The benefit of hindsight – Supreme Court of Queensland provides guidance on Australia’s whistleblower regime
Protection of whistleblowers
Preventing crime and misconduct is a fundamental and longstanding aim of corporate law enforcement. However, criminal conduct which occurs in the corporate sphere can be extremely difficult to detect and prove satisfactorily in Court. Such conduct can often be concealed by a complex web of transactions, non-written arrangements and misleading corporate records. Furthermore, convoluted corporate structures can frequently render attributing responsibility for nefarious conduct a difficult and time-consuming exercise.
Often, corporate wrongdoing only sees the light of day because of individuals who are prepared to disclose it, sometimes at great personal and financial risk to themselves. To encourage such individuals to come forward, Australia and many other countries have enacted statutory ‘whistleblower’ regimes with legally enforceable protections for people who make such disclosures. It is often argued that such regimes play an important role in promoting ethical corporate culture because individuals know there is a higher likelihood that corporate misconduct will be reported.
Historically, the term ‘whistleblower’ can be traced to the use of a whistle by law enforcement officials used to alert a crowd about a dangerous situation, such as the commission of a crime or an emergency. Nowadays, the term is almost exclusively used in a corporate, governmental or regulatory environment as a term which avoids the negative connotations of an ‘informer’ or a ‘snitch’.
Australia’s Corporations Act 2001 (Cth) (Corporations Act) provides those who make disclosures as whistleblowers certain legal rights and protections. For example, under Australia’s whistleblower regime, it is an offence to threaten or cause detriment to a whistleblower and in certain circumstances, a whistleblower is entitled to financial compensation for such conduct. On 1 July 2019, the whistleblower protections in the Corporations Act were expanded to provide greater protections for whistleblowers.
Quinlan v ERM Power Ltd & Ors  QSC 35
Earlier in 2021, the Supreme Court of Queensland in Quinlan v ERM Power Ltd & Ors  QSC 35, was required to interpret the proper construction of s1317AA of the Corporations Act. This section of the whistleblower regime addresses the type of disclosures by whistleblowers that will be afforded protection under the Corporations Act. In particular, Justice Bowskill considered the correct interpretation of the requirement under the Act that when reporting misconduct or the commission of an offence, that ‘the discloser has reasonable grounds to suspect’ that their disclosure is relevant to some misconduct or offending. Under section 1317AA, if such reasonable grounds can be established, the whistleblower is entitled to protection under the Corporations Act.
In the substantive proceedings, the plaintiff, Mr Quinlan, alleged that he had made disclosures to directors and officers of his former employer, ERM Power Limited (ERM). These disclosures related to what Mr Quinlan said were ‘sham transactions’ and ‘substantial insider trading’. Mr Quinlan further alleged that following his disclosures, he was ‘victimised by a litany of retaliatory conduct’ and had been subject to ‘vindictive stratagems’. As a result, Mr Quinlan sought to recover compensation for the loss and damage he says was the result of him making the whistleblower disclosures. In the course of determining an application to strike out aspects of Mr Quinlan’s claim, Justice Bowskill was asked to consider the relevant legal test (and therefore the matters that were required to be pleaded) when determining whether Mr Quinlan had ‘reasonable grounds’ to suspect that the information in his disclosures revealed misconduct, or the commission of an offence by ERM (or its directors and officers) pursuant to section 1317AA of the Corporations Act.
Mr Quinlan argued that it was relevant, for the purposes of determining whether he had ‘reasonable grounds’, to have regard to the actual effect of the transactions and deals, even if those the matters were not known to Mr Quinlan at the time he made his disclosure. Mr Quinlan’s position was that such matters, although not within his knowledge at the time he made his disclosure, were relevant to his assertion that he had reasonable grounds to suspect misconduct had occurred and therefore that he should fall within the ambit of the protective provisions of the Corporations Act. ERM, on the other hand, argued that for the purposes of determining whether ‘reasonable grounds to suspect’ existed for the purposes of s1317AA (and thus trigger the application of the whistleblower protection regime) it was only relevant to consider what Mr Quinlan knew at the time he made his disclosures.
‘Reasonable grounds to suspect’
Justice Bowskill found that Mr Quinlan’s construction of section 1317AA was not supported by the language, context or relevant purpose of the Corporations Act. Her Honour examined legislation regulating the exercise of powers of arrest and the issuing of search warrants, which contained similar expressions of ‘reasonable ground to suspect’. After a detailed analysis of case law relating to this expression, both in Australia and the United Kingdom, Her Honour confirmed that the relevant test comprised both subjective and objective elements, such that:
‘[T]he discloser must themselves (subjectively) possess grounds to suspect the relevant things; and those grounds must, objectively, be reasonable.’
Relevantly, Her Honour found that the overwhelming weight of authority required that the application of the objective test did not require the Court to ‘look beyond what was in the mind [of the relevant person]. It is the grounds which were in [their] mind at the time which must be found to be reasonable grounds for the suspicion’ (emphasis added). Her Honour concluded that the relevant test, for the purposes of section 1317AA of the Corporations Act, requires the Court to only consider what Mr Quinlan knew when he made his disclosures. It was irrelevant to prove, and therefore plead, the eventual result of the conduct for the purposes of determining whether Mr Quinlan had ‘reasonable grounds’ to make his disclosure and therefore fall within the protection of the Corporations Act as a whistleblower.
It might be thought that the decision in Quinlan is unduly restrictive with respect to whistleblowers. Where a disclosure turns out to in fact have revealed or predicted misconduct, it could be argued that it should not matter that at the time of making the disclosure, the whistleblower may not have had reasonable grounds to suspect such conduct. Such an argument would suggest that because the very conduct complained of has occurred, this should be enough, by itself, to secure the protection of the whistleblower protection provisions. Indeed, this type of ex post facto reasoning persists in other areas of law, such as in contract law. However, if the test for ‘reasonableness’ for the purposes of s1317AA of the Corporations Act required a consideration of the events that actually occurred this could, it is suggested, in fact have the opposite effect of discouraging disclosures from whistleblowers out of fear that the conduct which is the subject of their disclosure may not come to fruition or may not have otherwise occurred at all. This would have the effect of unduly deterring legitimate whistleblowers, a result which is plainly inconsistent with the legislative purpose of the whistleblowing regime under the Corporations Act.
Ultimately, the test espoused by Justice Bowskill, as reflected in the number of authorities dealing with similar legislative expressions, strikes an effective balance between preventing overly wide protection for unfounded whistleblower disclosures whilst encouraging appropriate disclosure of suspected corporate misconduct. The decision in Quinlan therefore serves as a timely reminder of the legal considerations, both subjective and objective, which a whistleblower must bear in mind when deciding to make a disclosure in order to trigger the statutory protections afforded to whistleblowers.
 Explanatory Memorandum, Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 (Cth), Ch 1.
 Corporations Act 2001 (Cth), s1317AC, s1317AD.
 Quinlan v ERM Power Ltd & Ors  QSC 35 
 O’Hara v Chief Constable of the Royal Ulster Constabularly  AC 286 at 298.
 See for example, Shepherd v Felt & Textiles of Australia Ltd  HCA 21.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.