Australian judicial approval of mining legislation designed to prevent arbitration: alternative legal avenues and wider implications

On 13 October 2021, the High Court of Australia handed down a pair of unanimous judgments in Palmer v Western Australia [2021] HCA 31 and Mineralogy Pty Ltd v Western Australia [2021] HCA 30, rejecting the challenges brought by Clive Palmer and his company Mineralogy against emergency legislation adopted by Western Australia (WA) that had halted Mr Palmer’s A$30 billion arbitration against the WA government.

This is the latest instalment in a protracted battle between Mr Palmer and the WA government over the Balmoral South iron ore mine in the Pilbara region of northwest Australia. In 2002, the WA government and Mr Palmer (and some of his companies) entered into a state agreement, known as the Iron Ore Processing (Mineralogy Pty Ltd) Agreement (the State Agreement), which formed the framework of Mineralogy’s mining rights in WA. In 2012, the WA government refused to assess the Balmoral South iron ore mine proposal and later imposed 46 conditions on it going ahead. Mr Palmer and Mineralogy were granted two favourable arbitration decisions in 2014 and 2018, which respectively declared that the Balmoral South proposal fell within the scope of the State Agreement and that Minerology were permitted to pursue damages claimed against the WA government. Mineralogy launched a third arbitration in July 2020 in which it reportedly claimed A$30 billion in damages resulting from the WA government’s failure to approve the Balmoral South proposal.

In response, the WA government rushed through emergency legislation in August 2020 in the form of the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act (the WA Emergency Legislation), amending the State Agreement to extinguish any State liability in relation to the mining proposals and remove Mineralogy’s right to pursue claims. Specifically, the WA Emergency Legislation declared that:

1. The Balmoral South proposals had no “contractual or other legal effect under the [State] Agreement or otherwise” (see Article 9(1)), thereby overruling the 2014 arbitral award.
2. No document provided to the State before commencement of the WA Emergency Legislation would qualify as proposals for the purposes of the State Agreement (see Article 9(2)). Article 10(4) goes further stating that the 2014 arbitral award “is of no effect and is taken never to have had any effect”, despite the State paying Minerology’s costs in the arbitration (see para 23 of [2021] HCA 30).
3. Any arbitration in progress, or otherwise not completed, immediately before commencement of the WA Emergency Legislation is terminated (see Article 10(1))
4. The arbitration agreement between the parties is “not valid, and is taken never to have been valid” (see Article 10(7)).

In relation to the challenges brought by Mr Palmer and Mineralogy against this legislation, the High Court determined in favour of the State, holding that the WA Emergency Legislation was valid and operative. This was because the sections of the WA Emergency Legislation (as set out above) went “no further than to ascribe new legal consequences to past events and thereby to alter substantive legal rights” (see para 84 of [2021] HCA 30).

What other legal avenues can Clive Palmer and Mineralogy pursue now? 

WA Attorney-General John Quigley stated that Mr Palmer’s claim was “dead as a doormat” and described the High Court decision as a “massive win” for Western Australians.

Mineralogy and Palmer have several other related court cases on foot, including a consumer law claim against WA launched in the Federal Court shortly after the WA Emergency Legislation was introduced, seeking damages for breach of the State Agreement. These proceedings had been adjourned, pending the High Court's judgment, but presumably may now resume. While the High Court did not consider the validity of provisions under the WA Emergency Legislation which were directly related to Mr Palmer’s other claims, its finding in favour of the State for some of the WA Emergency Legislation provisions may still undermine the basis for these other claims.

Most relevantly, given the extraordinary provisions of the WA Emergency Legislation, Mr Palmer and Minerology may decide to initiate investment treaty arbitration proceedings against Australia under its free trade agreement (FTA) with Singapore. Last year, Mineralogy’s Singaporean parent company, Zeph Investments, sent a request to Australia for consultations under the FTA. In December 2020, federal budget papers revealed that taxpayers could ultimately be on the hook for compensation due to a “prospective investor-state claim against Australia” arising from an FTA with Singapore. The mid-year economic and fiscal update stated that Australia had received requests for consultation in relation to a dispute pertaining to the WA Emergency Legislation. It does not set out the terms of the request to Australia, but the papers note that consultations “are a pre-condition to the formal commencement of investor-state dispute settlement proceedings”.

Implications for other mining companies with interests in Australia 

State agreements such as that between Mineralogy and WA are common in the Australian mining industry. They were introduced to provide legal certainty to businesses as they set out a framework for mining approvals and payments, and are incorporated via an act of parliament.

The WA Emergency Legislation was unprecedented and designed to avoid significant compensation claims, such as that launched by Mr Palmer. WA Premier Mark McGowan said that, had Mr Palmer's claims for damages been upheld in the High Court, it would have “left our state bankrupt” and that “in extreme circumstances, you take extreme measures” as Mr Palmer’s A$30 billion claim was approximately equivalent to WA’s State budget. Mr McGowan said that he made no apology for the WA Emergency Legislation, considering Mr Palmer’s claim could have cost A$12,000 per individual WA taxpayer. 

Mr Palmer claimed that the WA parliament did not follow the proper amendment process outlined in the State Agreement. The High Court determined that the process in the State Agreement did not apply to parliament and, as such, parliament could unilaterally amend the State Agreement.

With the High Court’s blessing of WA’s unilateral amendments of a party’s substantive legal rights, this suggests that, going forward, Australian State parliaments could change the provisions of any state agreement on their own terms. However, given that Mr Palmer’s claim could have crippled WA’s finances, the WA Emergency Legislation and High Court decisions could be limited to the facts of this case.

Mining entities with interests in Australia should consider whether their investments have been structured so that they can, if necessary, consider resorting to investor-state protections if unilateral action is taken by State parliaments to undermine their investments.