BY NATALIE BROWN

This is the second post AUSPUBLAW is publishing on the Palmer Act. The first post provides an overview of the legislation and its background.

 On 13 August 2020, the Western Australian Parliament amended the Mineralogy State Agreement (referred to by commentators as the ‘Palmer Act’). The Palmer Act abolishes the rights of particular companies and persons (the rights of Mineralogy Pty Ltd, International Minerals Pty Ltd and Clive Palmer as a director of Mineralogy) to seek damages for an alleged breach of a State Agreement term, namely, the State Development Minister’s (Colin Barnett’s) 2012 failure to approve the Balmoral South Iron Ore Project development proposal (‘Balmoral mine’). Mr Palmer’s statement that the legislation is ‘draconian and disgraceful’ was joined by commentators who have described the Act as ‘an outrageous abuse of power’ that ‘violates fundamental legal principles’. The WA Law Society stated that the new law departs from the ‘rule of law’, which entails that ‘all people whatever their status are subject to the ordinary law of the land. Departure from that principle has the capacity to affect the foundation of our democracy’. While the Act is unusual, it is within the power of the state legislature to acquire property rights including rights to a cause of action without compensation.

There are two legal principles at play in the Clive Palmer drama. On the one hand, the ‘rule of law’, which requires that no person is above the law. On the other, a fundamental legal principle established in McCawley v The King, which requires that our state Parliaments be sovereign. Parliamentary sovereignty means that Acts of a previous state Parliament (here, the Mineralogy State Agreement Act) cannot restrain the present state Parliament’s power to legislate (here, the Palmer Act). Both the rule of law and parliamentary sovereignty are core principles in the Australian system of government. In enacting the Palmer Act, the WA Parliament has made government decision-makers immune to some laws that would normally apply. The Palmer Act is not an executive government decision, it is an Act of Parliament. The interaction between the rule of law and parliamentary sovereignty is complex. The rule of law does not apply to state Parliaments in the same way as it applies to executive decision-makers because state Parliaments can make and unmake laws subject to the constraints of the relevant state constitution and the Commonwealth Constitution. The crux of the issue boils down to three questions: what is the scope of the WA state Parliament’s authority to make laws; can those laws retrospectively remove individual rights; and is a State Agreement a different kind of law – one that might protect Mineralogy’s rights?

How broad are the WA state Parliament’s law-making powers?

The British Parliament conferred broad legislative powers on the colony of Western Australia in 1889 (WA Constitution). The WA Constitution enables the Parliament ‘to make laws for the peace, order, and good Government of the Colony of Western Australia’. This broad legislative power is reiterated in s 2 of the Australia Act 1986. When Australia federated under the Commonwealth Constitution, the colonies became states. The constitutional text does not spell out the states’ legislative power. They have power to make laws about the subjects not given exclusively to the Commonwealth, which include state lands, property, minerals, and mining rights. It is likely the Palmer Act falls within the broad power to make laws for ‘peace, order and good government’, which the courts have consistently interpreted as a broad sovereign power, at least in relation to state property.

Can state laws retrospectively remove rights without compensation?

There is a presumption of statutory interpretation that legislation does not intend to affect rights unless the language indicates Parliament’s clear intention to do so. In the Palmer Act, the state Parliament’s intention is crystal clear. A state Parliament enacting legislation that retrospectively removes existing property rights without compensation is unusual but not without precedent. The High Court has confirmed state Parliaments’ authority to do just that. In 2001, the High Court in Durham Holdings Pty Ltd v State of NSW refused special leave to appeal because an ‘appeal would enjoy no prospects of success’. In that case, the applicant challenged the validity of a NSW law that retrospectively capped compensation payable by the government for the acquisition of coal deposits, reducing the applicants’ claim by around $60 million. In 2015, in the case of Duncan v NSW, the High Court held valid a NSW law that cancelled three specific exploration licences without compensation. The applicants had invested around $9.5 million in the area and one deposit was valued at $587 million. In both cases, the High Court found that the Kable principle did not constrain the state Parliament’s authority to pass legislation retrospectively acquiring property rights without compensation. The Kable principle restrains state Parliaments from passing laws that confer a function on a state court that ‘substantially impairs the court’s institutional integrity by depriving the court of its independence and institutional impartiality’. The High Court has not applied the principle to state laws acquiring property without compensation, including when there is pending litigation. The High Court in HA Bachrach Pty Ltd v Queensland (1998) at [15] stated that matters of inalienable judicial power include the determination of criminal guilt and the trial of actions for breach of contract or civil wrongs. The principle could apply if the Palmer Act interfered with a court’s determination of a breach of contract between two members of the public—but in this case, the Mineralogy Agreement is not a standard contract between private parties. The agreement was authorised by an Act of the WA Parliament, and Mineralogy, by contracting with the state, have taken a ‘sovereign risk’, as explained below.

Commentators have said that ‘“the Castle” principle is at stake’, that is, the government must pay compensation for the acquisition of property on ‘just terms’. On this point, in Durham Holdings at [63] the High Court discussed the Australian electorate’s refusal of a proposal to amend the Commonwealth Constitution to include a provision that required the states to acquire a property on ‘just terms’. The Court said the refusal reinforced Australia’s legal and political arrangements—under the Commonwealth Constitution, it is not necessary to depend on judges to prevent or cure all injustices. It is open to the electors to do so by dismissing the Parliament responsible for creating the unjust law. In a nutshell, the WA Constitution does not limit the state Parliament’s power to enact legislation that acquires property without compensation—the state is not obligated (as the Commonwealth is – see s 51(xxxi) of the Commonwealth Constitution) to pay ‘just terms’ compensation on the acquisition of property, including legal rights in pending litigation.

The WA Parliament has previously legislated to target rights of particular companies in the WA iron ore industry. The present stoush between Premier Mark McGowan and Clive Palmer is reminiscent of the iron ore battle between Lang Hancock and then Premier Charles Court in the 1960s and 1970s. Both men had strong views about the development of the Pilbara iron ore industry. Charles Court wanted the established companies to develop the area to realise his dream of a WA steel industry that companies promised under the existing State Agreements. These aims had bipartisan support in the WA Parliament. In 1971, the WA Parliament passed legislation that amended the Mining Act 1904 (WA), which diminished the rights of Hancock Prospecting Pty Ltd and Wright Prospecting Pty Ltd in the Pilbara. Mr Court said the legislation was necessary to deal with a ‘special situation’ that was ‘dangerous to the best interests of the State’. The new law removed the occupancy rights of the Hancock and Wright companies to temporary reserve areas with rich iron ore deposits, such as the West Angelas, enabling the state to grant those areas to other iron ore companies.

The 1971 Act, designed to stymie Hancock’s pending court action, bears haunting similarities to the Palmer Act. For example, the 1971 law stated that ‘all rights, suits, claims, demands and causes of action whether arising before or after the commencement of this section …. shall be deemed to have been extinguished’ and that actions taken under the section ‘shall not be liable to be challenged, appealed against, reviewed, quashed or called into question by any Court’. Similar to Mr Palmer, Mr Hancock claimed that the separation of powers prevented the government from introducing changes to the law that deprived him of his cause of action. The issue was decided in the case of Nicholas v State of Western Australia [1972] WAR 168, in which the Supreme Court stated that it was ‘unnecessary to say much in rejecting this contention’ because only the relevant Imperial Acts and the Commonwealth Constitution limited the WA Parliament’s powers (the Imperial Acts ceased to have this effect after the passage of the Australia Acts in 1986). The Court’s decision regarding the absolute sovereign power of the state Parliament is open to challenge because the decision was made before Kable was decided. However, that does not mean Hancock’s action would succeed in 2020. The decision would turn on whether the legislation was a permissible alteration of rights and obligations, or an impermissible direction to the court in its exercise of exclusive powers. In my opinion, the decision would stand – rights granted under the Mining Act 1904 were removed by the amending Act. The fact that the new legislation had a dramatic effect on Hancock’s pending litigation would not necessarily constitute an impermissible interference with the Supreme Court’s authority.

The WA Parliament has also passed laws that retrospectively validated rights and potentially unlawful acts of mining proponents. In 1979, the WA Parliament introduced retrospective legislation to validate rights and actions taken under past State Agreements. The 1978 High Court decision of Sankey v Whitlam raised serious doubts about the validity of State Agreement provisions. In WA, the issue came to a head when protestors disrupted work at the Wagerup refinery. In the case of Margetts v Campbell-Foulkes [1979] WASCA 186, the protestors appealed their convictions under the Police Act 1892 (WA) for obstructing an activity carried out pursuant to state law, by arguing that the State Agreement was not a state law. The case exposed the potential deficiency in the State Agreements’ authority to modify other state legislation for the purposes of the Agreement. The WA Government responded by introducing the Government Agreements Act 1979 (WA). The Act retrospectively rectified the potentially invalid executive government actions or illegal proponent actions, carried out under the purported authority of the State Agreements.

A knotty issue for the state government is the Queensland Supreme Court order enforcing the arbitration awards granted to Mineralogy in 2014 and 2019. The Court made the order prior to the enactment of the Palmer Act. The Mineralogy State Agreement allowed for arbitration awards under the Commercial Arbitration Act 1985 (WA) (repealed by the Commercial Arbitration Act 2012 (WA)) but the Queensland Court enforced the award under the Commercial Arbitration Act 2013 (Qld). This was possible because the states have consistent arbitration legislation. The Queensland and WA Acts provide that a domestic arbitration award, irrespective of the state or territory in which it was made, is to be recognised as binding and can be enforced. The conundrum is that the WA Palmer Act cannot affect the Queensland arbitration legislation or restrain the jurisdiction of another state’s court. This raises a difficult legal question: on one hand, we have the order from the Queensland Supreme Court under Queensland legislation, on the other, the authority of the WA Parliament to pass laws that remove rights in relation to state property (the Balmoral mine). So which state law prevails? That issue may not reach the High Court—WA is challenging the order because it was not notified of the proceeding. Palmer has used the Queensland Supreme Court order to launch an action for contempt of court but even if successful this action would not invalidate the Palmer Act.

Are State Agreements special laws?

What is unprecedented about the Palmer Act is that the WA Parliament has not previously legislated to amend a State Agreement unilaterally. Interestingly, the Queensland Parliament has done so. In 1976, the Queensland Supreme Court held valid legislation that increased royalties, even though that was inconsistent with the State Agreement’s terms.

Mining projects can be authorised under WA’s mining legislation—a State Agreement is not necessary. State Agreements are a privilege reserved for large projects with significant investment. The early iron ore State Agreements included benefits like reduced royalties, mining leases that last indefinitely, fuel subsidies, and water rights (among others) in exchange for the promised secondary processing and steel industry. The Mineralogy State Agreement does not include all of those benefits, but it does have an ‘additional development proposals’ clause—which is what this fight is all about. State Agreements allow the developer to submit project proposals directly to the Minister for State Development, bypassing the approval requirements under the mining legislation. State Agreement development proposal clauses significantly circumscribe the Minister’s authority because the Minister cannot refuse a proposal, they can only approve, conditionally approve, or defer their consideration. The current battle would not arise under the mining legislation because the Minister for Mines is not obligated in this way to approve a mining project proposal, nor would Mineralogy have a contract or a right to arbitration.

Contracting with state governments, whether by a standard contract or through a State Agreement, is subject to ‘sovereign risk’. In the State Agreement context, sovereign risk refers to the capacity of the government party to introduce legislation into the Parliament that amends the agreement without negotiating the changes with the other party. WA has a bipartisan sovereign risk policy not to amend State Agreements without negotiating with the proponent party, not because the amendment would be invalid, but to preserve the reputation of the state as a safe place to invest.

More important than sovereign risk, in a practical sense, is that proposing changes to State Agreements is politically hazardous because mining companies and lobby organisations oppose changes to mining laws. Brendan Grylls (the previous Member of Parliament for the Pilbara) proposed amending the older State Agreements that authorise iron ore mining in the Pilbara to increase the rents due on mining leases in line with the current mining legislation. The mining lobby launched a $2 million campaign, which led to him losing his seat in the 2017 election. In the same year, Premier Mark McGowan also faced stiff opposition when he proposed changes to the state’s gold mining royalty contributions from 2.5 to 3.75% (the increase only applied when gold prices exceeded $1200 an ounce). To date, the mining lobby, while prepared to comment on the Palmer Act, have shown no interest in throwing a bun into this bunfight on Mr Palmer’s side.

In conclusion, Mr Palmer may have to accept that entering into a State Agreement with the people of WA to exploit the state’s resources is a privilege, not an unassailable right. He chose to accept a sovereign risk by contracting with a party that can initiate the WA Parliament’s authority to legislate. He finds himself battling a fundamental legal principle: he cannot restrain the WA Parliament’s authority to legislate within its own jurisdiction, even if the legislation retrospectively removes his rights without compensation.

Natalie Brown is a lecturer at UWA Law School.

Suggested citation: Natalie Brown, ‘Clive Palmer takes a sovereign risk challenging the authority of WA Parliament’ on AUSPUBLAW (9 September 2020) <https://auspublaw.org/2020/09/clive-palmer-takes-a-sovereign-risk-challenging-the-authority-of-wa-parliament>