Important victory for Independent Commission Against Corruption in NSW Court of Appeal – conveniently ignored by anti-ICAC campaigners … Corruption findings against Sydney business identities stay the course … Important underpinnings for ICAC … Fraud … Directors’ duties … Hannah Ryan gets to grips with the judgment  

Chief Justice Tom Bathurst, President Margaret Beazley and Justice John Basten unanimously dismissed appeals brought by Travers Duncan and John McGuigan – who were involved in corrupt dealings over mining exploration licences.

In relation to John Atkinson and Richard Poole, Bathurst was in the minority and would have upheld their appeals. The CJ, who also found himself in the minority as the Cunneen v ICAC litigation made its way through the Court of Appeal, also dissented on the question of whether ICAC ought to have recommended that certain licences be expunged by legislation. 

ICAC addicts will be watching the High Court closely, to see whether a special leave application will be filed before the July 20 deadline.  

A complex chronology underpinned the appeal, involving a line-up of shell companies, tenements, exploration and mining licences, and (of course) the Obeid family. 

In 2011, ICAC rolled-up its sleeves and investigated the circumstances in which the NSW government in 2009 had come to issue a coal exploration licence to Cascade Coal over an area in the Bylong Valley, known as the Mt Penny tenement. The responsible minister was Ian Macdonald.

A significant proportion of the land within that tenement was owned by interests associated with the no-longer-honourable Eddie Obeid and his family. 

In its 2013 report, ICAC concluded that the individual appellants had acted corruptly, as had Macdonald and Eddie and Moses Obeid. It found that Cascade had entered into a joint venture agreement with an Obeid-controlled company with respect to the award of the Mt Penny exploration licence. In a later report, ICAC recommended that the Mt Penny licence and others be expunged by legislation.

The conduct of the Cascade Coal directors found to be corrupt related to the proposed sale of their Cascade shares to White Energy, a public company, of which all individual appellants except Mr Poole were directors.

Through a complex corporate arrangement, the appellants had earlier taken steps to remove the Obeids’ involvement in the joint venture, to protect the value of the Mt Penny tenement. There was a risk that the government might cancel the exploration licence or never grant a mining lease if it came out that the Obeids were involved. 

As the proposed sale was of a major asset to a company from its own directors, the ASX was informed and an Independent Board Committee (IBC) established to assess the proposal on behalf of White Energy. 

ICAC found that the various appellants had misled the IBC as to the Obeid family’s involvement in the tenement, and/or deliberately failed to disclose it. And by arranging the Obeids to be extracted from the joint venture, the appellants intended to deceive public officials as to the Obeids’ involvement. 

In 2014, Duncan, McGuigan, Poole, Atkinson and Richard Kinghorn challenged ICAC’s findings of corrupt conduct by way of judicial review in the Supreme Court. 

The corporate appellants, subsidiaries of Cascade Coal, challenged the recommendation that the exploration licences be expunged.  

Justice Robert McDougall dismissed the finding against Kinghorn, but upheld the corruption findings against the other four individuals. HH also dismissed the companies’ application. 

To the likely dismay of various News Corp hacks, the Court of Appeal found that ICAC’s reports were largely unimpeachable. Most of the appellants’ grounds of appeal fell on unsympathetic ears, while ICAC’s notice of contention succeeded. 

“Adversely affect”

The appellants argued that their conduct could not “adversely affect” the exercise of public functions, and so constitute “corrupt conduct” under s.8 of the ICAC Act (as it applies post-Cunneen and post-Validation Act). This ground of appeal was not made out. 

Under the relevant legislation, the minister and director-general responsible for awarding exploration licences could not have lawfully taken into account the Obeids’ interest in the land, and the appellants’ deception could therefore not have affected, adversely or otherwise, the approval decision.

However, according to the chief justice, where the approval effectively carries with it the grant of a mining lease, which will carry with it ongoing obligations on the lessee, the director-general would be entitled to look at the identity of the applicant for approval. And even if the director-general was limited to a consideration of strictly environmental matters, the public interest the minister was required to take into account should not be narrowly construed, and is not limited to environmental considerations.

A second argument on s.8 was also unanimously rejected. The question was whether information already in the public domain, by reason of an article in the Financial Review and a question asked in parliament by Lee Rhiannon (both of which suggested Obeid involvement in the process of the grant of licence), meant that the appellants’ conduct could not have an adverse effect.

However, the appellants knew more than was in the public domain, and the information they sought to conceal was qualitatively different. The revelation of what they knew could have prompted further investigation, and might have influenced a public official not to grant a mining lease. 

By s.13(3A), the ICAC Act requires ICAC to be satisfied that the facts found have the capacity to constitute an offence if proved before a court. One offence ICAC relied on in this respect was fraud, as contained in s.192E of the Crimes Act.

It was said that the appellants obtained a financial advantage by arranging to extract the Obeids from the joint venture and, in the case of Duncan and Poole, by dishonestly dealing with the independent board committee. Bathurst would have upheld this ground of appeal, while Beazley would have allowed it in relation to the extraction of the Obeids from the joint venture. Basten rejected it wholesale. 

The court disagreed on whether the requirement that a financial advantage be obtained had been met. On Bathurst’s view, although by keeping mum on the Obeids’ involvement the appellants concealed a significant problem with Cascade’s underlying asset, until the appellants could obtain a mining lease without disclosing that involvement, the asset remained flawed.

Bathurst also thought there was no evidence that any public official was deceived as a result of the transaction that extracted the Obeids from the joint venture, and that the primary judge erred in not considering this issue. Similarly, he found that there was no evidence that the IBC was actually deceived.

Beazley agreed that the extraction of the Obeids did not actually deceive anybody, but thought the IBC had been deceived. Basten considered that any deception need not have the effect of inducing a false belief in the recipient of information.  

In respect of those appellants who were directors of White Energy (all individuals except Poole), ICAC also relied on the offence in s.184 of the Corporations Act, which requires directors to act in good faith. At first instance, the appellants had argued that declaring their conflict of interest and stepping back from White Energy’s decision-making process satisfied their obligation under this provision, and the primary judge accepted this submission. 

On appeal, ICAC challenged this finding by notice of contention. The Court of Appeal upheld the notice, finding there was no error of law in ICAC’s construction of s.184(1) as giving rise to positive duties of disclosure in some circumstances. 

This was one of those circumstances. There was a conflict inherent in selling what the court described as an “effectively flawed asset” to a company to which the appellants owed fiduciary obligations. It was open to ICAC to find that in seeking to proceed with the transaction without disclosing the true position, the directors contravened their obligation to act in good faith in the interests of White Energy.

However, in respect of Atkinson, Bathurst did not think a finding of intentional dishonesty as required by s 184(1) was open. He did not take active steps to conceal the true position from White Energy, and took no part in any discussions with the IBC. Accordingly, Bathurst would not have upheld ICAC’s notice of contention in respect of Atkinson.

Beazley and Basten disagreed. Although only aware of the Obeid connection later, he deliberately failed to disclose that involvement to the IBC, and there was evidence that the failure was intentional. 

John Kinghorn 

Kinghorn was also a director of Cascade Coal and ICAC originally also made findings of corruption against him. 

McDougall J said the finding in relation to Kinghorn was not valid. ICAC appealed, but later agreed to discontinue the appeal. ICAC’s subsequent attempts to reinstate the appeal were unsuccessful. 

The upshot of the court’s findings on s.184 were that ICAC’s decision that Kinghorn was corrupt was made according to law. But as he was not a party to the final appeal, the finding will not be reinstated.  

Procedural fairness

The individual appellants’ complaint that they were denied procedural fairness failed before McDougall and again on appeal. They argued that it was not until the very last, when ICAC’s counsel assisting was making his final submissions, that their attention was directed to any particular offences which the commission might suggest they had committed. Accordingly, they were not able to give evidence as to the elements of the offences. 

However, this complaint was raised for the first time on judicial review. In those circumstances, they faced a heavy burden of attempting to demonstrate error in circumstances without much to guide the court as to how ICAC would have dealt with an argument not presented to it.

Justice Basten, with whom the others agreed, gave this ground short shrift, holding that “in short, the appellants did not condescend to address the detail of their complaints, so as to demonstrate that there was an element of practical unfairness”. 

Construction of report

Had ICAC’s s.184 argument not succeeded, the court would have set aside certain findings of corrupt conduct against McGuigan and Atkinson. On the court’s reading the commission refrained from making express findings of fraud in relation to both.