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Clive Palmer v the Commonwealth of Australia

Briefing
10 May 2024
8 MIN READ
1 AUTHOR

Clive Palmer is a prominent mining magnate and self-described “proud Australian”. He is the leader of an Australian political party, the United Australia Party. He was also a senator in the Australian parliament between 2013 and 2016. How then is his company pursuing an arbitration against Australia for violation of an investment treaty?

When the proponent of a major project seeks to exploit a natural resource in Western Australia, they will look to agree the terms and conditions on which that resource will be developed with the State Government in a State Agreement. State Agreements are then usually ratified in Parliament as a State Agreement Act. This well-trodden path was followed by Mineralogy Pty Ltd (Mineralogy), a company controlled by Clive Palmer, in respect of the proposed Balmoral South iron ore project in the Pilbara region of Western Australia.

The State Agreement between Mineralogy and the State Government concerned the mining and processing of iron ore in the Pilbara, the transportation of that ore from mine to new port facilities, and the shipment of the processed ore. It was ratified and authorised in Parliament by the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA).

The Mineralogy State Agreement contained an agreement to arbitrate. In 2012, a dispute arose between the parties as to whether the State Government had properly dealt with Mineralogy’s application to develop the Balmoral South iron ore project under the State Agreement. Mineralogy alleged that the State had breached that agreement. The dispute was referred to arbitration and the former High Court justice, the Hon Michael McHugh AC QC, was appointed as sole arbitrator. In a 2014 award, Mr McHugh found in Mineralogy’s favour and held that the State had not properly dealt with Mineralogy’s proposal.

Around the time of that award, the State Government purported to deal with Mineralogy’s application, and in doing so, imposed 46 conditions to the approval of the project.

In late 2018, the parties referred a second dispute to arbitration concerning Mr McHugh’s 2014 award; in particular, whether the award precluded Mineralogy from pursuing a claim for damages. The parties also referred a dispute about whether Mineralogy was entitled to pursue a claim for breach of the State Agreement and damages based on the 46 conditions imposed by the State Government, which Mineralogy said were unreasonable. In a 2019 award, Mr McHugh found in Mineralogy’s favour and held that it was not precluded from pursuing either claim.

These two awards paved the way for a third arbitration in which Mineralogy’s sizable claim for damages arising from the State’s breaches of the State Agreement would be assessed. That arbitration was set down for hearing in November 2020. The State Government said that Mineralogy’s claim for damages was for approximately $30 billion which, if successful, would “pose a credible threat to the financial wellbeing of West Australian taxpayers”.

Before the hearing, in August 2020, the State Government enacted the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Amendment Act 2020 (WA). The amending act terminated the arbitrations, nullified Mr McHugh’s prior awards, and quashed Mineralogy’s ability to agitate the claims in relation to the Mineralogy’s application under the State Agreement. The unilateral actions of the State Government in amending the State Agreement were obviously of concern to proponents of other major projects in Western Australia; however, the State Government quickly sought to reassure these proponents and the wider business community that this was a one off situation which was necessary because Clive Palmer was looking to bankrupt Western Australia.

Mineralogy challenged the validity of the amending act in Australia’s highest court. In a judgment handed down on 13 October 2021, the High Court upheld the validity and operability of the act. The court was alive to the wider implications of the amending act, with Justice Edelman stating “The decision to enact [certain sections of the amending act] may reverberate with sovereign risk consequences. But those consequences are political, not legal.”

So far, these disputes have all been domestic affairs. That changed in January 2019, when Zeph Investments Pte Ltd (Zeph), a company incorporated in Singapore and reportedly owned by Clive Palmer, acquired all the shares in Mineralogy. It is reported that the corporate restructure occurred before the date of the amending act. No definitive reason has been published by Mr Palmer or Mineralogy for the restructure.

In early 2023, Zeph commenced a treaty arbitration against Australia under the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) agreement. The AANZFTA is a free trade agreement between the Member States of the Association of Southeast Asian Nations (which includes Singapore), Australia, and New Zealand. In chapter 11, the AANZFTA sets out the protections for investors, including most favoured nation treatment (article 4), fair and equitable treatment (article 6), full protection and security (article 6).

The AANZFTA includes a denial of benefits provision (chapter 11, article 11). That provision denies the benefit of the protections under the treaty to investors who technically meet the definition of “investor” but have no real connection with their home state. Whether that provision operates to preclude Zeph from invoking treaty protection remains an open question in the arbitration.

There is also an open question as to whether Mineralogy’s corporate restructure renders the arbitration an abuse of process. That same question was central to the prominent Philip Morris Group v Australia (Tobacco plain packaging) case, in which the tribunal confirmed that it should be slow to afford protection to an investor in blatant cases of treaty shopping. When considering whether an arbitration is an abuse of process, the tribunal will take into consideration matters such as the investor’s knowledge at the time of the restructure and the cogency or persuasiveness of the investor’s rationale for the restructure. It is notable that two of the arbitrators that decided the Philip Morris case (Gabrielle Kaufmann-Kohler and Donald McRae) are also appointed to the tribunal in Zeph’s arbitration.

Finally, it is worth mentioning that in August 2023, Zeph filed an application in the arbitration for interim measures. The application was heard in October 2023 and the tribunal provided its ruling on November 2023. Zeph sought a number of protective measures, including asking the tribunal to order that Australia “refrain from interfering in any way with the Claimant’s witnesses, representatives or counsel including… by attempting to access the Microsoft or other accounts of the Claimant’s Representative or those assisting the Representative”. To support the measures, Zeph pointed to Australia’s alleged nefarious conduct in the Timor-Leste case (in which it was claimed Australia spied on Timor-Leste in a maritime boundary dispute) and the fact numerous members of Zeph’s legal team received attempted login notifications to their Microsoft accounts at exactly the same time. The Tribunal refused to make orders for interim measures; however, it was nevertheless “concerned” and reminded “the Parties that they have a duty to arbitrate in good faith, which includes the obligation to refrain from conduct that may undermine the fairness and integrity of the proceedings”.

The hearing in this intriguing case is currently set down for three days in September 2024 and will no doubt provide some further content for future editions of this bulletin.

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