This week’s TGIF considers Clive Palmer’s recent challenges to the constitutionality of the Court’s power under the Corporations Act to issue examination summonses.

What happened?

On 18 January 2016, administrators were appointed to Queensland Nickel Pty Ltd (QNI) pursuant to s 436A of the Corporations Act 2001 (Act). The creditors subsequently resolved that QNI be voluntarily wound up and the administrators were appointed as liquidators (the General Purpose Liquidators).

On 18 May 2016, the Commonwealth of Australia and the Commissioner of Taxation, each being creditors of QNI, together with Messrs Parbery, Ayres and Owen applied to the Federal Court for an order appointing Messrs Parbery, Ayres and Owen as Special Purpose Liquidators, and such an order was made by Dowsett J.

On 2 August 2016, on the application of the Special Purpose Liquidators, a Registrar issued summonses for examination on Mr Clive Palmer and Mr Ian Ferguson, who had each been a director of QNI, and Mr Daren Wolfe, who had been the Company Secretary, and later the CFO of QNI.

Four days before the summonses were returnable, each of the recipients sought to have them set aside.

Is the power conferred on Courts to issue examination summonses constitutionally valid?

The principal issue raised by the applicants was a constitutional question – whether the power conferred upon the Federal Court by ss 596A and 596B of theAct was a judicial power (or a power incidental to a judicial power) and therefore constitutionally valid.

The applicants argued that an examination was purely investigative in its function; it did not resolve any dispute or determine any rights but was directed to ascertaining the true state of a company’s affairs. Whilst it was accepted by the applicants that where the wind up is ordered by the Court, the examination may be valid as incidental to the Court’s power to order a winding up, it was contended that, in the context of a voluntary winding up, the power to compel a person to Court to be examined was not judicial in character.

The decision at first instance

Justice Greenwood held that the conferral of the power was not unconstitutional and cited the principle that a judicial power will be validly conferred if the power is characterised as the same as, or analogous to, a power historically or traditionally conferred upon Courts.

In reaching this conclusion, Greenwood J referred to the reasons of McLure P in the West Australian Court of Appeal decision in Saraceni.[1]

In the course of that judgment, the President examined the history in Australia of companies legislation and noted that the historical powers of examinations in both court-ordered and voluntary liquidations originated from legislation enacted in the United Kingdom in 1862. These powers came to be understood as powers properly conferred upon a Court because they engaged, first, an application to the Court and second, the continuing supervision of the examination process.

Greenwood J observed that, notwithstanding the fact that the Court does not resolve or determine any rights by the examination process, it controlled the examination because of its power to give directions and supervise the process. As such, these powers should be properly construed as the proper exercise of judicial power.

The applicants also argued that the summonses were oppressive because they overlapped with summonses for examination issued earlier on the application of the General Purpose Liquidators. This argument was dismissed on the basis that the earlier summonses had not been served, stood adjourned and no basis for the claim of oppression by reason of overlap had been established.

Application for leave to appeal

Mr Palmer sought leave to appeal from the orders of Greenwood J and requested a stay of the examination proceedings. The application was heard by Perram J with judgment delivered that same day.[2]

Before his Honour, Mr Palmer argued that the analogy with historical court examination procedures referred to by Greenwood J and in Saraceni was insufficient because the historical procedure involved the exercise of the Court’s discretion whereas the s 596A procedure did not. Under the current regime, where an “eligible applicant” applies and the preconditions are met, the summons must be issued.

Justice Perram held that ground had no prospect of success because the fact that the summons “is issued as a matter of right rather than as a matter of discretion does not seem to intersect in the constitutional plane”, noting also that the summons was issued by the Special Purpose Liquidators who were appointed by the Court, making it difficult to see how the examination could not be ancillary or collateral to the Court’s supervision.

Mr Palmer also sought leave on the ground that the summons was an abuse of process. It was argued that, given s 596A only permits an examination of a person about something one does not know, if the liquidators had not reviewed the documents obtained, they should not be permitted to conduct the examination.

Justice Perram rejected this as speculative and observed that an abuse of process argument could not be extracted from the proposition that the liquidator had not yet read documents or had not continued to conclusion his process of consideration.

Comment

On 12 September 2016, Mr Palmer commenced proceedings in the original jurisdiction of the High Court challenging whether or not s 596A requires the Court to undertake a non-judicial task.

This constitutional challenge to the Court’s power to issue examination summonses presents the High Court with an opportunity to rule decisively on the point, and to comment on the nature and scope of the power.

Kiefel ACJ has referred the matter to the Full Court and it will likely be heard in November this year.