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In brief

The case of Longley & Ors v Chief Executive, Department of Environment and Heritage Protection & Anor; Longley & Ors v Chief Executive, Department of Heritage Protection [2018] QCA 32 involved an application for leave to appeal to the Court of Appeal a decision of the Supreme Court.

The Appellants were liquidators of Linc Energy Limited (in liquidation) (Linc) which was subject to an environmental protection order (EPO) issued by the Respondent, the Department of Environment and Heritage Protection, in relation to an underground coal gasification project carried out by Linc on land near Chinchilla.

The Appellants sought to challenge the decision of the Supreme Court, which at first instance found that the Appellants' notice to disclaim the onerous property consisting of the land, infrastructure, environmental authority and resource tenements did not discharge Linc's liabilities under the EPO, and therefore the Appellants would not be justified in causing Linc not to comply with its environmental obligations.

The Court ultimately decided in favour of the Appellants. The Court held that the EPO was a liability in respect of the disclaimed property, and as a result the inconsistency that arose between the relevant provisions under the Environmental Protection Act 1994 (EPA) and the Corporations Act 2001 (Cth) (Corporations Act) is to be resolved in favour of the Corporations Act by section 109 of the Constitution of Australia. Therefore, the disclaimer notice terminated Linc's liabilities under the EPA.

Appellants gave notice disclaiming Linc's interests and liabilities with respect to the property

On 30 June 2016, under section 568 of the Corporations Act, the Appellants disclaimed the land, the mining development licence (MDL), the petroleum facility licence (PFL) and the environmental authority which were held by Linc for the purposes of its underground coal gasification project on the Chinchilla land.

Prior to the appointment of the Appellants as liquidators, Linc was issued with an EPO by the Respondent, which broadly required that Linc comply with its general environmental duty under the EPA. Specifically, Linc was required to, among other things, undertake activities such as sampling, monitoring and reporting to the Respondent about gas and groundwater, and was instructed not to dispose of equipment on the property so as to ensure Linc's compliance with the EPO.

The operation of the EPO, being a liability in respect of the disclaimed property, gave rise to an inconsistency between the EPA and the Corporations Act.

Court did not consider it necessary to determine whether the environmental authority was property capable of being disclaimed

The Respondent submitted that its admission that the Appellants had validly disclaimed the Chinchilla land and the MDL "went no further than accepting that the Chinchilla land and the MDL were each 'property' for the purposes of s 568 of the Corporations Act 2001 (Cth)" (see [95]).

The Court held that the Respondent could not change its position "by seeking to mis-describe the way in which it had conducted the case" (see [96]).

The Respondent also sought to distinguish the environmental authority as not constituting property capable of being disclaimed because it did not confer "'property rights' but instead a 'freedom from liability' (for carrying out otherwise prohibited activity)" (see [100]). The Court did not address further whether the environmental authority was property capable of being disclaimed.

Court found a clear and immediate connection between the disclaimed property and the liabilities under the EPO

The dominant issue for the Court was whether the EPO imposed liabilities in respect of the disclaimed property.

The Respondents submitted that the EPO imposed liabilities that were independent to any property held by Linc because an EPO could be issued to a related person who is not the owner of the property and therefore the EPO is a "standalone statutory obligation which persists beyond any disclaimer" of property (see [89]).

The Court held that the EPO was "expressly issued with respect to the activities of Linc on [the Chinchilla] site under its MDL (and PFL)" and that by disclaiming the property Linc no longer had authority to engage in those activities (see [104]).

The Court found that even if the liabilities of the EPO were not terminated, Linc was required to carry out activities on the Chinchilla land that was disclaimed. The "purposes and terms" of the EPO, in particular that Linc maintain relevant equipment on the Chinchilla land, created a connection between the liabilities of the EPO and the disclaimed property and performance of that requirement was "impossible" once the property had been disclaimed (see [109]).

The Court qualified its finding to the extent that the EPO was a liability capable of being disclaimed prospectively, therefore the liabilities of an EPO prior to the notice of a disclaimer could not be affected.

Court held that section 5G of the Corporations Act could not disapply the disclaimer provisions of section 568 of the Corporations Act

The Respondent argued that section 5G(8) and section 5G(11) of the Corporations Act operated to limit the application of the disclaimer provisions under section 568 of the Corporations Act to the extent of the inconsistency with the EPA.

The Court rejected the Respondent's submission and held that "the disclaimer provisions do not recognise some limited type of disclaimer". Further, the Court stated as follows (see [113]):


"[the Commonwealth Parliament could not have] intended that by a disclaimer of property, a liquidator could cause a company to lose all of its rights and interests in respect of the property, but remain burdened by a liability in respect of it. That would be an absurd operation of the law which has a long recognised purpose of enabling a company to rid itself of burdensome obligations."

 
The Court referred to the case of HIH Casualty and General Insurance Ltd (in liq) v Building Insurers' Guarantee Corporation [2003] NSWSC 1083; (2003) 202 ALR 610, which dealt with the difficulty of section 5G of the Corporations Act in disapplying the winding up provisions of a corporation in one State or Territory and not another, and held that the Commonwealth provisions cannot have a "differential operation in a certain State or Territory" (see [124]).

Court reversed the decision of the Supreme Court as to costs and held that each party bear their own costs

The Court referred to the principle in Farrow Finance Company Ltd (in Liq) v ANZ Executor & Trustee Co Ltd (1997) 23 ACSR 521, which relevantly stated that where a proceeding involves novel or complex questions of law, the costs of the parties "are to be paid by the liquidator and counted as costs in the liquidation" (see [133]).

However, because of the adversarial nature of the proceeding and the onerous costs that would likely fall on the creditors, the Court found that it would be in the interests of justice that the Respondent pay its own costs. The Court therefore reversed the decision of the Supreme Court as to costs and held that each party bear their own costs.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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