chapter 10.5

aci

Subject / Paragraph
A –INTRODUCTION / 1
B –THE ACI GLASS BUSINESS IN VICTORIA / 4
C –PAID EDUCATION LEAVE PAYMENTS FROM 2003 TO 2005 / 17
Payments and Invoices / 19
Connection between payments and EBA / 28
ACI accounting records / 32
What became of the funds? / 40
The evidence of Mike Gilhome concerning the payments / 47
The evidence of Cesar Melhem concerning the payments / 79
The evidence of Bill Shorten concerning the payments / 89
Conclusions regarding the 2003-2005 payments / 92
D – CONCLUSIONS REGARDING THE CONDUCT OF THE AWU, CESAR MELHEM AND MIKE GILHOME / 98
Fiduciary duties / 98
Corrupt Commissions: Cesar Melhem and AWU / 108
Corrupt Commissions: Mike Gilhome and ACI / 118
E – ‘12 MONTH MEMBERSHIP’ PAYMENTS 2008–2013 / 121
Conclusions / 139
F – RECOMMENDATIONS / 142

A –INTRODUCTION

1.This case study explores payments made to the AWU over a number of years by ACI Operations Pty Ltd (ACI). Two categories of payments are considered.

2.Three payments, each of about $160,000 (inclusive of GST),weremade by ACI to the AWU between 2003 and 2005. The invoices issued by the AWU for those amounts described the payments as ‘paid education leave.’ This is the first category of payment.

3.The second category involves five payments paid by ACI to the AWU in the amount of $5,400 (inclusive of GST) each between 2008 and 2012. The payments were made pursuant to invoices described as being for ‘12 Membership Yearly fees’.

B –THE ACI GLASS BUSINESS IN VICTORIA

4.ACI Glass Packaging was a business owned and operated by ACI. ACI was for many years the sole producer of glass containers in Australia and New Zealand. ACI was acquired by Owens-Illinois Inc as part of a global takeover of the glass and packaging firm BTR plc, in about 1998. Prior to that time, ACI was a subsidiary of BTR Nylex.[1]

5.ACI had headquarters in Hawthorn. It had a glass packaging plant in Spotswood, Victoria.[2] It also operated glass packaging plants in Adelaide, Sydney and Brisbane. Until 2008, ACI operated a glass mould factory at Box Hill in Victoria.[3]

6.The Spotswood plant employed about 400-500 workers in the mid-1990s.[4] The workforce was totally unionised and the major union for glass workers was the AWU.[5] By arrangement between the AWU and glass manufacturers when the Australian Glass Workers’ Union was amalgamated into the AWU, there was a dedicated Glass and Container Industry Branch of the AWU.[6] That branch ceased operation on 31 August 2004.[7]

7.In general terms, the glass plant operated a production line. The production line had what was called a ‘hot end’ and a ‘cold end’. The hot end was where machines formed the glass containers that were made. The cold end was where the products produced by the machines were inspected, surface treated and packaged.

8.In around the mid-1990s, ACI began a process of ‘broadbanding’ at the Spotswood plant. Greg Savage was the plant manager at Spotswood from 2001 to 2009. He explained broadbanding in the following terms:[8]

A key component of broadbanding was the fact that production workers could be trained to work on both the hot end (where the Job Change Crew changed bottle types on the machines forming the containers) and cold end (where the products were inspected, surface treated and packaged) off the production line. This gave O-I [ACI] increased flexibility in deploying production workers to where they were needed most depending on what orders were required. This resulted in the Job Change crews being able to change the production machine settings in as little as 2 hours.

9.The advantages of the broadbanding process to ACI were increased flexibility in deploying production workers and greater efficiencies.[9] It also enabled ACI to decrease the ETU’s influence at the Spotswood plant by decreasing the job change role of electricians.[10] Broadbanding, whilst resulting in a more efficient use of production workers, also resulted in redundancies.[11]

10.The broadbanding process was a gradual one. It commenced in the mid-1990s and carried through until the mid-2000s. Provisions dealing with broadbanding were included in EBAs entered into in relation to the Spotswood plant from 1996 through to 2006.

11.Broadbanding, as the above description indicates, required extensive training. That training was provided by ACI itself.[12] Zbigniew Kaminski was a worker at the Spotswood plant and an AWU shop steward. He gave evidence that training in relation to broadbanding was provided by the Spotswood plant manager. Initially that was Tony Krznar. Later it was Min Lee.[13] Prema Chippendale, another glass worker and AWU delegate gave similar evidence.[14]

12.There was significant industrial unrest at Spotswood and other ACI plants in the mid1990s.[15] Most of the unrest involved unions other than the AWU: ACI had a better relationship with the AWU than it did with other unions. The Spotswood plant was subject to numerous bans, stoppages and demarcation disputes between the AWU and AMWU.[16] There was significant industrial action in 2003 at ACI’s Box Hill plant, involving predominately the AMWU.[17]

13.Provision was made for the implementation of the broadbanding process referred to above in a series of industrial agreements between ACI and the AWU. The first of these was entered into in 1996.[18] Similar provisions were contained in agreements entered into in 1999,[19]2001,[20] 2003[21] and 2006.[22]

14.All of the above agreements provided for paid union training leave for delegates, allowing 10 days’ paid training leave per shop steward. That was capable of being pooled to allow for a single shop steward to take a longer period of leave based on the entitlements of other shop stewards of the same union, to a maximum of four weeks per year.[23] The paid training leave provisions did not comprehend any payments to the union. Rather, they operated to require ACI to continue to pay delegates whilst on training leave. The provision did not operate in favour of AWU members generally. It benefited only shop stewards.

15.As stated, the broadbanding process resulted in some redundancies. On 22 December 2003 a specific industrial agreement to deal with redundancies was certified. The agreement was between ACI, the AMWU, AWU and CEPU.[24] It applied at each of the ACI glass plants at Spotswood, Penrith, South Brisbane, West Croydon, and Canning Vale.[25] It provided inter alia for four weeks’ severance pay on top of four weeks’ pay per year of continuous service and a retrenchment payment.[26] It provided for consultation obligations before any redundancies were confirmed.[27]

16.It is convenient to turn to the first category of payments made by ACI, namely the three payments of approximately $160,000 made in the years 2003 – 2005.

C –PAID EDUCATION LEAVE PAYMENTS FROM 2003 TO 2005

17.A significant amount oftime was spent investigating the purpose for these payments. If the payments had been the subject of an arrangement reduced to writing, the investigation might have been straightforward. But the arrangement to make the payments, whatever it was, was not recorded in writing either by the AWU or by ACI. The task might have been straightforward if the two persons centrally involved, Cesar Melhem (Victorian State Secretary) and Mike Gilhome (for ACI), had given a frank account of it to the Commission. But, for reasons that are explained below, they did not.

18.In the above circumstances, extensive efforts were made to examine documentary evidence in connection with the payments. What follows is an analysis of that evidence and an analysis of the oral evidence of Mike Gilhome and Cesar Melhem. The central questionsare whether, having regard to the seriousness of the conduct involved, the evidence indicates that the payments may have involved breaches of fiduciary duty and/or offences under s 176 of the Crimes Act 1958 (Vic). Various conclusions about those duties, and about the operation of that section, have been drawn in Chapter 10.2.

Payments and Invoices

19.The first payment made was of $159,500 (inclusive of GST). It was made on 1 August 2003.[28] This payment was made pursuant to two invoices. The first, tax invoice 002790, was issued by the AWU on 26 June 2003 in the amount of $79,750.00 inclusive of GST.[29] The second invoice was issued by the AWU on 9 July 2003, for an identical amount.[30]

20.The first invoice was issued pursuant to a request in an email from Michael Chen, financial controller at the AWU,[31]to Kris Bondin, an accountant at the AWU,[32] on 26 May 2003.[33] The email asked simply for an invoice to ACI, attention Mike Gilhome, for $72,500 plus GST. There is a handwritten note on the email stating ‘paid education’ and ‘Paid Education Leave’. Michael Chen did not know whose handwriting it was. He could not shed any light on the circumstances in which the email or invoice were created.[34]

21.The second payment was of $160,160 (inclusive of GST). It was made on 2 July 2004.[35] The relevant invoice is dated 2 June 2004 (invoice 006248).[36] It contains the description:

Paid Education leave

$0.1 per hour x 35 x 52 weeks x 800 people

22.The genesis of this description appears to be a note in Cesar Melhem’s handwriting marked ‘private and confidential’. The note contained the above formula and the total amount and address details for the invoice.[37] Michael Chen prepared an invoice requisition form on the basis of this note. Cesar Melhem signed it.[38]

23.The third payment, also of $160,160 (inclusive of GST), was made on 16 June 2005 pursuant to an invoice dated 24 May 2005 (invoice 010167).[39] That invoice contained the same formula, save that ‘800 people’ was replaced with ‘800 member’. No invoice requisition was produced to the Commission in relation to this invoice.

24.The formula (contained in the invoices pursuant to which the second and third payments were made) was described by Peter Robinson(ACI CEO) as a ‘nonsense formula’.[40] Counsel assisting submitted that this was an appropriate description. That characterisation was disputed by some affected parties in submissions.

25.This formula calculated the sum payable by reference to 800 ‘people’ and 800 ‘members’. In his private hearing, as will be seen, Mike Gilhome could not explain the formula. In his public hearing, Mike Gilhome said the formula was a reference to the number of members of the Glass and Container Industry Branch (which, as referred to below, was about 1,800).[41] Cesar Melhem asserted that the figure of 800 on these invoices was a reference to the number of employees employed by ACI nationally.[42] However that could not have been correct. The evidence from ACI about employee numbers and union membershipin the period 2002-2005 was as follows:[43]

(a)the number of employees nationally ranged from 1498 to 1466;

(b)the number of employees at Spotswood ranged from 376 to 365; and

(c)the number of employees nationally who were AWU members ranged from 667 to 604.

26.None of the efforts of Mike Gilhome or Cesar Melhem in evidence or in submissions to defend the formula was persuasive. Both claimed in submissions that 800 was an approximation for the actual number of ACI employees nationally who were AWU members. However, that is not in any sense a good explanation. If the payments really were for paid education, why approximate? The exact numbers were readily available. Exact numbers of employees were used on invoices issued by the AWU in the only two cases in which paid education was sought under EBAs (Potters and Ausreo).[44] If an approximate figure was to be used, why chose 800? The actual figure was closer to 500, 600 and 700. Why approximate the number of members employed nationally, as distinct from at the facility with which the EBA was concerned, namely Spotswood? There are no good answers to any of these questions. The formula was not an approximation of this kind.

27.Counsel assisting’s submissions are accepted. There is no sensible explanation for the formula on these invoices. That there was no sensible explanation is one indication that these were not payments for paid education, at least in any meaningful sense.

Connection between payments and EBA

28.It is clear that the arrangement to make the payments was struck at a time when EBA negotiations were ongoing. The EBA entered into by the AWU and ACI in 2001 had a nominal expiry date of 30 June 2003.[45] By clause 13, negotiations for a new EBA were required to commence four months prior to that expiry date, that is, by the end of February 2003.[46] The EBA entered into in 2003 commenced on 1 July 2003, was signed on 22 September 2003, and was certified on 6 October 2003 (2003 EBA).[47]

29.The first record of an instruction to issue an invoice in relation to the payments (referred to below) is dated 26 May 2003.[48] The first payment was made on 1 August 2003. The attachments to the 2003 EBA dealing with broadbanding were signed by ACI on 25 August 2003.[49] That the payments were connected with negotiations for the 2003 EBA is, counsel assisting submitted, an inference that is inescapable. The three payments were made by ACI on invoices issued at around the time of the anniversary of the commencement of each year of the 2003 EBA (that is, 1 July 2003). The payments stopped when a new EBA was negotiated.

30.In the above circumstance, it is perhaps not surprising that there was no substantial dissent from the proposition that the arrangement to make the payments was struck during EBA negotiations. Cesar Melhem appeared to embrace it in so far as he asserted in evidence and in submissions that a claim was made for paid education in the AWU’s log of claims.[50] Bill Shorten accepted that the arrangement was struck during the course of EBA negotiations.[51] Mike Gilhome in submissions did not contest the proposition, although his position in evidence, at least at one point,was that although the arrangement was struck at the time of EBA negotiations, it had nothing to do with those negotiations.[52]

31.The arrangement, however, was not included in the 2003 EBA. It was not documented at all. The oral evidence given by Cesar Melhem and Mike Gilhome about it was, for the reasons given below, unsatisfactory. It cannot be accepted. Before considering that evidence, it is convenient to consider such evidence as there was about the arrangement in the records produced by ACI.

ACI accounting records

32.ACI’s records in relation to these payments are scant. That may in part be due to the fact that the payments took place more than 7 years ago and the operation of a document retention (ie document destruction) policy. However it may also reflect the fact that very little was known within ACI about the payments and that there were very few if any records of their nature and purpose.

33.In substance, the ACI records indicate the following:

(a)The payments were all made by cheques drawn on an account with Westpac Banking Corporation numbered 034-002 529376, in the name of ACI Operations Pty Ltd, styled ‘Packaging Corporate Account.’[53] This was a special account used for the making of confidential or sensitive payments.[54] Neil Cooper, then ACI’s Corporate Accounting Manager, said that he would have been told to write cheques on this account, he was not sure by whom.[55]

(b)The cheques by which the payments were made were signed by Greg Ridder, then the CFO of ACI, and Neil Cooper.[56] Neil Cooper wrote the cheques and the description on the cheque butts.[57] On those cheque butts, the description of the first payment was ‘paid education leave’ and the description of the second and third payments was ‘HR Special CC.’[58] Neil Cooper had no recollection of the circumstances in which he came to write these descriptions. He said that he would have written ‘paid education leave’ on the first cheque butt because of what was written on the invoices.[59] He said that the description ‘HR Special CC’ on the second and third cheque butts would have been the result of someone telling him that that was the cost centre to which the payments were to be allocated.[60]

(c)Expenses at this time at ACI were allocated to different cost centres. Brendan Mitchell was at this time the person solely in charge of the HR Special Cost Centre.[61] However, he had no knowledge of the payments and ultimately they were not allocated to this cost centre. Mike Gilhome did not have a cost centre.[62] The CEO also had a cost centre. It was to this cost centre that all payments were allocated.[63]

(d)The first and second payments were recorded in the ACI ledgers as ‘Professional Fees Consulting’. The third payment was recorded as ‘Training’.[64] No witness was able to explain how these entries came to be recorded. According to Neil Cooper, the entries would have been made by someone in the Finance Department, and on the basis of information of some kind provided by him. However he was not able to say what that information was. He gave evidence to the effect that it may have been supplemented or corrected by others.[65]

34.Two points of significance emerge out of ACI’s records. The first is that the only reference to ‘paid education’ in those records is on one cheque butt filled out by Neil Cooper.[66] But Neil Cooper, in all probability, was repeating either what appeared on the first two invoices or something he had been told by Mike Gilhome.[67] The rest of ACI’s records contain a variety of the descriptions of the payments. Those descriptions are likely to have emanated from what Mike Gilhome told Peter Robinson, Neil Cooper, or both.