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This post was contributed by Georgia Allen, a CRU Intern:

S 44 – Disqualification

Any person who:

(v) 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 sitting as a senator or a member of the House of Representatives.

In April 2017, the Full Bench of the High Court, sitting as the Court of Disputed Returns, held in Re Day that Senator Bob Day was “incapable of” (i.e. disqualified from) sitting as a Senator by virtue of section 44(v) of the Constitution. Day had sought to avail himself of the rental income from his Commonwealth-funded office accommodation entitlement whilst avoiding the operation of section 44(v), by interposing an elaborate web of companies and trusts between himself and a property he beneficially owned, which was subsequently leased by the Commonwealth to house his electorate office. This attempt failed.

The Full Bench held that Day had an indirect pecuniary interest in the lease between the Department of Finance and the registered proprietor of the building (a company called Fullarton Investments, which was the trustee of the Fullarton Road Trust, of which the Day Family Trust was a beneficiary), as the recipient company name and bank account nominated by Fullarton Investments to receive payments from the Commonwealth under the lease were owned by Day. As such, Day became disqualified from sitting in the Senate by at least February 26, 2016, the date that the direction for the payment of rent into Day’s bank account was first given.

In doing so, the High Court unanimously overruled the only prior decision on the operation of section 44(v). In Re Webster, a 1975 case, Chief Justice Barwick sitting alone as the Court of Disputed Returns adopted a restricted (and arguably obsolete) purposive construction of section 44(v) that confined the section to pecuniary interests in agreements with the Commonwealth Public Service which could result in influence by the Executive over the parliamentarian in relation to parliamentary affairs, by the very existence of the agreement or by something done or refrained from being done in relation to the agreement or its subject matter.

In Re Day, the High Court emphasised that the Founders’ intention for the section was actually two-fold, with section 44(v) introduced for the dual purposes of: (1) protecting against conflicts of interest that might lead a parliamentarian to give priority to his or her own pecuniary interests over the public interest; and (2) the avoidance of Executive influence over the Parliament. Furthermore, the inclusion of indirect pecuniary interests and the 25-shareholder company exception to section 44(v) both demonstrate that parliamentarians cannot interpose companies or other entities to cloak their pecuniary interests.

Whilst it is now clear that section 44(v) prohibits a broader range of interests than previously thought, significant uncertainty remains about the outer limits of the section. Issues such as are State-owned corporations part of the “Public Service of the Commonwealth” and how far removed must an indirect pecuniary interest in an agreement be before it falls beyond the scope of the section are currently unresolved. The Alley v Gillespie case, presently before the High Court, should elucidate these issues further.

ALLEY V GILLESPIE

Dr David Gillespie, Nationals MP and the current Assistant Minister for Health, replaced Rob Oakeshott MP as the member for Lyne in the House of Representatives in the September 2013 election, and was subsequently re-elected in July 2016. Goldenboot Pty Ltd, Gillespie’s family company, owns a shopping centre complex in Port Macquarie and one of its tenants has a licensing agreement with Australia Post to operate as an Australia Post outlet.

Peter Alley, the unsuccessful Labor candidate for the seat of Lyne in the 2013 and 2016 elections, has brought an action under the Common Informers (Parliamentary Disqualifications) Act 1975 challenging Gillespie’s eligibility for office. Alley argues that Gillespie has an indirect pecuniary interest in an agreement with the Commonwealth Public Service (namely, the licensing agreement with Australia Post) contrary to section 44(v), rendering him incapable of sitting as a member of the House of Representatives. Furthermore, if this licensing agreement was executed prior to the 2013 and/or 2016 elections, it is argued that Gillespie was “incapable of being chosen” under section 44(v) (i.e. standing for election in the first place).

In a Directions Hearing on 29 September 2017, Bell J referred two preliminary questions to the Full Bench of the High Court under section 18 of the Judiciary Act 1903. In short: (1) can and should the High Court decide whether Gillespie is a person declared by the Constitution to be incapable of sitting as a member of the House of Representatives under the Common Informers Act, and (2) if yes, whether the policy of the law regarding common informers directs the High Court to refuse to issue subpoenas by which to establish the relevant facts of the case. The Court will consider these preliminary issues at a hearing on 12 December 2017. Whether Gillespie’s eligibility under section 44(v) will be considered by the High Court will depend upon the outcome of that hearing.

THE AUSTRALIA POST OUTLET AND SECTION 44(V)

Agreement with the “Public Service of the Commonwealth”

Alley’s case may well fall at the first hurdle if it cannot be demonstrated that Australia Post, a government business enterprise, is a part of the “Public Service of the Commonwealth”.

Keane and Gageler JJ mounted convincing arguments in separate judgments in Re Day, that the reference to “the Public Service of the Commonwealth” imposes a textual limitation on the scope of the section. The “Public Service of the Commonwealth” refers to those officers of the Executive Government of the Commonwealth within the departments of State, as described in section 64 of the Constitution, and not to “the Commonwealth” as a whole. The accompanying sections in Part IV of the Constitution support this distinction – the “Public Service of the Commonwealth” can be contrasted with the broader references to “the Crown” in section 44(iv) and “the Commonwealth” in section 45(iii).

On the other hand, Nettle and Gordon JJ argued that this distinction “is without practical or legal content”, as all agreements made in the course of Commonwealth government business will ordinarily be negotiated by members of the Public Service of the Commonwealth. This interpretation is less persuasive. The fact that a public servant has negotiated an agreement does not necessarily mean that the agreement can be characterised as one with the Public Service of the Commonwealth, unless one of the departments or its officers is a party to it.

As the joint judgment of Kiefel CJ, Bell and Edelman JJ did not address this issue, however, it is unclear how the Full Bench will characterise “the Public Service of the Commonwealth” in Alley v Gillespie.

Tony Blackshield has suggested that the parties’ arguments will surround the precise effect of the Australian Postal Corporation Act 1989 on the status of Australia Post and may make reference to sections such as: the community service obligations and general governmental obligations imposed on Australia Post under sections 27-28, the fact that Australia Post is not subject to direction by or on behalf of the Commonwealth Government under section 50, and the fact that Australia Post does not have an entitlement to any immunity or privilege of the Commonwealth under section 90A.

As a result of its corporatisation in 1989, it could be held that Australia Post is no longer a part of “the Commonwealth” at all, but is merely a company owned by the Commonwealth with separate corporate personality. If this is incorrect, however, it may be the case that an agreement with Australia Post is an agreement with “the Commonwealth” but not with the “Public Service of the Commonwealth”, as Australia Post is not a section 64 department.

Direct or indirect pecuniary interest in an agreement

It is clear from Re Day that a “pecuniary interest” is an interest sounding in money or money’s worth, and may consist of a gain or loss. It is also apparent that a pecuniary interest does not have to be a legal, equitable or legally enforceable interest, with regard had to the practical consequences of the performance or non-performance of the agreement.

Furthermore, all judgments recognised that agreements ordinarily entered into by the Commonwealth with its citizens (such as the payment of a passport fee to the Department of Foreign Affairs, for example) are not within the ambit of section 44(v). As stated by Keane J, “[g]iven the purpose that informs section 44(v), there is no reason to expand its disqualifying effect to any person who might obtain a pecuniary benefit [or loss] conferred by the Commonwealth which is available generally to the community.” Instead, the textual limitations restrict the section to agreements giving rise to a particular interest in an individual case which may result in a conflict of duty and interest.

The distinction between a contract ordinarily entered into and a contract giving rise to a particular interest in an individual case, however, is difficult to determine. Whether a licensing agreement is a type of contract ordinarily entered into by the Commonwealth and its citizens, for example, is open to debate – Australia Post’s franchise model means that such an agreement is available to ordinary members of the public, however, the fact that the licensing agreement is not a day-to-day transaction may give it a special character.

Finally, all judgments accepted that the mere possibility of a pecuniary benefit conditional upon the exercise of another’s discretion is enough to trigger the section, such as distributions under a discretionary trust or the payment of dividends to a shareholder at the discretion of the board. Beyond this, however, no bright line emerges from the four judgments in Re Day regarding when an indirect or direct pecuniary interest will be “in” an agreement.

The Court rejected the Commonwealth Attorney-General’s submission that section 44(v) should apply when, objectively, there is a real risk that a person could be influenced, or be perceived to be influenced, in relation to parliamentary affairs, by a direct or indirect pecuniary interest, as a reliance on perception is vague, impressionistic and/or evaluative. Gageler J instead suggested that there must be a “practical commercial likelihood” of a conflict of interest, whereas Nettle and Gordon JJ held that it would be sufficient if the parliamentarian “could conceivably be influenced”. What is required to satisfy these thresholds however, remains unclear.

Similarly, what constitutes an “indirect pecuniary interest” is also uncertain. Although a majority of the court approved the definition of an indirect interest given by Gavan Duffy J in Ford v Andrews (Gageler, Keane, Nettle and Gordon JJ), the definition itself is open to interpretation.

A man is directly interested in a contract if he is a party to it, he is indirectly interested if he has the expectation of a benefit dependent on the performance of the contract; but in either case the interest must be in the contract, that is to say, the relation between the interest and the contract must be immediate and not merely connected by a mediate chain of possibilities.

For example, Gillespie’s alleged indirect pecuniary interest could be viewed by the Court as connected to the licensing agreement by a mediate chain of possibilities rather than being “in” the licensing agreement itself. Arguably, Gillespie’s indirect pecuniary interest is actually in the payment of rent under the lease, which may or may not depend on the tenant being licensed to operate as an Australia Post outlet.

On the other hand, in having regard to the practical consequences of the performance or non-performance of the licensing agreement, it could be argued that as a shareholder in the landlord company, Gillespie has an indirect financial interest in the agreement between Australia Post and the tenant staying on foot, as a termination of the agreement may result in the loss of rent. This “could conceivably” result in a conflict of interest should Australia Post be the subject of parliamentary business. How this potential conflict of interest could affect Gillespie’s capacity to operate impartially, however, is questionable, unless the Parliament sought to legislate to close all Australia Post outlets, for example.

The meaning of a “mediate chain of possibilities” cannot be ascertained from the reasoning in the three judgments that adopt it either. Gageler, Nettle and Gordon JJ all held that Day had three potential indirect disqualifying pecuniary interests in the lease, including that the rental monies would eventually be used to help repay a bank loan of which Day was guarantor, even though the rent would have to change hands three times before it reached the bank, if it did at all. As such, Day’s interest in the payment of rent in his capacity as guarantor does not appear immediate, but rather connected to the lease by a mediate chain of possibilities.

In short, how far removed an indirect pecuniary interest must be from the underlying agreement for it to fall outside of section 44(v), and thus whether Gillespie’s shareholding in Goldenboot can give rise to a pecuniary interest in the licensing agreement, remains unclear.

PROPOSALS FOR REFORM

Whilst the other subsections of section 44 have been the topic of regular analysis and debate since the 1980s, very few have considered reform of section 44(v) in depth.

In 1981, the Commonwealth Parliament’s Standing Committee on Constitutional and Legal Affairs recommended in its report The Constitutional Qualifications of Members of Parliament that consideration should be given to the need for amendment to section 44(v), despite the section being beyond its terms of reference. The Committee was concerned that candidates and members may be unwittingly disqualified as a consequence of its operation. The Government Response stated that the Attorney-General would give further consideration to this issue with a view to developing a specific proposal for reform, however, no such proposal was developed.

The 1988 Constitutional Commission recommended that the Constitution be reformed to explicitly provide that Parliament have the power to disqualify a member of Parliament who holds interests which might constitute a risk of a conflict of interest. Such a change does not appear necessary after the decision in Re Day.

The Australian Democrats have on four separate occasions proposed bills to address the perceived limitations of section 44, but none were fully debated nor passed into law. For example, the Constitution Alteration (Qualifications and Disqualifications of Members of the Parliament) Bill 1992 proposed to give the Parliament the power to make laws with respect to “the interests, direct and indirect, pecuniary or otherwise, the holding of which by a person shall render him incapable of being chosen or of sitting as a senator or a member of the House of Representatives” in a new section 45A.

Unless the High Court sheds more light on the limits of section 44(v) in Alley v Gillespie, reform to the section may be desirable to ensure the greatest certainty of operation for parliamentarians. As the joint judgment of Kiefel CJ, Bell and Edelman JJ forcefully opined, section 44(v) has a “special status” as it is “protective of matters which are fundamental to the Constitution, namely representative and responsible government in a democracy.” It cannot fulfil this important function, however, if Senators and members of the House of Representatives do not know where they stand.

Whether the Parliament would be brave enough to propose a reform to section 44(v) and whether the Australian public would be willing to vote for it in a referendum, however, seems unlikely in the current political climate. Such a proposal would arguably be viewed as self-serving and unnecessary – designed to cloak the perceived incompetence of the politicians and political parties impugned in the Citizenship Seven saga rather than to serve a purpose that is in the national interest.

SUGGESTED CITATION: Georgia Allen, 'Alley v Gillespie and the Uncertain Scope of Section 44(v)', Constitutional Critique, 8 November 2017, (Constitutional Reform Unit Blog, University of Sydney, http://blogs.usyd.edu.au/cru/).