X Corp, the company created by Elon Musk to take over Twitter, told the Federal Court of Australia it should not be held liable for a notice served on the social media giant before the merger on 14–15 March 2023.

The notice, issued by the eSafety Commissioner under the Online Safety Act, required Twitter to respond to questions on how it detected and responded to child sexual exploitation material, but it was allegedly left “entirely blank”, and a fine went unpaid.

Bret Walker SC, counsel for X Corp, argued earlier this week that “everyone agrees Twitter ceased to exist” after the merger and submitted the notice issued to it could not then be applied to X Corp.

“That’s the critical point,” Walker said.

Appearing before the court again on Tuesday (10 September), Walker said the question before the court was not whether Twitter was a non-existent corporation, but the status of X Corp.

“This is not a matter which any proceeding … relates to status, because there is no question of anyone imposing the liability of a penalty on a non-existent company,” Walker said.

“The real question is if the person intending to be before a court in order to have a penalty imposed is a person, by reason of status, answerable for the non-existent corporation’s alleged non-compliance.”

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To determine how the law applies in X Corp’s home of Nevada and Twitter’s former location in Delaware, the court received evidence and heard from two United States lawyers.

I. Scott Bogatz, a partner with Las Vegas-based law firm Reid Rubinstein & Bogatz, explained that Nevada law is “coloured by our history with gaming”, including how a court may be concerned with the arguments around merging or changing of ownership.

“If it were addressed and the court was being asked to conclude that a regulator requirement, like responding to a regulatory issue transferred in a merger, it would pause and say ‘if I do that, I am opening the door to the rights of an applicant … to be transferred to the regulatory as well,’” Bogatz said.

“Because of that sensitivity, I would expect a Nevada court to say that if there is a penalty that has been imposed, there is a [possibility] that it would transfer in the merger.”

On how this relates to public policy, Bogatz added that it would avoid a situation of having “legal obligations disappear or become unenforceable against any party” that existed prior to the merger.

“To me, the public policy that I see here … is to ensure that the party who contracts company A doesn’t lose [liabilities] when they merge with company B,” Bogatz said.

Asked whether mergers would become a “popular vehicle” to avoid penalty, Alexander Pyle, an attorney with Sheehan Phinney, said he would imagine “unhappy” companies may use the strategy to “thereby reset proceedings in the investigation”.

In wrapping up the eSafety Commission’s submissions, counsel Stephen Lloyd SC said not only did the merger make X Corp the provider, but it was done on the terms that “X Corp has all other liabilities of all other constituent bodies”.

“The same transaction that made X Corp the provider made it subject to the liabilities of Twitter Inc,” Lloyd said.

“This, we say, include obligations … [and] amount to liabilities or duties that were Twitter Inc’s duties on 14 March and became X Corp’s duties on 15 March. Twitter Inc had a duty to respond by 29 March … On 15 March, X Corp had a duty to respond by 29 March.”

The court has reserved its decision.