Background to Whistleblower Provisions
The primary aim of the whistleblower protection regime under Part 9.4AAA of the Corporations Act is to encourage reporting of corporate misconduct without fear of retaliation or victimisation.
In particular, where an ‘eligible whistleblower’ makes a ‘disclosure regarding a disclosable matter’ to an ‘eligible recipient’, the whistleblower is entitled to various protections under Part 9.4AAA including the protection offered by confidentiality under section 1317AAE and the protection from harm or detriment under section 1317AC of the Corporations Act.
In the two-year period following the 2019 reforms to the Whistleblower Provisions, the number of whistleblower reports made to ASIC rose by 197% (from 278 in the 2018-19 financial year to 817 in the 2020-21 financial year).1 However, this case marks the first time ASIC has brought proceedings for alleged breaches of the Whistleblower Provisions.
Sections 1317AC(1) and (3) of the Corporations Act, which are relevant for this case, are civil penalty provisions as well as criminal offences. These sections provide:
Actually causing detriment to another person
(1) A person (the first person) contravenes this subsection if:
(a) the first person engages in conduct; and
(b) the first person’s conduct causes any detriment to another person (the second person); and
(c) when the first person engages in the conduct, the first person believes or suspects that the second person or any other person made, may have made, proposes to make or could make a disclosure that qualifies for protection under this Part; and
(d) the belief or suspicion referred to in paragraph (c) is the reason, or part of the reason, for the conduct.
(3) If a company contravenes subsection (1), any officer or employee of the company who is involved in that contravention contravenes this subsection.
ASIC is bringing proceedings against TerraCom, its CEO, CFO and Deputy Chairman as civil penalty proceedings, and not as a criminal prosecution.
A. Material facts1
TerraCom is an ASX-listed mining company. It operates the Blair Athol thermal coal mine in Clermont, Queensland.
ALS Limited (ALS) is a testing laboratory. It tests and prepares reports recording the quality of coal produced from the Blair Athol mine for TerraCom.
Coal quality testing results determine the pricing of coal under commercial sale contracts between TerraCom (or its selling agents) and its customers. These contracts typically include conditions as to the quality of the coal under the contract, as well as provisions in the event of a breach of these conditions, including that:
- TerraCom (or its selling agents) could receive a penalty under the contract; or
- the customer could reject a shipment of coal all together.
Mr Williams commenced employment with TerraCom on or about 9 July 2019 as a general manager.
Between July 2019 and early August 2019, Mr Williams raised initial concerns with TerraCom’s CEO (Mr McCarthy) and CFO (Mr Boom), alleging falsification of coal quality testing results. In particular, Mr Williams was concerned that the amended reports were being issued to customers and used for the purposes of agreeing commercial pricing terms.
On 13 August 2019, Mr Williams was made redundant.
On 14 August 2019, Mr Williams spoke to an advisor to TerraCom’s Board of Directors, Mr Ransley (who subsequently became a director and Deputy Chairman of TerraCom). During this discussion, Mr Williams restated his concerns that Mr McCarthy and Mr Boom were involved in or had knowledge of a scheme relating to the falsification of coal quality results in testing reports (Whistleblower Allegations).
Later in August 2019, TerraCom engaged PwC to investigate the Whistleblower Allegations. PWC did not dismiss the Whistleblower Allegations. Rather, it reported that the Whistleblower Allegations were not unfounded and did not exonerate Mr McCarthy or Mr Boom.
B. Conduct of TerraCom
Between February and April 2020, TerraCom issued various statements to the ASX stating that an independent forensic investigation found the Whistleblower Allegations were unfounded, and that neither Mr Boom nor Mr McCarthy had done anything wrong.
Further, on 10 March 2020, TerraCom gave an announcement to the ASX which:
- denied the Whistleblower Allegations;
- stated that Mr Williams has been unsuccessful with similar allegations in the past;
- referred to a request from Mr Williams for AUD$5million in exchange for not pursing TerraCom over his dismissal;
- stated that there were no customer quality control issues at TerraCom (despite there being an active customer enquiry and customer complaint relating to coal quality results); and
- stated that PwC found no evidence of wrongdoing on the part of Mr Boom and Mr McCarthy.
ASX refused to publish this statement, and TerraCom subsequently published the statement in The Australian as an ‘Open Letter to TerraCom Shareholders’.(Statements).
C. ASIC’s claims
It is the position of ASIC that the Whistleblower Provisions of the Corporations Act apply to this case as:
- Mr Williams was an ‘eligible whistleblower’ in relation to TerraCom (being an employee and former employee of TerraCom);
- the Whistleblower Allegations were ‘disclosable matters’ (being information that concerns misconduct or an improper state of affairs or circumstances in relation to TerraCom); and
- ASIC, Mr Boom, Mr Ransley and Mr McCarthy were each ‘eligible recipient’ of the Whistleblower Allegations (Mr Boom and Mr McCarthy as officers, and Mr Ransley as a shadow director or in the alternative, an agent of TerraCom).
On this basis, Mr Williams was entitled to the protections set out in sections 9.4AAA of the Corporations Act (most importantly, protection from harm or detriment under section 1317AC).
ASIC alleges that by releasing the Statements (which, in ASIC’s view, were false, misleading and harmful), TerraCom engaged in conduct (and each of Mr Boom, Mr McCarthy and Mr Ransley were involved in this conduct) that caused detriment to Mr William’s reputation, earning capacity and psychological and emotional state (in contravention of sections 1317AC(1) and (3) of the Corporations Act).
ASIC also alleges that each of the executives, as well as Mr King (TerraCom’s Chairman), breached:
- their duty to exercise reasonable care and skill in discharging their director’s duties following receipt of the PwC report; and
- their obligations under section 1309 of the Corporations Act relating to making available information relating to the affairs of TerraCom in circumstances where each executive has knowledge that it is false or misleading or which contains a misleading omission.
ASIC is seeking pecuniary penalties against each defendant for the alleged breaches of the Whistleblower Provisions (which are a maximum of $13,750,0002 for corporations and $1,375,0003 for individuals).
Other than being the first ASIC prosecution under the Whistleblower Provisions, this case is significant as it confirms ASIC’s continued focus on executive accountability and oversight as a fundamental function of the whistleblower regime. It has also demonstrated ASIC’s broad interpretation in relation to conduct which amounts to ‘detriment’ to another person.
This case is a further indication from ASIC that companies need to have their houses in order or enforcement action will follow – whistleblower policies need to be compliant with legislative requirements and those who handle whistleblower disclosures need to be equipped to do so with appropriate training and information.
Good whistleblower governance starts at the top. If we can help you to update your whistleblower policies and processes or provide training to your executives, please reach out.
1These material facts are based on the Concise Statement of Facts and Originating Process filed on behalf of ASIC in the Federal Court of Australia on 28 February 2023.
2or if a Court can determine the benefit derived or detriment avoided because of the contravention, 3 times that amount, or 10% of the annual turnover of the entity up to a maximum of $687,500,000 (whichever is the greater).
3or if a Court can determine the benefit derived or detriment avoided, 3 times that amount (whichever is the greater).