It is not lawful for the new government to tell the CEFC to cease operations, says leading barrister

The board of the clean energy finance corporation is legally obliged to ignore a directive from the new treasurer, Joe Hockey, to cease its operation and could take the Coalition government to court if it persisted in attempts to shut the CEFC down before the parliament voted to abolish it, according to advice from a leading barrister.

In advice to the Australian Conservation Foundation, Stephen Keim, SC said it was not lawful for the new government to tell the CEFC to cease operations. He said it was in contradiction to the requirements of the legislation setting it up, and the board would be “obliged to ignore the direction”.

Keim said if a ministerial directive interfered “with the board's carrying out of its statutory duties, the board, in the name of the CEFC, would have the necessary standing to seek relief in the appropriate forum”, meaning the board would have standing to take legal action.

“A direction to cease activities or cease investments, or to cease payments, would frustrate the legislative purpose of the CEFC Act and would be inconsistent with the CEFC Act … the CEFC's activities cannot be terminated by executive action,” the advice says.

Hockey wrote to the board of the CEFC, set up by the former Labor government to make investments and provide commercial loans to clean energy projects, instructing it to “suspend operations and cease making payments”.

The board of the $10bn “green bank” had already stopped making new investments during the caretaker period and will not make new investment decisions before it meets the new government.

But the board also has private legal advice stating that it is obliged to continue to operate until the Coalition passes legislation abolishing the CEFC.

Labor is unlikely to support the abolition. Acting leader Chris Bowen told Guardian Australia, “The CEFC is doing the job it was intended to, the Coalition has erroneously claimed budget savings from abolishing it and we would have to look very, very carefully at the rationale for any legislation to abolish it.”

The Greens definitely won’t support abolition. Greens leader Senator Christine Milne warned during the election campaign the Coalition would face serious legal consequences if it tried to force the CEFC to stop operations before the parliament passed a repeal.

This means the Coalition probably won’t be able to make good its intention until the new Senate sits next year – too long a period for the CEFC to legally remain in the holding pattern of managing existing investments but not making any new ones.

“The CEFC board and the executive officers appreciate the government's stated intentions and are committed to working with the government in accordance with the correct and proper legal processes. In this regard, it is important that any changes are implemented in a way that meets the respective legal obligations under the CEFC Act and the Commonwealth Authorities and Companies Act 1997,” chief executive Oliver Yates said.

“The board wishes to ensure that, during any transition, the legal obligations of all parties continue to be met and that all efficiencies and opportunities available during this time are realised."

During the election campaign, the Coalition claimed it would save $545m over four years from abolishing the CEFC, but the corporation itself calculates the potential savings would be tiny because it is lending at commercial rates, and that by 2014/15 its investments would be generating a positive return.

The new environment minister, Greg Hunt, labels the corporation a “green hedge fund” that "borrows in taxpayers' name for investing in speculative ventures".

The CEFC has so far invested about $500m in projects worth $2bn, generating investment four times its outlays. According to the corporation, its investments will reduce carbon emissions while generating $2.40 per tonne of carbon dioxide in returns for the government. Labor’s fixed carbon price means companies pay $23 per tonne of carbon abated and the Coalition estimates that, under its Direct Action plan, taxpayers will pay about $15 per tonne.

The CEFC is likely to argue that its investments and loans complement Direct Action. It has, for example, committed $50m in co-financing with the Commonwealth Bank to provide loans to manufacturers for investments that will reduce their carbon emissions and has helped shire councils pay for more energy efficient street lights.