Chatham Rock says rejection of EPA costs claim will hurt cash flow

Chatham Rock Phosphate will take legal advice on its next steps after the High Court dismissed its application to review costs charged by the Environmental Protection Authority, something it said will hurt its cash flow.

"We will be reviewing the judgment in detail over the next few days and taking legal advice on appropriate next steps," chief executive Chris Castle said in a statement to the stock exchange.

In 2015, an EPA-appointed decision-making committee turned down CRP's application to mine phosphate nodules - a source of an essential ingredient of manufactured fertiliser - on a remote section of the Chatham Rise in New Zealand's Exclusive Economic Zone, the vast offshore area that has been subject to an environmental consenting regime only since 2012. Over the course of the process it invoiced Chatham Rock Phosphate $2.7 million for costs incurred.

While the company paid some of those costs, it sought a judicial review for charges totalling $853,246, arguing the sum was "unlawfully charged". The case was heard before the High Court in Wellington over two days in March 2017 and it sought the review on two grounds, according to the High Court decision.

First, it said some of the costs should have been met by a parliamentary appropriation, specifically earmarked for marine consent processes in the 2014/15 year. Second, it argued the EPA failed to comply with legislation on several amounts it said were not "properly incurred" or actually incurred or reasonable in their amount.

In the ruling released today, Justice Karen Clark said there is no question Chatham Rock faced cost invoices for "very large sums of money". However, "the reasonableness of costs is not to be determined by their amount." While Chatham Rock provided a vast amount of detail in support of its concerns and claims, "it has not been able to identify unlawfulness," she said. As a result, she dismissed the application for judicial review.

"The judge has dismissed our application for the review and as a result, the High Court proceedings where the EPA is seeking payment of these costs will now resume with the likely outcome that we will be required to pay the costs invoiced by the EPA," said Chatham Rock. It has prepared its financial results for the past two years on a "conservative basis," assuming a worst-case scenario, it said.

"Therefore the decision will have a limited effect on our formal balance sheet position. However, the decision does have a negative impact on our cash flow position which we will be taking steps to remedy," it said.

EPA chief executive Allan Freeth said the decision upholds the intent of the Exclusive Economic Zone legislation that the EPA should be recovering all costs from applicants for marine consents.

"I look forward to Chatham Rock Phosphate fulfilling their obligation to New Zealand taxpayers," he said in a statement.

The NZAX-listed shares last traded on Dec. 6 at 45 cents, valuing the company at $7.5 million.

(BusinessDesk)