X Corp says Twitter does not exist, fines should vanish

Twitter no longer exists, lawyers for the social network known as X have argued, and its successor cannot be held responsible for hundreds of thousands of dollars in fines.

The case against X Corp by Australia’s eSafety Commission continued in Federal Court in Melbourne on Tuesday, as the social media company fought a $610,500 fine and the possibility of further penalties for non-compliance.

The eSafety Commissioner issued the fine to Twitter in October 2023, alleging it failed to adequately respond to questions about harmful content on its platform, particularly child sexual abuse material.

The penalty, issued under Australia’s Online Safety Act, could attract daily fines of $780,000 for each day the company did not respond.

But barrister Bret Walker SC, representing X Corp, told Justice Michael Wheelahan the commission’s actions remained “unfinished regulatory business” that could not be passed on to another company following a merger.

Twitter, incorporated in the US state of Delaware, stopped being a company when it merged with X Corp in Nevada, Mr Walker said, and any penalty process would need to be restarted.

“Part of my learned friend’s language ... gave rise to a suggestion or a fear on our part that there is some shadowy afterlife, some wisp of Twitter still existing in X, and in our submission that is to be rejected,” he said.

“Twitter has ceased to exist.”

But barrister Stephen Lloyd, representing the eSafety Commission, said the entity known as Twitter was not “dissolved” at the time of the March 2023 merger and its assets and liabilities should transfer to X Corp.

“My friend repeatedly says that Twitter ceases to exist but the law says it ceases to exist as a separate entity because it merges into and with X Corp,” he said.

“In this case, presumably Twitter had all kinds of contracts with staff and whatever — they all became contracts with X Corp.”

Mr Lloyd also argued allowing companies to escape responsibilities by using a narrow definition of liability would deliver a “perverse result” in which companies could use mergers as a way to avoid regulation.

Lawyers for both sides cross-examined American legal experts, calling for their opinions on merger laws in Delaware, where Twitter was incorporated, and Nevada, where X Corp merged with the firm.

Lawyer I. Scott Bogatz told the court Nevada law would pass on a financial penalty to the surviving company in a merger but only if the penalty had been finalised.

“If there is a regulatory process that’s ongoing, the second that merger happens that stops and you have to start with the new company,” he said.

But lawyer Alexander H. Pyle testified that he considered Delaware law would also govern X Corp’s merger and “liabilities of all types” including obligations to respond to regulators would be carried over to the new firm.

Justice Wheelahan adjourned the case to consider his decision.