Examine away - The power to conduct examinations pursuant to section 596a of the Corporations Act is confirmed after Mr Palmer's constitutional challenge

Thursday, 13 April 2017

As mainstream media have widely reported, following the winding up of Queensland Nickel, Mr Clive Palmer sought declarations and orders from the High Court that the examination power conferred under the Corporations Act 2001 (Cth) (Act) was invalid.

The hearing was held on 10 November 2016. The following morning, the High Court made orders dismissing the appeal with reasons to follow. The examinations in relation to Queensland Nickel have commenced.

On 8 February 2017 the High Court handed down its decision in the matters of Palmer v Ayres and Ferguson v Ayres [2017] HCA 5.

In each of the cases, the question put to the Full Court for consideration was whether section 596A of the Act was 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. The High Court determined that the provisions are valid and the appeals were dismissed.

Brief background of matters

Queensland Nickel Pty Ltd (QN) was placed into administration, and then subsequently wound up pursuant to section 429C(c) of the Act. John Park, Kelly-Anne Trenfield, Stefan Dopking and Quentin Olde of FTI Consulting were appointed liquidators of QN.

Marcus Ayres, Stephen Parbery and Michael Owen of PPB Advisory were later appointed as Special Purpose Liquidators to QN pursuant to sections 511 and 472(1) of the Act.

Pursuant to section 596A of the Act, the Court is to summon a person for examination about a corporation's examinable affairs if:

  • An eligible applicant applies for the summons; and
  • The Court is satisfied that the person is an officer or provisional liquidator of the corporation or was such an officer or provisional liquidator during or after the 2 years ending [on the occurrence of a specified event].

An eligible applicant includes a Liquidator.

The Special Purpose Liquidators applied for, and obtained orders from the Federal Court for: -

  • The issue of summonses under section 596A of the Act from the Federal Court. The Summonses required, amongst other things, for two former directors of QN, Clive Palmer and Ian Ferguson, to attend an examination in relation to the examinable affairs of QN; and 
  • An order under sections 596D(2) and 597(9) of the Act, requiring each of Mr Palmer and Mr Ferguson to produce at their examination specified books in their possession relating to QN or to any of its examinable affairs.

In response, Mr Palmer and Mr Ferguson each brought proceedings in the High Court seeking (amongst other things) a declaration that the Summons Order was invalid, a declaration that section 596A of the Act does not constitute a valid conferral of power upon the Federal Court to the extent that it is exercised in conjunction with section 511 of the Act, and an injunction permanently restraining the Special Purpose Liquidators from further pursuing proceedings pursuant to the Summons Order.

Argument by Mr Palmer and Mr Ferguson 

Mr Palmer's legal team submitted to the Court that the power of a Court to summons a person pursuant to section 596A of the Act was invalid as being contrary to Ch III of the Constitution for the following reasons:-

  • The section 596A power does not fall within the "core" or "practical conception" of judicial power under section 71 of the Constitution and does not satisfy the functional test identified by Griffith CJ in Huddart, Parker & Co Pty Ltd v Moorehead1 or by Kitto J in R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd;2
  • The section 596A power is not incidental or ancillary to the exercise of judicial power, at least in respect of a voluntary winding up;
  • The section 596A power is not sufficiently analogous to pre-Federation judicially exercised powers to qualify as judicial power or, alternatively, reasoning from historical analogues should no longer be followed;
  • The section 596A power is incompatible with, or falls outside, the judicial power of the Commonwealth; and
  • There was no "matter" in the constitutional sense to engage the judicial power of the Commonwealth.

Mr Ferguson's legal team adopted the same position but also submitted that the section 596A power is incompatible with, or falls outside, the judicial power of the Commonwealth.

Reasoning of the High Court

The Court did not accept the submission that although Parliament had conferred federal jurisdiction on Federal and State courts (pursuant to section 71 of the Constitution), conferral in respect of s 596A was invalid because there was no "matter" in the constitutional sense to engage the judicial power of the Commonwealth.

Section 76(ii) of the Constitution provides that the Parliament may make laws conferring original jurisdiction on the High Court in any matter "arising under any laws made by the Parliament".

The Court determined that: -

  • The power under section 596A of the Act that requires a court to order an examination does not take the court beyond the role of supervising an administration;.
  • The Court retains the power to stay or otherwise deal with an examination (eg. if there was an abuse of process), retaining the judicial nature of the powers to be exercised; and
  • The purpose of Part 5.9 of the Act is to aid parties (such as liquidators) in carrying out their duties.

Conclusion 

Whilst adopting different reasoning, the High Court unanimously determined that section 596A of the Act does not confer non-judicial power on Federal Courts or on courts exercising federal jurisdiction, and as such is not invalid as being contrary to Chapter III of the Constitution.

This decision means that there was no identified constitutional basis to challenge section 596A of the Act, and this section can continue to be utilised by liquidators to examine parties regarding the examinable affairs of a corporation.

The examination of Mr Palmer and others is continuing before the Federal Court.

This article was written by Warren Jiear, Partner and Sarah Hamilton, Senior Associate. 


1(1909) 8 CLR 330 at 357
2(1970) 123 CLR 367 at 374 

Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 13 April 2017. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.