Corporate Wrongdoing Law in Australia: Breach of contract - WA Inc and Alan Bond

Author: Iloka Benneth Chiemelie

Publishe: 12th April 2017

Introduction

Corporate wrongdoings have the capacity to negatively affect efficiency and economic development, and it also has side effects that can be felt across communities or on the global scene. Thus, it is vital that corporate law provides necessary incentives to ensure compliance.

It has been suggested by regulatory theories that agencies are in the best position to ensure compliance if they are accorded necessary capacity for imposing sanctions on misconduct with respect to issues where such is deemed necessary. It is also vital that access to hierarchy are granted to regulators in such a way that lesser sanctions are accorded for less serious breaches.

The Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 (corporate law) serves as the baselines for regulating companies and financial services and markets[1]. The Australian law providers the Australian Securities and Investment Commission (ASIC) with different kinds of options for enforcement[2]. Such include sanctions for criminals, civil sanctions, enforceable undertakings and disqualification. These sanctions serves as supplement for the wider system use in private redress against misconduct by companies, which include class actions and derivative actions.

Internationally, the Australian regulatory system is highly placed and the government has shown commitment towards full renouncement for ASIC in order to enhance the agency’s ability of maintaining full enforcement of the law. Thus, it is clearly that any corporate scandal within the Australian sphere will have effects on the country’s ability to deliver promises in the international business setting.

Breach of contract: WA Inc and Alan Bond

WA Inc. is a notable political scandal that occurred in Western Australia. In the 1980s, the Western Australia government, which was governed during that period by Premier Brian Burke, has numerous business transactions with different but prominent businessmen, which included Alan Bond. Their business dealings creates numerous loss to the public with the value of such losses estimated to be around $600 (in minimum) and it resulted to numerous companies becoming insolvent.

Bond was one of the major contributor to the party that was in government then, the Australian Labor Party, which also has a remarkable fund raising structure known as the John Curtin Foundation. In 1990, a royal commission was established by the Labor premier, Carmen Lawrence and charges with the obligation to examine these business dealings.

The examination by the commission revealed in evidence that Hawke did eliminate a proposed gold tax following donations made by Connell and other business mogul (e.g. Alan Bond) in the region of $250,000 each for the labor party in the course of a lunch at Brian Burke’s office (the then premier) in 1987 – but Brian vigorously denied this claim. The former PM’s loyalty to those that made donations in the favor the Labor party was clearly fervent. In order to push the John Curtin Foundation to a new height, the former PM created the West Australian Development Corporation and made John Horgan (a fellow Catholic) as the director with an annual salary of $800,000, which is an extra ordinary figure for a public servant both then and now[3].

In a similar way, the bond corporation was established by Alan Bond, and was awarded numerous controversial contracts in the oil and gas sector, with figures that clearly demonstrate exaggeration and intention to undertake fraudulent activities. With money generated from the transactions, Alan Bond and the government acquired major stakes from the company the Bell Group companies, allowing Holmes to walk away with over $350 million. There are varied cases of breach of contract with respect to corporate law and it is still the longest running court case in the Australian legislative sphere with numerous undecided jurisdictions and rulings.

Breach of contract: HIH and Larry Adler

During his sentencing, it was noted that Rodney Stephen Adler pleaded guilty to 2 counts of distributing information on the 19^th and 20^th of June in 2000, knowing fully well that the materials in question were false but continued with such dissemination in order to induce a higher purchase of shares by people for the HIH Insurance Limited (HIH), and this is contrary to the section 999 Corporations Act 2011 (Cth). He also pleaded guilty to another count (1) of obtaining money through false or misleading statement, which is in contrast with the section 178BB Crimes Act of 1900 (NSW), and another count of intentional dishonest with failure to undertake his duties in good faith as the director of HIH and for the best interest of the company which is in contrast to section 184(1) (b) of the Corporations Act 2001 (Cth)[4].

One important note from the case is that at the beginning of these pleas, Adler had not be charged or convicted of being the director of such big corporation which went bankrupt due to large losses for the shareholders and creditors. Such losses also feature huge volume of insurance claimants, whose claims were impossible to meet and other people like building owners that could not continue work as a result of building insurance being but off by these issues. Considering that he was not being charged of these issues, it was impossible for the court to sentence or punish him in such regards as the court was not able to subject that such claims which the defendant had plead guilty to be the cause of the company’s fail and a mammoth $5.6 billion in debts.

This is another classic case of breach of contract, where a manager mislead innocent customers by providing them with false information about the company’s performance in order to lure them into acquiring shares from the company, knowing fully well that such transaction is unfit and would result to numerous damages and losses to the potential shareholders. Even after his conviction, he tried to control the decision of the court by pleading guilty to count charges he was never charged for in order to avoid potential punishment for such from the court’s proceedings. This is very deliberate and intentional.

Recent concerns over Leighton in Australia and expected changes in corporate law

There are numerous cases of Australian companies being alleged in to have engaged in varied forms of foreign corruption and bribery. However, it seems that majority of these cases are no were near necessary conviction.

Peter Gregg is the head of a $2 billion primary health care company, and cases have it that his former employer, Leighton Holding's, and engineering group WorleyParsons represent recent cases in the area of alleged implicated scandals in relation to international bribery and corruption.

Fairfax media recently revealed that Tabcorp was under investigation by the Australian Federal Police for its alleged involvement in bribery with the Cambodian prime minister’s family at the same point when the company was being investigated in the country for getting a gaming license[5]. Elmer Funke Kupper was the chief executive then, and he resigned as the company’s head in the wake of these scandalous claims.

The latest rounds of claims emanate from documents that were of immense contents and dropped by the Fairfax investigative writers. The documents comprises of different emails that solidify the highlighted behavior of these Australian companies in terms of bribery and corruption and the people that were working for Leighton (now renamed CIMIC). The most sensational part of the report is that the highly valued Gregg is under an active criminal investigation by the ASIC in relation to an offshore payment in the region of $15 million.

A leak document that features the signature of Gregg does indicate that the high profiled manager authorized a suspicious payment in the August of 2011 to a Dubai firm, Asian Global Projects and Trading. Gregg was the chief financial officer of Leighton at the time such transfer was made, and the documents signed indicates that the purpose of the payment is to guarantee the supply of steel at a below market price to the Australian construction giant. However, ASIC does seem to have evidence indicating that the payment was a sham. Thus, ASIC is investigation as to whether the money was a secret commission made for the facilitation of a business deal that involves Leighton and its offshore Indian operations.

In any case, Gregg does maintain the stands of the document presented that such was a legitimate payment for the purpose of facilitating the supply of steel contract, although no steel was actually acquired in the process of such transaction and the company did not make any move to bring back the $15 million. While this case does not suggest that Gregg is guilty of any wrongdoing or criminal offence, it is important that such allegations be cleared up if he is to maintain his current position as the head of a multi-billion publicly listed corporation in Australia. However, the primary healthcare board has pumped heir forced behind Gregg following awareness of such publications and having made necessary legal consolations.

Meanwhile, Australian engineering giant, WorleyParsons, has joined the offshore arm of Leighton Holdings and other numerous multinational corporations that are being investigated for their part in using corrupt agents in the course of winning government contracts within the oil producing countries.

A joint Fairfax Media and Huffington Post investigation features Unaoil at the center of that investigation. The company is featured for corrupt practices inside Monaco, with reference to its specialty of bribing officials. Leaked files of Unaoil does indicate that one of the suspected agency, Stefano Borghi, was working with WorleyParsons at the same time he was working with Unaoil in Kazakhstan.

Although WorleyParsons noted in a statement that Mr. Stefano was only working as an employee of its agent, it is important to note that at the time the agency was stipulated, WorleyParsons has a very strict and rigorous process for employing agents, which implies that the case of Stefano must have been done intentionally with a desired objective to attain certain level of benefit from such employment.

These recent rounds of allegations should serves as enough pressure for government of Australia to shift from its complacent attitude in relation to how Australian corporations engage in international bribery a corruption, further calling for the need for necessary changes in the Australian corporate law.

Not only are the corruption cases investigated by the Federal Police few, their conviction rate is relatively low and some has lasted for years as is the case of WA inc. and Bond corporations. Suggestions have been made that investigation on such cases should not be closed prematurely, but should instead be proceeded with necessary ramifications to ensure that all tables are turned.

This has been supported by Justice Anthony Whealy, who presided over NSW corruption inquiries, as he noted that the Australian government has become complacent over corruption and the inability of successive federal governments to stamp out bribery and corruption within the Australian sphere is forcing such practices into the international scenes. Transparency international, an anti-corruption organization released its annual corruption perception index recently, with Australia sliding downwards for the third consecutive years in a row. This is a big issues for the country, both in the local an international science as it does influence the perfection of Australia corporations across markets.

In view of the above understanding, it is expected that the corporate law will shift its focus on just local scenes to cover for continuously increasing issues in the international scene. This will allow ASCI to investigate the activities of Australian companies abroad in order to ensure that their business process reflect positive image for the country. If such is the case, Australian law and corporations will continue to be widely valued, but in the absence of such, their business perception will continue to degrade as more Australian companies will plunge into corrupt practices.

---

[1] The Australian Law Reform Commission, Principled Regulation Report: Federal Civil and Administrative

Penalties in Australia, December 2002, paragraphs 3.34, 3.35.

[2] The Australian Law Reform Commission: Discussion Paper 65: Securing Compliance: Civil and

Administrative Penalties in Australian Federal Regulation: Chapter 2 at paragraph 2.8.

[3] WA Inc. Online: https://en.wikipedia.org/wiki/WA_Inc

[4] The Adler judgment (2015). Online:  http://www.smh.com.au/news/Business/The-Adler-judgement/2005/04/14/1113251721186.html

[5] Elizabeth Knight (2016). Major concerns over Australian corporate corruption, but convictions few. Online: http://www.smh.com.au/business/comment-and-analysis/major-concerns-over-australian-corporate-corruption-but-convictions-few-20160331-gnv8ap.html