BY TONY BLACKSHIELD

Bob Day’s financial problems came to a head through the collapse of the South Australian division of his company Homestead Homes. His constitutional problems arose through his insistence on having his Senate electoral office in his own suburban Adelaide building, located in Fullarton Road.

He first proposed this idea at the time of his initial election to the Senate in September 2013, but was told that the Commonwealth government could not pay rent for the benefit of a sitting Senator. (The building was owned by his family company B&B Day Pty Ltd, as trustee for the Day Family Trust.) But Day insisted. He had lovingly developed the Fullarton Road building as “a conservative hub”; as well as Family First, its tenants included the Samuel Griffith Society and Cory Bernardi’s Conservative Leadership Foundation.

Accordingly, the building was sold to a newly-formed company, Fullarton Investments Pty Ltd. But under a “vendor finance arrangement”, no money was actually paid. Instead the amount of the purchase price was (notionally) loaned by the vendor (B&B Day) to the purchaser. I have analysed the arrangement in more detail elsewhere; the end result was that the Commonwealth would lease office space from Fullarton Investments, which would use the money received as rent to pay progressive instalments of the purchase price to B&B Day, which would use the money to make loan repayments to the National Australia Bank.

The question under s 44(v) of the Constitution was whether these arrangements resulted in a “direct or indirect pecuniary interest” in an agreement with the Commonwealth Public Service. If so, Day was “incapable of being chosen” at the 2016 election, and his seat in the previous Parliament had become invalid at latest on 26 February that year.

It was on that date that a Commonwealth public servant, seeking for the first time to make an actual payment of rent, and acting on the tenant’s instructions that the rent should be paid to “Fullarton Nominees”, discovered that both this business name and the designated bank account in fact belonged to Day. That was enough to put a stop to the payment and initiate the first full investigation of the entire arrangement. It was also enough for four High Court judges to decide that, at least on that date, Day had been disqualified both from standing for election in July 2016, and from any continued membership of the Senate before that time.

Justices Gageler, Nettle and Gordon went further. Not only had Day had been disqualified on their view almost three months earlier (on 1 December 2015, when the lease was signed); but he would have been disqualified whether any rent was ever paid directly to him or not. Quite apart from the revelation on 26 February that the rent would be paid to Day directly, the arrangement gave him a disqualifying “pecuniary interest” either because the money involved would eventually be used by him to help repay the bank loan, or because it might find its way into the Day Family discretionary trust.

Re Webster

All seven judges agreed that the only previous decision on the issue must be overruled. In Re Webster (1975) 132 CLR 270, Sir Garfield Barwick, sitting alone, had interpreted s 44(v) as intended only to shield members of Parliament from undue influence by the executive government. He had therefore given the provision a narrow and technical definition, supposedly justified by its limited purpose.

The four separate judgments in Re Day were unanimous in rejecting that view, and in reading the Convention Debates of the 1890s as directing s 44(v) to a wider meaning and a wider scope. Its purpose is not only to avoid the risk of influence by the executive government, but to avoid the possibility of a conflict of interest that might lead a member of parliament to give priority to his own financial interest rather than to impartial judgment of policy.

In the weeks before the decision, this reading of the Convention Debates had been clearly spelled out by Oscar Roos, both for AUSPUBLAW and (with Benjamin Saunders) for the Sydney Law Review. In 1897, for example, Isaac Isaacs had spoken of a need “to do all that is possible to separate the personal interests of a public man from the exercise of his [public] duty” – not only as a matter of “actual fact”, but “in every way possible … [to] prevent any appearance of the contrary”.

Barwick’s failure to take such material into account was significant. Roos, rather tactfully, attributed the failure to the rule – still in force in 1975, and only relaxed in Cole v Whitfield (1988) 165 CLR 360 – that prohibited any recourse to the Convention Debates as an aid to interpretation. Yet Barwick was not in fact so constrained as that rule might seem to suggest. He did in fact refer to the Debates as showing that, in settling the final language of s 44(v), the framers “were seemingly concerned … with the possibility of members of the parliament defrauding the community” (132 CLR at 279). And during the course of argument in Re Day on 7 February, an amusing snippet from the transcript of the argument in Re Webster emerged. In the course of that argument Barwick CJ had said:

One ought not to do it, but I did it; I went and looked at the original debates, and it is very amusing, they were concerned with the possibility of fraudulent contract …

In response to that comment Tom Hughes QC said: “The temptation of going to [the] debates is almost too strong to resist, really”. And Barwick answered: “It is easier to resist the temptation of giving them any effect.”

The exchange is not just amusing, but revealing. It is not that Barwick was unaware of the wider purposes of s 44(v), but only that he was determined to “resist the temptation of giving them any effect”.

The leading judgment delivered by Kiefel CJ, Bell and Edelman JJ in Re Day, while not directly criticising Barwick’s use of the Convention Debates, was less restrained than Roos and Saunders had been. At [20] to [42] it examined in detail precisely what aspects of the Debates Barwick had chosen to explore, and what aspects he had refrained from exploring. As to his decision to deal with the case himself instead of referring it to a larger bench, the judgment was even more explicit – conceding (at [44]) that “[w]hilst some matters in the Court of Disputed Returns are … heard by a single Justice, they usually do not involve important questions relating to provisions of the Constitution”, and emphasising (at [46]) that, had the Court been constituted by more than one Justice, “there may well have been differing opinions”. At [159] Keane J took a similar view: “Notwithstanding that the case raised questions as to the operation of a provision of the Constitution on which no previous decision of the Court shed any light, Barwick CJ decided to hear the case alone.”

Earlier, at the hearing on 7 February, Kiefel CJ had been still more explicit:

It was a fairly unusual step, even historically, for a Chief Justice to sit alone on a matter involving the Constitution … [T]he decision … was not informed by previous decisions of this Court and there was nothing really directly in point, which normally would have indicated that the Court should sit with a larger number.

Chief Justice Barwick had also sought to justify his narrow reading of s 44(v) by invoking the rule that statutory provisions with “penal consequences” should be strictly construed. But that justification was rejected. The “penal consequences” in question arise under s 46 of the Constitution; but at [276] Nettle and Gordon JJ insisted that s 44(v) must be construed on its merits before s 46 is reached. (Indeed, it may “never be reached”.) For Kiefel CJ, Bell and Edelman JJ at [71] and [72] – consistently with the principal theme that resonated through all four judgments – the rule about penal consequences was in any event outweighed by the “special status” of s 44(v) as “protective of matters which are fundamental to the Constitution, namely representative and responsible government in a democracy”.

In Sykes v Cleary (1992) 176 CLR 77 at 121, Deane J had advanced another reason why the various disqualifying provisions in s 44 should be strictly construed: each of them has the effect of “depriving a citizen of the democratic right to seek to participate directly in the deliberations and decisions of the national Parliament”, and for that reason each of them should be read as applicable “only to the extent that its words clearly and unambiguously require”. Justice Gageler agreed with that proposition, but turned it on its head. For him (at [97] and [115]), this was a reason for giving the provision “the greatest certainty of operation that is consistent with its language and purpose”, in order to ensure “tolerably clear and workable standards by which to gauge … constitutional propriety” (because members and Senators “should know where they stand”). It was for this reason that, although he agreed that it was sufficient to dispose of the case by focusing on the direction given on 26 February 2016 for payment of rent directly to Day, he went on to hold explicitly (at [116] to [118]) that the operation of s 44 would equally have followed from the possibility that once the money reached Day it would have been used to pay off his bank loan, or from the possibility that it might ultimately result in a benefit to him through the Day Family Trust.

Although the other judges found it unnecessary to determine these wider issues, it must not be supposed that the view of them taken by Gageler J was taken in isolation. On the contrary, the judgment of Kiefel CJ, Bell and Edelman JJ (at [62]) agreed expressly, albeit obiter, that the possibility of benefit through the family trust was sufficient to trigger s 44(v), while the judgment of Nettle and Gordon JJ (at [280] and [287]) was in similar agreement that the possibility that the money would ultimately contribute to repayment of the bank loan was enough. If you can relate to this situation, it might be a good idea to see what your best option is.

Outer limits

Whether the decision leaves s 44(v) “tolerably clear and workable” may be a matter of opinion. Throughout its history the provision has given rise to apprehensions that too broad an interpretation might extend to arrangements which should be accepted as perfectly innocent. Already in 1897 delegates to the Australasian Federal Convention were agitated by the possibility that a barrister who was a member of Parliament might be unable to accept briefs from the Commonwealth, while counsel for Bob Day now placed particular emphasis on the possibility that a member might be disqualified simply because his wife took a job in the Commonwealth Public Service. Other examples in the judgments abound: for example, Gageler J (at [101]) gave the examples of the issue of a postal note or a Treasury bond, “or an agreement as to the amount of compensation constituting just terms following the compulsory acquisition of land”.

There was general consensus that the agreements referred to in s 44(v) should not include agreements of a kind which the Commonwealth routinely enters into with all persons in the relevant class, but should be limited to agreements giving rise to some particular interest in an individual case. For example, the joint judgment delivered by Kiefel CJ, Bell and Edelman JJ (at [69] and [70]) denied that the provision could extend to “every day-to-day dealing which a citizen has with government”, or agreements of a kind “ordinarily made between government and a citizen”, or examples of “how the government ordinarily deals with citizens”. The other judgments made similar concessions.

Yet precisely how the distinction should be drawn was unclear. Justice Keane (at [169] and [170], [198] to [200]) suggested that a solution could be found in the fact that the provision refers to agreements “with the Public Service of the Commonwealth”: ordinary agreements with “the Commonwealth” could therefore be excluded. At [101] to [107] Gageler J agreed with this suggestion, but at [265] to [267] Nettle and Gordon JJ rejected it: since any agreement “made in the course of Commonwealth government business” will ordinarily be made by dealing with a member of the Commonwealth Public Service, the distinction “is without practical or legal content”.

All four judgments sought to limit the operation of the provision by placing emphasis on the word “in”: the disqualification applies only to a person who has a direct or indirect pecuniary interest “in” an agreement. According to the leading judgment delivered by Kiefel CJ, Bell and Edelman JJ (at [66]), “the requirement that the interest be ‘in’ an agreement implies some personal connection to it, albeit indirect”. The other three judgments – Gageler J at [108] to [111], Keane J at [194], Nettle and Gordon JJ at [254] – all accepted what Gavan Duffy J had said in Ford v Andrews (1916) 21 CLR 317 at 335:

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.

Yet this may not be very helpful, either. At least three judges (Gageler, Nettle and Gordon JJ) agreed that the application of s 44(v) was sufficiently attracted because the money paid by the Commonwealth to Fullarton Investments (by way of rent) would be used by Fullarton Investments for payments to B&B Day (by way of purchase instalments), which would then be used by B&B Day for payments to the National Australia Bank (by way of loan repayments). We may agree that this was sufficient to give Day a “direct or indirect pecuniary interest” in the leasing agreement; but it remains unclear why that interest should be seen as “immediate”, rather than established “merely … by a mediate chain of possibilities”.

This is particularly so because all of the judgments agree that a mere possibility of benefit may be enough. One of the reasons given for rejecting the Barwick interpretation of s 44(v) is that it fails to take into account the specific exception for benefits arising from membership of companies of more than 25 persons. For Kiefel CJ, Bell and Edelman JJ at [62], and also for Gageler J at [112], the fact that it was thought necessary to exclude such cases was a clear indication that expectations of merely contingent benefit, dependent on the exercise of third party discretion, would normally be sufficient to trigger s 44(v). (Hence the inclusion of discretionary trusts.)

For similar reasons, the whole Court rejected the argument advanced on Day’s behalf that the “interest” referred to must be a legal interest. As Nettle and Gordon JJ put it at [255], the interest “does not have to be legal or equitable or legally enforceable”. For Keane J at [192], adapting the language of the joint judgment in Crump v New South Wales (2012) 247 CLR 1 at 26, regard may be had “to practical as well as legal effect”. But the test proposed by counsel for the Attorney-General found no support either. Counsel had submitted that s 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 financial interest”. But the whole Court rejected the suggestion that public perception of a conflict of interest would suffice.

For Gageler J at [100], and for Keane J at [156], this was simply a matter of rejecting “a significant gloss”, insisting that the constitutional text be allowed to speak for itself. But for Kiefel CJ, Bell and Edelman JJ at [53], and for Nettle and Gordon JJ at [260] and [263], the exclusion of mere “perceptions” of interest was accompanied by acceptance that it would be sufficient if the person in question “could conceivably be influenced”. The assumption appeared to be that despite the fact that the proposed test of “perception” was qualified by the word “objectively”, reliance on public “perception” would in fact be a subjective test, whereas the question whether interest in an agreement could “conceivably” give rise to conflict was one that could be answered objectively.

For Gageler J at [100] the proposed test of “perception” was “vague and evaluative”; for Keane J at [156] it reflected “an impressionistic approach”; for Nettle and Gordon JJ at [263] it was both “evaluative” and “impressionistic”. Yet the various epithets used to commend the approach preferred by the Court seemed little better. There must be a “practical commercial likelihood” of a conflict of interest (Gageler J at [118]); the potential benefit must be “not insubstantial” (Nettle and Gordon JJ at [252], [287] and [288]). For Gageler J at [111] and [113], the possibility of a conflict of interest must be “more than trivial”, “immediate or real as distinct from mediate or remote”. One is reminded of Sir Garfield Barwick’s image in SOS Mowbray (Pty Ltd) v Mead (1972) 124 CLR 529 (at 551) of the ripples caused by a stone thrown into a pond: all of the ripples are sufficiently direct until they are too remote.

None of this may matter. For Nettle and Gordon JJ at [260], it was “both unnecessary and inappropriate to determine the outer boundaries” of s 44(v), while for Keane J, at [198] and [201]:

[T]he possibility that there may be difficulty in discerning the outer limits of the operation of the constitutional disqualification is not a reason to decline to apply it to a case which is plainly within its scope; and this is such a case … [I]t is unnecessary to reach a concluded view upon the outer limits of the disqualifying operation of s 44(v) because in the present case Mr Day’s interest falls squarely within its scope.

Executive influence

The rejection of the “unduly narrow” approach in Re Webster was long overdue, and the extension of s 44(v) to a wider class of cases involving potential conflict of interest speaks to urgent contemporary needs. Yet whether the departure from Re Webster was necessary to the decision in Re Day is not altogether clear.

On the one hand, Nettle and Gordon JJ, while fully agreeing with the wider approach, thought (at [281]) that even if s 44(v) was still confined to issues of possible executive influence, it would still have applied to Day – “because he could conceivably have been influenced by the potential conduct of the executive in performing or not performing the lease”. Justice Gageler may have taken a similar view: at [106] he suggested that, however uncertain the penumbra might be of the class of disqualifying agreements, its “core” would include “agreements for the procurement of services or property negotiated … on behalf of the Commonwealth … by officers of the Executive Government”. The leasing of premises “on behalf of the Commonwealth” for use as an electoral office would appear to be such a procurement.

Chief Justice Kiefel, Bell and Edelman JJ, took a different view (at [15]): if the narrow approach in Re Webster were followed, “there could be no disqualification, for there is no reason to consider that the Commonwealth could exert any influence on Mr Day’s parliamentary affairs by anything it could do in relation to the lease”.

The issue is a sensitive one. When Day’s arrangements first became public knowledge in October 2016, there was speculation that successive Ministers of State, despite contrary advice from the Department of Finance, had bent over backwards to satisfy Day’s wishes in hopes of securing his cross-bench support – which would be precisely the kind of problem that section 44(v) was intended to deal with, even on the Barwick view. In the Senate on 7 November last year, Senator Mathias Cormann effectively rebutted such a suggestion by stressing that Special Ministers of State habitually “work in a non-partisan and confidential manner” to assist “members and senators from all sides of politics” with “their office and staff arrangements”. Yet the fact that he thought it necessary to make those remarks was itself a pointer to the potential perception. Justice Keane’s allusion to the problem at [187] may have been double-edged:

If the officers of the executive government … had known of his expectation of the receipt of rent from the Lease, then his discussions with those officers could have appeared as a case of a cross-bench Senator seeking private accommodation from an executive government which was in need of cross-bench support for its legislative program. That would have appeared as a glaring example of the kind of dealing between a parliamentarian and an officer of the executive government that s 44(v) was designed to prevent. Mr Day’s case that he had no pecuniary interest is not made more attractive because his self-interested dealing was masked by the trust structure he caused to be set up.

Conflicts of interest

The Court’s unanimous concern with more general issues of conflict of interest may also be politically sensitive. Three of the four judgments quoted what Isaacs and Rich JJ had said in R v Boston (1923) 33 CLR 386 (at 400): that the “fundamental obligation” of members of Parliament “is the duty to serve and, in serving, to act with fidelity and with a single-mindedness for the welfare of the community”. Two of those judgments reinforced this plea for fidelity and single-mindedness by invoking Australian Capital Television Pty Ltd v The Commonwealth (1992) 177 CLR 106, with its insistence on the Constitution’s commitment to representative democracy as an overriding context within which particular provisions must be construed. For example, in the joint judgment delivered by Kiefel CJ, Bell and Edelman JJ (at [49]), the plea for “single-mindedness” was itself introduced in the context of that commitment:

The representative parliamentary democracy, for which the Constitution provides, informs an understanding of specific provisions such as s 44(v) and assists in determining the content of [parliamentarians’] duty, which includes an obligation to act according to good conscience, uninfluenced by other considerations, especially personal financial considerations.

At [269] Nettle and Gordon JJ made a similar point, while at [183] Keane J recalled the concern expressed by Brennan J in Australian Capital Television (177 CLR at 159) that personal financial considerations “could cynically turn public debate into a cloak for bartering away the public interest”.

The concern of all four judgments in Re Day with “the possibility of a conflict between a parliamentarian’s private interests and his or her public duty” (as the leading judgment put it at [23]) echoes a recurring theme in other recent judgments, as well as in our increasing popular cynicism towards politicians. But however widely the expanded reach of s 44(v) may now extend, it can only meet part of the problem. When members and Ministers are asked to review the systems of negative gearing and capital gains tax on which their own property portfolios depend, we need more than s 44(v).

Nevertheless, as Keane J observed at [183], s 44(v) as now construed at least “affords an irreducible minimum of protection against the possibility that the personal pecuniary interests of parliamentarians might be allowed to compete with the interests of the people they represent”.

Tony Blackshield is an Emeritus Professor of Law at Macquarie University, a Visiting Professorial Fellow at the University of New South Wales, and an Honorary Professor of the Indian Law Institute in New Delhi.

Suggested citation: Tony Blackshield ‘Close of Day‘ on AUSPUBLAW (12 April 2017)