The Australia Institute | 24 November 2023
Who knew Queensland’s richest man is a foreign investor?
by Stephen Long
Clive Palmer’s controversial legal strategies challenge Australia’s trade agreements and environmental laws, and have profound implications for global climate action, writes Stephen Long.
Clive Palmer isn’t a noted Singaporean. The closest the Queensland billionaire and erstwhile Australian MP seems to have got to Singapore lately is when his super yacht ran aground off its coast.
Yet Palmer is suing Australia as a “foreign investor” under the Singapore-Australia Free Trade Agreement (SAFTA), demanding compensation for a landmark court ruling that put a stop to his proposed Waratah coal mine.
It’s the third such case he’s launched this year against Australia, pursuing a total of more than $A400 billion in damages.
The saga highlights the ongoing danger posed by trade agreements Australia has signed up to — with clauses that give corporations a backdoor means of challenging Australian courts, laws, and regulations.
The Australia Institute is among NGOs and academics that for years have raised the risks of including these “Investor-State Dispute Settlement” or ISDS provisions in trade agreements.
They let foreign investors sue under a secretive international arbitration process if a government passes a law or makes a decision that harms an investor’s future profits – even if the government is acting on environmental or other public interest grounds.
The potential to undermine efforts to combat climate change is enormous.
On the same day that Clive Palmer issued his claim against Australia for refusing his coal mine, the UN special rapporteur on human rights and environment warned that ISDS could have devastating consequences for climate change.
He said a flood of compensation claims by resources companies under ISDS had become a daunting obstacle “at a time when it is imperative that States accelerate the pace and ambition of climate and environmental action to prevent planetary catastrophe and fulfil their human rights obligations.”
Palmer’s proposed thermal coal mine near Alpha in the Galilee Basin would have generated a massive 1.58 gigatonnes of carbon dioxide emissions – roughly equal to what Australia emits in total over three years.
Queensland’s richest man may seem like the most unlikely of foreign investors in Australia – he acts as Aussie as a kangaroo in a cork hat when he’s campaigning for his eponymous political party — but he’s built a company structure that allows him to claim that status, exploiting an ISDS loophole.
He owns a company registered in Singapore called Zeph Investments Pte Ltd.
Zeph Investments owns 100% of the shares in his Australian company, Mineralogy.
Mineralogy, through a 100% owned subsidiary, owns all the shares in the proponent of his Galilee Basin coal project, Waratah Coal.
All roads in fact lead back to Australia – Palmer ultimately owns Zeph Investments through an Australian-registered company – but the Singapore detour allows him to claim his business is a foreign investor with rights to sue Australia under FTAs.
Queensland’s refusal earlier this year to grant a mining license and environmental clearance for the Waratah coal project is his latest target.
The state government acted on the recommendation of the Queensland Land Court President Fleur Kingham.
She found that burning the coal from the mine would risk “unacceptable climate change impacts”.
On many fronts, her judgement was ground-breaking.
It was the first coal mining case to consider the 2019 Queensland Human Rights Act, and the potential impact of the mine’s greenhouse gas emissions on the human rights of present and future citizens of central Queensland.
It was also the first case in Queensland to reject what’s known as the “drug dealer’s defence”: if we don’t supply the coal, someone else will.
For a decade, the Land Court had accepted mining companies’ claims that new coal mines would not add to global warming because their coal would merely displace other supplies, or even make things better by replacing inferior coal with higher emissions.
This was always a flimsy argument.
Large increases in thermal coal supply can push down prices, encouraging more coal burning, and discouraging shifts to clean energy.
As well, power stations generally take coal of a certain grade, so higher quality coal cannot easily replace lower grade coal with more emissions.
The drug dealer’s defence is at odds with evidence from climate scientists, the UN, and the International Energy Agency, that the world must stop opening new coal mines if it’s to have any hope of avoiding catastrophic global warming.
Relying on new expert evidence, including from the Australia Institute’s Rod Campbell, President Kingham belled the cat.
She found that the huge new mine would make it more difficult to achieve the goal that Australia committed to under the Paris Agreement of keeping global temperature rises well below 2°C.
It’s an understatement to say that Palmer, and the wider coal industry, were unhappy with the ruling.
On October 20, on behalf of Zeph Investments, Clive Palmer sent foreign minister Penny Wong and the Attorney General’s department a “notice of intent to commence arbitration under the Singapore-Australia Free Trade Agreement” over the issue.
(The Commonwealth is responsible for actions by the states under the ISDS regime.)
He wants damages of $A69 billion.
The document outlining Palmer’s case under SAFTA makes for interesting reading.
The judge who recommended against his mine is a highly distinguished jurist and environmental law expert who has served on the Land Court or its predecessor tribunal for nearly a quarter of a century. She has also held commissions in the Queensland Childrens Court, the Planning and Environment Court, and served as a District Court judge.
But Palmer maligns her as a “political appointment” and an “anti-coal activist” who allegedly “schooled” lawyers who ran the case against him – apparently, by giving a public and publicly available lecture outlining her assessment of when the court might be able to take greenhouse gas emissions into account in a mining case.
He claims a conspiracy between a judge “appointed by the anti-coal faction of the Queensland Labor Party to assist the Queensland Labor Party achieve its anti-coal objectives” and a law firm “supported and funded by the Commonwealth to oppose the project.”
It may be wryly amusing for those familiar with Australian politics to hear the Queensland Labor Government and the Commonwealth called “anti-coal.”
Indeed, the main thrust of Palmer’s argument is that Queensland never knocks back a coal mine – at most imposing conditions on approval.
His application cites 175 coal mining lease applications that Queensland has granted since the year 2000.
Palmer, like the little boy standing at the counter of a corner shop in that song, is saying: “What about me? It isn’t fair.”
And there’s a risk that the kind of arbitration panel that hears ISDS cases might agree with him.
“It’s very difficult to predict,” says Dr Pat Ranald, Honorary Research Associate at the University of Sydney and convenor of the Australia Fair Trade and Investment Network or AFTINET – a network of community organisations and individuals concerned about trade and investment policy.
“It is entirely unlike the Australian legal system,” she says. “There are no precedents and no appeals. And there is no obligation for consistency.”
As Dr Ranald observes, ISDS has its origins in the post-colonial era after World War 2 and was originally designed to protect foreign investors from having their assets expropriated or nationalised in developing countries without compensation.
Since then, there’s been significant mission creep.
Now, foreign investors can claim “indirect expropriation” of their investment if government action undermines its value or future profits.
They can also gain compensation if a tribunal finds that government action thwarted their “legitimate expectation” that a project would go ahead – something Palmer is angling for.
His claim cites supportive statements by politicians and bureaucrats going back to 2009 backing the mine.
But history doesn’t stand still, and times have changed.
Throughout the world, even in Australia, where fossil fuel interests dominate the political economy, and even in coal-captive Queensland, decision-makers recognise the need for urgent action on climate.
But that might not carry much weight in the tribunals that rule on fossil fuel companies’ compensation claims.
“ISDS arbitration tribunals routinely prioritise foreign investment and corporate interests above environmental and human rights considerations,” according to the UN special rapporteur on human rights and the environment, David Boyd.
Exorbitant compensation claims by fossil fuel interests, he says, “create regulatory chill.”
For the neoliberal proponents of this system, this was part of the plan – to create a bulwark against future regulation if it stood in the way of the profits of multinational corporations. Or faux foreign investors gaming the rules.
The $A69 billion in damages Palmer wants looks farcical.
In the Land Court case, Waratah Coal’s own expert witness put the gross value of mining revenue from the project at just $A25.5 billion in today’s dollars.
The expert stated that after capital and operating costs, the project could be worth between negative $2.9 billion and $8.7 billion depending on modelling assumptions.
In other words, Clive Palmer wants $A69 billion in compensation for the rejection of a mine that his own expert says could easily lose money.
For the serial litigant, arbitration under ISDS is becoming a favoured jurisdiction.
Palmer is seeking a further $A41.3 billion under the ASEAN-Australia-New Zealand Free Trade Agreement because the Queensland government gave an environmental offset to another company on land where his Waratah Coal has mineral leases.
And he wants a massive $300 billion because the WA Government legislated to deny his company compensation for a stalled iron ore project in the state.
He turned to the ISDS route after failing to convince the High Court WA’s actions were unlawful.
It’s possible arbitration tribunals will reject Palmer’s claim that his company is a “foreign investor” with rights to sue Australia.
That’s what happened to US tobacco giant Phillip Morris after it shifted ownership of its Australian business to Hong Kong in a bid to challenge Australia’s plain packaging laws under a free trade deal.
But even if Palmer fails, defending the claims will cost plenty.
Australia’s legal bill for the plain packaging arbitration was more than $A23 million – and even though the tobacco giant lost, it only had to pay half of that.
More than a decade ago, the Productivity Commission called on Australia to avoid signing bilateral trade agreements with ISDS provisions, warning they could “restrict a government’s ability to undertake welfare-enhancing reforms at a later date.”
In the wake of this advice, and the Philip Morris case, even the Liberal Party had moved from seemingly slavish support for ISDS to assessing it on a “case by case basis” – but it stopped short of ruling it out altogether.
The federal Labor government, to its credit, has ruled out including ISDS provisions in future trade agreements and to reviewing ISDS clauses in existing trade deals.
That drew predictable warnings from the Business Council of Australia that this could “spook” foreign investors, even though the Productivity Commission found no evidence the ISDS provisions increased investment flows.
Trade minister Don Farrell announced last year the government would seek to “reform existing ISDS mechanisms to enhance transparency, consistency and ensure adequate scope to allow the government to regulate in the public interest.”
After Palmer’s claims, and with others likely, that’s a matter of urgency.