In Bell Group N.V (in liquidation) v Western Australia [2016] HCA 21, the High Court held that the Bell Group Companies (Finalisation of Matters and Distribution of Proceeds) Act 2015 (WA) (the Bell Act) which dealt with the administration of the property of the Bell Companies was inconsistent with the Income Tax Assessment Act 1936 (Cth) and the Taxation Administration Act 1953 (Cth) (together, the Tax Acts) and invalid pursuant to section 109 of the Constitution.

Background

In an attempt to assess the liabilities of the creditors of Alan Bond’s Bell Companies, the Western Australian government sought to introduce the Bell Act to allow the WA government to collect, pool and vest the property of the Bell Companies in a Western Australian authority, which had absolute discretion to determine the quantification of any liability and the amount to be paid or the property to be transferred.

The Bell Act imposed strict penalties against any persons who sought to defeat, avoid, prevent or impede the operation of the Bell Act and sought to vary the accrued rights and obligations of parties under the Tax Acts.

Decision

There were three constitutional challenges which were filed where the High Court was asked to consider whether the Bell Act was invalid by operation of section 109 of the Constitution because of inconsistency with the Tax Acts and certain provisions being inconsistent with the Judiciary Act 1903 (Cth).

The crux of the conflict between the Bell Act and the Tax Acts was centred around the operation and practical effect of a notice of assessment as conclusive evidence of the assessment of a taxation liability and the ability to rely on the assessment as being correct. The conflict between the two can be summarised as follows:

1. Under the Tax Acts, the Commonwealth and the Deputy Commissioner of Taxation (DCT) can rely on an assessment in relation to the existence, quantification, enforceability and recovery of taxation liability accrued under a law of the Commonwealth; and

2. Under the Bell Act, the Western Australian government was provided with an absolute discretion to determine the existence of a liability and had absolute discretion as to the quantification of any liability the Bell Companies had to the DCT.

In considering the conflict, the High Court stated at that:

[60] The Bell Act thus purports to create a scheme under which the 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….

[61] The Bell Acts thereby purports to alter, impair or detract from the operation of each of those rights which arose and had accrued to the Commonwealth and to the Commissioner under a law of the Commonwealth prior to the enactment of the Bell Acts. That alteration or impairment of or detraction from, the Tax Acts is significant so as to engage s 109 of the Constitution.

The Authority’s near absolute discretion to determine the existence of a liability of the Bell Companies, the ability to quantify that liability and ultimately extinguish liabilities that would otherwise be owed to the Commonwealth was a significant conflict that engaged the operation of section 109 of the Constitution.

The High Court ultimately concluded that the Bell Act effectively created a scheme that stripped the characteristics of the Commonwealth tax debts as it overrides the Commonwealth’s rights accrued as a creditor of the Bell Companies.

Summary

The Bell Act created a scheme under which the Commonwealth tax debts were re-characterised from what was ascribed to them under the Tax Acts. The High Court held that that:

1. The Bell Act impaired or detracted from the rights of the Commonwealth under the Tax Acts, which provided for debts to be paid to the Commonwealth and for priority to be given to those debts; and
2. The Bell Act altered, impaired or detracted from the rights and obligations of the liquidator under the Tax Acts.

While section 109 inconsistencies may be ‘read down’ by severing  some provisions of the Bell Act that are inconsistent with the federal law, here the Bell Act presented a ‘package of interrelated provisions …operat[ing] fully and completely according to its terms’ and severing the inconsistent provisions would result in a ‘radically different and essentially ineffective residue’. Consequently, the Bell Act is invalid in its entirety as it sought to alter the pari passu distribution of the Bell Companies’ property.

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