1.3. This submission addresses two aspects of the Options Paper:

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1 SUBMISSIONS RE IMPROVING PROTECTION FOR CORPORATE WHISTLEBLOWERS OPTIONS PAPER 1. Introduction 1.1. Maurice Blackburn Pty Ltd makes these submissions in response to the Options Paper Improving Protections for Corporate Whistleblowers, issued in October Maurice Blackburn is a law firm with the largest class actions and representative proceedings practice in Australia, acting primarily on behalf of the victims of cartel conduct, sharemarket misconduct and faulty products. We also have large practices in work accident litigation, transport accident litigation, medical negligence litigation, superannuation and insurance claims, asbestos litigation and industrial law, operating from 19 offices in four States and territories. Acting in these types of matters in various jurisdictions we have significant experience and an important perspective on the need for improved protection for witnesses to corporate misconduct This submission addresses two aspects of the Options Paper: (a) The absence of a proposal to provide protection for whistleblowers making disclosure to a lawyer acting in relation to proceedings against the company for a breach of corporate legislation (b) The proposals contained in section 5 relating to the ability of a court to order production of documents that may reveal the identity of a whistleblower 2. Extending protection for whistleblowers making disclosure to a lawyer acting in relevant proceedings 2.1. There is a significant deficiency in the scope of the current whistleblower protection provisions, which is ignored by the Options Paper. A whistleblower who discloses corporate law breaches to a lawyer acting in proceedings against the company is not protected from civil liability and neither is the lawyer hearing the information.

2 The problem is illustrated in the decision of the NSW Supreme Court, AG Australia Holdings v Burton & Anor ( Burton ) The case related to the GIO shareholder class action. Maurice Blackburn, acting for shareholders took a witness statement from an important former employee of GIO. The statement, which was made willingly by the whistleblower, revealed serious misconduct by GIO. The statement taken was never publicly revealed and was for use only in the court proceedings. GIO then sued the witness and Maurice Blackburn s partners for taking the witness statement, arguing that the whistleblower had obligations of confidence which he breached by making the witness statement The court held that the whistleblower breached the terms of his confidentiality agreement by disclosing confidential information regarding GIO s breaches of the law and that the public interest lay with the enforcement of the confidentiality agreement, rather than the disclosure of corporate misconduct. This was so even though the whistleblower was a compellable witness. The court made wide ranging injunctions against the whistleblower and the Maurice Blackburn The Burton decision almost derailed the class action, and may have denied compensation to the victims of GIO wrongdoing. The wrongdoing itself has been recognised by academics and commentators as misconduct which caused very serious losses to the shareholders. GIO was able to prevent the whistleblower s statement about its wrongdoing even being seen by the Court. It is of note that, in a later prosecution by ASIC, it was established that some GIO directors had acted dishonestly or unreasonably in the matters central to the GIO class action Presently, whistleblowers who disclose corporate law breaches to lawyers acting for claimants against the company risk being held to be in breach of statutory, contractual and equitable obligations of confidence. The lawyers who act for victims of illegal corporate conduct are also exposed to legal action being brought against them by the perpetrator. The effect is that witnesses are disinclined to reveal important misconduct, lawyers are disinclined to take their statements, the court are less well informed by witnesses and ultimately corporate misconduct is left unchecked Unsurprisingly, large corporations have not utilised this advantage only in the circumstances set out in Burton. It has become a common tactic, with serious 1 AG Australia Holdings v Burton & Anor (2002) 58 NSWLR 464 ( Burton )

3 consequences for witnesses, claimants and lawyers instructed in the case. Other examples from matters conducted by Maurice Blackburn include: (a) (b) (c) In the GIO shareholder class action, Maurice Blackburn also took witness statements from three important former employees being a French reinsurance consultant, the GIO Chief Auditor and a senior GIO reinsurance underwriter. The statements revealed gross deficiencies in GIO s conduct. The statements were never revealed publicly and were for use only in the proceedings. The whistleblower and Maurice Blackburn s partners were then sued by GIO in satellite proceedings, which asserted that the whistleblowers had breached their obligations of confidence. That application was withdrawn two days before it was due to be finally heard, after it became clear to GIO that the hearing of the application would reveal to the trial judge its gross misconduct. Nevertheless, the application caused great concern and inconvenience to the witnesses and the solicitors and the defence of the proceedings cost more than $250,000. In the Vitamins cartel class action the whistleblower and Maurice Blackburn s partners were threatened with a suit for taking a witness statement from the former CEO of one defendant. The CEO made a statement admitting involvement in price fixing and market rigging. The statement was not publicly revealed and was for use only in the court proceedings. Maurice Blackburn was forced to pay for independent legal representation for the witness to protect him from the suit. Ultimately, relying in part on the evidence of this witness that Maurice Blackburn provided to it, the ACCC successfully prosecuted the cartel and obtained a then record fine. We would have been unable to use the statement in the civil case for the benefit of the cartel victims if the threatened suit had been successful. The whistleblower could have been seriously disadvantaged by the company engaged in misconduct despite his important role in bringing the breaches of the law to an end. In the Aristocrat shareholder class action a former manufacturing manager of the defendant was threatened with a suit for making a witness statement to us in the proceeding. The whistleblower had made a statement, filed in the proceeding, that assisted in establishing that the company had misstated its accounts. The statement was not publicly revealed and was for use only in the proceedings. Subsequently at the trial, after 4 years of denials, the defendant

4 admitted to falsifying its profits and unreasonably maintaining its profit forecasts While bodies such as ASIC play an important part in regulating corporate misbehaviour, private enforcement, through mechanisms like class actions, is now an accepted part of the regulatory landscape. It is recognised as a legitimate means of market regulation, maintaining investor and business confidence and punishing improper corporate conduct. 2 The valuable role they can play has been publicly recognised by both ASIC and the ACCC 3. Further, although prosecutions by ASIC or ACCC can lead to imposition of penalties against the wrongdoer company, they almost never provide redress for the victims of the wrongdoing. The ability to obtain compensation through private litigation is not only a matter of justice for victims, but the prospect of having to pay such compensation is also an additional and powerful deterrent against corporate wrongdoing However, private enforcement cannot be an effective regulatory tool, for compensation or for deterrence, if whistleblowers cannot disclose evidence of improper corporate conduct to lawyers acting in proceedings against the company We therefore contend that whistleblower protections in the Corporations Act be extended to encompass communication of information by whistleblowers to lawyers acting in civil proceedings and for use only for the purpose of the proceedings. 3. Ability of a Court to order the production of documents that reveal whistleblower identity 3.1. We note the suggestion in section 5 of the Options Paper that there should be further restrictions on the ability of a court to order production of documents said to 2 Companies and Securities Advisory Committee, Report on a Statutory Derivative Action (July 1993) at 4. See also CLERP Proposals for Reform, Directors Duties and Corporate Governance: Facilitating Innovation and Protecting Investors (Paper No 3, 1997) at 9-11; Ramsay, Ian and Saunders, Benjamin (2006) The Statutory Derivative Action An Empirical Study (Centre for Corporate Law and Securities Regulation, Melbourne) at 8. 3 Jeremy Cooper, Deputy Chair of ASIC Corporate Wrongdoing: ASIC s enforcement role : Paper at the International Class Actions Conference, Melbourne, 2 December 2005 in which he stated ASIC cautiously welcomes the emergence of the shareholder class action in Australia as a self help mechanism whereby shareholders are able to seek damages for loss incurred at the hands of directors and advisers who negligently or dishonestly cause loss to those shareholders.vigilant shareholders and a vigorous, but appropriately balanced, shareholder class action landscape, will play an important part in maintaining the integrity of the equity capital market in years to come. Graeme Samuel, ACCC Chairman, ABC Radio, PM, 17 July 2006 welcomed the settlement of the Vitamins Cartel class action and stated that the $30.5 million award was a lesson to those that are involved in cartels. He further stated There is now a potential three pronged approach that will occur for dealing with people involved in cartels and cartel conspiracies. First of all there will be action by the ACCC and we will either seek financial penalties or, once legislation is passed by Parliament, we ll be seeking to put executives in jail. And, in addition to that, as Maurice Blackburn have demonstrated by their action, they also will be pursuing, as will other lawyers and other plaintiffs, will be seeking and obtaining damages.

5 reveal the identity of a whistleblower. The Multiplex shareholder class action is cited extensively as a purported justification for the additional restrictions (see especially paragraph 93 of the Options Paper) We are the lawyers for the shareholder victims of Multiplex s serious misconduct and we strongly contend that such restrictions are unnecessary and counterproductive. This is so for two main reasons: (a) the common law doctrine of public interest immunity already provides sufficient protection; and (b) any further restrictions will increase the likelihood of mistakes by ASIC and reduce the transparency and the credibility of the system Disclosure of documents that may identify a whistleblower or compromise investigations is adequately restricted by the common law public interest immunity. The Multiplex class action is not an indication that further restrictions are necessary. Quite the contrary, the Multiplex class action illustrates that the courts are extremely reluctant to order production of documents that may disclose whistleblower identity and will err on the side of non-disclosure The statement in paragraph 93 that the identity of one of the informers was publicly revealed as a result of the judge refusing to close the Court is completely wrong. The identity of that whistleblower (Mr Cummins) was disclosed to the public by the media long before the Court hearing. 5 The mention of Mr Cummins in open court is not a reflection of any ambiguities of the current legislation and this is quite a mistaken proposition. It is simply a reflection of the fact that this whistleblower s identity was no longer secret and therefore did not need protection. In fact the Courts have repeatedly erred on the side of protecting whistleblowers identity in this matter and the Full Court is currently considering again what information can be revealed to the claimants without compromising the identity of other whistleblowers. 4 See P Dawson Nominees Pty Ltd (ACN ) v Australian Securities and Investments Commission (No 3) [2009] FCA 779, especially at paragraph 33. See also Australian Securities & Investment Commission v P Dawson Nominees Pty Ltd [2008] FCAFC The disclosure was first made in the Four Corners program titled Road to Wembly, which aired on 5 September It was subsequently repeated in numerous Australian and international newspapers. See P Dawson Nominees Pty Ltd v Australian Securities and Investments Commission (No 2) [2009] FCA 413 paragraphs 52 to 59.

6 3.5. As well as demonstrating the adequacy of existing protections against disclosure, the Multiplex proceedings illustrate the necessity for the courts to have the ability to fully scrutinise privilege claims made by ASIC or other bodies Findings of fact by Goldberg J in the application to re-litigate referred to in paragraph 93 of the Options Paper 6 suggest that, in its claims of privilege, ASIC was, at best, less frank with the Court than it was obliged to be 7. A more robust view of ASIC s conduct would be that it sought to mislead the Court about the nature of privilege claimed and about the fact that a whistleblower s identity was already public, having been effectively disclosed in a Four Corners program at an earlier date The conduct of ASIC in that case strongly suggests that the legislature ought to be very reluctant to introduce any reforms that would impair court scrutiny of ASIC claims in relation to production of documents. This is especially so where such reforms are patently unnecessary and there is no evidence to justify the change There can be little doubt that sunlight is the best disinfectant. Steps taken to reduce scrutiny of decisions about confidentiality will ultimately operate to reduce the protection of whistleblowers. Any suggestion that Australian courts are soft on confidentiality or on protection of sources is patently untrue. 6 P Dawson Nominees Pty Ltd v Australian Securities and Investments Commission (No 2) [2009] FCA See P Dawson Nominees Pty Ltd v Australian Securities and Investments Commission (No 2) [2009] FCA 413 paragraphs 146 to 150. To get a full appreciation of the gravity of ASIC s conduct in this case we suggest the decision be read in its entirety.