No risk to parliamentary sovereignty High Court upholds WA Parliaments variations

What you need to know

• The High Court has upheld the validity of legislation passed by the WA Parliament unilaterally varying Mineralogy's State Agreement to effectively extinguish any liability of the State in respect of proposals submitted pursuant to the State Agreement and which had been the subject of previous arbitral awards and ongoing arbitration.  In enacting that legislation, Parliament was not required to follow a process in the State Agreement applying to agreed variations.
• The decision does not disturb the existing authorities that mean most state agreements operate and are interpreted as contracts, not as statutes.  Although one judge would have overruled those authorities, the majority considered it unnecessary to decide that issue.
• Beyond the Mineralogy State Agreement, the decision's broader impacts for the State and counterparties to state agreements remain to be seen. Even before this case, Western Australia had entered into relatively few state agreements for new projects over the last decade. Neither the High Court's decision nor the surrounding dispute with Mineralogy are likely to do anything to reverse that trend.  
• It has now been reported that Mineralogy is considering commencing an investor-state treaty arbitration against the Commonwealth under Australia's free-trade agreement with Singapore (where Mineralogy is domiciled), which would raise different issues to those decided by the High Court.   

Summary

For the first time, the High Court of Australia has considered the question of whether a state parliament may legislate to amend a state agreement without the proponent's consent.  While decided on narrow grounds regarding the specific variation clause in Mineralogy's State Agreement, the High Court's decision is consistent with two older decisions in Queensland and South Australia recognising broad powers of state parliaments to unilaterally vary state agreements¹.   

As Edelman J summarised the position, the legislative amendments to Mineralogy's State Agreement "may reverberate with sovereign risk consequences … But those consequences are political, not legal".

Background

The State Agreement and Ratifying Act

Western Australia and Mineralogy Pty Ltd (together with other co-proponents) are parties to a state agreement that has facilitated the development of the Sino Iron project at Cape Preston in the Pilbara.  The State Agreement includes terms providing:

1. for the submission of project proposals by co-proponents to the responsible Minister and the actions that the Minster may take in response (cll 6, 7);
2. a process to give effect to unratified variations to the State Agreement that the parties may agree to - the Minister must cause the agreed variation to be tabled in both Houses of Parliament, with each House having a period within which to disallow the variation before it otherwise takes effect; and
3. domestic arbitration of disputes or differences arising out of or in connection with the State Agreement.

By the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA) (the Ratifying Act), the State Agreement "shall operate and take effect despite any other Act or law".  This language picks up the terms of s 3(a) of the Government Agreements Act 1979 (WA) (GAA), which also provides separate legal authority for the State Agreement.  

A long line of appellate decisions in Western Australia, starting with Re Michael; ex parte WMC Resources Ltd (Re Michael),²  have held that ratifying language of the kind in the Ratifying Act and the GAA does not give the terms of a state agreement statutory force or effect.  Those terms remain purely contractual and bind only the contracting parties.  The position is different where the ratifying legislation provides that a state agreement takes effect "as though enacted" in the ratifying legislation – which the Ratifying Act does not.

Arbitrations regarding proposals for the Balmoral South iron ore project

In 2012, Mineralogy and another co-proponent submitted to the State documents purporting to be a proposal to develop a "Balmoral South iron ore project" on part of the State Agreement tenure (First Proposal).  The State took the view that these documents did not constitute a "proposal" under cl 6 of the State Agreement, which Mineralogy disputed.  That dispute was then referred to arbitration.

Subsequent arbitral awards in 2014 and 2019 respectively established that:

1. the documents Mineralogy had submitted to the State in 2012 were a "proposal" under the State Agreement, which the Minister was required to deal with in accordance with cl 7 of the State Agreement; and
2.  Mineralogy was not precluded from suing the State for damages for breach of the State Agreement based on the Minister's initial failure to deal with the First Proposal or the State's dealings with a second proposal submitted by Mineralogy to develop the Balmoral South project (Second Proposal).

Mineralogy then commenced a further arbitration against the State claiming damages of approximately $30 billion, an amount roughly equal to the State's annual budget, for those alleged breaches of the State Agreement³. 

The "Amending Act": a "juggernaut destroying everything in its path"

Shortly after the further arbitration proceedings were commenced, the WA Parliament passed the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Amendment Act 2020 (WA) (Amending Act).  The Amending Act has been aptly described in related litigation as a "juggernaut destroying everything in its path"⁴.   

At its core, the Amending Act amended the Ratifying Act to effectively extinguish any liability of the State in respect of the First Proposal or Second Proposal.  The Amending Act also retrospectively deprived the Proposals and the previous arbitral awards in Mineralogy's favour of any legal effect and terminated the arbitration then on foot.  By doing so, and as the State acknowledged, the Amending Act took "unprecedented" steps, including the unilateral variation of a state agreement.

The Amending Act was not enacted with Mineralogy's consent and did not otherwise follow the tabling and disallowance processes in the State Agreement's variation clause.  Instead, the Amending Act was enacted, in the ordinary way, by each legislative chamber passing a bill that then received royal assent.  The key question for the Court was whether the State Parliament was permitted to enact the law in this manner.

Mineralogy's arguments and the Court's decision

Mineralogy, its co-proponent and Mr Clive Palmer challenged the validity of the Amending Act on several grounds.

Principal argument – contravention of s 6 of the Australia Act 1986 (Cth)

The Mineralogy parties' principal argument was that in enacting the Amending Act the State Parliament contravened s 6 of the Australia Act 1986 (Cth). Under that constitutional provision, legislation respecting a state parliament's "constitution, powers or procedure" is of "no force or effect" unless made in accordance with applicable "manner and form" requirements in the existing laws of that parliament.

The Mineralogy parties' argument had three limbs:

1. the Amending Act answered the description of a law respecting the "constitution, powers or procedure" of the WA Parliament; 
2.  the variation clause in the State Agreement was a "law made by" the WA Parliament, such that Re Michael and the subsequent line of authority should be overruled; and 
3. the variation clause prescribed a "manner and form" requirement for the WA Parliament in enacting legislation, which Parliament had not complied with in enacting the Amending Act.

The majority rejected this argument based on the third limb, without considering the first two limbs.  Their Honours held that the variation clause did not prescribe any manner or form requirements for the WA Parliament in enacting legislation – rather, the variation clause is a provision controlling the amendment of the State Agreement by agreement, not a provision controlling the amendment by Parliament of the Ratifying Act itself.  The clause said "nothing about" any process by which Parliament might make any law amending the Ratifying Act.  It was not enough that the clause involved both Houses of Parliament in tabling and disallowance processes.  Those steps were parts of a process to give effect to variations agreed between the parties to the State Agreement, not a part of any law-making process with respect to the Ratifying Act.

In a separate judgment, Justice Edelman also rejected this argument, but for different reasons.  His Honour held that the variation clause purported to impose constraints upon Parliament enacting any statutory amendments for agreed variations under the State Agreement, but not in enacting unilateral variations to the State Agreement as had occurred with the Amending Act.  In reaching that conclusion, his Honour accepted that the variation clause in the State Agreement had statutory force and would have overruled Re Michael and subsequent case law on this point.  However, as the majority considered it unnecessary to decide this issue, Re Michael remains good law.

Alternative arguments

The Court also rejected several other grounds advanced by the Mineralogy parties challenging the constitutional validity of certain parts of the Amending Act.  Most notably, the Court avoided the complex issue of how to resolve inconsistencies between legislation of different States.  Contrary to the Mineralogy parties' arguments, the Court found that there was no inconsistency between the Amending Act depriving the arbitral awards of legal effect and Commercial Arbitration Acts in other States.  Nor did the Mineralogy parties establish that the Amending Act was inconsistent with any Commonwealth legislation, which was the ground upon which the plaintiffs in Bell Group N.V. (in liquidation) v Western Australia [2016] HCA 21 successfully challenged similarly bespoke state laws designed to resolve a commercial dispute involving the State.  

Authors: Catherine Pedler, Partner; Peter Congdon, Senior Associate; Charles Dallimore, Lawyer.

_{1. Commonwealth Aluminium Corporation Ltd v Attorney-General [1976] Qd R 231; West Lakes Ltd v South Australia (1980) 25 SASR 389.}

_{2. (2003) 27 WAR 574.}

_{3. See, 2nd reading speech, Legislative Assembly, Iron Ore Processing (Mineralogy Pty Ltd) Agreement Amendment Bill 2020: Hansard, 11 August 2020, p 4594-4599.}

_{4. Mineralogy v Western Australia [2020] QSC 344 [133].}