Palmer v Ayres; Ferguson v Ayres [2017] HCA 5 [2017] HCA 5: Corporation's Examinable Affairs

Today (8 February 2017), the High Court has delivered its judgment in the ruling of Palmer v Ayres; Ferguson v Ayres [2017] HCA 5 which was decided in hearing on 10 November 2016 with judgment reserved.

Background to the Case

The plaintiff in each proceeding – Mr Palmer and Mr Ferguson – were a former director of Queensland Nickel Pty Ltd (QN).  QN was placed under administration and the creditors of QN subsequently resolved that QN be wound up in insolvency.  Additional liquidators of QN were subsequently appointed by an order of the Federal Court of Australia (the Special Purpose Liquidators). 

The Special Purpose Liquidators applied to the Federal Court for, and obtained, an order for the issue of a summons under s 596A of the Corporations Act 2001 (Cth) requiring, among others, Mr Palmer and Mr Ferguson to attend for examination about QN's examinable affairs.  Mr Palmer and Mr Ferguson both attended the Federal Court and were each examined.

Basis of the High Court Claim

Mr Palmer and Mr Ferguson then each filed a writ of summons in the High Court.  In each proceeding, the plaintiffs made five submissions in support:

• First, that the power to summon a person under s 596A did not satisfy the functional or ‘classical’ test of judicial power, and thus does not fall within the core of the Commonwealth’s judicial power;
• Secondly, it is not incidental or ancillary to the exercise of judicial power in the context of voluntary winding up;
• Thirdly, it is not sufficiently analogous to a power historically exercised by courts at the time of Federation;
• Or, fourthly, in the alternative, this historical test is no longer appropriate; and
• Fifthly, the lack of discretion afforded to a court, its enlistment in the process of pre-litigation investigation, and the extraordinary nature of the power together mean it is incompatible with or falls outside federal judicial power.

The following question was then reserved for the consideration of a Full Court – is s 596A of the Corporations Act invalid as contrary to Ch III of the Constitution in that it confers non-judicial power on Federal courts and on courts exercising Federal jurisdiction?

The High Court Judgment

The High Court unanimously rejected all of the above challenges holding that an application for the issue of a summons for mandatory examination under s 596A is a "matter" in the constitutional sense and its determination engages the judicial power of the Commonwealth.  Therefore, s 596A does not confer non-judicial power on Federal courts or on courts exercising Federal jurisdiction and so is not invalid as contrary to Ch III of the Constitution.

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Palmer v Ayres; Ferguson v Ayres [2017] HCA 5 (8 February 2017)

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