In October 2013, the Western Australian Department of Mines and Petroleum (DMP) engaged Marsden Jacob Associates (financial and economic consultants) to prepare a resource paper to assist in the development of a penalties policy in respect of the legislation the DMP administers. Marsden Jacob Associates’ paper titled ‘Statutory Penalties Review: Resource paper prepared for the Department of Mines and Petroleum’ is now published on the DMP’s website (Paper). The DMP has subsequently prepared a table of options for penalty changes (Options Table) and has sought public consultation on this table. The Paper and Options Table can be viewed by clicking on the following link: http://www.dmp.wa.gov.au/19199.aspx. 

Background

In 2010 DMP published its Enforcement and Prosecution Policy, which sets out the basis on which DMP makes enforcement decisions in respect of the various legislation that DMP manages.

Shortly after the release of the Enforcement and Prosecution Paper, in 2011, Western Australia’s Auditor General released a report titled ‘Ensuring Compliance with Conditions on Mining’ (Report). This Report concluded that:

  • the monitoring and reporting of compliance with environmental offsets was inadequate;
  • the State had only limited financial security against the risk of operators not adequately rehabilitating mines;
  • the monitoring and enforcement of environmental conditions needed significant improvement; and
  • DMP’s approach to enforcing environmental conditions was to take minimum action.

Since the Report, DMP has sought to address the concerns raised in the Report. The introduction of the Mining Rehabilitation Fund Act 2012 (WA) resolved some of the issues highlighted in the Report.

DMP is now in the process of developing an enforcement unit and reviewing licensing. The next key step is the review of the nature and structure of penalties for non-compliance with requirements in the key Acts DMP administers to address some of the other inadequacies highlighted in the Report. In conducting this review, DMP is seeking to:

  • develop an understanding of penalties in the current legislation and the extent to which they impede or support the implementation of a good and consistent regulatory environment;
  • prepare a DMP penalties policy that can be used to assess the appropriate structure and level of penalties in the future and to form a basis for future regulatory reform projects; and
  • prepare a set of recommendations to inform government of the best options for establishing an appropriate structure for penalties for future regulatory reform projects.

DMP engaged Marsden Jacob Associates to prepare the Paper to assist in this review.

Key legislation

The Paper and the Options Table focus on the following key Acts administered by the DMP:

  1. Mining Act 1978 (WA);
  2. Dangerous Goods Safety Act 2004 (WA);
  3. Offshore Minerals Act 2003 (WA);
  4. Petroleum Pipeline Act 1969 (WA);
  5. Petroleum and Geothermal Energy Resources Act 1967 (WA); and
  6. Petroleum (Submerged Lands) Act 1982 (WA).

Key findings

The Paper considers and discusses generally the types of penalty regimes that could be adopted by DMP, sets out the initial findings and advice on the key legislation and identifies the issues on which DMP may wish to seek input from stakeholders.

The Paper notes that the range and design of available penalties under the various Acts must be effective in curtailing behaviour that actively interferes with the objectives of the various Acts.

The Paper further notes that, when the State’s abundant natural resources are taken into account, and the fact that much of those resources are made available to global and multinational organisations, it seems reasonable to expect that the industry contributes to the costs of mitigating the risks of their activities.

However, from an industry perspective, the key for DMP will be to ensure that, in making any changes to the existing penalty regimes, community expectations are adequately balanced with the need to provide certainty and security to exploration and mining companies operating in Western Australia, particularly in the difficult financial climate.

The key findings set out from Marsden Jacob Associates’ review of the current penalties regime are:

  • the Acts set out above (with one exception) do not provide DMP with a full set of potential actions;
  • some options for action are missing in a majority of the Acts; and
  • penalty treatments that could substantively assist DMP in meeting its obligations are available in some of the Acts and not others.

Accordingly, Marsden Jacob Associates’ key recommendations were:

  • risk-based approaches to penalties, which strengthen incentives for compliance with legislative objectives, are the dominant approach in managing the risk of high-consequence safety and environmental incidents;
  • corporate penalties should be high where the offences/incidents result from the corporation as a whole having an inappropriate culture towards safety and the environment;
  • the relationship between the size of maximum fines and whether they apply to corporations should be consistent, with a proposal that existing fines for individuals be increased five-fold for employers or the holders of licenses that are not corporations, and ten-fold for corporations;
  • consistent penalty structures across Acts will promote ease of understanding and be more efficient for both industry participants and regulators;
  • demerit point systems should be available with provisions for elimination, rather than just time based expiry, to encourage improvement; and
  • the penalty structure should reinforce the "use it or lose it" principle that underlines granted titles for resources under the Mining Act 1978 (WA) (Mining Act).

Proposed options

Marsden Jacob Associates recommended various options for penalties which could be included in the various Acts to resolve some of the current shortcomings. DMP has replicated these proposed options in their Options Table. We have provided a summary of the key options below.

Click here to view table.

Unfortunately the Options Table does not contain much detail as to how the proposed amendments to the penalty regimes would be adopted.  Accordingly, it is difficult to address the proposal in any real detail.

However, in respect of the proposed changes to the penalty regimes under the Mining Act, there are certain proposals that are undoubtedly going to cause some concern for exploration and mining companies operating in Western Australia.

Increase in fines

One of the key recommendations proposed by DMP is a substantial increase in the fines that may be imposed by DMP across all of the Acts.

In particular, the Options Table recommends that fines for failure to meet tenement conditions under the Mining Act (including for failure to meet expenditure conditions relating to a mining tenement) be increased tenfold for corporations. In respect of a failure to meet expenditure conditions that proposal would see a potential fine of up to $100,000 for a corporation.

Third party forfeiture applications

Under the current provisions of the Mining Act, if a third party commences a forfeiture application against a corporation alleging failure to comply with the minimum expenditure requirements, any fine (of up to a maximum of $10,000) that may be imposed may be directed to be paid to the third party. Industry will undoubtedly be concerned that raising the maximum fine may encourage “professional plainters”, being parties initiating forfeiture applications with a view to either reaching a cash settlement with the tenement holder or receiving the payment of a now substantial fine.

In the current economic climate where cash strapped exploration and mining companies may be struggling to meet expenditure requirements across a portfolio of tenements, a dramatic increase in fines would cause significant concern.

While industry has historically accepted the “use it or lose it” tenet of the Mining Act, which is largely self-regulated, the potential creation of a professional plainting industry will cause significant concern.

If DMP is to proceed with the proposal, it would be beneficial for DMP and the policy makers to consider other amendments to the third party forfeiture provisions such as significantly increasing the fee to lodge a third party forfeiture application in order to discourage applications being made without proper basis.  However, any such increase may also act as a deterrent for the industry’s ‘self- regulation’ and would therefore need to be carefully considered.

Introduction of demerit point system

Also referred to in the Options Table is DMP’s proposal that a “demerit point” system be introduced (particularly in respect of the general offences under the Mining Act).  While the Paper discusses demerit point systems in general, the Options Table does not give any indication as to how such a system would work (including as to how the expungement provisions would work) in this context.

Directors’ liability

The Paper considers in detail the different approaches that may be adopted in relation to corporations to ensure accountability of directors.  In particular, noting that the attention of directors and leaders of corporations should be targeted for penalty provisions under legislation by imposing imprisonment, higher fines and tougher civil penalties upon directors.

However, in respect of the Mining Act, the Options Table does not note any significant changes to the Mining Act in respect of directors’ liability.  It is not clear whether this is because DMP is already in the process of amending the Mining Act to align it with the COAG principles for directors’ liability, or whether DMP does not propose any significant changes.

We do note, however that in the paper titled “Western Australia’s Option Paper” (Securities Options Paper) previously issued in March 2011, one of the proposed legislative amendments was to make a number of amendments to various provisions of the Mining Act – particularly in respect of the imposition of penalties. For example, the Securities Option Paper proposed amendment of the forfeiture provisions of the Mining Act to provide a power to the Minister to prevent a director of a company from holding any tenements once a mining tenement has been forfeited.  That proposed amendment has not been reflected in the Options Table.  However, directors and officers of exploration and mining companies will need to be cognisant of any changes to the penalty regimes which may increase their personal exposure as a result of the conduct of their company.

What next?

DMP sought public comment on the Options Table prior to close of business 14 February. A final report is expected to be published setting out the options DMP will be adopting by the end of March 2014.