More than a quarter of a century ago, the Bell Group of companies – central to the ‘WA Inc’ saga – collapsed. Two weeks ago, in Bell Group NV (in liq) v Western Australia (‘Bell Group‘) the High Court held invalid the Western Australian government’s attempt to put an end to the litigation that has surrounded the distribution of the companies’ assets.
This is not the first time the Bell litigation has been to the High Court; nor, one suspects, will it be the last. It is, however, the first constitutional chapter in the litigation, specifically involving an application of s 109 of the Constitution.
Since their collapse, the Bell Group companies have generated a continuous stream of litigation. Commencing in 1995, an action by the companies’ liquidators against banks who had refinanced the companies’ debts while the companies were already failing finally settled in late 2013. This followed a 2,600-page judgment at first instance and a one-off $4 million injection of funds into the WA court system solely to cover the costs of the appeal.
This litigation was substantially funded by the Insurance Commission of Western Australia (‘ICWA’), a State Government-owned body. Under the litigation funding agreement, ICWA – and, therefore, the WA Government – was entitled to a large proportion of the $1.7 billion settlement amount.
There was, however, a problem for the WA Government. Further litigation around the myriad of complex claims on the Bell Group companies’ resources is expected. Worse still, ICWA is but one of many creditors of Bell Group companies, and an unsecured creditor at that. If the liquidation of the companies proceeds according to the usual processes, ICWA could be waiting many years before finding out how much (if any) money it was to receive.
The Bell Act
The Western Australian Government’s solution to this problem was the Bell Group Companies (Finalisation of Matters and Distribution of Proceeds) Act 2015 (WA) (‘the Bell Act’). A lengthy objects section (s 4) explained that the Act aimed ‘to provide a mechanism, that avoids litigation, for the distribution of [the funds from the Bell settlement]’. The further objects specified in the section emphasise two things: first, the avoidance of ‘further litigation that will waste the resources of the State and other persons’ and, second, providing ‘appropriate compensation’ to those who funded the Bell litigation (including, of course, ICWA).
The scheme of the Bell Act was, in short, to create a statutory authority (the WA Bell Companies Administrator Authority (‘the Authority’)) to carry out the administration of the Bell Group companies according to the principles established by the Bell Act rather than those established by the Corporations Act 2001 (Cth). The Act included the following key elements:
- The Authority was made the administrator of each Bell Group company.
- All property of the Bell Group companies was transferred to the Authority.
- The Authority was to determine the property and liabilities of each Bell Group company, and report that information to the Minister, together with the Authority’s recommendation as to the amount to be paid to each creditor.
- In determining the liabilities of each company (including amount and priority), the Authority had ‘absolute discretion’, was not bound by the rules of natural justice, and did not have to provide reasons.
- The Minister was to submit the Authority’s report to the Governor, who had broad discretion to determine that an amount be paid, or property transferred, to a creditor. There was no obligation on the Governor to transfer any money or property at all. Any surplus left after the Governor’s determinations went to the WA Government.
- If the Governor made no determination that a person was to receive money or property, that person’s claim on the assets of the Bell Group companies was extinguished. Ongoing proceedings concerning property of the Bell Group companies were stayed.
In view of the objects of the Act, it could have been expected that the Authority’s report might have recommended a substantial payment to ICWA, and certainly more than it could expect to receive as one of many unsecured creditors in a conventional distribution of assets.
The Bell Group companies and some of their creditors challenged the validity of the Bell Act on two grounds. The High Court unanimously held the Bell Act was inconsistent with Commonwealth tax legislation and thus invalid in its entirety. This made it unnecessary to consider the alternative argument that the Bell Act breached Chapter III of the Constitution. French CJ, Kiefel, Bell, Keane, Nettle and Gordon JJ delivered a joint judgment, with Gageler J delivering a separate concurring judgment.
Section 109 inconsistency
The plaintiffs argued that the Bell Act was inconsistent with provisions of Commonwealth tax and corporations legislation. The Attorney-General of the Commonwealth and the Commissioner of Taxation intervened in support of this position. The High Court had little difficulty concluding the Bell Act was inconsistent with provisions of the Income Tax Assessment Act 1936 (Cth) and the Taxation Administration Act 1953 (Cth) (together ‘the Tax Acts’). It was therefore unnecessary to consider whether the Bell Act was also inconsistent with the provisions in the Corporations Act 2001 (Cth) for distribution of the assets of insolvent companies.
The Commissioner had assessed the Bell Group companies’ unpaid tax liability at $450 million. Under the Commonwealth tax legislation, this liability was a debt due to the Commonwealth. Yet, as the authors of the joint judgment explained, the Bell Act gave the Authority discretion to determine the existence and extent of the Bell Group companies’ liability to the Commissioner; and gave the Governor power to decide whether to make any payment to the Commissioner, or to extinguish the liability by making no determination. In short, under the scheme created by the Bell Act, ‘Commonwealth tax debts are stripped of the characteristics ascribed to them by the Tax Acts’. The Bell Act therefore altered, impaired or detracted from the Commonwealth’s rights created under Commonwealth laws.
In addition, the joint judgment held that the Bell Act was inconsistent with the obligations of liquidators under the Tax Acts. These include an obligation to set aside, from the assets of the company in liquidation, an amount sufficient to cover the company’s tax debts. By transferring all the Bell Group companies’ assets to the Authority, the Bell Act made it impossible for the liquidator to meet those obligations. Therefore, again, the Bell Act altered, impaired or detracted from the effect of the Tax Acts. Moreover, this case just goes to show how important working with some of the best Tax Accountants Brisbane has to offer can be. Put simply, for businesses, when it comes down to accounting and taxes, everything needs to be perfectly in order.
Gageler J, in his separate judgment, found inconsistency in the case, and therefore did not find it necessary to consider whether there was also inconsistency in the sense discussed in the previous paragraph. Gageler J concludes with this scathing assessment of the WA legislation:
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.
The Court considered whether the offending aspects of the Bell Act could be severed or read down. They held this was not possible. The Bell Act was ‘a package of interrelated provisions which appears intended to operate fully and completely according to its terms’. If, for example, s 22 of the Act (which provided for the transfer of the companies’ property to the Authority) were severed, the Authority would be left with little or no work to do. If the Act were read down so as to allow the tax liabilities to be recovered, the pool of assets left to distribute would be very different from that the legislature contemplated. The Court could only conclude that the Bell Act was ‘invalid in its entirety’.
The joint judgment arguably continues the shift, evident in the earlier case of Momcilovic, away from the traditional three tests of inconsistency (impossible to obey both laws; conflicting rights, privileges or entitlements; covering the field) in favour of a careful comparison of the interpretation and operation of the competing laws in each case. The Court’s preferred formulation of the test for ‘direct inconsistency’ is whether the State law significantly ‘alters, impairs or detracts’ from the Commonwealth law. The terms ‘alter, impair or detract’ – like the term ‘jurisdictional error’ – seem to describe the outcome of a process of statutory construction, rather than necessarily assisting with that process. Because the fact situation in this case lent itself to a neat application of the ‘alter, impair or detract’ test of inconsistency, it is difficult to draw any broader conclusions about the trajectory of the s 109 jurisprudence.
An intriguing argument for invalidity was based on Chapter III of the Constitution. This argument turned on the fact that several proceedings concerning the property of the Bell Group companies were already on foot and involved the exercise of federal jurisdiction by the Supreme Court of Western Australia. The plaintiffs argued, in effect, that the Bell Act would interfere with the exercise of federal judicial power by rendering those proceedings nugatory. This argument seemed to run counter to a line of cases establishing that legislative interference with the substantive rights in issue in legal proceedings does not amount to an exercise of, or interference with, judicial power (see, eg, Australian Building Construction Employees’ and Builders Labourers’ Federation v Commonwealth (1986); HA Bachrach Pty Ltd v Qld (1998)). A related, but perhaps more persuasive, argument was that the Bell Act was inconsistent with s 39(2) of the Judiciary Act 1903 (Cth), which vests State courts with federal jurisdiction.
In the event, the High Court did not find it necessary to determine these issues because of their conclusion on inconsistency.
Resolution of this constitutional chapter in Bell Group was, in the end, relatively straightforward. The case does not establish any significant new constitutional principles, instead being a clear illustration of the application of the ‘alter, impair or detract’ test of inconsistency. WA Premier Colin Barnett was philosophical about the decision, saying the Bell Act was ‘always a long shot‘. The Act, which aimed to bring to an end the litigation surrounding the Bell Group companies, achieved precisely the opposite effect. Thus ends another chapter in the Bell Group story. As the liquidation of the companies proceeds, we can expect many more chapters to come.
Dr Anna Olijnyk is a lecturer at the Adelaide School of Law, University of Adelaide.
Suggested citation: Anna Olijnyk, ‘Bell Group NV (in liq) v Western Australia: A constitutional chapter in a very long story’ on AUSPUBLAW (7 June 2016)