Linc Energy (in liquidation) : Longley v Chief Executive, DEHP

On 13 April 2017, the Supreme Court handed down judgment in the matter of Linc Energy (in liq); Longley v Chief Executive, Department of Environment and Heritage Protection [2017] QSC 53.  This is an important decision which significantly broadens the application of the ‘roll-back’ provisions in the Corporations Act 2001 (Cth), which allow State laws to operate where there would otherwise be an inconsistency for the purposes of s 109 of the Constitution.

The proceedings arose out of environmental damage at the site of Linc’s underground coal gasification (‘UCG’) plant near Chinchilla. The chief executive had issued an environmental protection order (‘EPO’) under the Environmental Protection Act 1994 (Qld) (‘EP Act’), imposing certain obligations on Linc relating to rehabilitation of the land.

Linc’s creditors subsequently resolved that the company be wound up, and liquidators were appointed.

In the course of winding up Linc, the liquidators disclaimed the Chinchilla site and associated equipment under s 568 of the Corporations Act 2001 (Cth). That provision allows a liquidator to disclaim certain property of the company being wound up, including land burdened with onerous covenants or property that may give rise to a liability to pay money or some other onerous obligation. Under s 568D, a disclaimer terminates the company’s rights, interest, liabilities and property in the disclaimer property.

The liquidators also disclaimed the licences and authorities which authorised the UCG activities, being Linc’s mineral development licence under the Mineral Resources Act 1989 (Qld), petroleum facility licence under the Petroleum and Gas (Production and Safety) Act 2004 (Qld) and environmental authorities under the EP Act.

The liquidators applied to the Supreme Court under s 511 of the Corporations Act, which gives the court power to determine any question arising in the winding up of a company. They sought a direction that they would be justified in not causing Linc to comply with the EPO.

The liquidators’ position was that as a result of s 568D of the Corporations Act, the effect of the disclaimer was to release Linc and the liquidators from the obligation to comply with the EPO.

The liquidators’ argument involved a constitutional issue, being an alleged inconsistency under s 109 of the Constitution between the Corporations Act provisions and the EP Act provisions.  On the liquidators’ argument, the Corporations Act provisions had the effect of releasing Linc and the liquidators from any obligation to comply with the EPO, creating an inconsistency with the EP Act which required compliance with the EPO.

The Attorney-General intervened in the proceedings to make submissions on the constitutional issue. The Solicitor-General appeared on behalf of the Attorney-General.  Felicity Nagorcka of Crown Law and Jennifer Hewson from the private bar appeared as junior counsel, and James Potter of Crown Law instructed.

The Attorney-General submitted that any inconsistency was resolved in favour of the EP Act provisions, by s 5G(11) of the Corporations Act. When it applies, s 5G(11) means that the Corporations Act does not operate in a State to the extent necessary to ensure no inconsistency arises with a State law. Critically, s 5G(11) applies where a State law was enacted prior to the commencement of the Corporations Act (on 15 July 2001) and, at that time, would have prevailed over the Corporations Law of the relevant State. Section 5G(11) applied in this instance as the EP Act provisions concerned were enacted prior to 15 July 2001, and s 9 of the Corporations (Ancillary Provisions) Act 2001 (Qld) has the effect that inconsistent State laws which existed prior to 15 July 2001 are all taken to have prevailed over the Corporations Law.

Justice Jackson agreed, and refused to give the direction sought by the liquidators. Instead, his Honour made an order directing the liquidators that they were not justified in causing Linc not to comply with the EPO.

His Honour held that the ultimate purpose and effect of s 9 of the Corporations (Ancillary Provisions) Act was to protect State laws which would have been inconsistent with the Corporations Law from direct inconsistency with the Corporations Act under s 109 of the Constitution.

Therefore, although there was a direct inconsistency between the EP Act provisions and ss 568 and 568D of the Corporations Act, s 5G of the Corporations Act meant that the inconsistent Corporations Act provisions did not operate in Queensland. In doing so, his Honour held that the decision of the Victorian Court of Appeal in Loo v DPP (2005) 12 VR 665 was plainly wrong, as it failed to consider the effect of Victoria’s equivalent of s 9.

His Honour also rejected the reasoning of Barrett J of the NSW Supreme Court in HIH v Building Insurers’ Guarantee Corporation (2003) 202 ALR 610, which had held that s 5G(11) cannot operate to disapply the principal insolvency provisions of the Corporations Act in a State as those provisions did not operate in any particular State.

The practical result of Jackson J’s decision was that the obligations under the EPO had not been terminated and the company was required to comply with it.

The decision in Linc suggests that s 5G(11) (and s 5F) of the Corporations Act have much wider application than previously thought.

The liquidators have recently appealed against the decision to the Court of Appeal.