Palmer v Ayres, Parbery and Owen as liquidators of Queensland Nickel Pty Ltd (in liq); Ferguson v Ayres, Parbery, Owen as liquidators of Queensland Nickel Pty Ltd (in liq)

The High Court has decided a constitutional matter on the validity of s 596A of the Corporations Act 2001 (Cth), holding that the section is not invalid as contrary to ch III of the Constitution by conferring non-judicial power on federal courts and courts exercising federal jurisdiction. Section 596A provides that on the application of an eligible applicant, a court is to summon a person for examination about a corporation’s examinable affairs if it is satisfied that the person is or was an officer of the company prior to it being wound up.

The plaintiffs were directors of Queensland Nickel at various points from 2013. Following a successful application by creditors to wind the company up in April 2016, the defendant liquidators summoned the plaintiffs for examination under s 596A, and the plaintiffs were examined and produced documents. The plaintiffs then challenged the constitutional basis of s 596A, making six submissions in support of that argument. First, that the power to summon a person under s 596A did not satisfy the functional or ‘classical’ test of judicial power, and thus does not fall within the core of the Commonwealth’s judicial power. Secondly, it is not incidental or ancillary to the exercise of judicial power in the context of voluntary winding up. Thirdly, it is not sufficiently analogous to a power historically exercised by courts at the time of Federation (or, fourthly, in the alternative, that this historical test is no longer appropriate). Fifthly, the lack of discretion afforded to a court, its enlistment in the process of pre-litigation investigation, and the extraordinary nature of the power together mean it is incompatible with or falls outside federal judicial power. Sixthly, s 596A was invalid because there was no ‘matter’ to engage the judicial power of the Commonwealth, in that it was an inquisitorial or investigative exercise and did not concern the determination by the court of some immediate right, liability or duty (see [24]). The second plaintiff adopted the first plaintiffs’ submissions in full, but expanded the judicial power contentions with the submission that s 596A poses a real risk to the actual or perceived independence and impartiality of the courts, and thus offends the separation of powers.

At the conclusion of the hearing before the Full Court, the Bench indicated that it would unanimously reject the challenge, answering the central question in each special case ‘no’. A full statement of reasons was published on 8 February 2017.

The plurality (Kiefel, Keane, Nettle and Gordon JJ) turned first to the ‘matter’ contention, which their Honours held should be rejected and rested on a misunderstanding of the matter requirements (at [25]). The proper meaning of a matter is not simply a legal proceeding itself, but rather the ‘subject matter’ to be determined in a legal proceeding, including controversies that might come before a court (at [26]). The requirement that there be an ‘immediate right, duty or liability to be established by the determination of the Court’ reinforces that the court must determine a genuine controversy (as opposed to a hypothetical one), which may include one where a right, duty or liability is only claimed (at [27]). In the legislative context here, s 596A aids special purpose liquidators in performing their statutory functions and powers by allowing them to establish and gather a corporation’s assets (at [29]). Consequently, this power looks forward to the possibility that the information gathered will support a claim for relief: ‘Section 596A looks forward to such claims as a “matter”: a controversy relating to the pecuniary rights or liabilities or wrongdoing of the corporation and the examinee or some other person’ (at [30] and see at [31]). Applied here, the summons order made by the Federal Court under s 596A was an exercise of its judicial power: it involves the Court being satisfied, by evidence, that the criteria for making the order are met, and a determination both that the applicant is entitled to be granted the order, and that the examinee attend court, produce documents and answer questions, all under and subject to the court’s control (see at [31]–[35]). Consequently, the power is not incompatible with the exercise of the judicial power of the Commonwealth (at [36]), and consequently the plaintiffs other contentions did not arise (at [41]). The plurality also noted that it was ‘neither necessary nor appropriate to rely on a purely historical basis’ to define the power and its processes as judicial powers (at [37]), but also made a number of observations on the historical basis of similar discovery-type powers in the Chancery courts (see [38]–[40]).

Gageler J also held that s 596A was a valid conferral of judicial power, emphasising that understanding the meaning of the ‘judicial power of the Commonwealth’ required careful attention to the historical context of the Constitution and subsequent decisions interpreting the term: ‘The difficulty and the danger of attempting to formulate some all-encompassing abstract definition of the judicial power of the Commonwealth was acknowledge from its inception, was repeatedly recognised in judicial pronouncements throughout the twentieth century, and has been reiterated in this century’ (at [43]). After tracking these pronouncements, beginning with the classic statement of the nature and scope of judicial power in R v Davison [1954] HCA 46 (see [44]–[51]), turning to more recent considerations of a power to compel the provision of information (see at [52]–[56]), and then finally the question of whether statutory powers to order an examination of the affairs of a corporation were judicial in nature addressed in Gould v Brown [1998] HCA 6 (see at [57]–[59]), Gageler J noted that his reasons for concluding that s 596A was a valid conferral of judicial power took up ‘neither of two somewhat extreme positions’ advanced by the defendants and some interveners:

The argument at one extreme was that it was sufficient to characterise the power as a judicial power that the examination might yield some information that might be used to pursue some claim of legal right. The argument at the other extreme was that it was sufficient to characterise the power as a judicial power that a broadly analogous power of examination can be seen to have been exercised by courts in the Australian colonies in 1900 under provisions modelled broadly on s 115 of the Companies Act 1862 (UK). The first pays insufficient attention to the importance of constitutional history. The second relies on a misinterpretation of what was said by Kitto J in Davison, which results in a conception of constitutional history that is too narrow.

After considering Kitto J’s statement in Davison and its later reception (see at [62]ff), Gageler J stated that in determining whether a function is inherently non-judicial or exclusively judicial, the question was not how the function might have been exercised or practiced at the time of Federation, but rather how it is now to be characterised, ‘having regard to the systemic values on which the framers can be taken to have drawn on in isolating the judicial power of the Commonwealth and in vesting that power only in courts. The aim is to be faithful to those values’ (at [69]). Turning to the values expressed in separating judicial power and placing it in the judiciary alone (at [70]ff), and the relationship between the power of investigation or inquiry and the essence of the judicial function via Montesquieu and Blackstone ([76]ff), Gageler J emphasised that a general rule emerged that courts do not exercise their common law or statutory powers to inquire into subject matters absent a connection with the determination of a claim of legal right (at [80]). With the Court of Chancery’s equitable jurisdiction came an emphasis on the supervision of administration of trusts, insolvent estates and (in the nineteenth century) the winding up of companies, which included various powers to order the examination of bankrupts and company officers that carried into the extraordinary powers Australian colonial supreme courts (see at [83]–[90]). Gageler J then considered how, in light of this history, the Court ought to characterise the power to order an examination, noting a range of cautions (at [92]) and stating:

Fidelity to the values which inform the separation of the judicial power of the Commonwealth nevertheless requires that we be extremely cautious about accretion to the judicial power of a power to inquire which is unrelated or tenuously related to the core judicial function of quelling controversies about legal rights. To admit that an inquiry into a subject-matter is in the public interest is very different from admitting that the conferral of a power to conduct such an inquiry on a court accords with the constitutional structure that has been created to secure the enduring interests of the Commonwealth. Our job is to take a long-term view.

Turning then to the statutory scheme here, Gageler J emphasised that s 596A imposes a duty on a court to order an examination that does not the court beyond the role of supervising an administration (at [99]). While the persons who can apply for an order,  those who may be examined, and the subject-matter of examination under s 596A all go beyond the persons and subject-matter of examinations within the powers of pre-1900 Australian colonial courts, the scheme does not raise any of the general concerns that have historically excluded a mere power to inquire from the concept of judicial power (at [100]). On this basis, Gageler J concluded that s 596A confers judicial power (at [101]). Finally, turning to the ‘matter’ requirement, Gageler J held that the judicial power of supervision here was directed to external administration under and in accordance with the Corporations Act, and thus was within s 76(ii) of the Constitution.

High Court Judgment [2017] HCA 5 8 February 2017
Result s 596A not invalid as contrary to ch III
High Court Documents Ferguson
Palmer
Full Court Hearing [2016] HCATrans 265 10 November 2016
Directions Hearings [2016] HCATrans 234 10 October 2016
[2016] HCATrans 225 15 September 2016

ORDER

In each matter:

  1. The question reserved for the consideration of the Full Court pursuant to s 18 of the Judiciary Act 1903 (Cth) is answered as follows:

Question: Is s 596A of the Corporations Act 2001 (Cth) invalid as contrary to Chapter III of the Constitution in that it confers non-judicial power on federal courts and on courts exercising federal jurisdiction?

Answer: No.

  1. The writ of summons is dismissed.
  2. The plaintiff pay the defendants’ costs.
This entry was posted in Case Pages, Decided Cases, Opinions by Martin Clark. Bookmark the permalink.

About Martin Clark

Martin Clark is an PhD Candidate and Judge Dame Rosalyn Higgins Scholar at the London School of Economics and Political Science and Research Fellow at Melbourne Law School. He holds honours degrees in law, history and philosophy from the University of Melbourne, and an MPhil in Law from MLS. While at MLS, he worked as a researcher for several senior faculty members, was a 2012 Editor of the Melbourne Journal of International Law, tutor in legal theory, a Jessie Legatt Scholar, and attended the Center for Transnational Legal Studies Program.

Leave a Reply

Your email address will not be published. Required fields are marked *