High Court rejects Clive Palmer’s constitutional challenge to liquidator’s power: when is a matter a matter?

In November 2016, the High Court of Australia heard a challenge brought by Clive Palmer in respect of the constitutional validity of the power of a liquidator to examine a former director of a company before the court.  At the conclusion of that hearing, Kiefel J, as her Honour then was, stated that the Court was unanimously of the view that the challenge had failed and that reasons would be published later.  Yesterday the High Court published those reasons.

The proceedings

In 2016 Queensland Nickel Pty Ltd, of which Mr Palmer was a director, was placed in liquidation. Special purpose liquidators were also appointed to the company.  The special purpose liquidators subsequently sought and obtained an order for the issuing of a summons pursuant to s.596A of the Corporations Act to Mr Palmer (and others) for the purposes of being publically examined by the special purpose liquidators about the company’s affairs.  Mr Palmer subsequently commenced proceedings in the High Court of Australia seeking to argue that section 596A was constitutionally invalid.

His argument? That s 596A offends the judicial power of the Commonwealth (such as the Federal Court) conferred by Chapter III of the Australian Constitution. Put simply, the judicial power of the Commonwealth  can only be exercised by a court, and a court can only exercise judicial power. Mr Palmer sought to argue that the examination of directors conferred a non-judicial power on a court. The authorities make clear that for an issue to be justiciable, that is, able to be considered by a court, there must be a “matter”.

What’s the “matter”?

The crux of Mr Palmer’s position was that when a director is being examined before the court there is no “matter” to be determined. For the judicial power to be engaged, there must be a “matter”.  “Matter” in this context has been defined by the High Court in the ubiquitous case of Re Judiciary and Navigation Acts (1921) 29 CLR 257 as:

some right or privilege or protection given by law, or the prevention, redress or punishment of some act inhibited by law.”

As an examination under the impugned section is inquisitorial or investigative, in that the summons grounding the examination does not seek final relief or the determination of any question of fact or law, Mr Palmer argued that there was no right, duty, or liability to be the subject of a determination by the court. In turn he argued that this meant there was no matter for a court to decide. If this were so, it was submitted by Mr Palmer that the power to examine a former director would amount to the court behaving in a non-judicial manner, which would offend the judicial power of the Commonwealth, and thereby be unconstitutional.

In finding that an examination of former directors did go to a “matter”, the Court set out the purpose of section 596A. Essentially, examining a former director allows a liquidator to gather information as to where the company’s assets are and how they can be realised. For instance, as a result of the examination the liquidators may identify a potential right of relief against a wrongdoer, whether that be the person being examined or a third party. The court acknowledged that, given the forgoing, an examination may be a “matter” in that a potential right, duty or liability may arise as a direct result of the process.

The plurality of Kiefel, Keane, Nettle, and Gordon JJ described Mr Palmer’s argument as “proceeding from a misunderstanding of the concept of “matter’”. The plurality emphasised that the requirement for a “matter” does not mean that there has to be a proceeding on foot, rather it simply mean that it is a legal controversy that may come before a court. It is not necessary that a proceeding exist for which the court creates a right, duty or liability. Rather, what is required is some genuine dispute that may effect a right, duty or liability. That is, you cannot go to the court to ask for a judicial opinion without a dispute between two or more parties.

Examination of former directors

In confirming its constitutional validity, the court acknowledged to point out that the power to bring former directors of a company in liquidation before it for examination is not a new power: it has a long history and is a powerful tool available to liquidators to ensure that all potential assets of a company in liquidation is realized.

While this decision will not affect the way in which these examinations take place, it firmly secures their legal foundation and serves as a reminder of their value to liquidators.

Contributors

Luke Dominish Lawyer
Joel Cook Senior Associate