Elon Musk’s X Corp has suffered a significant defeat in the Australian Federal Court, being ordered to comply with a “safety notice” issued by the eSafety Commissioner. The court ruled that the company cannot avoid responsibility for a fine or daily penalty for non-payment and must also pay the Commissioner’s court costs.
In October 2023 the Office of eSafety fined what was then Twitter $610,500 after it failed to satisfactorily answer questions about harmful content on its platform, particularly child sexual abuse material. This fine, issued under Australia’s Online Safety Act, could incur daily penalties of $780,000 for each additional day the company does not respond.
The notice, issued in February 2023, required the platform to prepare a report about the extent to which it had complied with eSafety’s expectations for the year leading up to January. The deadline for submission was March 29, and the required form included 31 numbered questions, many with sub-questions.
Merger No Defence, Court Rules
On March 15, Twitter Inc. merged into X Corp, prompting the company to argue that the Commissioner’s sanctions could not be passed on to another company following a merger. As a result, it claimed it should not be responsible for the fine or any additional penalties for non-compliance.Its barrister, Bret Walker SC, said any penalty process would need to be restarted.
However, the Commissioner’s barrister, Stephen Lloyd, argued that Twitter was not “dissolved” at the time of the merger, as its assets and liabilities transferred to X Corp.
Solicitors for X Corp had acknowledged this in an April 20 letter to the eSafety Office, saying, “All of Twitter, Inc.’s assets, liabilities, rights, etc. passed to X Corp. on 15 March 2023 by operation of law” and asserting that “There has been no change in control and the ultimate ownership interests in X Corp. remains (sic) the same as it was for Twitter, Inc.”
In a Federal Court ruling today, Justice Michael Wheelahan agreed with the eSafety Commissioner, dismissing the social media platform’s case.
“The status of X Corp changed so that it became the surviving entity into which Twitter Inc merged,” the judge said.
“From the perspective of Nevada law [under which the merger took place], X Corp’s new status entailed being subject to all the liabilities, including the regulatory obligations, to which Twitter Inc had been subject immediately before it merged into X Corp.”
Justice Wheelahan dismissed the proceeding and ordered X Corp to pay the Commissioner’s legal costs.
