Taxpayers in Western Australia have been left to foot the bill after Jirsch Sutherland, liquidator for the Kimberley Diamond Company Pty Ltd (“KDC”), used a legal loophole to handball expensive mining leases back to the Department of Mines and Petroleum (“DMP”).

Care and maintenance costs for KDC’s Ellendale diamond mine amount to $100,000 (AUD) a month and environmental rehabilitation obligations are estimated to be $40 million (AUD). The DMP has been servicing these costs since KDC went into liquidation.

But earlier this month, the DMP let lapse a 14-day deadline to seek a court order challenging Jirsch Sutherland’s actions.

Legal Loophole

In October Jirsch Sutherland lodged a disclaimer of onerous property with the Australian Investment and Securities Commission, giving notice that KDC disclaimed the following mining leases pursuant to sections 568(1)(a), (c), (d), (e) and (f) of the Corporations Act 2001 (Cth) (“Corporations Act”):

  • Mining lease MO4/372, commencing 23 November 1999 and expiring on 22 November 2020;
  • General purpose lease LO4/0048 commencing 18 February 2005 and expiring on 17 February 2026; and
  • General purpose lease LO4/0026 commencing 1 December 2004 expiring on 30 November 2025.

Jirsch Sutherland’s disclaimer takes effect if an application for an order setting aside the disclaimer is unsuccessful, or if no such application is made.

The DMP’s decision not to pursue legal action means the disclaimer takes effect, and the burden associated with KDC’s mining leases shifts to the DMP, and ultimately falls on the taxpayer.

DMP Response

According to The West Australian, DMP mineral titles executive director Ivor Roberts said that seeking an order to set aside the disclaimer of onerous property would not advance the government’s position because KDC was in liquidation, and that this situation has never occurred before.  The DMP is seeking advice on how the federal Corporations Act can impact upon mining tenements and their state-imposed health, safety and environmental obligations.

The DMP is assessing its options for shifting responsibility over the mining leases, potentially to the Commonwealth. It is also investigating how the legal loophole created by the Corporations Act can be closed.