The New South Wales Court of Appeal in State of New South Wales v Le [2017] NSWCA 290 has found that transport police had the power to detain a passenger for the purpose of checking that he had a valid Opal card for travel on public transport.

The passenger had been stopped by transport police at a train station and asked to produce his Opal card. The passenger produced an Opal card which bore the endorsement “senior/pensioner”. The passenger was then asked to produce his pensioner or student concession card. After producing a pensioner concession card, the passenger was asked to supply photo identification, such as a driver’s licence. He did not supply any form of photo identification, but, when asked, gave his date of birth. While his details were being checked over the radio, the passenger said “this is my train by the way guys. Can I …” An officer replied that until they had finished “you’re not leaving.” The passenger asked if he was under arrest and was told that he was not but that he was being detained to confirm that the card was his and was not stolen. Within a matter of seconds, the passenger was told that he was free to go.

The passenger brought proceedings in the District Court of New South Wales claiming damages for assault and false imprisonment. At the trial the claim for assault was abandoned. The claim for false imprisonment was upheld and the passenger was awarded damages in the amount of $3,201. The State sought leave to appeal from the judgment.

The Court of Appeal (Basten, Leeming and Payne JJA) unanimously granted leave to appeal, and allowed the appeal and set aside the award of damages.

Nature of the detention

The Court said that the label of “false imprisonment” was inappropriate in the circumstances because what had occurred was a brief interruption of the passenger’s intended progress – a temporary detention. Detention, the Court explained, involved a temporary deprivation of liberty and was distinct from arrest, which in turn was distinct from imprisonment and holding in custody (at [3]).

The Court said that the first question which arose in the case was to identify the nature of the alleged detention as a person would not be detained in the relevant sense if his or her departure from a planned course was:

• voluntary; or
• at the request or direction of another person, consensual; or
• as a result of the exigencies of everyday events, such as being caught up in a crowd (at [4]-[5]).

The test to be applied was objective in the sense that the Court had to determine what a reasonable person in the particular circumstances of the passenger would have inferred from the officer’s conduct (at [7]).

Applying this test, the Court found that the passenger’s participation in the events had been consensual up to the time that he had been told that “you’re not leaving”. However, from the time those words had been spoken, the Court said that it was reasonable to infer that the passenger had been non-consensually detained (at [9]).

Justification for the detention

As there had been a non-consensual detention, the question then arose as to whether there was legal justification for it. The Court found that the detention was justified on the basis of cll 77C and 77E of the Passenger Transport Regulation 2007 (NSW) (since repealed).

Cl 77C which dealt with concession tickets relevantly provided as follows:

“(1)   A person must not travel, or attempt to travel, on a public passenger vehicle or train on the authority of a concession ticket unless the person is entitled to the concession ticket.

…

(2)   The driver of a public passenger vehicle or an authorised officer may direct a person:

…

(c)   who makes a concession ticket available for inspection under this Division,

to produce to the driver or authorised officer evidence (for example, the person’s pensioner or student concession card) that the person is entitled to the concession ticket.

(3)   A person who is given such a direction must immediately comply with it.

…

(5)   A person must not:

(a)   in or in connection with an application for a concession ticket or the issue or purchase of a concession ticket, or

(b)   in purported compliance with a requirement made under this clause,

knowingly give any information or tender any document that contains a false or misleading particular with respect to the age, occupation or status of the person to whom the application or direction relates.”

Under cl 77E, a person was required to make his or her ticket available for inspection by an authorised officer on that officer’s request if the person, amongst other things, was on or had just left a public passenger vehicle, or was on a train or was in or had just left the restricted area of a station. The Court said that, for the purposes of cl 77C(2), it appeared that the Opal card had been made available for inspection to the officer on request pursuant to cl 77E (at [11]).

Two issues then arose as to the operation of cl 77C(2). The first issue was whether the officers had been entitled to direct the passenger to produce a driver’s licence or some other form of photo identification as “evidence” that he was entitled to the concession ticket (at [14]). The passenger argued that they were not because the production of either of the two concession cards (the person’s pensioner or student concession card) had exhausted the scope of the officers’ powers. However, the Court rejected this argument for the following reasons (at [15]):

• It appeared to substitute the word “either” for the phrase “for example” by requiring that either one or other card was sufficient.
• It gave no work to the word “evidence”, terminology which was not readily equated with a simple requirement to produce an appropriate concession card.

The passenger then argued that the Court should consider whether the request for further identification had been ‘reasonable’, according to some objective standard. This argument was also rejected for the following reasons (at [16]-[17]):

• The purpose of cl 77C(2) was to allow an officer to verify that the person who had produced a concession ticket was entitled to it. While the request for further information had to be made in good faith by an officer who did not know who the ticket holder was, where the production of the concession card did not allow that link to be made, it was not unreasonable for the officer to seek further evidence, which in this case had been provided in the form of a date of birth.
• The term “evidence” referred to a document or information sufficient to satisfy the relevant officer of the connection between the person being questioned and the entitlement to a concession ticket. While, arguably, the officer’s determination as to sufficiency could be challengeable on judicial review grounds, the Court was not entitled to form its own opinion, as opposed to testing the rationality and good faith of the opinion formed by the officer.

The second issue which arose as to the operation of cl 77C(2) – described by the Court as the “critical question” – was whether cl 77C(2) carried within it an implied power to stop and detain a person for the purpose of the giving of a direction and the production of evidence as there were no express words authorising an officer to require a person to stop, listen to the direction and remain until the inquiry had been completed (at [18]-[19]).

On this issue, the Court said that the conferral of a power under cl 77E to request a ticket for inspection, subject to a penalty for non-compliance, necessarily implied a power to make the request and, if necessary, to stop the person to allow the request to be made and responded to, and that the same reasoning applied to cl 77C(2). Therefore, the steps taken by the officer to direct the production of evidence demonstrating entitlement to the concession ticket carried with it the implied power to detain the person whilst those steps were undertaken (at [19]). The Court further said as follows (at [19]-[20]):

• The fact that cl 77C(3) required that the person “immediately comply” with the direction demonstrated that the time of the detention would be short and that a failure to comply would form the basis for taking other steps, including arrest if an offence had been committed, although that stage had not been reached in the case in question.
• To impose a tighter constraint on the powers conferred by cl 77C(2) would not give best effect to the purpose of the legislative scheme because it would force officers to move immediately to exercise their far more intrusive powers of arrest when confronted with non-compliance.

Accordingly, the Court concluded that the officers were justified in the steps they had taken in stopping and detaining the passenger in order to obtain production of his Opal card and evidence of his entitlement to a concession card.

Introduction

The High Court of Australia sitting as the Court of Disputed Returns in Re Canavan; Re Ludlam; Re Waters; Re Roberts [No 2]; Re Joyce; Re Nash; Re Xenophon [2017] HCA 45 has found that five members or former members of the Commonwealth Parliament were disqualified by reason of s 44(i) of the Commonwealth Constitution because they were dual citizens at the date of nomination for election to the Parliament.

Section 44(i)

Section 44 of the Constitution relevantly provides that any person who:

“(i) is under any acknowledgment 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 a citizen of a foreign power; …

shall be incapable of being chosen or of sitting as a senator or a member of the House of Representatives.”

Under s 45(i) of the Constitution, the place of a senator or a member of the House of Representatives who becomes subject to any of the disabilities referred to in s 44 will become vacant.

Summary of proceedings and findings

Questions relating to the qualifications of six senators or former senators and one member of the House of Representatives were referred to the Court of Disputed Returns in circumstances in which there was material to suggest that each of the referred persons held dual citizenship at the date he or she nominated for election as a senator or member of the House of Representatives. The principal legal issue raised by the references was the proper construction of “a subject or a citizen  … of a foreign power”.

The references were dealt with by the Full Court (Kiefel CJ, Bell, Gageler, Keane, Nettle, Gordon and Edelman JJ) which unanimously found that five of the seven parliamentarians were disqualified by reason of foreign citizenship. In making these findings, the Court summarised the proper construction of s 44(i) as follows (at [71]-[72]):

• Section 44(i) operated to render “incapable of being chosen or of sitting” persons who had the status of subject or citizen of a foreign power. Whether a person had that status was determined by the law of the relevant foreign power. Proof of the person’s knowledge of his or her foreign citizenship status (or of facts that might put a person on inquiry as to the possibility that he or she was a foreign citizen) was not necessary to bring about the disqualifying operation of s 44(i).
• A person who, at the time that he or she nominated for election, retained the status of subject or citizen of a foreign power would be disqualified by reason of s 44(i), except where the operation of the foreign law was contrary to the constitutional imperative that an Australian citizen not be irremediably prevented by foreign law from participation in representative government. Where it could be shown that the person had taken all steps that were reasonably required by the foreign law to renounce his or her citizenship and within his or her power, the constitutional imperative was engaged.

The Court said (at [19]; see also [13]) that this was the proper construction of s 44(i) because:

• it adhered most closely to the ordinary and natural meaning of the language of s 44(i);
• it accorded with the views of a majority of the Justices in Sykes v Cleary [1992] HCA 60; (1992) 176 CLR 77, the authority of which had been accepted by all parties;
• the drafting history of s 44(i) did not warrant a different conclusion; and
• it avoided the uncertainty and instability that attended the alternative approaches to the construction of s 44(i).

Court’s reasoning on s 44(i)

Text and structure of s 44(i)

Although in Sykes v Cleary, Brennan J had considered that s 44(i) consisted of three categories of disqualification, for the sake of clarity, the Court adopted a two-limb classification as follows:

• The first limb disqualified a person who was under any “acknowledgment” (connoting an act involving an exercise of the will of the person) of the specified kind. Thus, the words “under any acknowledgment” captured any person who had formally or informally acknowledged allegiance, obedience or adherence to a foreign power and who had not withdrawn or revoked the acknowledgment to that foreign power.
• The second limb disqualified a person who was a subject or a citizen or entitled to the rights or privileges of a subject or a citizen of a foreign power. The words “subject”, “citizen” and “entitled to the rights” connoted a state of affairs involving the existence of a status or of rights under the law of the foreign power.

Thus, the Court observed that s 44(i) expressly drew a distinction between a voluntary act of allegiance by a person on the one hand, and a state of affairs existing under foreign law, being the status of subjecthood or citizenship or the existence of the rights or privileges of subjecthood or citizenship, on the other (at [20]-[23]).

Purpose of s 44(i)

After noting that a majority in Sykes v Cleary had said that the purpose of s 44(i) was to ensure that members of the Commonwealth Parliament did not have a split allegiance, or did not owe allegiance to a foreign power, the Court said that it was clear that the first limb of s 44(i) pursued this purpose by looking to the conduct of the person whereas the second limb did not look to conduct manifesting an actual split in the allegiance of the person or to the person’s subjective feelings of allegiance but instead operated to disqualify the person whether or not he or she was, in fact, minded to act upon his or her duty of allegiance. Thus, as the Court further said, as a matter of the ordinary and natural meaning of the second limb, there was no requirement to prove actual allegiance as a state of mind because the second limb was concerned with the existence of a duty to a foreign power as an aspect of the status of citizenship (at [24]-[26]).

The Court then examined the drafting history of s 44(i) and concluded that this supported the wider purpose of s 44(i) which the ordinary and natural meaning of its language suggested (at [27]-[36]).

Role of foreign law

The Court explained the role of foreign law as follows (at [37]-[46]):

• Whether a person had the status of a subject or a citizen of a foreign power necessarily depended upon the law of the foreign power concerned because only that law could be the source of the status of citizenship or of the rights and duties involved in that status. That was the position adopted by all members of the Court in Sykes v Cleary and by a majority in Sue v Hill [1999] HCA 30; (1999) 199 CLR 462.
• However, all members of the Court in Sykes v Cleary had accepted that foreign law could not be determinative of the operation of s 44(i). Thus, s 44(i) would not be applied by an Australian court to disqualify a person by reason of foreign citizenship where this would undermine the system of representative and responsible government established under the Constitution.
• It was the clear intention of the Constitution that those of the people of the Commonwealth who were qualified to become senators or members of the House of Representatives were not to be irremediably disqualified. They were entitled to participate in representative government and the purpose of s 44(i) did not permit foreign law to deny that entitlement.
• Consistently with this, Sykes v Cleary had recognised that a foreign law could not render an Australian citizen irremediably incapable of being elected to either house of the Commonwealth Parliament and so s 44(i) would not disqualify an Australian citizen who continued to possess a foreign nationality notwithstanding that he or she had taken all reasonable steps under the relevant foreign law to divest himself or herself of that nationality.

Knowledge of foreign citizenship

The Court considered and rejected a number of alternative approaches to the construction of s 44(i), each of which would have incorporated some form of knowledge of foreign citizenship as an element of s 44(i).

One alternative approach was that s 44(i) required that foreign citizenship be voluntarily obtained or retained which imported a requirement that the person know or be wilfully blind about his or her foreign citizenship. On this approach, a natural-born Australian would be disqualified if he or she took active steps to become a foreign citizen or, after obtaining the requisite degree of knowledge that he or she was a foreign citizen, failed to take reasonable steps to renounce the foreign citizenship. In contrast, a naturalised Australian, who would ordinarily have knowledge of his or her pre-existing foreign citizenship, would be deemed, in the absence of taking reasonable steps to renounce the foreign citizenship, to have voluntarily retained it even if he or she honestly believed that naturalisation had involved renouncing the foreign citizenship (at [14]-[15]).

The Court rejected this approach for the following reasons (at [47]-[57]):

• Section 44(i) did not say that it operated only if the person knew of the disqualifying circumstance and, to read it as qualified in this way, represented a substantial departure from the ordinary and natural meaning of the text of the second limb.
• Such a condition would be inimical to the stability of representative government which required that there be certainty as to whether, as from the date of nomination, a candidate for election was capable of being chosen to sit, and of sitting, in the Commonwealth Parliament. There would need to be an investigation into the candidate’s state of mind but ss 44(i) and 45(i) provided no guidance as to the extent of knowledge which would be sufficient for the purposes of those provisions, which was not surprising since knowledge was not mentioned as an element of their operation.
• The approach echoed the approach of Deane J (dissenting on this issue) in Sykes v Cleary but Deane J’s approach was to be rejected because:
  • It drew no support from the text and structure of s 44(i).
  • It used the first limb of s 44(i), which expressly required voluntary manifestation of allegiance, to alter the ordinary and natural meaning of the second limb so that the second limb impliedly contained a similar mental element, with the result that the second limb was rendered otiose because it added nothing to the first limb in terms of pursuing the purpose of s 44(i).
  • It placed naturalised Australian citizens in a position of disadvantage with regards to natural-born Australian citizens whereas a majority in Sykes v Cleary had not supported such a distinction. The majority view in that case was correct because s 34 of the Constitution expressly drew a distinction between natural-born and naturalised Australians for the purpose of qualifying to be a candidate for election whereas s 44(i) drew no distinction between foreign citizenship by place of birth, by descent or by naturalisation. The absence of any such distinction from s 44(i) could not be a result of inadvertence by the drafters of the Constitution because the concept of citizenship by descent was commonplace at the time of federation, and because of the express provision made in s 34.

Another alternative approach, a variation on the first approach, was that s 44(i) required that a person be ‘put on notice’ of the foreign citizenship so that the person would be disqualified if he or she had knowledge of facts that, in the mind of a reasonable person taking a properly diligent approach to compliance with the Constitution, ought to have called into question the belief that he or she was not a foreign citizen and prompt proper inquiries. On this approach, s 44(i) applied only to a person who had by voluntary act acquired foreign citizenship, or exercised a right pursuant to the status of foreign citizenship, the latter being a way of describing an overt act of retention of foreign citizenship (at [17]-[18]).

The Court rejected this approach on the basis that it depended upon “the unstable distinction between overt voluntary acts and conscious omissions.” The Court said that the problems which would arise from this unstable distinction would be avoided by giving s 44(i) its natural and ordinary meaning (at [57]).

Yet another alternative approach was that s 44(i) required that foreign citizenship be chosen or maintained so that a person who had no knowledge of the foreign citizenship could not make a choice to retain or renounce the foreign citizenship (at [16]). If, having been elected to Parliament, the person then discovered that he or she was a foreign citizen, the person would have a period in which to take reasonable steps to renounce the foreign citizenship before the disqualification operated. The Court rejected this approach for the following reasons:

• There would be practical difficulties involved including the difficulties of proving or disproving a person’s state of mind in circumstances where there might be a want of candour on the part of the person and where the person’s entitlement to continue to sit in Parliament was under a cloud.
• Allowing a person, who had been elected to Parliament and who had then discovered that he or she was a foreign citizen, a period in which to take reasonable steps to renounce the foreign citizenship, would result in the person having a dual citizenship during that period, a state of affairs which could not be reconciled with the purpose of s 44(i) or s 45(i) (at [58]-[59]).

The Court then concluded on this aspect (at [60]):

“Finally, while it may be harsh to apply s 44(i) to disqualify a candidate born in Australia who has never had occasion to consider himself or herself as other than an Australian citizen and exclusively an Australian citizen, nomination for election is manifestly an occasion for serious reflection on this question; the nomination form for candidates for both the Senate and the House of Representatives requires candidates to declare that they are not rendered ineligible by s 44. It is necessary to bear in mind that the reference by a house of Parliament of a question of disqualification can arise only where the facts which establish the disqualification have been brought forward in Parliament. In the nature of things, those facts must always have been knowable. A candidate need show no greater diligence in relation to the timely discovery of those facts than the person who has successfully, albeit belatedly, brought them to the attention of the Parliament.”

Reasonable steps to renounce

The Court made points to the following effect regarding the reasonable steps necessary to renounce foreign citizenship (at [61]-[69]):

• Section 44(i) was cast in peremptory terms. Therefore, it was not concerned with whether a person had been negligent in failing to comply with its requirements. Nor did it disqualify only those who had not made reasonable efforts to conform to its requirements. This was made clear in Sykes v Cleary.
• The majority in Sykes v Cleary had said that the steps reasonably available to a candidate to free himself or herself from the ties of foreign citizenship depended on the individual’s situation, the requirements of the relevant foreign law and the extent of the connection between the individual and the foreign country.
• Thus, renouncing foreign allegiance in a naturalisation ceremony might not be sufficient if this did not meet the reasonable requirements of the foreign law for the divesting of the foreign citizenship. However, if, for example, a foreign law required that the citizens of the foreign country could renounce their citizenship only by acts of renunciation carried out in the territory of the foreign country, an Australian citizen could ignore that requirement if his or her presence within the territory could involve risks to person or property. There was no need to give further examples of when a foreign law requirement would not prevent an Australian citizen from seeking election to the Commonwealth Parliament as none of the referred persons were faced with such obstacles to freeing themselves of their foreign citizenship.

Court’s decision on the referred persons

Senator Canavan

Senator Canavan was born in Australia to Australian parents. His maternal grandparents had, however, been born in Italy and had later become naturalised Australians, the grandfather shortly before his daughter had been born and the grandmother after her daughter had been born. By becoming Australian citizens, and by making Australia their place of residence, under Italian citizenship law, the grandparents had ceased to be Italian citizens. At the time of their daughter’s birth, the fact that her mother was an Italian citizen did not confer Italian citizenship on her because the law was that only the child of a father who was an Italian citizen became an Italian citizen by birth. As Senator Canavan’s mother had been born after her father had been naturalised, Italian citizenship was not conferred on her so she was an Australian citizen only when she was born, as was Senator Canavan when he was born. However, many years later, the law was ruled to be discriminatory and unconstitutional and, by reason of a retrospective effect given to the ruling that Italian citizenship passed through both the paternal and maternal line, Senator Canavan’s mother became an Italian citizen by birth and, on one view, so did Senator Canavan retroactively to the date of his birth. However, the Court could not be satisfied that Senator Canavan was a citizen of Italy. The Court said that given the potential for Italian citizenship by descent to extend indefinitely through the generations into the public life of an adopted home, the reasonable view of Italian law was that it required that positive steps be taken as conditions precedent to Italian citizenship. As Senator Canavan had not taken any such positive steps to become an Italian citizen, he was not disqualified (at [74]-[87]).

Scott Ludlam

Mr Ludlam, a former senator, was born in New Zealand. He was 8 years old when he and his family arrived in Australia. They later became naturalised Australian citizens. At the time of his birth, under New Zealand citizenship law, Mr Ludlam was a citizen of New Zealand by birth and this had not been affected by later changes to the law. As he had not lost his citizenship by renouncing it or by ministerial order as provided for by New Zealand law at the date he nominated for election, he was disqualified by reason of his foreign citizenship (at [88]-[92]).

Larissa Waters

Ms Waters, a former senator, was born in Canada. At the time of her birth, her Australian parents had been living in Canada for study and work purposes. Her birth was registered with the Australian High Commission and she was an Australian citizen by descent. When she was aged 11 months, the family returned to live in Australia. At the time of her birth, under Canadian citizenship law, she was a natural born Canadian citizen and this was not affected by her birth having been registered with the Australian High Commission. As she had not renounced her Canadian citizenship at the time of nomination for election, she was disqualified by reason of foreign citizenship (at [93]-[98]).

Senator Roberts

Senator Roberts was born in India. His father had been born in Wales and his mother had been born in Australia. His name had been recorded in the High Commissioner’s Record of Citizens of the United Kingdom and Colonies. He was around 7 years of age when he and his family moved to Australia and he later became a naturalised Australian citizen. Under the citizenship law of the United Kingdom, by virtue of his father’s nationality, he was born a citizen of the United Kingdom and Colonies and later, after a change in law, had become a British citizen by descent. He only ceased to be a British citizen on the registration of his declaration of renunciation of citizenship as provided for by the law of the United Kingdom. As this occurred on a date after he had nominated for election as a senator, he was found to be incapable of being chosen or sitting as a senator under s 44(i) (at [99]-[103]).

The Hon Barnaby Joyce MP

Mr Joyce was born in Australia. His father had been born in New Zealand and his mother in Australia. At the time of his birth, under New Zealand citizenship law, Mr Joyce became a New Zealand citizen by descent because his father had been a New Zealand citizen. Although his father had subsequently become a naturalised Australian citizen resulting in his ceasing to be a New Zealand citizen, this renunciation had operated with prospective effect only and had not affected his son’s status as a New Zealand citizen. That status could only be lost by renunciation or, in limited circumstances, by ministerial order, neither of which had occurred at the date of Mr Joyce’s nomination for election. Accordingly, Mr Joyce was incapable of being chosen or sitting as a member of the House of Representatives (at [104]-[111]).

Senator Nash

Senator Nash was born in Australia. Her father had been born in Scotland and her mother in Australia. At the time of Senator Nash’s birth, her father had been a citizen of the United Kingdom and colonies otherwise then by descent so, as a person who had been born a legitimate child outside the United Kingdom and colonies to such a father, Senator Nash had become a citizen of the United Kingdom and colonies by descent and then, as a result of changes to the law, had later acquired the right of abode in the United Kingdom and finally had become a British citizen. She remained a British citizen as at the date of her nomination as a senator, having not renounced that status and not having been deprived of it, and, accordingly, she was incapable of being chosen or sitting as a senator by reason of s 44(i) (at [112]-[119]).

Senator Xenophon

Senator Xenophon was born in Australia. His father had been born in Cyprus and his mother had been born in Greece. After Senator Xenophon’s birth, both parents had become naturalised Australians. Prior to his first election as a senator, Senator Xenophon had renounced any entitlement that he might have had to the citizenship of Greece or Cyprus. However, the island of Cyprus had been a British possession when Senator Xenophon’s father had been born and Senator Xenophon’s father had been deemed to be a natural-born British subject. After changes in the law, the father had been reclassified as a citizen of the United Kingdom and colonies otherwise than by descent without the right of abode, which was not affected by his naturalisation as an Australian citizen, and then later as a “British Overseas Citizen” (”BOC”). When Senator Xenophon was born, as a legitimate child of a father who was a citizen of the United Kingdom and colonies otherwise than by descent, he automatically became a citizen of the United Kingdom and colonies by descent without the right of abode, and was also subsequently reclassified as a BOC. He was then a BOC at the time he nominated for election as a senator. However, in the Court’s view, a BOC was not a citizen of a foreign power for the purposes of s 44(i) because the status of BOC did not confer the rights or privileges of a citizen as that term was generally understood as a BOC did not have the right to enter or reside in the United Kingdom. The Court also said that, having regard to the purpose of s 44(i) which was to ensure that members of the Commonwealth Parliament did not have a split allegiance, it did not appear that Senator Xenophon’s status as a BOC entailed any reciprocal obligation of allegiance to the United Kingdom per se or to Her Majesty the Queen in right of the United Kingdom. Accordingly, Senator Xenophon was not disqualified as a foreign citizen (at [120]-[135]).

Earlier this year, in Australian Securities and Investments Commission, in the matter of NSG Services Pty Ltd v NSG Services Pty Ltd [2017] FCA 345, Moshinsky J of the Federal Court of Australia had found that a financial services licensee was liable for breaches of ss 961K(2) and 961L of the Corporations Act 2001 (Cth). The breaches had been admitted by the licensee and the Court had made declarations substantially in terms which had been agreed between the parties. However, there had been no agreement between the parties on the penalty so orders had been made by consent with a view to a hearing taking place at a later time on the penalty.  (For a summary of the case, see K Ottesen, “Financial services licensee found liable for breach of the FOFA reforms”, 4 May 2017.)

Following that decision, the parties reached an agreed position on proposed pecuniary penalties and costs. Recently, in Australian Securities and Investments Commission, in the matter of Golden Financial Group Pty Ltd (formerly NSG Services Pty Ltd) v Golden Financial Group Pty Ltd (No 2) [2017] FCA 1267, Moshinsky J considered that the amount of the penalty proposed by the parties, which was $1 million for both the contraventions of ss 961K(2) and 961L, was appropriate because the contraventions were very serious and warranted the imposition of a substantial penalty. His Honour also considered that separate pecuniary penalties should be imposed for the s 961K(2) contraventions and the s 961L contraventions because s 961K(2) automatically imposed liability upon the licensee for the contraventions by its representatives (other than authorised representatives) of s 961B (‘best interests’ duty) and of s 961G (‘appropriate advice’ duty) while s 961L imposed an obligation on the licensee itself to take reasonable steps to ensure that its representatives complied with those provisions. In the result, his Honour ordered the licensee to pay:

• a pecuniary penalty to the Commonwealth in the amount of $250,000 in respect of the contraventions of s 961K(2); and
• a pecuniary penalty to the Commonwealth in the amount of $750,000 in respect of the contraventions of s 961L.

In Al Azhari v 27 Scott Street Pty Ltd [2017] VSC 600, Almond J of the Supreme Court of Victoria has held that no contract arose from mediation terms providing for the transfer of real property which had been agreed at the conclusion of a court-ordered mediation as the objective intention of the parties was not to be bound unless and until a formal contract was executed.

The parties were in dispute over funding provided for a proposed retail development. The mediation terms were contained in a handwritten document signed on behalf of the parties by their respective legal representatives. The document stated as follows:

1. These terms of settlement are in summary form of terms to be more fully engrossed.

2. The parties agree to settle this proceeding on the following terms:

(a) The first defendant will transfer unencumbered the following properties in the development known as [name of property] situated at [street, suburb] (‘the land’):

(i) Retail 1(a) at value of $440,500;

(ii) Retail 1(b) at value of $597,500;

(iii) Retail 3 at value of $447,500 (‘the properties’).

(b) The properties will be transferred in fee simple after discharge of the construction funding facility.

(c) The first defendant will give to the second plaintiff a mortgage not to be registered but secured by a caveat over the land, which caveat will remain until such time as the titles are transferred into the second plaintiff’s name. If the defendants default under the terms, the plaintiff may register the mortgage.

(d) The second plaintiff will execute and provide the required documentation for the security of the land to be provided to financiers of construction funding.

(e) Upon execution of these terms and performance by the defendants of their obligations thereunder the parties hereby release each other from all claims, liabilities and obligations arising out of all and any claims the subject of this proceeding including but not limited to the agreement referred to in paragraph 3 in the Statement of Claim and the deed referred to in paragraph 7 of the Statement of Claim.

(f) In the event that the first defendant fails to transfer the properties when due, the defendants consent to orders for specific performance together with costs of entry of judgment. These terms are evidence of the defendants’ consent to such judgment.

(g) The proceeding be struck out with a right of reinstatement and the parties sign consent orders to this extent on signing the terms.

The defendants claimed that the parties intended to be bound immediately by the mediation terms while the plaintiff (there was originally two plaintiffs but one discontinued its claim) maintained that the parties intended to be bound only when they executed a formal contract.

Almond J stated that the following legal principles applied (at [8]-[11]):

• Masters v Cameron [1954] HCA 72 at [9]; (1954) 91 CLR 353 at 360 had identified three classes of case where parties in negotiation had reached agreement on terms of a contractual nature and had also agreed that the subject matter of their negotiation would be dealt with by a formal contract:
  • first, the parties had reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms but at the same time proposed to have the terms restated in a form which would be fuller or more precise but not different in effect;
  • secondly, the parties had completely agreed upon all the terms of their bargain and intended no departure from or addition to that which their agreed terms expressed or implied, but nevertheless had made performance of one or more of the terms conditional upon the execution of a formal document; and
  • thirdly, the parties’ intention had not been to make a concluded bargain at all, unless and until they executed a formal contract.
• Sinclair, Scott & Co v Naughton [1929] HCA 34; (1929) 43 CLR 310 at 317 had identified a fourth class of case, namely, one in which the parties had been content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.
• The construction of a contract was to be determined objectively, and in the case of a commercial contract, the question was what a reasonable business person would have understood the terms to mean. The approach to be taken to the construction of commercial contracts was that enunciated by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]-[50].
• The Victorian Court of Appeal in Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269 had dealt with the similar question of whether an exchange of emails between solicitors, one containing an offer to settle proceedings, the other containing an acceptance of the offer, constituted an immediately binding agreement, and had set out at [37] the legal principles to be applied which were as follows:
  • First, the question of whether there was a binding agreement was one that fell to be determined objectively from the terms of the emails, read in the light of the surrounding circumstances and having regard to the commercial context in which they were exchanged. If an essential term was not agreed, then the ‘agreement’ was incomplete and did not give rise to an enforceable contract. Moreover, the existence of matters of importance on which the parties had not reached consensus would render it less likely that they intended immediately to be bound before the execution of a formal document.
  • Secondly, in determining whether a binding contract was in fact formed, regard could be had to the parties’ subsequent communications: (1) in order to see what was important or essential to the transaction; (2) as admissions; and (3) as probative of the parties’ contractual intention.

In claiming that the parties had intended to be bound immediately at the mediation, the defendants relied on the case falling within the first class identified in Masters v Cameron or the fourth class identified in Sinclair, Scott & Co v Naughton. The plaintiff, on the other hand, submitted that the objective intention of the parties was not to be bound unless and until a formal contract was executed and, thus, said that the mediation terms fell within the third class in Masters v Cameron.

Almond J said (at [25]-[26]) that it was clear that the parties intended that the mediation terms would be elaborated upon but that, to determine within which class they fell, it was necessary to have recourse to the surrounding circumstances.  After considering the surrounding circumstances, his Honour was not satisfied that the parties had ‘reached finality’ (first class in Masters v Cameron) or ‘were content to be bound immediately and exclusively’ by the terms agreed at mediation (fourth class in Sinclair, Scott & Co v Naughton) because there were too many matters of importance on which the parties had not reached a consensus (at [31]-[32]). His Honour’s reasons were, in summary, as follows (at [33]-[51]):

• The three retail properties which were the main subject matter of the mediation terms were described generally and without reference to a plan of subdivision or any other document which specified the measurements or their precise location within the development. This was an important consideration given that construction had not yet commenced on the development site.
• There were no pro forma terms of a contract of sale of the relevant retail premises or vendor’s statement with respect to the sale(s) accompanying or incorporated by reference in the mediation terms from which detailed terms of a contract of sale could be determined. This tended to suggest that the mediation terms were high level terms which were general in nature and not intended to be a concluded bargain.
• The mediation terms did not specify the date of settlement (and, hence, the date for occupation of the premises). Transfer of the retail properties was contingent upon discharge of an undefined ‘construction funding facility’ with no indication when such discharge might occur. This tended to suggest that the agreement was not finalised.
• The terms of the mortgage to be given by the first defendant to the second plaintiff were not specified. Nor was the principal sum secured specified and, as there was underlying conflict on the pleadings about the nature of the funding transaction, this could not be implied. Thus, the mediation term regarding the provision of the mortgage was vague and uncertain and further tended to indicate that the parties did not intend to conclude a binding agreement at the mediation. This view was fortified by the fact that, in post mediation negotiations, the parties’ legal representatives had put forward different proposals about how the debt should be defined for the purpose of the formal terms.
• Neither party’s legal representative was authorised in writing by their respective clients to sign a contract for the sale of an interest in land at the mediation so as to meet the requirements of s 126 of the Instruments Act 1958 (Vic) and s 54 of the Property Law Act 1958 (Vic). This was another objective indication that, at the time of the mediation, the parties did not intend to enter into a binding agreement to transfer real property.
• If the mediation terms were found to be immediately binding they would constitute a ‘contract for the sale of land’ entered into in breach of s 32 of the Sale of Land Act 1962 (Vic) because no vendor’s statement was provided to the purchaser, and of s 9AA(1A) of the same Act because there was no ‘conspicuous notice’ to the purchaser containing the mandatory requirements provided for in that section. These were not merely mechanical or procedural matters to be dealt with after the parties had reached a concluded agreement for the sale of land. Both parties were legally represented at the mediation and reasonable business people in the position of the parties would not have intended to enter into a binding agreement for the sale of land in contravention of these legislative provisions given the risk of prosecution for offences under the legislation as well as the risk of rescission of the contract of sale of land by the purchaser for failure to comply with the legislation.

Therefore, in his Honour’s opinion, it was more likely that the parties intended to address and resolve the above matters as part of a binding agreement to be arrived at in subsequent negotiation of formal terms and that, only on execution of these formal terms, would the parties be bound and give mutual releases (at [52]).

His Honour also said (at [58]) that subsequent to the mediation the parties had exchanged a draft deed of settlement which provided a clear indication of what the parties considered important to the transaction. The formal terms of that draft deed provided that the parties would execute ‘the standard contracts of sale for the settlement lots’ (which included a vendor’s statement, plan of subdivision, details of lot entitlement and lot liability and a list of fixtures and fittings) and a mortgage contained in a schedule which specified the principal sum in consideration for the advance as defined and the settlement date as defined. His Honour said that a binding contract could not have been formed without these important terms.

His Honour concluded (at [60]) that the mediation terms fell within the third class in Masters v Cameron, namely that the objective intention of the parties was not to be bound unless and until a formal contract was executed and that, accordingly, the mediation terms were not enforceable.

Under r 51.50(1) of the Uniform Civil Procedure Rules 2005 (NSW), the New South Wales Court of Appeal may, in special circumstances, order that such security as the Court thinks fit be given for costs of an appeal. Rule 51.50(2A) provides that, if an appellant or cross-appellant fails to comply with an order under r 51.50, the Court may order that the appeal or cross-appeal be dismissed.

In Pi v Zhou (No 3) [2017] NSWCA 224, Payne JA, sitting as a single judge of the New South Wales Court of Appeal, held that the Court had power in r 51.50(2A) to dismiss proceedings brought by an applicant for an extension of time to appeal by reason of the applicant’s failure to provide security for costs ordered by the Court under r 51.50(1). His Honour further held that, even assuming that r 51.50(2A) did not apply, the Court had inherent jurisdiction to dismiss the proceedings for failure to comply with an order to provide security for costs.

The background to the case was that the applicant had made a claim for damages for assault and various other torts against the respondents. The claim had been dismissed at first instance. After bringing two misconceived judicial review applications of the trial judge’s decision, the applicant had sought leave to appeal out of time from the trial judge’s decision. The respondents had then sought security for costs of the appeal. A single judge of the Court of Appeal had, amongst other things, ordered that the applicant provide security in the sum of $12,000 and had stayed the proceedings pending the provision of that security. The applicant had applied for a review of those orders. Following the review by three members of the Court of Appeal, the Court, by majority, had ordered that the applicant provide security in the sum of $12,000 and had continued the stay of the proceedings pending the provision of that security. The Court had also ordered that the matter be listed on a subsequent date before a judge of the Court for consequential orders or, in the event that the security had not been provided, for an order for dismissal of the proceedings.

The security was not provided and the matter came before Payne JA who gave the parties a further specific opportunity to address the question of whether the Court should dismiss the proceedings under r 51.50, or in the Court’s inherent jurisdiction, for the failure to provide the security.

After considering the applicant’s submissions, Payne JA indicated (at [20] and [23]) that the applicant’s central complaint was that security for costs should never have been ordered by the Court because of errors by the trial judge and the single judge of the Court of Appeal who had made the initial order for security for costs. His Honour, however, said that this complaint was not a matter that could be challenged before him. Special leave to appeal had not been sought nor had any application been made to vary or discharge the orders made.  His Honour further said (at [21]) that the submissions made by the applicant had not addressed the only question currently before the Court, namely, whether the proceedings should be dismissed for the failure to provide the security which had been ordered.

His Honour acknowledged (at [22]) that there could be an issue about the Court’s power in r 51.50(2A) to dismiss the proceedings because the definition of “appellant” in r 51.2 arguably did not include the applicant who was formally an applicant for an extension of time to appeal. Under r 51.2, “appellant” is defined to mean a party that files a notice of appeal in the Court, and any other party joined as an appellant. Nevertheless, his Honour was of the view that r 51.50(2A) did provide power to dismiss the proceedings where an order for security for costs had been made under r 51.50(1). In any event, his Honour said, assuming that r 51.50(2A) did not apply, the Court had inherent jurisdiction to dismiss the proceedings for failure to comply with an order to provide security for costs.

His Honour indicated (at [24]) that the question of whether the Court should exercise its discretion to dismiss the proceedings required consideration of the following five factors set out in Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWCA 271:

• the period that had elapsed since the security was ordered;
• the fact that the plaintiff had been on notice of the application for dismissal;
• the seeming inability of the plaintiff to further fund the proceedings;
• the prejudice to the defendant; and
• the position of the Court.

However, his Honour accepted (at [25]) that these factors were not exhaustive and that all the relevant circumstances were required to be taken into account, including the Court’s straining, consistently with the interests of justice, to avoid taking the radical step of denying the applicant his day in Court.

His Honour then made the following findings having regard to the five factors (at [26]):

• Over seven months had elapsed since the Court, following its review of the earlier orders, had made the order for security for costs and this was sufficient time for the applicant to have complied with the order if he was willing and able to do so.
• The applicant had been on notice for a significant period of time that the proceedings might be dismissed in the event that there was non-compliance with the order to provide security for costs.
• The applicant had made it clear in his submissions that he did not intend to provide the security for costs which had been ordered.
• The events that had given rise to the proceedings before the trial judge had occurred in January 2011 (over 6 years previously) and the respondents had had two judgments in their favour after lengthy and expensive litigation: first, in succeeding on the substantive claim before the trial judge and, secondly, in obtaining and later defending an order for security for costs. In this respect, there was a clear public interest in the final determination of the litigation.
• The position of the Court was that the proceedings had been stayed since June 2016 when the initial order for the security for costs had been made (a period which was in excess of a year) and the potential effect of that order on the applicant’s ability to conduct the proceedings had been recognised by the Court. A similar issue (that the appeal or proceeding was likely to be stifled) had arisen in Porter v Gordian Runoff Ltd (No 3) [2005] NSWCA 377 but the Court of Appeal in that case had refused to discharge the order to provide security.

His Honour also took into account the following circumstances (at [27]):

• Summary dismissal was an extreme measure. Even if the applicant was able to commence fresh proceedings against the respondents, he could face a successful Limitation Act defence.
• The applicant’s default in complying with the order for the provision of security for costs was continuing and, on the evidence, it was highly unlikely that the order would be complied with.

After observing (at [28]) that the power to summarily dismiss proceedings served the dual purposes of ensuring fairness to litigants and preserving the integrity of the judicial system, his Honour concluded (at [29]) that, taking into account all the relevant circumstances of the case, and straining, consistently with the interests of justice, to avoid taking the extreme measure of dismissing the proceedings, it was appropriate to dismiss the proceedings for the failure to provide the security for costs.

Accordingly, his Honour ordered that the proceedings be dismissed.