Australia: First fine for non-disclosure of reportable political donations

Alston Coal 2 Pty Ltd has been fined because two of its directors had made reportable political donations which were not disclosed during the assessment of the Maules Creek planning application...an important reminder of the extent and continuous nature of the disclosure obligation.

INTRODUCTION

Aston Coal 2 Pty Ltd (Alston Coal 2) is the first company prosecuted for failure to comply with the obligation to report the making of a reportable political donation, as required by s147 of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act). Justice Craig recently handed down his decision in the Land and Environment Court case of Director-General, Department of Planning and Infrastructure v Aston Coal 2 Pty Ltd [2013] NSWLEC 188, imposing a fine of $20,000 on Aston Coal 2.

The case highlights the importance of companies and directors ensuring they fully understand the reach of the legislative obligations, especially where directors in their personal capacity, make a political donation.

FACTS

The object of s147 of the EPA Act is to require the disclosure of relevant political donations or gifts when planning applications are made, so as to minimise the perception of any undue influence on the decision-maker. The EPA Act imposes broad reporting obligations by requiring a person who makes a "relevant planning application", to disclose all "reportable political donations" (if any) made within the "relevant period" to anyone by any person with a "financial interest" in the application.

Aston Coal 2 is a wholly owned subsidiary of Aston Resources Limited (Aston) which is listed on the ASX and has now merged and become a wholly-owned subsidiary of Whitehaven Coal Limited. On 16 August 2010, Aston Coal 2 submitted a Major Project Application to the Department of Planning to carry out coal mining and associated activities at Maules Creek (known as the Maules Creek Coal Project). The Maules Creek Coal Project was considered the key asset of the company and the coal deposit to be mined was significant – on a marketable reserve basis the 7th largest coal deposit in Australia. At the time of lodging the Major Project Application, the Political Donations Disclosure Statement was marked "nil" by the company. Project Approval was granted by the Planning Assessment Commission (under delegation) on 23 October 2012.

The case centred around two directors of the company – Thomas Todd and Todd Hannigan - who each made separate political donations to the NSW National Party in their personal capacity, on 15 March 2011 for $5000 and 22 March 2011 for $4250, respectively. The donations were therefore in the period where the Major Project Application was still being determined. At the time that those donations were made, the two directors were entitled to benefit from Aston's Long Term Incentive Plan which granted them both the option, free of charge, to acquire 2,180,232 shares in Aston at the exercise price of $5.96 per share, should certain performance conditions be met. Two of those performance conditions were that "first coal" had been delivered from Maules Creek before 17 August 2013 and that they remained employed by Aston. Delivery of first coal was thus wholly dependant on obtaining approval of the Major Project Application.

Throughout the period of investigation into the matter by the Director-General of the Department of Planning and Infrastructure, Aston maintained that there was no need to update the information they had provided on their political donation disclosure document. However, once the proceedings were commenced, Aston admitted that at the time the donations were made by the two directors, its assertions were legally erroneous and it ought reasonably to have known that the donations were required to be disclosed. Accordingly, Aston Coal 2 entered a guilty plea at an early point in the proceedings.

COURT'S DECISION

As the defendant admitted guilt, the role of the court was primarily to determine the sentence to be imposed on Aston Coal 2. The court addressed the relevant legislative provisions of s147 of the EPA Act noting that:

• Reportable political donations are donations to a political party exceeding $1000.
• The relevant period within which political donations are made that have to be disclosed are the period commencing two years before the application is made and ending when the application is determined. Where a political donation is made after a planning application is submitted, this donation must be disclosed within 7 days after the donation is made (s147(6)(b) of the EPA Act).
• Section 147(8)(c) of the EPA Act states a person has a financial interest in a relevant planning application if, (c) the person "is associated with a person referred to in paragraph (a) or (b)" of s147(8) of the EPA Act and is "likely to obtain a financial gain if development that would be authorised by the application is authorised or carried out (other than a gain merely as a shareholder in a company listed on a stock exchange)". The court noted that a director is a person "associated" with a company for the purposes of s147(8)(c) of the EPA Act (see s147(8)(c) of the EPA Act).

To determine whether it was likely that the directors would obtain a financial gain if the development application was authorised or carried out, the court had regard to the various market announcements and annual reports issued that showed it was likely that first coal at the Maules Creek Coal Project would be delivered before 17 August 2013.

Additionally, the court looked to the trading price of Aston's shares at the date the political donations were made, which were $8.47 and $8.95 per share, respectively. Each of the directors had an option to purchase 2,180,232 shares at the exercise price of $5.96 per share. The court noted that while other contingencies needed to be considered when identifying the prospective trading price, the defendant accepted that at the date of each donation, the two directors were likely to have a financial gain if the Maules Creek Coal Project was authorised or carried out because it was likely that if their share options were able to be exercised, the trading price of Aston shares at the time of the exercise would exceed the option exercise price. That financial gain flowing to both directors was not merely as a shareholder in a company listed on the ASX. Whilst the quantum of the financial gain was unable to be determined by the court, the two directors had a financial interest within the meaning of s147(7)(c) of the EPA Act which necessitated disclosure by Aston Coal 2 of the respective donations within 7 days of them being made. In fact, the making of those donations was never disclosed and this constituted a breach of the EPA Act.

In determining the sentence, the court took into account the relevant sentencing principles including the gravity of the offence, the defendant's remorse, the early entry of the guilty plea, prior history of convictions and so forth. The court determined that the offence was in the mid-range of objective seriousness and, after applying a 25% discount for the early entry of a guilty plea and other subjective factors, together with the principle of totality, each offence should incur a fine of $10,000, being a total of $20,000 in fines payable by Aston Coal 2.

RECOMMENDATIONS

This case is significant as it is the first case to consider the political donations provisions of the EPA Act and demonstrates the importance of companies disclosing donations or gifts made by their directors, even when, on the surface, these donations or gifts are made in the directors' personal capacity. Notably also, the Department of Planning and Infrastructure has indicated that under the new planning legislation currently before the NSW Parliament, the donation disclosure requirements will be expanded to capture donations and gifts made by directors of holding or parent companies.

To comply with the obligations under the EPA Act, companies involved in submitting planning applications should:

• Ensure there is an internal company "Political Donations Disclosure Policy" that clearly sets out when donations or gifts made to political parties must be disclosed to the relevant consent authority.
• Ensure the company policy requires donations and gifts to be disclosed to the company when they are made by directors of the company in their personal capacity, and any other persons "associated" with the company within the definition of s147(8) of the EPA Act This allows the company to properly consider its obligations to disclose under s147 of the EPA Act.
• Be aware that disclosure of political donations to the Election Funding Authority does not constitute disclosure for the purposes of s147 of the EPA Act. A specific disclosure statement must be made to the relevant planning authority within the prescribed time.
• Be aware the disclosure obligation is a continuous obligation with reporting required to occur within 7 days of the donation.
• Be aware that a "political donation" includes gifts (including the provision of services) and payments such as entry fees and tables purchased at political fundraising events.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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