Whistling in the wind: clarification on the limited retrospective application of the corporate and tax whistleblower protection regime

Scope for whistleblower compensation limited 5 min read

The Full Court of the Federal Court of Australia has unanimously determined that the updated whistleblower protections that came into effect on 1 July 2019 do not apply to detrimental conduct engaged in before that date.

In this Insight, we examine the reasoning behind the decision and assess its implications for companies dealing with historic whistleblower issues.

Key takeaways

• The Federal Court of Australia has held that current corporate and tax whistleblower laws operate retrospectively, but only to a limited extent and do not apply to detrimental conduct engaged in prior to 1 July 2019.
• This limits the scope for employees and other whistleblowers to seek compensation in relation to retaliation or other detrimental conduct that occurred prior to 1 July 2019.
• There may be scope for the court to reconsider whether detrimental conduct which began prior to 1 July 2019 but continued after that date attracts the updated protections. However, absent a significant change in direction by the court, that line of argument may be difficult for whistleblowers to pursue.
• Retrospective operation of these laws continues to:
  • protect disclosures about matters that occurred prior to 1 July 2019; and
  • allow for consequences (including criminal liability, civil penalties or compensation orders) for detrimental conduct occurring on or after 1 July 2019 in relation to pre-1 July 2019 disclosures that meet the current criteria for whistleblower protection.
• In these circumstances, we recommend that companies continue to treat reports of historical conduct as whistleblower protected, and not assume that reports of historical conduct fall under the earlier, narrower protections.
• Whistleblower laws will continue to attract litigation and regulatory attention. This year ASIC has launched its first civil penalty proceedings for breach of corporate whistleblower laws, which we have reported on here and are continuing to monitor.

Updated whistleblower protections and the Watson case

Updated whistleblower protections

Australia's whistleblower protections regime was updated by amendments to the Corporations Act and the Taxation Administration Act, which came into effect on 1 July 2019.

Those amendments effected material changes to the whistleblower regime, as we discussed back in 2019. The provisions in the two Acts are in largely identical terms.¹ They include:

• protection of a broader range of whistleblowers, including current and former officers, employees, contractors, employees of contractors, and relatives, dependents or spouses of those people
• expansion of the types of matters where whistleblowers' protections can apply, to include misconduct, an improper state of affairs or circumstances
• a new requirement that all public companies and large proprietary companies have a whistleblower policy in place, containing information about the protections available to whistleblowers and the procedures in place to deal with disclosures
• improved access to compensation where a whistleblower is subjected to reprisal or retaliation as a result of their disclosure, including a reverse onus of proof where detrimental conduct is alleged to have occurred as a result of a whistleblower's disclosure.

For more information about those reforms, please see our Corporate and Tax Whistleblower Reforms summary from February 2019.

The Watson case

Anthony Watson was a former partner of Greenwoods & Herbert Smith Freehills Pty Ltd, a firm that provided taxation advisory services.

Mr Watson claims that he made a protected whistleblower disclosure under the Corporations Act to senior members of staff of a client, as well as to other partners and directors at Greenwoods in 2013 and 2014, in relation to his concerns about the company's compliance with Australian taxation law.

Mr Watson further claims that between 2014 and 2016, he was subjected to detrimental conduct as a result of those disclosures, including his removal from the client account, denial of sick leave, reduction of his remuneration and his constructive dismissal from Greenwoods.

Mr Watson accordingly brought proceedings in the Federal Court against Greenwoods, seeking compensation. In these proceedings, a preliminary question arose as to whether the updated protections applied to Watson's earlier disclosures, which was referred to the Full Court of the Federal Court for determination.² The compensation proceedings are ongoing.³

The Federal Court's decision

No application to retrospective detrimental conduct

On 30 August 2023, the Full Court of the Federal Court unanimously determined that the updated provisions do not apply to detrimental conduct engaged in prior to 1 July 2019.

The court emphasised that certain transitional provisions provided for the updated protections to apply retrospectively to a limited extent, depending upon:

• the time in which the whistleblower disclosure was made; and
• whether the disclosure related to matters that occurred before or after 1 July 2019.

The court clarified that the updated protections in the Corporations Act would apply (for example) to disclosures made before 1 July 2019, if the disclosure would have been protected by the updated provisions had they been in force at the time of the disclosure, and the detrimental conduct had been engaged in after 1 July 2019. However, there was no basis for reading the transitional provisions as applying to detrimental conduct engaged in before 1 July 2019.

Materially, the court applied the general rule in relation to the retrospective operation of statutes: a statute changing the law ought not be understood as applying to events that have already occurred so as to retrospectively affect a person's rights or liabilities, unless that intention appears with reasonable certainty. The court in Watson emphasised that if the Federal Parliament had intended the updated provisions to apply to detrimental conduct that was engaged in before 1 July 2019, it would have made this intention clear.

Continuing detriment and Alexiou

The court was expected in Watson to address whether the Federal Court's 2020 decision in Alexiou⁴ should be upheld. In Alexiou, which was the first case to consider the operation of the updated whistleblower protections, Justice Perram held that the updated protections did not apply to detrimental conduct occurring before 1 July 2019.⁵

While the Full Court in Watson upheld that conclusion, it declined to express a view on an alternative argument that Mr Watson put forward, which drew upon one of the key arguments in Alexiou—the concept of 'continuing detriment'. Mr Watson had made submissions that because detrimental conduct is defined as conduct that 'causes detriment or threatens to cause detriment, 'while the detriment continues, so too does the detrimental conduct'.⁶

The court declined to engage with that argument on the basis that the way in which Mr Watson had pleaded the detrimental conduct did not actually raise the question of continuing detriment.⁷ While in doing so, the court left the door open to a future challenge to Alexiou, the reasoning in Watson suggests that such a challenge would not likely succeed.

Implications for regulated entities

The Watson decision limits the scope for employees and other whistleblowers to rely on the expanded whistleblower protections in relation to earlier disclosures.

In upholding the position established by Alexiou and confirming that the updated whistleblower protections do not apply retrospectively in respect of detrimental conduct that occurred prior to 1 July 2019, the decision makes it easier for regulated entities to determine which iteration of the provisions apply to a potentially protected disclosure.

Retrospective operation of these laws continues to:

• protect disclosures about matters that occurred prior to 1 July 2019; and
• allow for consequences (including criminal liability, civil penalties or compensation orders) for detrimental conduct occurring on or after 1 July 2019 in relation to pre-1 July 2019 disclosures that meet the current criteria for whistleblower protection.

In these circumstances, we recommend that companies continue to treat reports of historical conduct as whistleblower protected, and not assume that reports of historical conduct fall under the earlier, narrower protections.

Companies should also continue to watch this space for further developments:

• Whistleblower protections continue to be an enforcement and education priority for ASIC, following the corporate regulator's launch of the first civil penalty proceedings for breach of the corporate whistleblower laws and the release of Report 758 - Good practices for handling whistleblower disclosures. The outcome of those first proceedings will set an important benchmark for the types of penalties ASIC will seek (or agree) in relation to breaches of the whistleblower regime.
• There is also scope for future proceedings or legislative change in relation to:
  • the question left unanswered in Watson about when detriment is said to be 'continuing' post-1 July 2019; and
  • the absence of any temporal limits in the legislation for disclosures relating to historical conduct.