Today the High Court of Australia unanimously struck down as unconstitutional attempts by the State of Western Australia to set up its own regime to finalise the long-running liquidation of the Bell Group of companies.
The Court held that the Bell Group Companies (Finalisation of Matters and Distribution of Proceeds) Act 2015 (WA) ("the Bell Act") is invalid in its entirety by the operation of s 109 of the Commonwealth Constitution because of inconsistency between its provisions and provisions of the Income Tax Assessment Act 1936 (Cth) and the Taxation Administration Act 1953 (Cth) (collectively, "the Tax Acts"): Bell Group N.V. (in liquidation) v Western Australia; W.A. Glendinning & Associates Pty Ltd v Western Australia; Maranoa Transport Pty Ltd (in liq) v Western Australia  HCA 21
In September 2013, the long-running and complex Bell Group litigation settled immediately before an appeal to the High Court was to be heard. The litigation began in 1995, and related to loans given to Alan Bond’s Bell Group of companies.
The question was how to distribute the $1.7 billion settlement sum. The litigation had been funded by the WA State Government-owned Insurance Commission of Western Australia (ICWA). Western Australian motorists had to pay an annual levy of $50 on third party insurance from 1993 to 1996 to assist ICWA (the so called "WA Inc levy").
After settlement, futher litigation had been both threatened and brought regarding the question of how the settlement sum was to be disbursed. In the wake of this, the Western Australian government decided to pass legislation creating a statutory authority to disburse funds, with the expectation that the party which funded and took the risk of litigation should get a greater share of the settlement funds because without its actions, there would be no funds available for other creditors at all.
In November 2015, the Parliament of Western Australia enacted the Bell Act "to provide a legislative framework for the dissolution, and administration of the property, of The Bell Group Ltd ACN 008 666 993 (In Liquidation) and certain of its subsidiaries and for related purposes". The Bell Act was enacted to deal with a list of companies, each defined in the Bell Act as a "WA Bell Company" and each either in liquidation or deregistered. The Commonwealth is a substantial creditor of a number of WA Bell Companies in respect of taxation liabilities.
Section 4 of the Act stated that the objects are as follows:
(a) to provide a mechanism, that avoids litigation, for the distribution of funds (the Bell litigation funds) received by the liquidator of TBGL and certain of its subsidiaries (the Bell group of companies) as a consequence of the Bell litigation and the settlement of it in 2013;
(b) to provide a form of external administration of WA Bell Companies and require that it be carried out only in accordance with the provisions of this Act;
(c) to provide appropriate compensation to the creditors who funded the Bell litigation taking into account the funding provided and the associated risks assumed by them;
(d) to reflect the circumstance that without the funding mentioned in paragraph (c), the Bell litigation funds would not exist and the creditors of the Bell group of companies would have received no (or only nominal) dividends in the liquidation of those companies;
(e) to make reasonable provision for the distribution of the property of the WA Bell Companies having regard to the uncertainties existing as to the nature and extent of that property;
(f) to make reasonable provision for the satisfaction of liabilities owed to creditors having regard to the uncertainties existing as to the nature and extent of those liabilities;
(g) to distribute the Bell litigation funds generally in accordance with the commercial substance of the agreements between the liquidator and the creditors who funded the Bell litigation, as made before the enactment of this Act;
(h) to avoid further litigation that will waste the resources of the State and other persons and consume the Bell litigation funds.
The purported legal operation and practical effect of the Bell Act is that the State of Western Australia collects, pools, and vests in a State authority, the property of each WA Bell Company. The State then determines in its "absolute discretion" who is paid an amount or has property transferred to or vested in them out of the pooled property (if anyone). To the extent that the State chooses not to distribute the pooled property of the WA Bell Companies, the surplus vests in the State.
In each proceeding, the parties stated a special case and questions of law arising for the opinion of the Full Court. The questions of law include whether the Bell Act (or certain provisions of the Bell Act) is invalid by the operation of s 109 of the Constitution because of inconsistency with one or more provisions of the Tax Acts.
It should be noted that the Bell Act was amended by the Bell Group Companies (Finalisation of Matters and Distribution of Proceeds) Amendment Act 2016 (WA) ("the Amending Act") in a last minute attempt to save the legislation. The Amending Act received the Royal Assent on the evening of 5 April 2016 – the first day of the hearings before the High Court.
By majority, the High Court held that the Bell Act purports to create a scheme under which Commonwealth tax debts are stripped of the characteristics ascribed to them by the Tax Acts as to their existence, their quantification, their enforceability and their recovery. The rights and obligations which arose and had accrued to the Commonwealth as a creditor of the WA Bell Companies in liquidation, and to the Commissioner of Taxation, under a law of the Commonwealth prior to the commencement of the Bell Act are altered, impaired or detracted from by the Bell Act. That alteration or impairment of, or detraction from, the Tax Acts engages s 109 of the Constitution which operates to render the offending provisions of the Bell Act invalid. It was not possible to read down offending aspects of the Bell Act (at ) nor were the offending provisions able to be severed from the rest of the Bell Act (at ) since the scheme of the Bell Act is dependent upon the vesting of the WA Bell Companies' property in the Authority .
In a separate judgment, Justice Gageler (at ) observed that he preferred to reach the conclusion that the Bell Act is invalid on a narrower basis than the other members of the Court. In his opinion, it is sufficient to conclude that the Bell Act is invalid in its entirety that ss 22 and 29 of the Bell Act are essential to the scheme of the Bell Act and that those sections, if valid, would alter, impair or detract from the operation of the relevant provisions of the Tax Acts.
The Court held, therefore, that the Bell Act is invalid in its entirety. That being so, the Court found it unnecessary to consider other challenges to the validity of the Bell Act.
In a wry conclusion, Gageler J noted (at ) that "The Commissioner concludes his written submissions with the observation that the basic problem here is that the drafter of the Bell Act either has forgotten the existence of the Tax Acts or has decided to proceed blithely in disregard of their existence. That, indeed, is the basic problem."