In brief - Mining sector investors and financiers should review their existing agreements in light of amendments
The Queensland Government's amendments to the Environmental Protection Act 1994 (Qld)
mean that "related persons" of a mining company which cannot meet its environmental obligations can be held accountable. Those who fall under the "related persons" test should consider the risks and impact of these changes.
Queensland Nickel failure impetus for new chain of responsibility laws
The Queensland Government is currently faced with the challenge of meeting Queensland Nickel's rehabilitation costs, whilst dealing with a budget deficit. The failed mining venture has left a gaping hole in North Queensland's economy. To address this, the Palaszczuk Government introduced new laws last year that significantly modify the obligations of major stakeholders in the mining industry as their focus now shifts to keeping public reserves away from poorly managed mining companies. The amendments to the Environmental Protection Act establish a "chain of responsibility" between companies that operate mining sites and their "related persons". If a mining company cannot meet its environmental obligations, its related persons can be held accountable in their place.
Related persons can be issued with an Environmental Protection Order
A related person of a company can be a holding company, a land owner or other entity that either receives financial benefits from the company or is in a position to influence the company's compliance with environmental laws.
These related persons can now be issued with an Environmental Protection Order (EPO) by the Environmental Protection Agency. The EPO would require them to:
- provide financial assurance by setting aside money as security for their environmental obligations
- ensure compliance, and
- personally make good environmental obligations
A breach of the EPO gives rise to an offence, which carries a large financial penalty of just over $7,500,000 or five years' imprisonment. Disposing of shares in a mining company will not necessarily end a related person's responsibilities and they may still be required to provide financial assurance.
Draft guidelines show related person test is broad, includes subsidiaries, parent companies, related parties, institutional investors and financiers
The recently released draft guidelines clarify how the Government hopes to enforce these new changes, revealing that whilst the test is deliberately broad to capture various corporate structures, it is unlikely to apply to arms-length transactions for fair-market value. Nonetheless, an entity who fails to undertake reasonable steps, yet derives significant financial benefits relative to the company’s activities or rehabilitation costs and officially or unofficially influences that company, remains vulnerable to an expensive environmental clean-up bill.
The guideline effectively allows the Government to pursue the related person with the deepest pockets, culpable at the time of the environmental harm. Consequently, entities most at risk of falling within the "related person" category are subsidiaries, parent companies, related parties, institutional investors and financiers.
This creates obvious risks to investors and financiers who may be inadequately protected by existing agreements which do not contemplate the amendments to the Environmental Protection Act
. These stakeholders may find themselves unwittingly exposed.
Stakeholders should review capital, risk, rights, compliance obligations and due diligence considerations
These new laws are likely to alter key considerations of many participants in the resource sector who must now reconsider and evaluate their existing legal relations and documentation. Related persons will need to ensure that:
- they have sufficient capital to meet financial assurance requirements
- their company's organisational structure reflects their risk
- they understand their compliance obligations
- they are conducting additional and consistent due diligence to ensure that the mining company is actually complying with its environmental obligations, and
- they have rights to monitor and enforce the mining company's compliance with the new legislation
Queensland is the only state or territory to introduce such laws. Investors and financiers and others who fall within the related person test should be aware of the amendments to the Act and seek legal advice to help them navigate these potentially costly developments in the mining sector.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.