This commentary highlights a confluence of 4 events concerning the complicated intersection between insolvency law and environmental regulation, one event being a Senate hearing on 14 February in Canberra.
My previous comments on this are Cleaning up after a failed miner – who pays?
1. Linc Energy; and 2. Redwater – Orphan Wells v Grant Thornton
Events 1 and 2 have been explained, that the Queensland Court of Appeal in Linc Energy, and the Supreme Court of Canada in Orphan Well Association v Grant Thornton Ltd (Redwater Energy), are each determining, essentially, who pays for the remediation of contaminated land after a miner or oil exploration company goes under. The Queensland appeal decision is pending, the Canadian appeal is being heard on 15 February 2018.
The Canadian issue is of legal and political significance in that country with as many as 10 interveners from other provinces, banks, petroleum producers, Greenpeace and the insolvency professional body, all seeking to be heard in the Supreme Court proceedings.
Word here is that whichever way our Queensland Court of Appeal decides – and it has now been reserved for some time – applications for special leave to appeal will be made to the Australian High Court.
3. Annual Review of Insolvency Law Conference
Event 3 is that the Canadian appeal was the subject of a strongly debated session at the Annual Review of Insolvency Law conference held in Vancouver on 9 February 2018, attended by local and international judges, academics, lawyers and insolvency practitioners.
The papers from the conference[1] cover both the insolvency-environmental issues,[2] and Canadian constitutional issues.[3] Australia also has both, necessarily different in law.
One author writes that the Redwater decision being appealed has
“ruffled feathers, pointed fingers, vilified regulators, alienated the receivers, and confused the public…”,
indicative of what can be the tension between insolvency and environmental law.
4. Senate Environment Committee hearing on mining and resources rehabilitation on 14 February 2018
And, event 4, for the moment, is that on 14 February 2018 the Senate Standing Environment Committee is conducting a further public hearing on the rehabilitation of mining and resources projects as it relates to Commonwealth responsibilities. That hearing is in Canberra, and the inquiry has already generated many conflicting submissions, including about Adani Coal.
The Committee’s terms of reference focus on the Commonwealth Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act), examining the cost of outstanding rehabilitation obligations of currently operating projects; the adequacy of existing regulatory, policy and institutional arrangements to ensure adequate and timely rehabilitation; and the adequacy and transparency of financial mechanisms, including assurances, bonds and funds, to ensure that mining and resources projects are rehabilitated without placing a burden on public finances.
They go on to cover the
“effectiveness of existing abandoned mines programs, with regard to repairing environmental damage and safeguarding human health; and international examples of effective rehabilitation policy and practice”.
The Commonwealth Environment Department notes that much environmental and mining regulation is state based, hence the carve out in the terms of reference. Queensland’s “chain of responsibility” changes to its Environmental Protection Act is an example.
The Senate inquiry does not appear to be looking at or contemplating the outcomes that have arisen in Queensland, and Canada, of the financial collapse of insolvent companies leaving behind contaminated land.
Perhaps that is as intended, because a strong view in Canada is that an environmental regulator should have adequate financial protections in place through the licensing and regulation process, and financial bonds, rather than trying to take a priority claim on the limited funds when the company collapses; or indeed, a claim on third parties down the “chain”, as under Queensland law.
Sydco Energy – a policy view
A very recent decision in Canada – Sydco Energy – sums up this policy view:
[86] The current environmental regulatory regime in Alberta (the province where Redwater’s contaminated oil wells remain) allows oil and gas companies to defer the financial consequences of addressing environmental liabilities relating to individual wells as long as their portfolio of assets is able to achieve a positive liability management rating. It is clear that, while this may not have caused difficulties when energy prices were high, in this period of economic downturn in Alberta caused primarily by the substantial and sustained drop in energy prices, the result has been a greatly increased number of abandoned and orphaned wells. There are hard choices to make at the intersection of insolvency law with environmental, pension and employment law, and attempting to balance competing public interest objectives is a difficult task for an insolvency court. The pain of insolvency trickles down to many stakeholders, including unresolved environmental conditions, unfunded or underfunded pension plans, terminated employees, affected trades-people and small businesses, shareholders large and small and even entire communities that may rely on an insolvent industry for their financial welfare.
[87] There are compelling arguments for super priority for many of these stakeholder groups, but … Parliament considered the competing policies and “undoubtedly was concerned that giving environmental claims a super priority would drive away lenders, and deprive highly leverage industries (like the oil and gas industry) of necessary financing”: [Redwater, para 96].
[88] Parliament (and the courts) have tried to delineate the boundary between creditor and regulatory claims in the environmental sphere, but there are still difficult issues that must be determined”.[4]
Whether Australia’s parliaments have made that clear policy decision is not open to debate. They haven’t.
Next
The further events which are now awaited are:
- A decision from the Queensland Court of Appeal in Linc Energy;
- The hearing before the Senate Committee on 14 February 2018; and
- The hearing before the Supreme Court of Canada on 15 February 2018, being 14 February our time.
More comments then.
[1] Annual Review of Insolvency Law 2017, Sarra & Romaine, eds. Thomson Reuters 2018.
[2] Redwater. Why are we still talking about this issue? Sarah Hawco, p 227
[3] How to deal with a fickle friend? Alberta’s Troubles with the Doctrine of Federal Paramountcy, Fenner L Stewart, p 163
[4] Re Sydco Energy Inc 2018 ABQB 75, Romaine J, 31 January 2018
