Tenure and project approvals are fundamental cornerstones of all resources projects. Without both, a project cannot proceed to development. A recent Federal Court matter (Adani- Carmichael) concerning the validity of a Commonwealth environmental approval has highlighted an existing risk to such approvals of which project proponents, and investors, should be aware.

In Australia, at the Commonwealth level, the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) is often triggered by a significant resource project. If the project is determined to be a 'controlled action' under the EPBC Act, the project must be approved by the Minister before it can proceed.

Mining project approval timeframes have continued to lengthen over recent years. In some cases, and despite the time taken to review the application, questions may be raised as to whether proper assessment procedure has been followed by the Minister. Even where proper procedure has been followed, further delays can be experienced when the Courts are asked to confirm whether this is the case.

This Alert examines some recent cases, discusses the proposed  legislative response and makes some recommendations as to how proponents may ensure the validity of their approvals.

The assessment and approval decision process for a project's approvals lies largely in the hands of the regulator, outside the proponent's control. In the case of the EPBC Act, the Department of Environment is responsible for the assessment process. This can expose the project's approval to the risk of legal challenge for invalidity where the assessment process set out by the governing law (in this case the EPBC Act) is not strictly followed by the decision-maker.

However, there are certain things you can do to ensure the validity of your approval. These steps are set out further below in this Alert.

To expand on this susceptibility of mining and other projects to challenges, we note two recent instances where mining project EPBC Act approvals have been successfully challenged and set aside, resulting in delays to project schedules and other adverse impacts. We also examine another project (Maules Creek) where the EPBC Act approval was unsuccessfully challenged, on the same grounds, causing significant delays and other adverse impacts to that project.

Tarkine

The case of Tarkine National Coalition Inc v Minister for Sustainability, Environment, Water, Population and Communities [2013] FCA 694 (Tarkine) concerned an application by Tarkine National Coalition Inc (TNC) (a community conservation organisation) for judicial review of the Minister's decision to approve a proposed action by Shree Minerals Ltd to develop and operate a mine in northwest Tasmania.

The ground on which TNC was successful was a failure by the Minister to have regard to the mandatory consideration in s. 139(2) of the EPBC Act. That is, the Minister's obligation to have regard to any approved conservation advice for the particular listed threatened species when considering whether or not to approve or refuse the taking of the proposed action.

The listed threatened species under consideration by the Minister in the Tarkine case was the Tasmanian devil.

The Court held that the failure by the Minister to actually review the approved conservation advice for the Tasmanian devil meant that the decision to grant the approval was invalid.

The Minister shortly thereafter reviewed the relevant approved conservation advice and granted the mine's EPBC Act approval. However, the challenge process resulted in project delays.

Adani's Carmichael Mine

In a seemingly fateful repeat of Tarkine, Indian energy group Adani recently had its EPBC Act approval for the proposed Carmichael Coal Mine in Central Queensland's Galilee Basin set aside in the Federal Court, pursuant to a consent order.

The legal challenge to the project's approval (granted in July 2014) was brought by the Mackay Conservation Group in January 2015, on a number of grounds. Ultimately, the parties agreed to set aside the approval decision due to the apparent failure by the Minister to have regard to conservation advices for two federally-listed vulnerable species in the project area, the Yakka Skink and Ornamental Snake. This was despite the Minister's approval including conditions in relation to those two species.

Maules Creek

The Northern Inland Council for the Environment (NICE) brought an action on the basis of the Tarkine precedent to overturn the EPBC Act approval of the Maules Creek coal mine. The approval was granted by the Minister in February 2013. Court proceedings commenced in July 2013 and the court dismissed the claim in December 2013. Tarkine was not followed for technical reasons. Whilst a "win" for the coal miner (Whitehaven Coal) the six month delay cost Whitehaven tens of millions of dollars in "take or pay" liabilities. In addition, despite an order to pay Whitehaven's legal costs, NICE failed to do so. In some cases, NGOs may be impecunious yet are not automatically required to provide security for costs.

Government's previous attempt to cure

The Federal Government attempted unsuccessfully to cure the implications of Tarkine by introducing the Environment Legislation Amendment Bill 2013 to the House of Representatives on 14 November 2013.

The Bill, in its proposed form, included a validation of any decisions and instruments for which the Minister is required to have regard under the EPBC Act to any relevant approved conservation advice. The amendments were to apply retrospectively and prospectively, to provide certainty for past and future decisions and instruments made or entered into by the Minister.

The rationale for the Bill was that if the administrative practice of the Department of Environment over many years was as per the Tarkine case (and it seems, the Adani case) then the validity of all EPBC Act approval decisions involving consideration of approved conservation advices may be in question. This is of major concern to investors who have invested billions of dollars over many years in projects with EPBC Act approvals. It is also a value depressant for a party seeking to sell a project if the prospective purchaser learns of this potential flaw in a key project approval.

The Bill was initially approved (with amendment so that it only applied retrospectively to decisions made prior to 31 December 2013) by the House of Representatives and ultimately passed by both Houses of Parliament but notably without the amendment which dealt with the implications of Tarkine. This was as a result of the Greens Party successfully proposing an amendment to remove that amendment.

The failure to pass the Bill in its original form means there remains a risk of invalidity for many previous (and future) EPBC Act decisions, like Adani's Carmichael mine, potentially exposing projects to the risk of legal challenge.

Government's current proposal 

The Government's current proposal is to remove section 487 from the EPBC Act. Section 487 is the provision that expands the list of people with standing to bring proceedings that challenge approvals under the EPBC Act to individuals and organisations who have engaged in activities for the or conservation of, or research into, the environment. As a result, only those persons whose interests are adversely affected by a decision would have the right to bring proceedings that challenge approvals under the EPBC Act.

It is not clear whether such an amendment will pass the Senate.

State Planning Approvals - also susceptible to challenge 

In Australia, most minerals are owned by the State governments and mining projects are primarily regulated by the State planning legislation. This alert concerns the Commonwealth EPBC Act. State-level approvals are also subject to legal challenge - recent challenges at the NSW level include:

  • Rio Tinto - Warkworth coal mine;
  • Whitehaven Coal - Maules Creek coal mine; and
  • Shenhua - Watermark coal mine.

Rio Tinto lost the Warkworth case. The Maules Creek case was discontinued by consent - but the miner had to cease land clearing and incurred delays in getting a substitute approval. The Shenhua case remains before the court. It concerns the displacement of Koalas in the project area.

Parties must remain extremely vigilant at the State level.

Recommendations 

This risk to project approval decisions under the EPBC Act is becoming more apparent. The government has already flagged its intention to seek amendments to the standing provisions in section 487 of the EPBC Act to reduce opportunities to challenge EPBC Act approval decisions. The message for project developers - as well as potential purchasers of "approved" mining projects - is the importance of ensuring all possible steps are taken to ensure the validity of the EPBC approval.

We recommend proponents and purchasers of a mining project seek to:

  • ensure environmental assessment of the project contemplates approved conservation advices and monitor, to the extent possible, the Department's consideration of such advices;
  • obtain and review a copy of the project approval;
  • for a purchaser, obtain from the vendor a copy of the timeline of the project approvals process;
  • for a proponent, request a statement of reasons for the decision by the Minister and review and identify any weaknesses or vulnerabilities as soon as possible; and
  • from day one, assess the project's social licence to operate and consider its challenge risk profile.