04 March 2021

Need to know: actual knowledge key to invoking whistleblower protections

This article was written by Justin McDonnell, Kione Johnson and Rebecca Holland.

Australian whistleblower protections now apply to disclosers who have ‘reasonable grounds to suspect’ that the information disclosed concerns misconduct, or an improper state of affairs or circumstances in relation to a regulated entity or its related body corporates.[1]  These protections are only available if the discloser actually has reasonable grounds for suspecting the relevant matters.  Matters unknown to the discloser at the time of the disclosures are irrelevant in determining whether the disclosures qualify for protection.[2]  Whistleblowers seeking to recover damages for alleged breaches of the whistleblower protections must precisely identify the information actually disclosed and the matters within the knowledge of the discloser which formed the basis of the disclosure.  Recipients of whistleblower disclosures should clearly document the information disclosed and basis of the disclosure to assess whether the protections apply.  The same information will need to be specifically articulated by any whistleblower seeking compensation for any unauthorised disclosures or retaliatory conduct.

In a further development, ASIC has released a policy outlining how individuals involved in market misconduct[3] may apply for immunity from civil penalty or criminal proceedings. Together with the whistleblower regime, the immunity policy is designed to encourage disclosure of misconduct, particularly in the financial services market.

Background: whistleblowing protection

Australia’s corporate whistleblowing laws were amended in 2019.[4]  The amendments were intended to simplify the complex legislative framework and enhance whistleblower protections, as discussed previously.  The 2019 amendments removed:

  • a separate requirement that disclosure is made in ‘good faith’. The good faith test created uncertainty and risk for whistleblowers, with companies able to allege subjective or collateral motivation of the whistleblower that may have defeated a ‘good faith’ requirement.[5]  Instead, a reasonable grounds test was introduced; and

  • the requirement for the discloser to identify themselves.

The ‘reasonable grounds’ test

A whistleblower is protected under the Corporations Act 2001 (Cth) if they have reasonable grounds to suspect that ‘misconduct or an improper state of affairs exists’ in relation to a regulated entity.  The assessment of whether a whistleblower’s grounds to suspect were reasonable was recently considered by the Queensland Supreme Court in Quinlan v ERM Power.[6] 

The plaintiff commenced proceedings against ERM Power, his former employer, alleging he made protected disclosures to directors and officers of ERM Power and another company, which:

  • were improperly disclosed without his consent; and
  • led to him being victimised over a period of 7 years causing detriment through the deprivation of pay rises and other benefits and loss of employment.[7] There were allegedly 23 forms of different retaliatory conduct.[8]

The plaintiff sought compensation for loss, damage and injury he claimed to have suffered as a result of ERM Power’s alleged conduct.

ERM Power applied to strike out parts of the claim as they claimed factual allegations about the actual purpose, effect and impropriety of the various transactions and insider trading deals, rather than the plaintiff’s grounds for suspecting misconduct and the basis upon which it was alleged those grounds were reasonable.  The plaintiff had not pleaded that he knew of those matters.[9]

Bowskill J found that whether a discloser’s grounds to suspect misconduct were reasonable was to be determined by considering what the discloser said they knew at the time of the disclosure.  The discloser’s knowledge determines whether they had reasonable grounds to suspect contraventions had occurred.[10]  Bowskill J found that matters that were not within the plaintiff’s knowledge at the time the disclosures were made, and allegations of the purport or effect of what is said to have occurred, are irrelevant in determining whether the protections apply.[11]  

Bowskill J accepted that in circumstances where the protected disclosures are alleged to give rise to obligation of confidentiality on the defendants (and subsequently allegations of breach of the whistleblower protection laws), the plaintiff had to plead, with precision, what had been actually disclosed.  That needed to include the matters of which the plaintiff was aware, or which formed the basis of his suspicions.[12]  Further, allegations of retaliatory conduct made against individuals needed to clearly identify the basis upon which they alleged the motive, intent or other state of mind was held by each particular defendant.[13]

An order was made to strike out all paragraphs of the plaintiff’s claim with the identified deficiencies.[14] Notably, paragraphs that pleaded the actual purport or effect of the transactions, rather than the knowledge and grounds of suspicion held by the plaintiff, were struck out.[15] Leave was given for the plaintiff to re-plead where considered appropriate.[16]

What does this mean for employers?

This case highlights the importance of clearly documenting the nature of the information disclosed when receiving (or making) a whistleblower complaint.  The recipient should endeavour to make inquiries to determine the basis upon which the claim is made to assess whether the protections apply.  Where whistleblowers appear reluctant to disclose the source of their knowledge of the alleged misconduct, it may be prudent to advise that the lack of information provided may impede the ability to determine whether the protections apply to the disclosure.  Encouraging the provision of more detailed complaints will also assist entities in investigating complaints.

Further developments: ASIC immunity policy

On 24 February 2021, ASIC released an immunity policy outlining its approach to applications for immunity from civil penalty or criminal proceedings.  The policy applies where a person:

  • thinks they have contravened, with another person, a provision of in Part 7.10 the Corporations Act 2001 (Cth) (including insider trading, market manipulation, false trading, market rigging, dishonest, misleading and deceptive conduct in relation to financial services);
  • wishes to apply for immunity from civil penalty or criminal proceedings for the contravention; and
  • intends to cooperate with ASIC in relation to an investigation and any court proceeding regarding the contravention.

A person will be eligible for immunity if ASIC has not already commenced an investigation into the misconduct when the disclosure was made, they admit their involvement in the misconduct, they are the first to apply for immunity, were not the instigator of the misconduct, have ceased their involvement in the misconduct (or are prepared to immediately cease involvement), provide full, frank and truthful disclosure, cooperate fully and expeditiously in making the application and undertake to continue to do so throughout ASIC’s investigation and any subsequent court proceedings.[17]

This provides an additional benefit to whistleblowers who have actually been involved in the misconduct.  The whistleblowing provisions in the Corporations Act 2001 (Cth) do not prevent the person being subject to any civil, criminal or administrative liability for their own conduct.  Instead, the information disclosed cannot be used as evidence against the person in criminal proceedings or in civil penalty proceedings, other than proceedings in relation to the falsity of the information.[18]

 

[1] Corporations Act 2001 (Cth), section 1317AA(4).

[2] [2021] QSC 35 at [37].

[3] As defined in Part 7.10 of the Corporations Act 2001 (Cth).

[4] Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019.

[5] Quinlan v ERM Power Ltd & Ors [2021] QSC 35 [19].

[6] [2021] QSC 35.

[7] Ibid [1].

[8] Ibid.

[9] Ibid [47].

[10] Ibid [35], applying The Environmental Group Ltd v Bowd (2019) 137 ACSR 352.

[11] Ibid [37].

[12] Ibid [55].

[13] Ibid [65].

[14] Ibid [82].

[15] Ibid [48].

[16] Ibid [82].

[17] ASIC Immunity Policy, February 2021 [11].

[18] Corporations Act 2001 (Cth), section 1317AB(1)(c).

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