Common(wealth) Knowledge #120: Eleventh-hour Pesutto loan prevents Hawthorn by-election

A rarely-seen bankruptcy clause nearly cost John Pesutto his seat, but it isn't the only form of disqualification.

Victorian MP John Pesutto has been bailed out by an eleventh-hour loan from the Liberal Party to cover $1.5 million owed to fellow party member and MP Moira Deeming.

Deeming won a defamation case against the former opposition leader in December 2024. As a result, he was ordered to pay $315,632.88 to Deeming as damages, in addition to the costs order.

Costs orders are a regular outcome of court proceedings, and an ordinary costs order under section 40(1) of the Defamation Act 2005 (Vic) a costs order would be expected. An ordinary costs order would only cover some of Deeming's legal fees.

However, on 12 February 2024 Deeming proposed a settlement offer of $100,000, which Pesutto rejected.

Because that settlement offer was 'reasonable' in the eyes of the court, Pesutto's refusal meant that he would have to cover all of Deeming's legal costs after that date on an 'indemnity' basis under section 40(2)(a).

As a result, Deeming's total assessable legal costs for the purpose of the costs order was $2,308,873.11. Pesutto was able to pay around $800,000 outright, but lacked the funds to cover $1.5 million.

Rejecting offers made by Deeming, including deferring payment on the condition that her preselection for the 2026 state election be guaranteed, Pesutto’s legal team reached an agreement with the Liberal Party just days out from the due date.

This commercial loan prevents Pesutto from being disqualified from office because of bankruptcy, which would otherwise trigger a by-election in his seat of Hawthorn.

Section 44(2)(c) of the Constitution Act 1975 (Vic) states that bankrupts “shall not be qualified to be elected a member of the Council or the Assembly.”

Bankruptcy is one of many ways that a sitting MP or election candidate can be disqualified or have their election overturned.

Federal election challenges or ‘petitions’ are heard by the High Court sitting as the Court of Disputed Returns under section 354 of the Commonwealth Electoral Act 1918 (Cth), although the High Court can refer a case to the Federal Court.

In Victoria, the Supreme Court is given the same authority under section 124 of the Electoral Act 2002 (Vic), and all other jurisdictions have similar arrangements.

However, although the Court of Disputed Returns is usually a single judge, an exception arises when section 44 of the Australian Constitution is used, such as the ‘dual citizenship’ clause. As that is also a constitutional law matter, all 7 High Court judges would be present.

Bankruptcy

All jurisdictions, except the Australian Capital Territory, prevent a person from being able to hold office if they are bankrupt.

A person’s inability to manage their own financial affairs is used to conclude that they cannot manage the government’s money. In addition, if a person owes money to a company, a conflict of interest may arise if they start voting in a way that benefits that company.

Although that provision is often seen as outdated, the candidacy of Rod Culleton to run on the senate ballot for the Great Australia Party in Western Australia has been called into question due to allegations of bankruptcy, and that matter has been referred to the Australian Federal Police.

Foreign citizens

Section 44 of the Australian Constitution is the primary basis for federal disqualifications, making it a constitutional matter which must be heard by the High Court. It famously includes the prohibition against holding dual citizenship.

Sykes v Cleary (1992) held that dual citizenship will disqualify a candidate if ‘all reasonable steps’ are not taken to renounce the foreign citizenship. This was reinforced in Sue v Hill (1999), which clarified that British and Australian dual citizenship will disqualify a candidate, which was previously lawful.

Most recently, Re Canavan (2017) saw one Member of the House of Representatives, Barnaby Joyce, and Senators Scott Ludlam, Larissa Waters, Malcolm Roberts, and Fiona Nash disqualified for dual citizenship.

However, the High Court held that a person merely being eligible for citizenship is allowed; it is only when that eligibility is acted upon that a person is disqualified.

Criminal convictions

Criminal convictions are unique in that there is disagreement over how much jail time is needed for disqualification.

At the federal level, any sentence of more than 12 months will disqualify a candidate or sitting politician. This standard has also been applied in Tasmania, the Territories, and Queensland.

In contrast, Victoria, New South Wales, South Australia, and Western Australia have a higher disqualification threshold of 5 years.

Then-One Nation Senator Rod Culleton’s seat was declared invalid after the 2016 election due to a conviction of larceny for the alleged theft of a tow truck’s keys earlier that year.

Although his 2-year sentence and conviction were both overturned on appeal, his seat was declared vacant by the High Court. Sitting as the Court of Disputed Returns, it unanimously held that if the overturned conviction was still valid at the nomination date, then the candidate was disqualified.

Election result challenge

This distinction is only relevant in federal elections, because of a need to separate it from section 44 disqualifications. Rather the cases usually challenge the result by way of an alleged flaw with the election process.

The two-step test applied by the Court of Disputed Returns requires proving that the alleged issue or flaw meant that some voters were “prevented from voting,” and then whether it is “more probable than not” that the issue affected the outcome.

Being ‘prevented from voting’ means a person is either not being able to cast a vote or not have their vote counted.

For example, when 1,370 ballot papers were lost during a re-count in the 2013 Western Australia Senate election, Justice Hayne, sitting as the Court of Disputed Returns, voided the entire election in AEC v Johnston (2014).

The strict two-step test prevents ‘trivial challenges,’ and means that the number of invalidated votes required for the challenge increases the larger the margin is.

This test is similar to the one applied by the Australian Electoral Commission, although its decision can be challenged in court.

In the 2025 federal election, the Division of Bradfield was eventually won by Independent Nicolette Boele by 26 votes, after an initial 8-vote margin in favour of Liberal Gisele Kapterian.

Even with the automatic AEC recount for margins under 100 votes, if either candidate believed that they had identified a flaw, such as missing votes or informal votes being counted and vice versa, the threshold required to prove it was “more probable than not” that the issue affected the outcome would be low.