Section 44 of the Constitution: Expecting the Unexpected

If you place yourself, for a moment, back one year to 2016, it is hard to imagine that s 44 of the Australian Constitution would be such a cause celebre in 2017.[1]  Section 44 states that ‘any person who:

  1. is under any acknowledgement of allegiance, obedience, or adherence to a foreign power, or is a subject or a citizen or entitled to the rights or privileges of a subject or citizen of a foreign power: or
  2. is attainted of treason, or has been convicted and is under sentence, or subject to be sentenced, for any offence punishable under the law of the Commonwealth or of a State by imprisonment for one year or longer: or
  3. is an undischarged bankrupt or insolvent: or
  4. holds any office of profit under the Crown, or any pension payable during the pleasure of the Crown out of any of the revenues of the Commonwealth: or
  5. has any direct or indirect pecuniary interest in any agreement with the Public Service of the Commonwealth otherwise than as a member and in common with the other members of an incorporated company consisting of more than twenty-five persons:

shall be incapable of being chosen or of sitting as a senator or a member of the House of Representatives.’  Although s 44 has been recommended for amendment by past Constitutional Commissions due to the uncertainty created by its drafting,[2] few anticipated the breadth of its impact in 2017.

In 2016, a Family First Party senator resigned from parliament following the liquidation of his home-building business, and was then subject of High Court proceedings in 2017 under s 44(v), having leased his electorate office in a building which he partly owned.  The High Court held this indirect pecuniary interest in an agreement with the Commonwealth in early 2016 rendered him ineligible for nomination as a senator later that year, and his seat was declared vacant.[3]  A similar challenge is currently underway in relation to a Nationals MP, who owns a shopping complex which leases premises to an Australia Post licencee.[4]  The effect of s 44(ii) led to a former One Nation senator being ‘incapable of being chosen’[5] as a member of the Senate, and could also have led to the ejection of three Federal ministers, who made statements alleging political bias in the Supreme Court of Victoria in a terrorism case the subject of an appeal at that time, if those statements had led to convictions for contempt.[6]  There has been a significant amount of attention to s 44(i) in recent months, following the resignation of two Greens Senators for dual-citizenship.[7]  As this post progressed from concept to the written word, two further members of parliament were referred to the High Court as Court of Disputed Returns to determine their eligibility for election under the same provision, bringing the current number of members of parliament referred to the High Court under s 44(i) to seven.[8]  A Greens candidate who might replace one of the resigned senators has also sought clarification on whether having been an employee of the Australian National University at the time of nomination would disqualify him under s 44(iv).[9]

The only sub-section which has not yet caused issue in 2017 is sub-section (iii), which results in the ineligibility of an ‘undischarged bankrupt or insolvent’ – but only by the slimmest of margins.  The High Court decision on the ineligibility of the former One Nation senator under s 44(ii) in Re Culleton [No 2] [2017] HCA 4 mentioned above came on the same day that the Full Federal Court upheld a sequestration order made by the Federal Court in 2016, and that the former senator was consequently bankrupt.[10]  This would have led to his ineligibility under s 44(iii), had the decision of the High Court on s 44(ii) not already been handed down.

It is somewhat surprising that s 44(iii) has not proven more contentious.[11]  The section references two states: ‘bankrupt’ and ‘insolvent’.  Initially, this may seem curious as it is generally understand in law that individual persons can become bankrupt and companies become insolvent.  As companies are ineligible to stand for parliament, the provision appears to gain nothing by making reference to the state of insolvency.  There is some history behind the use of both words, as at the time of drafting, some states had bankruptcy laws and some had insolvency laws, as discussed by the High Court in Nile v Wood [1987] HCA 62, [17].  There was also some debate at the time of drafting as to whether this disqualifying ground should even be included in s 44.[12]

There is now the general definition of ‘solvent’ in the Corporations Act 2001 (Cth) s 95A(1), when a person is able to pay their debts when they become due and payable, from which the definition of insolvency is derived as ‘not solvent’ in s 95A(2).  By contrast, s 7 of the Bankruptcy Act 1966 (Cth) declares that a sequestration order (the necessary set to establishing a person’s status as bankrupt: Bankruptcy Act 1966 (Cth) s 43(2)) shall not be made against a corporation, nor does a corporation have the ability to present a debtor’s petition to become bankrupt.  Consequently, an individual may be either bankrupt or insolvent, but a company may not be bankrupt.  Should s 44 be recommended for revision in light of recent events, this unnecessary duplication in s 44(iii) could be removed.

Nile v Wood [1987] HCA 62 also established that the adjective ‘undischarged’ in s 44(iii) attaches to both bankrupt and insolvent – that is, the section requires the formal status of a declared bankrupt or insolvent, not the mere adjectival state of insolvency as being a person who currently cannot pay their debts as and when they fall due.[13]  This sits in stark contrast to the liability of company directors under Corporations Act 2001 (Cth), s 588G.  A director may be found responsible for permitting the company to trade while insolvent, even though, at the time of incurring the debt, no formal finding of insolvency had yet been made.  Directors have no protection on the basis that there was only an adjectival state of insolvency, and not a formally declared state of insolvency.[14]  Should we permit those who put themselves forward or indeed sit in parliament to be held to a lesser standard?  Justice Nettle, in the Ford Memorial Lecture given 2017, contrasted the duty of care expected from directors to other public officers, such as union officials and members of parliament.

If s 44 is recommended for review, the terms of reference should include consideration of the purpose of s 44(iii) under a modern understanding of insolvency, and whether either ‘undischarged’ or ‘undischarged bankrupt’ should be removed.

Dr Beth Nosworthy

 

[1] The author must acknowledge a decidedly infrequent consideration of the Constitution in general since the completion of her law degree, with the exception of s 51(xx) as it pertains to the incorporation of corporations.

[2] House of Representatives Standing Committee on Legal and Constitutional Affairs (July 1997) “Aspects of Section 44 of the Australian Constitution—Subsections 44(i) and (iv)”, 8.

[3] Re Day [No 2] [2017] HCA 14.

[4] http://www.smh.com.au/federal-politics/political-news/turnbull-government-at-threat-as-labor-plans-high-court-challenge-20170706-gx6b7q.html

[5] Re Culleton [No 2] [2017] HCA 4, [4].

[6] https://www.theguardian.com/australia-news/2017/jun/23/coalition-ministers-no-contempt-charges-court-accepts-apology

[7] http://www.abc.net.au/news/2017-07-18/larissa-waters-greens-resigns-senate-over-citizenship-bungle/8720066

[8] http://www.sbs.com.au/news/article/2017/08/20/high-court-hearings-dual-citizenship-expected-october-brandis

[9] http://www.skynews.com.au/news/politics/federal/2017/07/20/bartlett-dismisses-ineligibility-claims.html

[10] Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8, [3].

[11] Of the 160 cases listed by the WestlawAU case citator FirstPoint as referencing s 44 of the Constitution, only four refer to s 44(iii).

[12] See, eg, the discussion in http://www.cefa.org.au/ccf/why-can%E2%80%99t-bankrupt-person-sit-parliament (1 November 2016).

[13] Nile v Wood [1987] HCA 62, [16].  This reasoning was applied in Nile v Wood [No 2] (1988) 167 CLR 133 and Sykes v Australian Electoral Commission [1993] HCA 36.

[14] The defences in Corporations Act 2001 (Cth) s 588H include the director having reasonable grounds to expect solvency; reasonable belief based on a competent and reliable person’s advice as to solvency; non-participation in management due to ill health or other good reason; or taking all reasonable steps to prevent the incurring of the debt.

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