Extract: The Federal Court in ASIC v GetSwift imposed penalties upon GetSwift’s non-executive director who acted as General Counsel in relation to the company’s repeated contraventions of continuous disclosure obligations. The director’s status as a solicitor was relevant to his knowledge of the company’s obligations and to his failure to speak up against bullying being perpetrated by other more senior directors.
In this decision, Lee J imposed penalties upon GetSwift and three of its directors (Mr. Hunter, Mr. Macdonald and Mr. Eagle) for breaches of continuous disclosure obligations, misleading and deceptive conduct provisions, and directors’ duties.1 This followed his Honour’s earlier judgment on liability, which found that GetSwift and its directors had committed these contraventions of the Corporations Act 2001 (Cth) by publishing selective and misleading ASX announcements, commonly about GetSwift’s purported client contracts, in order to increase the company’s share price.2 Despite the company generating operating losses every year, this “public-relations-driven approach to corporate disclosure” resulted in its share price rising from 20 cents in December 2016 to over $4, prior to a trading halt announcement.3
At a hefty $15 million, the penalty imposed upon GetSwift was the largest ever levied on a company for breach of continuous disclosure obligations, although it is unlikely that amount will be recovered given that the company was placed in liquidation 2022. Mr. Hunter, the executive chairman and CEO, was described as the “principal instigator of the wrongdoing of GetSwift”4 and was fined $2 million and disqualified from managing corporations for 15 years. Mr. Macdonald, the managing director, was described as Mr. Hunter’s “lieutenant”5 and was fined $1 million and was subjected to a 12-year disqualification order. In the liability hearing, Lee J had found that both Mr. Hunter and Mr. Macdonald had placed an “intense focus” on ASX announcements, and that Mr. Hunter had “sought to exercise close control over the release of such announcements”.6
Of particular interest is the Court’s treatment of Mr. Eagle, GetSwift’s non-executive director and at times General Counsel, who was fined $75,000 and disqualified from managing corporations for 2 years for his role in the company’s wrongdoing.7 Mr. Eagle was described by Lee J as being “somewhat on the outer” of company affairs,8 given Mr. Hunter and Mr. Macdonald were, respectively, the “man in charge” and his “important ally”.9 Lee J also accepted that Mr. Eagle had been bullied by Mr. Hunter.10 Although the penalty imposed upon Mr. Eagle pales in comparison to the fines and disqualification orders issued against Mr. Hunter and Mr. Macdonald, the Court was still highly critical of Mr. Eagle’s conduct by reference to his status as a solicitor.
Obligations of In-House and General Counsel
Before considering the GetSwift penalty judgment in more detail, it is important to note that in-house lawyers and general counsel in Australia can be subject to a range of obligations, both in their capacity as legal advisers, and as officers or directors of the company. Commonly, the role of corporate counsel is held by someone that also holds another executive position in the company, often company secretary.11
In Australia, corporate counsel are subject to common law duties and professional conduct rules.12 Corporate counsel can also be subject to duties under the Corporations Act 2001 (Cth), including the statutory duty of care and diligence under s 180(1).13 This is because, although the position of general counsel is “not formally recognised by the Corporations Act”, a general counsel can fall under the definition of an officer in s 9,14 or, as in this case, be a director. Following the decision in Shafron v Australian Securities and Investments Commission,15 the contents of a general counsel’s statutory duty of care is informed by their knowledge as a legal adviser (in that decision, a general counsel who was also company secretary was found to have contravened s 180(1) by failing to give certain legal advice to the company board, despite his argument that he was only acting in his capacity as company secretary).16
Corporate counsel can also potentially be liable for providing false and misleading information under s 1308(1),17 and can be subject to duties under the Banking Executive Accountability Regime of the Banking Act 1959 (Cth) if they are an ‘accountable person’ of an authorised deposit-taking institution within the meaning of that legislative scheme.18 Finally, duties can be imposed upon general counsel by their contracts of employment.19
Mr. Eagle’s Role in the GetSwift Saga
Mr. Eagle was a solicitor admitted in New South Wales and the sole director of Eagle Corporate Advisers Pty Ltd. Relevantly, Mr. Eagle was a non-executive director of the company and, from February 2017, he also held the position of “General Counsel and Corporate Affairs” pursuant to a retainer between GetSwift and Eagle Corporate Advisers Pty Ltd.
The penalty levied against Mr. Eagle was not as high as the $150,000 fine and 4-year disqualification order sought by ASIC. This was because Mr. Eagle had already suffered reputational damage, was unlikely to be a director of a listed company in the foreseeable future, and had tried to implement changes to the systems surrounding the release of announcements.20 However, the Court was critical of Mr. Eagle’s lack of remorse, noting that the regret he expressed focused on the damage done to himself rather than to others.21
Mr. Eagle’s Obligations as a Director and a Solicitor
Lee J found that although Mr. Eagle did not have the same level of involvement in drafting the company’s ASX announcements as did Mr. Hunter and Mr. Macdonald, by at least June 2017 “it would have been blindingly obvious to anybody at GetSwift that there was something rotten going on”.22 As such, Mr. Eagle should have either insisted on the implementation of fundamental changes to GetSwift’s operations, or resigned.23
Of interest are comments of Lee J in his judgments on both liability and penalties as to Mr. Eagle’s status as a solicitor and his obligations under the Corporations Act. In the liability judgment, Lee J relied on Mr. Eagle’s status as a solicitor to make findings as to Mr. Eagle’s knowledge. His Honour found in relation to a particular client agreement and announcement that “… as a solicitor … it can readily be inferred that Mr. Eagle was aware that GetSwift’s obligation to disclose was as soon as it became aware of material information”.24 Similarly, Lee J found that Mr. Eagle was aware of GetSwift’s Continuous Disclosure Policy by reference to his status: “… as a solicitor, and given his level of involvement of the affairs of the company, I have no doubt he was well aware of the Policy and what it required.”25
In the penalty hearing, Mr. Eagle’s status as a solicitor was relevant to the Court’s assessment of his response to bullying perpetrated by Mr. Hunter against Ms. Gordon, another director who had questioned the company’s ASX announcement policy at a board meeting.26 In questioning Mr. Eagle about this incident, Lee J asked, “…if you’re a director, and you form the view that the person primarily in charge with – dealing with directors and refusing to provide you with announcements and dealing you with [sic] as a bully, why, as a solicitor of the Supreme Court of New South Wales, didn’t you do anything?”.27 His Honour compared the conduct of Ms. Gordon and Mr. Eagle, noting that while Ms. Gordon was subjected to a greater degree of bullying, she had “pushed back” by questioning Mr. Hunter.28 Importantly, Lee J observed that “This is not to suggest that Mr. Eagle’s mere status as a solicitor exposed him to a more onerous set of responsibilities compared to Ms. Gordon. Nonetheless, to my mind, it ought to have afforded Mr. Eagle a greater insight into the consequences of his complicity…”.29
Therefore, it seems that while directors who are legally qualified will not necessarily have more onerous obligations in relation to disclosure imposed upon them by virtue of their status as solicitors, that status will be relevant to the Court’s assessment of their knowledge of the law and the consequences of any wrongdoing. Interestingly, it also seems from Lee J’s questioning of Mr. Eagle that being a solicitor may give rise to a greater obligation to speak out against misconduct by others.
Conclusion and Key Takeaways
The liability and penalty decisions of Lee J suggest the following key takeaways:
- A director acting as general counsel should be aware of their potential liability for contraventions of continuous disclosure obligations. They can be held liable and have penalties imposed even in circumstances where it is more senior directors that are mainly responsible for drafting and publishing the ASX announcements.
- A director who is also an admitted solicitor will likely be assumed by the courts to have knowledge of continuous disclosure requirements and a greater insight into the consequences of non-compliance. This may give rise to a greater obligation to speak out against misconduct.
- If a director and general counsel finds themselves in a situation where it is obvious that continuous disclosure obligations are not being complied with, they should either insist on changes to company operations or resign.
Authors:
Mark Giddings, Principal, LK Law Pty Ltd
Ashwini Ravindran, Law Clerk, LK Law Pty Ltd
1Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100 (‘Penalty Hearing’).
2Australian Securities and Investments Commission v GetSwift Limited (Liability Hearing) [2021] FCA 1384, [45]-[48], [1144] (‘Liability Hearing’).
3Penalty Hearing (n 1), [2].
4Ibid [7].
5Ibid [7].
6Liability Hearing (n 2) [12]-[13].
7Penalty Hearing (n 1) [149].
8Ibid [15].
9Ibid [13].
10Ibid [15].
11Jason Harris, ‘Putting the cart before the horse? The liability of company secretaries and general counsel for defective disclosure’ (2018) 33 Australian Journal of Corporate Law 55, 55.
12Andrew Goodwin, ‘Corporate counsel – Moral guardians or just legal advisers?’ (2020) 35 Australian Journal of Corporate Law 56, 57.
13Ibid 68.
14Harris (n 11) 63.
15(2012) 247 CLR 465.
16Goodwin (n 12) 68.
17Ibid 68.
18Ibid 70.
19Harris (n 11) 63.
20Penalty Hearing (n 1) [146]-[147].
21Ibid [136].
22Ibid [133].
23Ibid [133].
24Liability Hearing (n 2), [2101].
25Ibid [1906].
26Penalty Hearing (n 1), [137].
27Ibid [137].
28Ibid [138].
29Ibid [138].