In an interesting turn of events, ASIC’s first enforcement outcome in the recent TerraCom judgment sets a precedent for significant penalties for businesses that engage in the victimisation of whistleblowers.
Need to know:
- TerraCom was fined $7.5 million for whistleblower victimisation, marking the first civil penalty proceedings brought by ASIC under the whistleblower protection regime in the Corporations Act.
- While ASIC failed to prove allegations against TerraCom’s directors for contraventions of their duty of care and diligence and for allegedly making false or misleading disclosures, the Federal Court upheld whistleblower-related breaches by TerraCom.
- The case underscores the importance of ensuring the protections afforded to whistleblowers are adhered to and their concerns are handled appropriately. Companies should ensure compliance with Australia’s whistleblower protections to avoid significant penalties and reputational damage.
- TerraCom admitted that its public announcements caused detriment to the whistleblower by mischaracterising his actions, further compounding the harm.
- The judgment serves as a reminder that companies must carefully manage both whistleblowing disclosures and subsequent public announcements to avoid legal and regulatory repercussions.
The recent penalty decision in Australian Securities and Investments Commission v TerraCom Ltd (No 2) [2025] FCA 959 is a sobering reminder that companies should always properly consider and respond to the issues raised by whistleblowers and avoid causing them detriment.
We consider the recent decisions by the Federal Court in Australian Securities and Investments Commission v TerraCom Ltd [2025] FCA 726 and Australian Securities and Investments Commission v TerraCom Ltd (No 3) [2025] FCA 1017. For completeness, the decision in Australian Securities and Investments Commission v TerraCom Ltd (No 2) [2025] FCA 959 relates only to the question of costs following the first substantive decision.
These cases arise from whistleblower allegations made by a former employee that resulted in civil penalty proceedings brought against TerraCom Limited (TerraCom) and four directors of TerraCom for alleged contraventions of the Corporations Act 2001 (Cth). The case against TerraCom represents the first civil penalty proceedings brought by the Australian Securities and Investments Commission (ASIC) for an alleged contravention of the whistleblower protection regime. The directors were prosecuted for other alleged contraventions of the Corporations Act 2001 (Cth).
While the case against the directors was unsuccessful, ASIC secured a landmark victory against TerraCom. By agreement, the Federal Court ordered TerraCom to pay a significant pecuniary penalty of $7,500,000 for whistleblower victimisation in addition to $1,000,000 in costs.
Facts
Terracom, an ASX-listing company in the mining sector, appointed ALS Limited (ALS), as the independent laboratory to sample coal from its Blair Athol Coal Mine in Queensland (Blair Athol). ALS provided shipping analysis reports and certificates of analysis to TerraCom, which showed the results of its coal quality testing including the net calorific value (NCV) results. TerraCom invoiced customers for shipments of coal based on the NCV.
In around July 2019, Mr Justin Williams (Mr Williams) commenced employment with TerraCom as a general manager. His employment was terminated on 13 August 2019.
On 13 August 2019, Mr Williams informed Mr Daniel McCarthy (Mr McCarthy), the CEO of TerraCom, and Mr Nathan Reece Timothy Boom (Mr Boom), the CFO of TerraCom, that he had concerns about coal quality results in the shipping analysis reports being amended without proper justification by ALS to be more favourable to TerraCom, and these amended results being used to invoice customers. On 14 August 2019, Mr Williams also conveyed his concerns to Mr Craig Ransley (Mr Ransley), an agent of TerraCom’s board.
On 29 August 2019, TerraCom’s solicitors engaged PricewaterhouseCoopers (PwC) to investigate Mr Williams’ allegations. PwC provided a report that identified inconsistencies in the reported NCV between shipping analysis reports and the invoices issued to clients, similar to the pattern of inconsistencies identified by Mr Williams.
In December 2019, Mr Williams commenced legal proceedings against various TerraCom directors and officers under the Fair Work Act 2009 (Cth), which repeated his allegations concerning the alteration of the coal quality results.
On around 12 February 2020, Mr Williams disclosed to ASIC the concerns he had raised with Mr McCarthy and Mr Boom.
On 24 February 2020, TerraCom lodged an announcement with the Australian Securities Exchange (ASX) relevantly stating that Mr Williams had been made redundant and it was subsequent to this, that Mr Williams made “false” and “totally unfounded” allegations about TerraCom altering coal quality reports (February Announcement).
On 12 March 2020, after failing to have the ASX publish a further announcement, TerraCom caused the Australian Financial Review and The Australian to publish a letter relevantly stating that TerraCom continued to categorically deny the allegations made by Mr Williams, that Mr Williams had initiated proceedings only after TerraCom refused his demands which included reinstatement and financial payment, and that TerraCom had conducted an independent investigation into the allegations which found no evidence of wrongdoing (Open Letter).
On 2 April 2020, TerraCom lodged another announcement with the ASX relevantly stating that an independent forensic investigation commissioned by TerraCom found that the allegations made by Mr Williams that its CEO and CFO had been involved in the fake analysis of coal samples were unfounded, that some of TerraCom’s customers had asked for additional coal samples to be tested and in every instance they found no quality control issues, that there has not been an occasion where clients have complained about the coal quality as certified by the certificate of analysis during Mr McCarthy’s time as CEO, and that Mr William’s allegations were made only after he was dismissed as part of a company-wide redundancy program (April Announcement).
Proceedings against the directors
ASIC commenced proceedings against four directors of TerraCom, including Mr McCarthy and Mr Boom, alleging that they had each contravened ss 1309(2) and 180 of the Corporations Act 2001 (Cth).
In particular, ASIC alleged that each of the directors contravened s 1309(2) by authorising the giving of information to the ASX in the form of market announcements relating to the allegations made by Mr Williams, and the processes for certification and sale of TerraCom’s coal, that were false or misleading.
The case under s 180 alleged that each of the directors contravened their duty by failing to act with the requisite degree of care and diligence in the circumstances of TerraCom’s investigation of the allegations made by Mr Williams, and the associated release or publication of the allegedly misleading announcements.
Alleged contravention of s 1309(2)
It was not alleged that the statements in the February Announcement, Open Letter and April Announcement were themselves false or misleading. Rather, ASIC argued that a number of false and misleading representations could be inferred from those statements. While Jackman J did not consider this approach was wrong in principle, his Honour stated that “[i]t is an unfortunate feature of ASIC’s case that most of the alleged representations which it claims were false or misleading involve an exercise in tendentiously enlarging the text of the announcements which were actually made beyond the normal and ordinary meaning of the language used in the announcements themselves”.
The alleged representations were that:
- the PwC report had rejected all the allegations made by Mr Williams;
- the PwC report had found that the allegations made by Mr Williams were ‘unfounded’;
- the PwC report had excluded any involvement by TerraCom, the CEO or the CFO and any other employees or officers of TerraCom in the conduct of the subject of the allegations;
- the PwC report rejected the allegation of TerraCom’s involvement in the alteration of coal quality;
(collectively the Exoneration Representations)
- none of TerraCom’s customers had enquired about or raised any quality control issues with the coal;
- while some of TerraCom’s customers had also asked for additional coal samples to be tested, in every instance they found no quality control issues; and
- during Mr McCarthy’s time as CEO of TerraCom, there had not been an occasion where clients had complained about the quality of coal as certified by the certificate of analysis.
(collectively, the No Customer Complaint Representations)
Of these seven alleged representations, Jackman J found that only the last two had actually been made, in the April Announcement, and neither were false or misleading. Accordingly, there was no contravention of s 1309(2) by the directors.
Alleged contravention of s 180
Turning to the alleged contraventions of s 180, Jackman J observed that ASIC’s case was twofold. The first rested on conduct that allegedly contravened s 1309(2). As his Honour found that s 1309(2) had not been contravened, this limb of the case failed.
The second limb of the case alleged that the directors had failed to take certain steps – namely, that following announcements ALS had made to the ASX in February and April 2020 that a number of certificates of analysis it had issued had been amended without justification, enquiries should have been made of ALS regarding whether TerraCom was implicated, and that in light of the PwC report, enquiries should have been made in relation to Mr William’s allegation that the coal quality had been fraudulently altered.
In this regard, Jackman J stated that ASIC bore the onus of establishing what information TerraCom already had and what enquiries were actually made. His Honour was not satisfied by the evidence led by ASIC, including from the General Counsel and Company Secretary of ALS and an admission by one of the defendant directors that he did not take steps after reading ALS’ announcement to the ASX in February 2020. That defendant director had, in fact, engaged with TerraCom’s auditor, Ernst & Young, which his Honour regarded as a further step to better understand and investigate the matter. His Honour found that there were a number of lines of communication between TerraCom and ALS. Considering this, his Honour held that ASIC did not establish that there was any deficiency in information such that the directors were duty-bound to make further enquiries of ALS as to whether the amended certificates of analysis included TerraCom certificates.
Jackman J found that the allegation that enquiries should have been made in light of the PwC report suffered from the same problems.
Additionally, his Honour observed that “[o]ne of the more extraordinary features of ASIC’s case” was the contention that the CEO and CFO should have made the further enquiries notwithstanding that they were the subject of the allegations made by Mr Williams which were investigated by PwC. His Honour denounced this contention, which was contrary to the well-established principles of fiduciary obligation, as being “unworthy of the corporations regulator”.
His Honour also rejected ASIC’s submission that the failure by one of the defendant directors to read the PwC report was itself a contravention of s 180(1). That defendant director had appointed an independent director to manage the investigation into the allegations, who advised the defendant director that the PwC report exonerated TerraCom, the CEO and the CFO. Jackman J found that there was no reason to doubt the independent director’s competence or integrity. Accordingly, Jackman J rejected that there was any contravention of s 180.
Proceedings against TerraCom
ASIC also prosecuted TerraCom, alleging that it contravened ss 1317AC of the Corporations Act 2001 (Cth).
Section 1317AC provides protection for whistleblowers from victimisation causing detriment when a qualifying disclosure is believed or suspected to have been made, may be made, is proposed to be made, or could be made – and that belief or suspicion is the reason or part of the reason for the detrimental conduct.
In relation to the question as to whether the relevant disclosure qualified for protection in the circumstances described in s 1317AA, TerraCom admitted that Mr Williams was an ‘eligible whistleblower’ in relation to TerraCom.
TerraCom further admitted that:
- Mr Williams had reasonable grounds to suspect that allegations of the kind communicated to Mr Ransley concerned an improper state of affairs or circumstances in relation to TerraCom;
- the February Announcement, Open Letter and April Announcement caused detriment to Mr Williams in the form of hurt, humiliation, distress and embarrassment, and damage to reputation, because they represented him as someone who had been made redundant when he believed he had been terminated for whistleblowing, as someone willing to make unfounded accusations of serious wrongdoing for personal gain, and as someone who had initiated proceedings only after TerraCom decided not to meet his demands of reinstatement and financial payment;
- throughout the period it published the February Announcement, Open Letter and April Announcement, it believed or suspected that Mr Williams may have made a qualifying disclosure to the CEO and CFO, and also Mr Ransley, when they were ‘eligible recipients’; and
- this belief or suspicion was part of the reason for publishing the announcements and letter.
Accordingly, TerraCom admitted that its publication of the February Announcement, Open Letter and April Announcement amounted to a contravention of s 1317AC(1).
ASIC and TerraCom jointly submitted that a penalty of $7.5 million was appropriate and TerraCom also agreed to pay $1 million in costs to ASIC. This was accepted and ordered by Jackman J.
Notwithstanding ASIC’s loss in relation to the alleged directors breaches, TerraCom’s admission to the victimisation conduct of a whistleblower was clearly significant enough to warrant a substantial penalty against the business.
Please get in touch with the team at Hamilton Locke if you would like more information about any whistleblowing matters.
