Clive Palmer and the bankruptcy ‘Star Chamber’? The granting of powers of inquiry to courts under Ch III of the Constitution

BY DAN WESTBURY

04.05.2017

In Palmer v Ayers, the High Court considered the congruence of powers of examination given to the Federal Court in its supervision of bankruptcy with Chapter III of the Constitution. In modern constitutional law, the separation of the judicial power of the Commonwealth by Chapter III of the Constitution is fundamental. It represents ‘the Constitution’s only general guarantee of due process.’[1] Chapter III continues to take up a substantial portion of the High Court’s constitutional caseload (at the date of writing there are at least four cases concerning Ch III issues scheduled for hearing).

Palmer v Ayers was, essentially, a case about two issues:

a) The scope of a ‘matter’ as a criterion for a particular power to be classified as a judicial power, and

b) The role of history in determining if a particular power is judicial.

The Court also considered whether the powers of examination are incidental to judicial power and thereby permitted by s 51(xxxix) of the Constitution, but this aspect of the case will not be considered in this post.

Background

In January 2016, Queensland Nickel, a company Clive Palmer owned, had been placed into voluntary administration, and its creditors subsequently voted to liquidate it. The company was up to $110 million in debt. The insolvency had been due to several factors, including a global slump in nickel prices, but there were allegations it was also due to poor management. Around $21 million had been donated to the Palmer United Party (Mr Palmer’s political party). In August 2016, Mr Palmer (and another former director of Queensland Nickel) had been subject to a Federal Court summons under to apply ex parte for a Federal Court summons for former directors of a company in administration. Once in the Federal Court, under the Court’s supervision, the applicants are able to examine the former directors about the ‘examinable affairs’ of the corporation.

Mr Palmer’s submission was that s 596A was invalid because it conferred a non-judicial power on the Federal Court, contrary to Ch III of the Constitution. It was argued this provision conferred onto a Ch III Court a power which was inquisitorial in nature, and did not pertain to a ‘matter’, or ‘controversy’, as between parties to a dispute. The liquidators, the Commonwealth government and intervening States argued that the conferral of the power in s 596A was valid, and was analogous to powers of enquiry in the courts of equity in their historical supervision of bankruptcy and administration.

Section 596A has previously been subject to litigation in the High Court in Gould v Brown. There, only three judges considered the Ch III issue and two said in obiter that s 596A was valid. However, Gaudron J held the power of examination ‘taken alone’ was invalid, being ‘simply a power to obtain information’.

Section 115 of the Companies Act 1862 (UK), which conferred on the English Court of Chancery a similar power to order an examination into the affairs of a company in the process of winding up, is an historical precedent to s 596A. In the 1884 case of Re Greys Brewery Company, Justice Chitty of the Chancery Division called this provision the ‘Star Chamber clause’. This was a reference to the old English Court of Star Chamber, an inquisitorial body which persecuted enemies of the King, courted great controversy and had been abolished.

There is a strong tradition against powers of inquisition in common law courts. This is partly due to the experience of the Court of Star Chamber. Nevertheless, powers of inquiry are often granted to courts today, typically in their supervision of corporations and bankruptcy. In Rees v Kratzmann, Windeyer J said that while there was a general rule in common law courts not to exercise power unless attached to a claim of legal right, there was less resistance to inquisitorial processes in the courts of equity, ‘and in the bankruptcy jurisdiction it has been largely displaced.’ This meant the practices of the Court of Chancery, whose jurisdiction emanated from the practice of petitioning the King, became considered part of what was ‘peculiarly appropriate for judicial performance.’

In oral argument in Palmer v Ayres, Mr Palmer’s counsel, David Jackson QC said:

At the heart of the case, in our submission, is the extent to which ‘history’ … may be taken into account in determining whether the conferral by the Commonwealth of powers on federal or State courts is conferral of federal jurisdiction in terms of Chapter III.

But ‘history’ was not at the heart of the Court’s judgment. The Court instead focused on what was thought to be the definition of ‘matter’.

‘Matter’ in the constitutional sense

In Huddart, Parker & Co v Moorehead, Griffith CJ said judicial power was the power to resolve ‘controversies’ involving existing rights and obligations – in other words, ‘matters’. The classic definition of ‘matter’ was enunciated by the Court in Re Judiciary and Navigation Acts, where it was said to be ‘the subject-matter for determination in a legal proceeding’, and there was no matter unless there was an ‘immediate right, duty or liability’ to be established by the Court’s judgment (emphasis added). In Re Judiciary, legislation which allowed the High Court to give an advisory opinion on any question of law the Governor-General referred to it was struck down.

The decision of Re Judiciary has been subject to criticism. In his book The Federal Judicature: Chapter III of the Constitution, Stellios argues that the rigidity of the requirement of an ‘immediate right, duty or liability’ results in uncertainty and inconvenience for legislators and loses sight of the rationale for the separation of judicial power – impartiality from the political branches of government. Some judges have also doubted the strict requirement of an ‘immediate right’. In Re McBain, Callinan J suggested eliminating the requirement of an ‘immediate’ right, duty or liability. In Palmer v Ayers, the majority seems to have taken that step.

The joint judgment of Kiefel, Keane, Nettle and Gordon JJ held the definition of a ‘matter’ could accommodate potential rights and liabilities. Their honours defined matter ‘in the constitutional sense’ as ‘controversies which might come before a Court or Justice’ (emphasis in original). They said that a ‘controversy’ can mean a number of things provided it is genuine, and not ‘an advisory opinion divorced from a controversy.’ The requirement of ‘immediacy’ from Re Judiciary has gone from this formulation, and what remains is a controversy regarding a claim of legal rights, even though such a right may only be potential and never established. For the joint judgment, s 596A was valid because it ‘look[ed] forward’ to a potential future claim as a ‘matter’ – the possibility ‘information gathered in the course of an examination … will support a claim for relief against the examinee or some other person.’

This definition of ‘matter’ is more consonant with the spirit of Re Judiciary rather than the letter. It provides a more certain constitutional foundation for pre-trial procedures such as motions for discovery which do not, in the strict sense, constitute ‘immediate’ rights and privileges. Nevertheless, these powers are necessary for Courts to exercise ‘to ensure … justice [is] done in litigation … in the offing’. The example of a Court’s parens patriae jurisdiction to make orders as to the welfare of a child is another example of a power which, on its face, fails the requirement for immediate rights and privileges. These kinds of orders are often not made in the context of a legal dispute between parties, but a broader dispute about the welfare of the child in question.

 ‘Justified by historical usage’?

In R v Davison, Kitto J said the framers of the Constitution understood judicial power to be defined in part by the ‘skills and professional habits’ of the people administering it. Therefore, judicial power can be defined by reference to what would have been regarded as ‘peculiarly appropriate for judicial performance’ at time of the Constitution’s drafting. In the past decade on the High Court, Ch III issues have often centred on a historical or contemporary analogue for the power in question. In Thomas v Mowbray, Gummow and Crennan JJ upheld anti-terrorist control orders partly by comparing them to writs of supplicavit issued by the Court of Chancery to detain individuals where there was a threat to life.

The power of examination which was the subject of Palmer was previously considered by French J (as he then was) in Highstroke v Hayes Knight. In that case, his Honour said such a power could only be judicial if it was ‘justified by historical usage.’ The case of Saraceni v Jones upheld the provisions on the basis that ‘[t]he power of a court to conduct compulsory examinations of bankrupts and persons associated with companies in liquidation is one of very long standing and predates federation.’

However, in Palmer, the majority disagreed with the position in Saraceni and qualified the comments of Kitto J in Davison. Their honours did not see ‘history alone’ as an appropriate basis for characterising judicial power. Conceptually, the position after Palmer is that while it may be persuasive to a Court that a judicial power has a historical analogue, there is no exception to the rule that judicial power is the power to resolve controversies relating to existing rights if the power in question is one historically exercised by Courts. The historical comparison to a judicial power is merely indicative of validity.

Justice Gageler held that the argument based on whether a historical analogue justified the examination was premised on a ‘conception of constitutional history that is too narrow.’ According to his Honour, the ‘modern regulatory state’ required powers to be conferred onto courts which have no historical or contemporary analogue. His Honour held the power in s 596A went beyond its historical precedent, but not to the extent that it was a power to inquire detached from a controversy. His Honour warned that even through the approach taken to characterising judicial power was flexible, the Court should retain ‘fidelity to the values that inform the separation of the judicial power.’

The ramifications of the decision for human rights legislation

An example of novel legislation granting unprecedented powers to courts is in the human rights context. In Victoria and the ACT, Courts have been granted power to make declarations that a statute cannot be interpreted consistently with human rights. In Victoria this occurs under s 36(2) of the Charter of Human Rights and Responsibilities Act 2006 (Vic).  

The constitutional validity of the Victorian provision was considered in Momcilovic v The Queen. The Court was ultimately divided on the matter. No judge held that the power was judicial and connected to a matter. In their judgment, Crennan and Kiefel JJ held that the declaration was not connected to a ‘matter’ because it didn’t ‘create’ rights, duties or liabilities, so was not prima facie judicial. Chief Justice French said the power was non-judicial because it would not produce a foreseeable consequence to the parties to the case.

If the matter returns to the Court, it is possible that these positions may change in the light of Palmer, and specifically the majority’s ruling that all that is required is a genuine controversy, and a right may never be established. A claim for relief in the form of a declaratory declaration that a statute infringes human rights in many cases will be connected to a matter, such as a criminal prosecution or a dispute with the state.

Conclusion

While Montesquieu wrote ‘there is no liberty, if the judicial power be not separated from the executive and the legislative’, this case demonstrates the High Court falling further away from ‘Montesquieuan fundamentalism’ to see the role of a court in a twenty-first century context. The abandoning of the requirement for an ‘immediate’ right, duty or liability in lieu of a ‘potential’ right duty or liability allows the state, to some extent, greater scope to use the impartial powers of a judge, particularly in contexts involving limitations on fundamental rights.

[1] Re Tracey; Ex parte Ryan (1989) 166 CLR 518, 580 (Deane J).

Dan Westbury is is an undergraduate student at the University of Tasmania, currently in his penultimate year of a Bachelor of Arts and Bachelor of Laws degree.  Dan wishes to thank Dr Brendan Gogarty, Anja Hilkemeijer, Dr Gabrielle Appleby and the AUSPUBLAW editorial board for their comments and feedback incorporated into earlier drafts of this piece, and their encouragement in preparing it. 

Suggested citation:  Dan Westbury  ‘Clive Palmer and the bankruptcy ‘Star Chamber’?  The granting of powers of inquiry to courts under Ch III of the Constitution‘ on AUSPUBLAW  (4 May 2017) <https://auspublaw.org/blog/2017/05/clive-palmer-and-the-bankruptcy-star-chamber/>