Whistleblowing: is it worth the risk under Australian law?

21 Nov Whistleblowing: is it worth the risk under Australian law?

Whistleblowing is … a process whereby an organisational insider with knowledge of wrongdoing takes steps to disclose that information to a party capable of intervention … For private organisations too, encouraging internal whistleblowing can be a useful risk management strategy by providing early warning of difficult to detect misconduct, such as corporate crime or fraud. It can thus enhance the transparency, integrity and resilience of global markets as well as government.

Snapshot

• The Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 provides only limited protection of disclosures to third parties.
• ‘No confidence in an iniquity’ means both criminal and civil wrongs cannot be subject of a duty of confidentiality.
• Contracts that seek to restrain disclosure of illegality even to third parties will be unenforceable.

(Parker, Le Mire and Mackay, ‘Lawyers, Confidentiality and Whistleblowing: Lessons from the McCabe Tobacco Litigation’, (2016) 40(3) Melbourne University Law Review 10-12)

The Commonwealth Parliament has evidently determined that whistleblowers do indeed need additional protection and has published an exposure draft of legislation designed to enhance protections for whistleblowers. The Treasury Laws Amendment (Whistleblowers) Bill 2017, when enacted, will broaden protection for whistleblowers who lodge complaints about specified ‘Eligible Disclosures’ with Australian Securities and Investment Commission (‘ASIC’), Australian Prudential Regulatory Authority (‘APRA’), the Australian Federal Police (‘AFP’) and internally. ‘Eligible Disclosures’ will relate to the Corporations Act (2001) and cognate legislation and ‘improper affairs or circumstances’. In a significant broadening of the protection, disclosure of offences against any Commonwealth Act punishable by more than one year’s imprisonment will be eligible.

The principal limitation of the protection offered by the proposed Bill is that disclosure to third parties is only protected in limited circumstances and then only to parliamentarians and journalists.

The problem

As the above quote from an article on the McCabe Tobacco litigation suggests, for a disclosure to be meaningful it has to be to a ‘party capable of intervention’.

In the McCabe litigation a terminally ill plaintiff was seeking to hold British and American Tobacco to account for the sale of their cancer inducing product (see McCabe v British American Tobacco [2002] VSC 73). Documents that would have assisted the plaintiff’s case had been systematically destroyed. In the wash up, the plaintiff died without a remedy. That result may have been different if a whistleblower had disclosed what British American Tobacco (‘BAT’) had known about the dangers of their products earlier.

That disclosure, to have been useful, would have had to be to someone like McCabe, a potential plaintiff. No regulatory body or police force was ever going to take action against BAT for selling what, after all, was a legal product. But this is precisely the kind of disclosure that is not protected by the current legislation on whistleblowers and will also not be protected under the proposed amendments.

In this article I will examine the non-legislative protections available to whistleblowers who disclose their employer’s illegal conduct to third parties.

Defamation and whistleblowing

There is no absolute privilege for disclosures to the police or ‘appropriate authorities’. But the applicable defence of qualified privilege is vitiated by actual malice – which in the defamation context means publication for an improper purpose foreign to the occasion of the privilege – and if the report turns out to be wrong that can always be argued (see LVMH Watch & Jewellery Australia Pty Ltd v Lassanah [2011] NSWCA 370). In that case, an erroneous complaint to the police was found to be defamatory at first instance because the defence of qualified privilege had been lost due inter alia to malice. That was overturned on appeal. Most informants are motivated and thus are potentially vulnerable to a claim of malice.

It follows that defamation law is a risk which whistleblowers have to consider. That the allegation is true is always a complete defence, but this may be of little value to a defendant whistleblower given the highly technical and expensive nature of the jurisdiction.

Confidential information

What then of the employee’s duty of confidentiality? Equity imposes on persons who receive information which is confidential, a duty not to disclose that information or take advantage of it. Equity restrains ‘the publication of confidential information improperly or surreptitiously obtained or of information imparted in confidence which ought not to be divulged’ – (Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39 at 50).

It is clear however that no such duty of confidentiality arises in relation to illegal activity.

It is well established law that ‘there is no confidence as to the disclosure of iniquity’ (Gartside v Outram (1856) 26 LJ Ch113, 1149). In this case, Wood V-C stated that: ‘there is no confidence as to the disclosure of iniquity. You cannot make me the confidant of a crime or a fraud, and be entitled to close up my lips upon any secret which you have the audacity to disclose to me relating to any fraudulent intention on your part: such a confidence cannot exist.’

In Allied Mills Industries Pty Ltd v Trade Practices Commission (1981) 34 ALR 105, Sheppard J in the Federal Circuit Court, in the context of breaches of the Trade Practices Act 1974 (Cth), held that where disclosure would reveal an iniquity or misconduct, no protection will be afforded to the confidentiality. Sheppard J held (at 141): ‘the public interest in disclosure … of iniquity will always outweigh the public interest in the preservation
of private and confidential information’. On Sheppard J’s formulation, if there is an ‘iniquity’ there is also the requisite public interest in its disclosure.

In Corrs Pavey v Collector of Customs (1987) 74 ALR 238 at 450, Gummow J had a somewhat different approach. His Honour held that Gartside v Outram was authority for the position that: ‘information will lack the necessary attribute of confidence if the subject matter is the existence or real likelihood of the existence of an iniquity in the sense of a crime, civil wrong or serious misdeed of public importance, and the confidence is relied upon to prevent disclosure to a third party with a real and direct interest in redressing such crime, wrong or misdeed.’

Justice Gummow’s approach in Corrs Pavey has since been followed in the High Court in Minister for Immigration and Citizenship v Kumar [(2009) 238 CLR 448 and has been applied by the NSW Supreme Court in cases such as AMI Australia Holdings Pty Limited v Fairfax Media Publications Pty Ltd [2010] NSWSC 1395 at [20].

It is clear enough that information that a company was engaged in illegality proscribed by statute, albeit illegality of a commercial character, such as using unlicensed software; engaging in resale price maintenance or cartel behaviour, or failing to provide a safe system of work, will be within the meaning of ‘iniquity’ in the sense of being ‘a crime, civil wrong or serious misdeed of public importance’ and therefore can be disclosed to ‘a third party with a real and direct interest in redressing such crime, wrong or misdeed’ without breaching any duty of confidence.

What if the whistleblower has signed an agreement?

If the principle in Gartside v Outram is simply an application of the clean hands doctrine, then may it not be arguable that a whistleblower could still be sued for damages if he or she disclosed an iniquity subject to a confidentiality agreement, even if no equitable relief was available?

The answer, not surprisingly, is no.

The High Court most recently considered this issue in Gnych v Polish Club Limited [2015] HCA 23, where at [35], the Court adopted  the formulation of French CJ, Crennan and Kiefel JJ in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 at 513:

1. an agreement may be unenforceable for statutory illegality in three categories of case, where:

“(i) the making of the agreement or the doing of an act essential
to its formation is expressly prohibited absolutely or conditionally
by the statute;
(ii) the making of the agreement is impliedly prohibited by statute.
A particular case of an implied prohibition arises where the
agreement is to do an act the doing of which is prohibited by
the statute;
(iii) the agreement is not expressly or impliedly prohibited by
a statute but is treated by the courts as unenforceable because
it is a ‘contract associated with or in the furtherance of illegal
purposes’”.

Under s 316 of the Crimes Act 1900 (NSW), it is an offence to fail to bring a ‘serious indictable offence’ to the attention of an ‘appropriate authority’. A serious indictable offence is one that comes with a penalty of five years or more imprisonment and includes the usual suspects such as murder, armed robbery and drug trafficking.

Furthermore, ‘serious indictable offences’ also include a number of offences against the Australian Consumer Law, Taxation legislation, Occupational Health and Safety and indeed the Copyright Act. (Other examples include s 588G(3) offence for insolvent trading or s 1043A(1) offence for insider trading under the Corporations Act). Accordingly any contractual attempt to prohibit coming forward to an appropriate authority will fall under the second category in Equuscorp and be unenforceable.

Unfortunately, this is of little real assistance in relation to areas of illegality – such as the commercial infringement of software – where the police are unlikely to intervene. In those cases, the party with the power and capability to act is likely to be a third party – as in the McCabe litigation. But a third party is unlikely to be an ‘appropriate authority’. That however does leave the third category of Equuscorp, namely ‘a contract associated with or in the
furtherance of illegal purposes’.

Commercial scale copyright infringement, contraventions of the Australian Consumer Law and of the Fair Work Act can all be illegal purposes. A contract seeking to prevent disclosure of such conduct to a person with the capacity to intervene could indeed be seen as within the third category in Equuscorp. The High Court decisions of A v Hayden and Kumar strongly suggest that a contract that sought to restrain disclosure of an ‘iniquity’ to a third party with a real and direct interest in redressing such crime, wrong or misdeed would be void and unenforceable.

Conclusion

While the position of a whistleblower who reports illegality to appropriate authorities will be enhanced by the Treasury Laws Amendment (Whistleblowers) Bill 2017 (when enacted), what would be of more assistance is legislative clarification of the position of whistleblowers who disclose illegal conduct to third parties with the power and capability to act.

By Grant Hansen (Partner)