Recent Supreme Court challenges to ICAC’s corruption findings concerning Mount Penny mining tenement largely unsuccessful - White Collar Crime, Anti-Corruption & Fraud

BACKGROUND

Between November 2012 and May 2013, the Independent Commission Against Corruption (ICAC) conducted widely publicised public inquiries into the circumstances surrounding the award of the Mount Penny mining tenement and the grant of an exploration licence over the area to Cascade Coal. In particular, the ICAC made findings of corruption against not only Ian MacDonald and Eddie Obeid (Snr), but a number of directors of Cascade Coal and White Energy, an Australian listed company, including Travers Duncan who has repeatedly challenged ICAC's findings.

In its first report, ICAC made findings that Mr Duncan, Mr McGuigan, Mr Atkinson, Mr Poole and Mr Kinghorn, in their capacities as directors of Cascade Coal and/or White Energy, had been involved in criminal and corrupt conduct by either:

deliberately misleading White Energy in the course of negotiating the sale of an option to acquire all of Cascade Coal's shares for $500m by failing to inform the chair of White Energy's Independent Board Committee (IBC) about the Obeid family's involvement;
deliberately failing to disclose the Obeid family's involvement to the IBC; and/or
arranging for the Obeid's interests to be paid out from the joint venture,

with the intention to deceive public officials as to the involvement of the Obeids in the Mount Penny tenement.

In its third report, commissioned at the request of the NSW parliament, ICAC recommended that the NSW government enact legislation to expunge authorities granted pursuant to the Mining Act 1992 (NSW) over the Mount Penny tenement which were issued to subsidiaries of Cascade Coal.

The individual plaintiffs, Cascade Coal and its subsidiaries commenced judicial review proceedings seeking declarations that ICAC's findings of corrupt conduct and its recommendations that the authorities be expunged, were nullities.

IMPLICATIONS

While the Court did not uphold all of the grounds upon which ICAC's findings of corrupt conduct were based, those grounds that it did uphold confirm ICAC's relatively broad powers to make findings of corrupt conduct and the limited basis upon which those findings may be challenged.

The decision is also notable for the Court's determination that recommendations made by ICAC in its report are not susceptible to review. In the absence of any irregularities in the findings underpinning ICAC's recommendations made in a report, there is little that individuals and corporate entities can do to challenge the recommendations themselves.

Finally, those individuals and businesses subject to ICAC's jurisdiction should take note of the Court's statements concerning when and how a person who may be the subject of adverse findings by ICAC should raise concerns about any denial of natural justice. Specifically, the case confirms that ICAC hearings are investigatory and witnesses who may be the subject of findings of criminality do not need to be afforded the same procedural protections as in courts.

THE CHALLENGE

Jurisdictional facts a necessary precondition of ICAC's statutory power to report a finding that a person has engaged in corrupt conduct

For conduct to be considered corrupt within the meaning of the Independent Commission Against Corruption Act 1988 (NSW) (the Act), a person's conduct must be conduct that (relevantly):

"adversely affects, or that could adversely affect, either directly or indirectly, the exercise of official functions by any public official, any group or body of public officials or any public authority and which could involve any of the following matters:...fraud..." (s8(2)).

ICAC may make a finding that a person has engaged in corrupt conduct if the conduct engaged in constitutes, relevantly, a criminal offence (ss 13(3A) and s9(1)(a)).

ICAC may only include in a report a finding that a person has engaged in corrupt conduct if it is first satisfied that the conduct constitutes a breach of a law and the ICAC identifies that law in the report (s9(5)).

The individual plaintiffs contended that before ICAC could include in the final report a finding that the plaintiffs had engaged in corrupt conduct, it was first required to find the existence of certain jurisdictional facts, namely that it be satisfied that the plaintiffs were 'corrupt' within the meaning of s8(2) of the Act and that the plaintiffs' conduct constituted a criminal offence.

"ADVERSE AFFECT" ON "OFFICIAL FUNCTIONS" BY A "PUBLIC OFFICIAL"

ICAC found as a matter of fact that the plaintiffs had feared that if the NSW government learned of the Obeid's involvement in the Mount Penny tenement, that it may take action to set aside the exploration licence or not grant a mining lease. Further, that because of this, the plaintiffs took deliberate steps to conceal that information from White Energy's IBC for the purpose of preventing public officials and authorities from learning of the Obeid family involvement in the Mount Penny tenement.

The ICAC characterised this as an intention to deceive relevant public officials of the NSW Government and found that the plaintiffs' conduct was corrupt within the meaning of s8(2) of the Act because it could adversely affect the exercise of official functions by public officials.

The plaintiffs argued that ICAC had failed to identify any public function or officials that could have been adversely affected by their conduct and that the alleged conduct related to misleading the IBC, whose members could not be characterised as public officials and who did not exercise official functions. The plaintiffs also submitted that because information about the Obeid family's involvement in the Mount Penny tenement was already in the public arena it could not have adversely affected those functions.

The Court found that:

ICAC was required to identify the official functions adversely affected by the conduct with some degree of precision, but that did not require reference to specific legislative or regulatory provisions authorising the official functions or the precise identification of the officials or authorities who exercised those functions;
whilst there was no statutory foundation for reviewing the creation of a tenement or the grant of an exploration licence, the decision to grant, or refuse to grant, a mining lease in relation to the tenement was an official function and the official who exercised that function was identifiable by implication;
matters of corruption are relevant to the "public interest" consideration under the Environmental and Planning Assessment Regulation 2000 (NSW) when the government report is being prepared to assist the Planning Minister in deciding whether to grant approval for development consent, which is the precondition for the grant of a mining lease;
the information said to have been concealed by the plaintiffs went well beyond what was in the public domain at the time and it was open to the ICAC to find that if the additional facts had been known, then it was likely that no mining lease would have been granted. Accordingly, the function of determining whether to grant approval for development consent could have been adversely affected by the concealment of that information; and
"could affect" does not mean "could, if proved", which is a higher standard of proof. The relevant test is based on a possibility and requires a rational link between the conduct and the adverse effect on the officials and functions.

CRIMINALITY

ICAC found that there were two bases upon which the plaintiffs' conduct could be found to constitute a criminal offence - fraud, pursuant to s192E(1) of the Crimes Act 1900 (NSW) and breach of duty pursuant to s184(1) of the Corporations Act 2001 (Cth).

Fraud

The Court upheld ICAC's findings in relation to s192E(1)(b) of the Crimes Act 1900 (NSW) on the basis that the conduct of the individual plaintiffs, (except for Mr Kinghorn) could involve a contravention of the criminal offence of fraud.

The Court found that although the plaintiffs did not have direct knowledge of corrupt arrangements between Mr McDonald and the Obeid family, there was evidence that they knew that if the IBC or the public found out about the Obeid family's involvement, that it would imperil their investment. The Court agreed that the steps they took to prevent the information becoming public were dishonest and the individual plaintiffs obtained a financial advantage by preventing the risk of a loss in the value of their shares in Cascade Coal should the sale to White Energy not proceed or if the NSW government found out about the Obeid family's involvement and did not grant a mining lease.

Breach of Duty

The Court rejected ICAC's findings that the conduct of each individual plaintiff (except for Mr Poole) constituted a contravention of s184(1) of the Corporations Act 2001 (Cth) by a dishonest or reckless failure to discharge duties as directors in good faith or for proper purpose. The Court held that the relevant plaintiffs' fiduciary duty to White Energy did not require proactive disclosure of the Obeid family's involvement to the board of White Energy. The relevant plaintiffs were found to have properly declared their conflicts and left the decision to the IBC of whether White Energy's option to acquire shares in Cascade Coal should be exercised. Accordingly, they were not acting as directors of White Energy in relation to the transaction when they removed themselves from the conflict.

Ultimately, only Mr Kinghorn succeeded in having the finding of corruption declared to be a nullity because ICAC had not established that his conduct constituted a criminal offence.

DENIAL OF NATURAL JUSTICE

The Plaintiffs (apart from Mr Kinghorn) argued that they had been denied natural justice because:

ICAC had not given notice of the way the plaintiffs were said to have acted corruptly or the nature of the alleged criminality prior to closing submissions; and
they had not been cross-examined on the elements of the alleged offences.

The Court held that an ICAC hearing is investigative by nature and provided a witness was sufficiently cross-examined on the facts underlying ICAC's final findings, there is no requirement prior to closing submissions for ICAC to articulate the way in which the witness has been said to have acted corruptly or to cross-examine the witness on the precise elements of the alleged offences or even identify the nature of the alleged criminality.

Importantly, the Court was quite firm in stating that if a witness feels they were unable to meet the case against them and there was a denial of natural justice because they were denied an opportunity to make submissions or lead (or test) evidence on a particular topic, the onus is on them to make an application to ICAC or the Court to reopen the hearing. Whilst there were complaints made to ICAC by the plaintiffs that there was a denial of natural justice, none of the plaintiffs elected to make an application.

CORPORATE PLAINTIFFS

The Court held that all the corporate plaintiffs failed in their application for declaratory relief for the following three reasons:

there were no decisions or findings in the third report susceptible to review, rather the third report contained recommendations and it was for the government to consider whether those recommendations should be followed;
because challenges by the plaintiff directors failed, the findings in the first report stood, and accordingly, there was no basis for the declaratory relied sought by the corporate plaintiffs; and
in any case, the relief sought by the corporate plaintiffs would lack utility as the declarations sought would not undo the legislative response to the first report, and any reputational damage to the corporate plaintiffs flowed from the relevant findings contained in the first report and not from the recommendations in the third report.

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