New powers to disqualify persons from holding resource authorities in Queensland10 June 2020
The headlines around the Mineral and Energy Resources and Other Legislation Amendment Act 2020 (Qld) (MEROLA Act) focus on the introduction of the industrial manslaughter offence to the resources sector in Queensland. However, the omnibus MEROLA Act—that was both passed and assented to on 25 May 2020, although many provisions have not yet commenced—goes beyond the industrial manslaughter offence and includes a raft of other changes. Among the changes is the inclusion of a new power in the Mineral and Energy Resources (Common Provisions) Act 2014 (Qld) (MERCPA) under which the Minister can disqualify persons from holding resource authorities. The disqualification power has a number of implications for the resources sector including when parties are seeking to acquire interests in resource authorities and when seeking to grant resource authorities jointly with others.
Power to disqualify and trigger applications
The power to disqualify a person from holding a resource authority is not a power that exists at large and arises only upon certain applications being made. Those trigger applications are:
- an application for a new prescribed resource authority
- an application in a tender process for a prescribed resource authority, and
- an application for the transfer of an existing prescribed resource authority.
“Prescribed resource authority” is defined to include most resource authorities such as mining leases, mineral development licences, exploration permits, petroleum leases, authorities to prospect, pipeline licences, geothermal exploration permits, geothermal production leases, GHG exploration permits as well as GHG injection and storage leases.
An application to renew an existing resource authority is not listed as a trigger application to which the disqualification power applies.
Under the disqualification power, a holder cannot lose what they already hold. This means that the Minister cannot use the disqualification power to take an existing resource authority from an existing holder. The power operates to prevent a person from obtaining the grant of new resource authorities or (subject to one exception) from being assigned interests in already granted resource authorities. The exception to transfers of interests in already granted resource authorities is if the person is already a part holder of that resource authority and after the transfer, the transferor continues to hold a share in the resource authority, i.e. there is just a change to the interests of each holder provided that the holders remain the same.
The relevant factor around timing is the date of the trigger application, not the date of the grant of the resource authority. The power to disqualify arises in respect of trigger applications occurring after the commencement of MEROLA Act. As such, the disqualification power cannot be exercised with an application for the grant of a new resource authority made before commencement and that has not yet been decided. But the disqualification power does apply to applications to transfer resource authorities where those applications were lodged after commencement and where those resource authorities had been granted or applied for before commencement.
Process and grounds for disqualification
The process for exercise of the disqualification power is broadly as follows:
A trigger application is made.
The Minister considers various matters about disqualification, which include:
whether the applicant or associate has contravened any Resources Act (or a corresponding law in another Australian jurisdiction)
whether the applicant or associate has been convicted of an offence under a Resources Act (or a corresponding law in another Australian jurisdiction)
whether the applicant or an associate is insolvent
whether the applicant or an associate is disqualified from managing corporations, and
any other matter the decision-maker considers relevant.
The Minister may request further information from the applicant and/or request a criminal history check of the applicant.
The Minister forms a view about the proposed decision and gives the applicant a notice of the proposed decision.
The applicant can make submissions on the proposed decision.
The Minister then makes a final decision and gives notice to the applicant.
If the final decision is to disqualify the applicant, the Minister must reject the application. If the final decision is not to disqualify the applicant, then the application will continue to be assessed in accordance with the usual processes relating to that type of application.
In making the decision, the Minister may disregard a contravention or a conviction having regard to the degree of seriousness of the contravention or offence, the degree of harm caused by the contravention or offence, the length of time that has elapsed since the contravention or offence and the extent to which the applicant or associate was involved in the commission of the contravention or offence. The purpose of this provision appears to be to allow the Minister to put aside minor infringements or infringements from the distant past when deciding whether a person should be disqualified or not. However, it is not an absolute requirement that the Minister must disregard any or all minor infringements and only consider recent performance.
If the Minister finds that the applicant is disqualified, then the Minister must reject the application. There is no discretion to permit the grant of the application to a disqualified person as the rejection is mandatory.
The issues to be considered by the Minister show that a person can be disqualified based on their actions as well as those of their associates. An “associate” is an entity that is in a position to control or substantially influence the applicant’s affairs in connection with a prescribed resource authority or, if the applicant is a body corporate, a director of the applicant or the parent company of the applicant or a director of the parent company. It seems likely that, absent any other factors, joint venturers would not fall within the definition of an associate. Therefore, any default by one participant in a joint venture should not taint the other participants for the purposes of disqualification. However, it is possible that in a joint venture where one participant holds a sufficiently large interest to control voting on the joint venture and resource authority issues, the majority joint venturer could be an associate of minority joint venturer for the purposes of the disqualification power.
Uncertainties around the timing of disqualification assessments
While the overall concept behind the disqualification assessment is seemingly straightforward, there are some elements of the process that give rise to some uncertainty.
It is not clear at what stage during an application process a disqualification assessment is made. From an applicant’s perspective, it would be far better to know as early as possible in the process so that the applicant does not expend unnecessary costs in what would turn out to be a futile exercise. But there is nothing in the MEROLA Act that states when the disqualification assessment is to occur.
It is also not clear whether a disqualification assessment can be made more than once in relation to a single application. It is not unusual for some applications for resource authorities to take several years and the circumstances of the applicant could well change during that time. A strict interpretation of the MEROLA Act amendments suggests that a disqualification assessment can occur only once, but this is not necessarily definitive. If the assessment can occur only once, the Minister may prefer to have applications assessed near the end of the process to ensure the most up to date information is available.
Implications for resources companies
It is unclear whether a person, once disqualified, will be able to redeem themselves in the eyes of the Minister and at some future time not be disqualified from receiving the grant or transfer of resource authorities. The disqualification process is seemingly intended to apply on a case-by-case basis with each trigger application being assessed separately, meaning that a finding of disqualification in respect of one application will not necessarily mean that the person is to be disqualified for all future applications. From a practical perspective, however, it seems likely that the findings that led to disqualification on one occasion would also apply to every future application involving that person.
A finding by the Minister that a person is disqualified from a particular application could be problematic for holders of exploration tenures seeking to transition projects to production tenures. For example, the holder of an exploration permit may apply for a mining lease and may be disqualified from being granted a mining lease. The person would remain the holder of the exploration permit, which could not be taken away from them but which they would be unable to develop. The holder may need to look at selling the exploration tenure or creating some new arrangement—for example royalty streams—which would enable the development of the project and enable them to extract economic value from existing investments. Potential investors in these types of projects may need to carefully consider any such arrangement and assess the disqualification risks if they are looking to make an investment of this nature.
Parties to transactions for the sale or acquisition of resource authorities may need to consider the risk of a counterparty being disqualified. Parties to those transactions will need to consider whether any conditions precedent will be needed and what warranties they may require from their counterparties to manage any potential disqualification risks. If a proposed buyer is disqualified the transfer will not proceed, and the current holder will remain the holder of the resource authority.
Parties in joint ventures or who otherwise hold resource authorities jointly or as tenants in common with persons who are disqualified will also need to be conscious that they may be prevented from selling the whole of their interest to the disqualified person. They may need to remain a part holder of that resource authority due to the restrictions on transfer to disqualified persons.
The amendments are unclear about the implications for the grant of a new resource authority where there are multiple applicants and only one of the applicants is disqualified. The amendments introduced by the MEROLA Act into the various Resources Acts state that an application for a resource authority must be rejected if the Minister decides that the applicant is disqualified. It could be that the whole of the application for the new resource authority is rejected but could also mean that the new resource authority is granted but only to the non-disqualified applicants. Resources companies will need to give greater weight to the financial standing and past performance of potential joint venturers to ensure they are not faced with this kind of risk.
The introduction of the disqualification power concerning resource authorities gives the Minister the power to ensure that only appropriate persons will hold resource authorities in the future.
However, as it may be the case that persons who are disqualified in respect of some applications will remain the holders of resource authorities, other participants in the resources sector will need to take steps to manage their risks around the disqualification of others and will need to be prepared for potential limitations on their dealings because of the circumstances of their counterparties.