Clive Palmer says the WA government could be hit with a $1 billion damages claim after it didn’t assess a long-stalled project he has a big interest in.

A potential damages claim against the West Australian government by a company majority owned by Clive Palmer would need to be substantiated, the premier’s office says.

The possible claim relates to the state government’s refusal to assess Australasian Resources’ Balmoral South iron ore project in WA’s Pilbara region, which has been proposed for many years.

WA Premier Colin Barnett said the development proposal had been rejected because it was “manifestly inadequate”.

But through its major shareholder Mineralogy, which is Mr Palmer’s private company, Australasian had the matter adjudicated by former High Court justice Michael McHugh, now an independent arbitrator.

Mr McHugh found in Mineralogy’s favour, saying the project was the subject of a 2001 state agreement, which meant the WA government had to assist with establishing it.

The state was also ordered to pay the arbitrator’s costs including expenses.

The arbitrator said Mineralogy had foreshadowed a potential claim for damages, but noted it had not tendered any evidence in support of such a claim, so he made no orders in that respect.

Mr Palmer confirmed he had not yet instigated any action – but said any claim could be hefty.

“It could cost the West Australian taxpayer $1 billion,” Mr Palmer told AAP.

Mr Barnett told the WA parliament on Tuesday that the arbitrator’s decision would not be appealed.

He said the Department of State Development was trying to find out which proposal Mineralogy wanted to have assessed, “because there have been a couple and they overlap”.

“It would have to be vastly different from the previous one,” he said.

Mr Palmer also defended his Palmer United Party’s Queensland leader Alex Douglas raising the matter in the state’s parliament last week after Mr Barnett accused the wealthy businessman of misusing his parliamentary privilege to further his commercial interests.

That accusation on Tuesday came a week after Mr Barnett said the “litigious” Mr Palmer was hampering the state’s talks with China on iron ore issues.

“Colin Barnett attacked me … and after he did that, the Queensland premier and the Queensland deputy premier attacked me quite viciously,” Mr Palmer said.

“So Alex Douglas just brought up a judgment that was against Barnett and the West Australian government to expose them for what they were doing.

“He was entitled to as a member of parliament.”

The near $6 billion project was slated to begin in September 2012, with exports starting in 2016.

Australasian Resources had $183,000 in cash at the end of the March quarter and $503,000 “available via a letter of support from a major shareholder”.

The letter states that Mineralogy will provide it with financial support until March 2015.