Takeovers Panel gets the All Clear from the High Court

The Takeovers Panel is constitutionally valid, the High Court said this morning.

The immediate result is that applications to the Panel can once again rely on allegations that someone has breached the takeover provisions of the Corporations Act.

Background

The Takeovers Panel can declare that there have been unacceptable circumstances in relation to a takeover. Broadly speaking, there are two grounds for a declaration:

• a breach of the takeovers provisions of the Corporations Act; or
• a breach of the policy behind the takeovers provisions.

Earlier this year, the Federal Court ruled that the Panel could not make declarations on the basis of a breach of the Act. This was because breaches of the law are a judicial matter: the Australian Constitution says that only a court can exercise judicial powers, and the Panel isn't a court.

The Commonwealth Government appealed to the High Court.

What the High Court said

The High Court upheld the Commonwealth's appeal. It has not yet published its reasons, but it may have taken the view that the Panel's decisions about breaches of the law do not involve it in the exercise of judicial power - rather, the finding of a breach of the law is just a step in the process of determining whether there have been unacceptable circumstances.

Is this the end of Panel challenges?

Today's decision should safeguard the Panel from constitutional challenges for the foreseeable future.

Ever since the Federal Court ruled against it, the Panel has been walking on eggshells. It overcame many of the initial problems by ensuring that applications made to it did not mention the law (relying, instead, on the Panel's power to declare takeover tactics to be "unacceptable" on purely policy grounds).

However, another potential problem lay in the wings. The Federal Court had also expressed a view that even decisions made just on policy grounds could be unconstitutional. This was because the Court believed that, in reaching a decision on policy grounds, the Panel would often take into account whether there had been a breach of the law (which would again be an invalid exercise of judicial power).

The High Court's decision should take care of that issue: if the Panel can legitimately make decisions directly on breaches of the law, taking breaches into account for policy reasons would be equally legitimate.

Mark Paganin, a Partner of Clayton Utz, is a member of the Takeovers Panel. He did not participate in the drafting of this Alert.