News: Bell Group case led to Attorney-General and Solicitor-General rift

It is no secret that relations between Attorney-General George Brandis and Solicitor-General Justin Gleeson were “irretrievably broken” when Gleeson resigned as Solicitor-General in October this year. However, it has now been revealed that there may have been a High Court connection to the rift: it has been reported today that the ever-sprawling, never-ending Bell Group case may have led to the difficulties between the pair.

As I noted earlier this year, the Bell Group case looked to have settled in 2013, but the Western Australian government’s attempt to distribute the settlement funds via a statutory scheme was struck down by the High Court in May in Bell Group N.V. (in liquidation) v Western Australia [2016] HCA 21. The ATO was a major creditor who would have lost out had the Western Australian legislation been held to be valid.

The West Australian reports that Brandis had apparently made a deal with the Western Australian government that the legislation would not be challenged, and that Brandis instructed Gleeson not to run a particular argument in the May case. It was reportedly Gleeson’s refusal to comply with this which led to the rift.

The West Australian understands Senator Brandis told Mr Gleeson an understanding had been reached between the Federal and WA governments to finally end more than two decades of litigation stemming from the group’s collapse.

The ATO, which at nearly $300 million was one of Bell’s four main creditors, separately approached the Solicitor-General to also act as its counsel and to run the argument for it.

Despite Senator Brandis’ instruction, the ATO’s written submission to the High Court — authored by Mr Gleeson — used the precise legal argument that the Attorney-General had assured his State counterpart Michael Mischin would be avoided by the Commonwealth.

“Mr Gleeson advanced an argument that caused the WA Government to think the Commonwealth had acted in bad faith,” the senior Federal source said.

Mr Mischin was infuriated by the ATO’s move, not only because its argument in the High Court was on a basis the Commonwealth had promised not to advance, but because he thought the tone of the agency’s submission professed WA’s ignorance of the Constitution.

In fact, the Commonwealth was kept well abreast of the State’s intentions, with WA openly discussing the constitutional issues concerning its legislation and even sharing early drafts.

WA Treasurer Mike Nahan had received personal and written assurances early last year from then Federal counterpart Joe Hockey that the Commonwealth would not oppose the State Governments move.

On the weekend of April 2-3, just two days before the High Court hearing, Mr Mischin repeatedly called Senator Brandis and Assistant Treasurer Kelly O’Dwyer to seek an agreement that would avert Commonwealth involvement in the case — but to no avail.

The ATO was heard in the High Court case with its arguments — that the WA laws were inconsistent with Federal tax law — used to effectively “kill” the State’s legislation.

On April 12, five days after the High Court had heard the case, Mr Mischin and Senator Brandis had what witnesses say was a “blazing row” when the two attorneys-general met in Perth. Mr Mischin told Senator Brandis he was unhappy that the Commonwealth intervened in the case on the grounds pursued in court.

On May 16, the High Court ruled 7-0 that the legislation, which sought to elevate the Insurance Commission of WA to the front of the queue of creditors, was “invalid in its entirety”.

It led to Senator Brandis believing Mr Gleeson, as the second law officer, had disobeyed instructions from him, the first law officer, the Federal source said.

On May 4, Senator Brandis issued a directive that any department or agency seeking legal opinion from the Solicitor-General must first get Attorney-General approval.

Gleeson resigned in light of the directive. Brandis has since withdrawn the directive as the Senate looked set to vote it down.

The legislation sought to change the ordinary distribution of funds to creditors. As I noted in my earlier post, in the ordinary course of things, the Insurance Commission of Western Australia which stood to benefit from the legislation would have ranked well below secured creditors such as the ATO. However, the High Court held that the Bell Act was invalid because it was inconsistent with Federal law (see s 109 of the Constitution) specifically, the provisions of the Income Tax Assessment Act 1936 (Cth) and the Taxation Administration Act 1953 (Cth) (collectively, the Tax Acts).

It is particularly interesting to note that Gageler J (the former Solicitor-General immediately prior to Gleeson) expressly endorsed Gleeson’s submissions in this regard. At [54] of his submissions to the Court, Gleeson said:

The basic problem is that the drafter of the Bell Act has either forgotten the existence of the Tax Legislation, or decided to proceed blithely in disregard of its existence. No mechanism has been provided for in the Bell Act to allow for the continued operation or paramountcy of the Tax Legislation.

At [98] of his judgment, Gageler J said:

The Commissioner concludes his written submissions with the observation that the basic problem here is that the drafter of the Bell Act either has forgotten the existence of the Tax Acts or has decided to proceed blithely in disregard of their existence. That, indeed, is the basic problem.

If The Western Australian’s report of what Brandis said is correct (Brandis has neither confirmed or denied the reports), this case will surely highlight the tensions in the role of Solicitor-General. As other academics have noted (see here and here), there is a tension between the Solicitor-General’s roles as advocate for the government and as promoter of government policy, and a question as to how independent the Solicitor-General can be from government. If Gleeson’s role is properly understood as advocating for Federal agencies, then the advice to not advance a certain argument in the ATO’s favour is inappropriate. If Gleeson’s role is conversely understood as being required to advance government policy as decided by the Attorney-General, then Brandis advising Gleeson with regard to argument is appropriate.

It seems to me that it is preferable to have a Solicitor-General who is independent of the Attorney-General, and who advances arguments on behalf of Federal agencies in accordance with their interests when required to do so. The silver lining to the affair may be that the role of Solicitor-General will be further clarified.

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About Katy Barnett

Katy Barnett is an Associate Professor at Melbourne Law School. She was awarded her PhD in 2010, and it was published in 2012 by Hart Publishing as a monograph entitled Accounting for Profit for Breach of Contract: Theory and Practice. In 2013 she was a visiting scholar with Brasenose College, Oxford as part of the Melbourne-Oxford Faculty Exchange.

10 thoughts on “News: Bell Group case led to Attorney-General and Solicitor-General rift

  1. I don’t think there has EVER previously been a suggestion that the Solicitor-General’s role has required the S-G to advance government policy ahead of the law of the land. It would be a shocking suggestion, even from this government and this Attorney-General. And one notes that the government is not even running that argument, at least in public.

    • Indeed. If the law of land arguably prevents a particular action, then it is incumbent upon the Solicitor General to raise that argument as an independent legal officer. I think Gleeson behaved entirely appropriately and indeed the High Court found his argument compelling. I was trying to get at the issue that there’s a question of who’s boss here. Regardless of who’s boss, if the allegations as to Brandis’ conduct are correct, he has behaved inappropriately. You can’t just ignore the law to make a political deal, in my personal opinion.

  2. On the other hand, as I understand it neither the Commonwealth nor the AG was a party to the case. The Attorney-General has a right to intervene under s 78A of the Judiciary Act, but he or she does not have to use that right. There is at least one other case where, for example, the Commonwealth Attorney-General did not intervene to defend the validity of a Commonwealth law that was under challenge (Ruhani (No 1)). In the Bell group case, the plaintiffs took the constitutional point and were represented by Bret Walker SC. So it’s not as if the point was not being raised, or dealt with by competent counsel.

    • Thanks, anonymous. I did not know about the Ruhani case. And, yes, that is something that has puzzled me – surely, regardless of Gleeson’s advice, Counsel would have raised the Tax Act point in any case? I have to confess that until now, I hadn’t turned my mind to how the role of the Solicitor-General works in detail, and what exactly his or her role is in the circumstances where a Federal agency is involved.

  3. The SG is bound to follow the instructions of the entity instructing him-in this case the Commonwealth and the ATO.If the Government believes that the entity should run a case a particular way,it is up to them to instruct the entity accordingly.
    It does seem that this is a bit of a storm in a teacup,as the AG did intervene in the proceedings and the Commonwealth and the ATO made the same submissions to the Court through the SG.It is difficult to believe that the AG did not sight the submissions before they were filed,and approve them.

  4. One aspect of this entire case that has been overlooked is that the Solicitor-General was potentially acting in circumstances of a conflict of interest.

    Contrary to what ‘anonymous’ says, above, the Attorney-General did intervene and the S-G appearred for both the A-G and the Commissioner of Taxation.

    The Commissioner of Taxation is an independent statutory office holder with duties and functions defined by statute. It is entirely possible that the interests of the A-G and the Commissioner of Taxation will diverge, as it seems they may have in the Bell case. In that case, there is a conflict between the interests of the Commissioner and those of the A-G representing the executive government that should have required the S-G to withdraw from acting for one or both parties.

    I think too much is being made of the supposed ‘independence’ of the S-G. No lawyer, from the humblest practitioner in the Magistrates Court to the S-G in the High Court, acts independently of the (lawful) instructions of his or her client.

  5. Jason’s comment is not “contrary” to mine. My point was not that the AG did not intervene, it was that the AG did not have to do so. If the AG had decided he didn’t want to raise the point, he could have decided not to intervene. I have heard that the AG he did so decide. And that the Tax Commissioner then sought leave to intervene to take the point. It then appeared odd the AG was not there to advance the constitutional point; hence the AG then intervened (as of right), but in circumstances where he had planned not to.

  6. Laura Tingle on this issue – well worth a read – covers the issues of when Brandis intervened and on what bases. She concludes as follows:

    While abseiling and super-glued protesters, random positions on backpacker tax and other issues might all seem more colourful, knowing just what the country’s first law officer did about $300 million of taxpayers funds being siphoned off in a clear breach of the constitution, and why, should remain a question that doesn’t go away.

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