmised from a paper tabled in Parliament (Legislative Council Paper 4101, 13 August 2020) which is a summary based on a document authored by Mr Palmer which was also tabled (Legislative Assembly Paper 3576, 18 August 2020). Mr Palmer is reported to have said that the $30 billion figure is “bullshit”, despite his outlining the components of the claimed damages which demonstrate that the $30 billion estimate appears to be correct. (This was politely translated as “bull excrement” by Attorney General Quigley in Parliament on 18 August 2020.)

Of course, the possible damages question is complicated and uncertain. It is worth noting the following points:

  • Nothing has been taken away from the proponents apart from choses in action. The resources are still in the ground and can be exploited under the 2002 Agreement. The amending Act makes this clear.
  • The parliamentary debates reveal that Mr Palmer intended to sell the BSIOP to Chinese entities (Legislative Council debates, 13 August 2020, p 4876). This plan has been thwarted by the rejections of the proposals.

The Palmer Act amends the original 2002 Agreement Act by inserting a new Part 3 titled “Provisions relating to Balmoral South Iron Ore Project and certain other matters”.

The Act aims to shut down the arbitrations that have occurred so far and to protect the state from any other possible remedies or legal actions that may be brought. It is a whack-a-mole exercise and reads like one of those endless exemption clauses that lawyers like to draft to cover all possible contingencies, all 66 pages of it. In summary form, the Act provides:

  • There are two key concepts “disputed matter” and “protected matter”.
  • “Disputed matter” is designed to capture all conduct of the state, or a state agent, connected with the BSIOP or connected with the making of the 2002 Agreement, including the various decisions by the Minister.
  • “Protected matter” captures all conduct of the state, or a state agent, broadly connected with the drafting of the 2020 Bill, the enactment of the resulting amending Act (ie, the Palmer Act), and the making of Part 3 subsidiary legislation.
  • There are many definitions that carry out the whack-a-mole technique. For example “liability” runs to 15 sub-paragraphs. “Proceedings” is very widely defined and includes any administrative law review (for the purpose of excluding them) and excludes the rules of natural justice.
  • “Mr Palmer” is defined and includes any executor, administrator or trustee of his estate.
  • Section 8 preserves the 2002 Agreement and, among other things, provides that if any provision of the Palmer Act is invalid then the other parts continue to operate.
  • Section 9 deems the submitted BSIOP proposals to have no legal effect and provides that future proposals may be submitted.
  • Section 10 provides that the arbitrations are terminated and that any awards are void.
  • Section 11 provides that the state has no current or future liability connected with disputed matters and no such proceedings can be brought against the state.
  • Section 12 provides that no appeals or review can be pursued in respect of disputed matters.
  • Section 13 excludes the use of freedom of information or discovery for any documents connected with a disputed matter.
  • Section 14 provides for indemnities in favour of the state from the two companies and Mr Palmer in respect of state loss or liability arising from “non-WA rights”, being rights connected with a disputed matter arising against the state from another jurisdiction, including international jurisdiction.
  • Section 15 provides for a further indemnity for legal costs arising from s 14 proceedings.
  • Section 16 provides that if the Commonwealth incurs loss or liability in connection with a disputed matter then the state can invoke the indemnities and pass the proceeds on to the Commonwealth.
  • Section 17 further protects the state in providing that no money is or can be appropriated to pay the proponents and the state cannot be the subject of execution in connection with a disputed matter.
  • Sections 18-25 then repeat the myriad protections in ss 9-17 in respect of “protected matters”.
  • Section 26 provides that the arbitrator’s fees for arbitrations terminated by the Act must be paid by the state. It also provides that state liability to pay legal costs for proceedings completed before the commencement of the Act are unaffected. Rather strangely, s 26(6) also states: “No applicable provision affects the jurisdiction of a court to grant relief for jurisdictional error.” This is despite the exclusion of administrative law proceedings.
  • Section 27 provides that the specific decisions of the Minister (just in case they somehow escaped the net) made in connection with consideration of the BSIOP proposals gave rise to no liability.
  • Section 28 provides for the state indemnifying a state authority or agent who incurs liability in proceedings connected with a disputed matter.
  • Sections 29-31 then provide for Regulations and Orders. The Orders include the mother of all Henry VIII clauses. “It is the Henry VIII clause of all Henry VIIIs!” according to Attorney General Quigley (Legislative Assembly debates, 12 August, p 4834). If the Minister considers that Part 3 “does not deal adequately or appropriately with a matter or thing” or “does not apply to a matter or thing to which it is appropriate for this Part to apply” or “it is appropriate to make provision for improving the effectiveness of an indemnity” or “it is appropriate for this Part to be otherwise improved … in any other way” then the Minister can recommend to the Governor to make an Order for the change to be made to Part 3 or other legislation, if necessary with retrospective operation.

The Act was introduced into Parliament on 11 August 2020 and, after extensive and fraught debate, passed through to the Royal Assent on 18 August. Not surprisingly, considerable alarm was expressed, particularly in the Legislative Council. Here is one example of the evident disquiet:

This is perhaps the most offensive, repugnant piece of legislation that I have seen. It is offensive to the fundamental principles of our parliamentary democracy because of its delegation of legislation-making powers, its Henry VIII clauses, its interference in an ongoing legal dispute, its interference in and breakdown of the separation of powers and its trampling of someone’s rights to natural justice and procedural fairness. What also makes this legislation so bad and offensive is its undermining of the rule of the law (Aaron Stonehouse, Legislative Council debates, 13 August 2020, p 4944).

One ghost that was evident was the High Court’s complete overruling of the Western Australian Act that was aimed at distributing the proceeds of the very long-running Bell litigation. The Act was invalid as a whole for being inconsistent with Commonwealth tax law under s 109 of the Constitution. No such risk attends this Act, but it nevertheless raises some very difficult questions which will be the subject of further AUSPUBLAW commentary.

Nick Seddon is an honorary professor at the ANU College of Law and counsel in the projects practice at Ashurst.

Suggested citation: Nick Seddon, ‘The Palmer Act’ on AUSPUBLAW (31 August 2020) <https://auspublaw.org/2020/(opens in a new tab)08/the-palmer-act>