Chapter 7.5
Committee to defend trade union rights
Subject / ParagraphA –INTRODUCTION AND SUMMARY / 1
B –SUMMARY OF EVIDENCE / 5
Formation of CTDTUR and the Trust / 5
Approval of the Transfer / 12
Contributions to the Defend Trade Union Rights Trust / 18
Terms of the Trust deed / 21
Distributions from the Trust / 25
Grant to MUA / 29
TUCW debt/equity transaction / 32
Administrative overlap between the CTDTUR and the CFMEU NSW / 38
C –RELEVANT LEGAL PRINCIPLES / 48
Transfers to defeat creditors / 48
Duties of union officers / 54
D –ANALYSIS AND CONCLUSIONS / 61
CFMEU NSW’s control of the Trust / 61
Purpose of the Transfer / 65
Breaches of duty: Transfer made for improper purpose / 80
A –INTRODUCTION AND SUMMARY
1.This chapter deals with the Committee to Defend Trade Union Rights Pty Ltd (CTDTUR). It is the corporate trustee of the Defend Trade Union Rights Trust (the Trust). CTDTUR is a relevant entity associated with the Construction, Forestry, Mining and Energy Union (CFMEU), Construction and General Division, New South Wales Divisional Branch (the CFMEU NSW). CTDTUR and the Trust were established in July and August 2005 respectively.
2.On 26 September 2005, the CFMEU NSW transferred$7,000,000out of its general operating funds into the Trust (the Transfer). Apart from de minimis contributions, the CFMEU NSW has been the only contributor to the Trust. Furthermore, the overwhelming majority of distributions made from the Trust have been to the CFMEU NSW. For all practical purposes, the CFMEU NSW retains control over the Trust and its assets.
3.For the reasons set out below,it is concluded that:
(a)the Trust may have been established and the Transfer may have been made to defraud future creditors, including potentially the Commonwealth of Australia,contrary to s 37A of the Conveyancing Act 1919 (NSW); and
(b)insupporting the establishment of the Trust and the Transfer, Andrew Ferguson, then Secretary of the CFMEU NSW, and Peter McClelland, then President of the CFMEU NSW, may have breached their duties to the union to act for a proper purpose.
4.The summary of the primary facts set out in counsel assisting’s submissions was unchallenged and it has been largely adopted below. There were significant challenges in relation to the inferences to be drawn from those facts and the consequent legal conclusions. The various submissions of affected persons on those points are dealt with below.
B –SUMMARY OF EVIDENCE
Formation of CTDTUR and the Trust
5.CTDTUR was registered on 21July 2005.[1] Its membership and board of directors[2] consisted of various ‘old trade union officials’ and ‘prominent working class individuals’.[3] Relevantly the following were founding members and directors of CTDTUR.[4]
(a)Andrew Ferguson (then Secretary of the CFMEU NSW);
(b)Stanley Sharkey (former National Secretary of the Building Workers’ Industrial Union (BWIU) and later of the CFMEU);[5]
(c)Dennis Matthews (former NSW State Secretary of the BWIU);
(d)Tom McDonald (former National Secretary of the BWIU); and
(e)Don McDonald (former NSW State Secretary of the BWIU).
With the exception of Don McDonald, each of those persons remain directors and members of CTDTUR.
6.In addition to those persons, James Macken (former judge of the Industrial Court of NSW), Daryl Melham (then a Labor member of the House of Representatives) and Ian West (then a Labor member of the NSW Legislative Council) were founding members and directors of CTDTUR and remain as members and directors.
7.Apart from Andrew Ferguson, Stanley Sharkey, Dennis Matthews, Tom McDonald, James Macken, Daryl Melham and Ian West, the only other current director is Brian Parker, the current Secretary of the CFMEU NSW, Construction and General Division.
8.The Trust was established by a deed of settlement dated8August 2005.[6] The trust deed listsStanley Sharkey as the settlor and CTDTUR as the trustee.[7]
9.CTDTUR was established for the sole purpose of being the trustee of the Trust. At the inaugural meeting of the CTDTURboard on 8 August 2015, lawyers from Gilbert + Tobin attended with a finalised copy of the trust deed[8] and the Trust deed is dated the same date. Minutes of the CTDTUR board of directors dated 14 November 2005 ‘set out a brief summary of the record of events that led to the establishment of the [Trust]’:[9]
In January 2005 trustees of the Pat Clancy Memorial Fund met to discuss the Howard Government's unprecedented attack on the trade union movement and workers [sic]rights.
The trustees were concerned that individual trade unions would not survive in Australia or internationally unless the movement adopted a radically new approach, act collectively and respond in a more united and cohesive fashion in future years.
It was resolved to explore the concept of establishing a discretionary trust fund with the principal objective of defending trade union rights, supporting rank and file workers engaged in industrial struggles, and also assisting the broader movement for peace, social justice and workers [sic]rights.
Stan Sharkey was delegated to approach the CFMEU on behalf of the Pat Clancy Memorial Fund for assistance in facilitating appropriate legal advice in order to progress this matter. The Pat Clancy Memorial Fund resolved to meet all legal expenses associated with the project.
Subsequently Stan Sharkey met with Peter McClelland, President of the NSW Branch of the CFMEU. The CFMEU indicated an interest in the concept.
A meeting with Jonathon Leek of Gilbert & Tobin was set for the 10th February 2005. Peter McClelland, President CFMEU NSW Branch, and Michael Knott, Trustee for the Pat Clancy Memorial Fund attended and the [sic] consequently the Pat Clancy Fund initiated the process of establishing the Trust.
Over subsequent months “the Defend Trade Union Rights Trust” was established and registered on 17th August 2005.
The Committee to Defend to Trade Union Rights Pty Ltd ACN 115 399 776 was registered under the Corporations Act 2001, on the 21st July 2005.
The Committee to Defend Trade Union Rights Pty Ltd was appointed trustee for Defend Trade Union Rights Trust.
The Directors of Committee to Defend Trade Union Rights Pty Ltd who administer the trust are experienced and committed supporters of international solidarity and trade unionism. They include former leaders of the building unions and office bearers of the ACTU, the judiciary and progressive members of the State and Federal Parliamentary ALP.
10.Michael Knott was the General Manager of the CFMEU NSWat the time of the Transfer and one of the trustees of the Pat Clancy Memorial Fund.[10] gave evidence that the Pat Clancy Memorial Fund offered to ‘engage and pay for lawyers to devise a strategy to protect the CFMEU’s assets in New South Wales’.[11] His evidence was that, as a result of that advice, CTDTUR was ‘established to act as the trustee for the benefit of nominated trade unions and workers organisations including CFMEU members in New South Wales’.[12] In oral evidence, Michael Knottsaid that the assets to be protected were the assets of both the State and Federally registered CFMEU as well as of other unions.[13]
11.Peter McClelland was the President of the CFMEU NSW from 1990 toJanuary 2012. He attended all of the meetings with Gilbert + Tobin concerning the drafting of the Trust deed.[14] His evidence was that the CTDTUR ‘came out of an idea that we would develop this Trust Fund and seek other unions to do likewise, to use for what we saw as socially progressive issues’.[15]
Approval of the Transfer
12.On 9 August 2005 – the day after the inaugural meeting of the CTDTUR board of the directors – the Committee of Management of the CFMEU NSW held a meeting.[16] Theminutes record a number of persons in attendance including Andrew Ferguson, Peter McClelland and Brian Parker. The minutes also record that after a report by Peter McClelland and discussion the Committee of Management approved the following resolution:[17]
In furtherance of the Union’s Objects and activities the Committee of Management resolves that:
i.An amount of up to $8 million be donated to the “Defend Trade Union Rights Trust”. In accordance with Rule 42(s) of the Divisional Rules, the Committee is satisfied that such donation is in accordance with and consistent with the Rules of the Union. Such funds shall be donated from funds invested as investments mature.
ii.The State Secretary shall take all necessary steps, including obtaining all relevant advice and instructions to give effect to this resolution.
iii.In so making such a contribution, the Secretary shall ensure that the Union has appropriate representation on the Defend Trade Union Rights Trust to ensure that the Objects of the Union are, and continue, to be met.
13.Although Peter McClelland could not specifically recall, he said that the purpose of setting up the Trust would have been discussed in some detail at the Committee of Management meeting.[18]
14.His evidence about the size of the Transfer was as follows:[19]
Q.Was a certain amount of money decided that needed to be given to that Trust?
A.I think it was $7 million that the Union transferred into the Trust after decisions were made by the various governing bodies of the Union.
Q.That’s a lot of money. Why was that large amount of money decided upon?
A.Because that still left us with sufficient funds to be able to operate the Union.
Q.So you wanted to give away the largest possible amount, did you, and leaving the Union with sufficient operating costs?
A.Yes, I think it was about 50 per cent, at the time, of our funds.
15.The financial statements filed in the Australian Industrial Relations Commission Registry by the CFMEU NSW show the total ‘Current Assets’ at the end of 2004 were just under $14 million. At the end of 2005 they were just under $7,000,000.[20] ‘Accumulated Members’ Funds’[21] (i.e. net equity) at the end of 2004 amounted to approximately $12,900,000. At the end of 2005 they amounted to approximately $4,400,000.[22] Hence, the $7,000,000 transferred was more than half of the branch’s net equity. The accounts for later years show a steadily declining net equity position from 2005 to 2010 when the branch had negative net equity (as it has ever since).[23] In the five years after 2005, the accounts show substantial operating cash flow losses for the branch in 2006 and 2010. They show only marginally positive operating cash flows in 2007 and 2008. The year 2009 was the only year with a healthy operating cash flow profit.[24]
16.Peter McClelland was asked whether, in sending $7,000,000 to the Trust, he was ‘trying to protect the assets of the Union by sending half of the assets off to the Trust’. He said:[25]
That was appealing to myself. Other people had different ideas. I wasconcerned that should the Federal Government at the time deregister the Union, then those funds, which were the accumulation of many years by workers, would end up in general revenue, so to speak, in the hands of the Federal Government, where it should be used in a way that was of benefit to working people.
17.Andrew Ferguson’s evidence was that the purpose of setting up the Trust was to defend the assets of not just the CFMEU but of the whole of the labour movement. He explained that he meant defending:[26]
[f]rom possible deregistration of the Union. We’ve seen Right Wing governments in other countries deregister a union, take their assets by legislation, and that was the thinking of the Union at the time, and it was not just about the CFMEU. Our vision was a much broader Trust to assist the whole of the labour movement.
Contributions to the Defend Trade Union Rights Trust
18.On 26 September 2005, $7,000,000 was transferred by electronic funds transfer from CBA Account 062194 10127561, being the general bank account of the CFMEU NSW, to a CTDTUR cheque account.[27]
19.Although CTDTUR publicly sought donations to the Trust, up until 30 June 2014 only two members of the publichad donated to the Trust, and their collective contribution was $60.[28] In respect of additional contributions:
(a)$2,000 was donated by the CFMEU Officers’ Solidarity Fund on 5 September 2005;[29] and
(b)$500 was donated by Keryn McWhinney (Senior Industrial Officer of theCFMEU NSW)[30] on 20December 2005.[31]
20.In addition the sum of $57,573.79 was minuted by the CTDTUR board as having been contributed by the Pat Clancy Memorial Fund on account of legal fees associated with the formation of CTDTUR and the Trust.[32] That sum was subsequently refunded in two portions in November 2005 and August 2012.[33]
Terms of the Trust deed
21.The Trust is similar in form to many discretionary trusts. It gives the trustee a wide discretion to distribute the capital and income of the Trust for the benefit of any one or more of the ‘General Beneficiaries’. There are 122 named ‘General Beneficiaries’ in the Annexure to the Deed.[34] They include a wide range of unions, organisations associated with those unions, and political parties such as the Australian Labor Party and The Greens NSW.
22.However, the combined effect of cl 3.3[35] of the Trust deed, together with the definition of ‘Free Net Income’ in Attachment A to the deed,[36]is thateach financial year if the trustee has not made a valid distribution of the income for that year by the end of 30 June, then the trust income for that year defaults to the ‘Specified Beneficiaries’.[37]The CFMEU NSWis the only ‘Specified Beneficiary’ under the Trust deed.
23.In addition, cl 11.2 of the Trust deed gives the ‘Appointor’ the power to remove the trustee and appoint any new or additional trustee or trustees.[38] The ‘Appointor’ is specified as the Committee of Management from time to time of the CFMEU NSW.[39]
24.Further, pursuant to cl 18 of the Trust deed, the ‘Guardian’ of the Trust has the power to exercise a degree of control over the trustee in respect of the trustee’s exercise of certain ‘Reserved’ and ‘Restricted’ powers. For example, the trustee’s power to appoint the capital of the Trust and the power to amend the Trust deed are ‘Reserved Powers’.[40] The trustee must not exercise any of the Reserved Powers without first giving the Guardian 14 days’ notice. The ‘Guardian’ is the Committee of Management from time to time of the CFMEU NSW.[41]
Distributions from the Trust
25.Between its inception and the end of December2014, CTDTUR had distributed $2,441,928.98 to theCFMEU NSWin direct grants from the Trust.[42] The details of the distributions are set out in Annexure A to this chapter. These distributions related to such matters as funding:
(a)legal proceedings launched against 107 CFMEU members by the Australian Building and Construction Commission (ABCC), and related matters;[43]
(b)the CFMEU’s ‘Workchoices campaign’;[44]
(c)a ‘wall of remembrance’ for workers killed or injured at work;[45]
(d)the purchase of a motor vehicle to facilitate an indigenous training/employment program;[46] and
(e)a CFMEUcampaign against the ABCC.[47]
26.The grants made to the CFMEU were, at least in the early years of the trust, the subject of formal minuted decision-making processes within the CTDTUR board. Grantapplications made by the CFMEU were never rejected. They related to matters that would otherwise be expected to be funded by the CFMEU as part of its ordinary day-to-day operations.
27.A significant payment was made to the Maritime Union of Australia (MUA). Another significant payment was made to the Trade Union CentrePty Ltd in Wollongong (TUCW). A minor payment was made for reimbursements associated with a White Ribbon fundraising event. Each of those payments is discussed further below. Apart from those three payments, payments from the Trust that were not made to the CFMEU NSW were limited to the following:
(a)$250 to the Nature Conservation Council on 30 November 2005;[48]
(b)$200 to the Stop the War Coalition on 16 December 2005;[49]
(c)$3,000 to Workers’ Radio Sydney on 8 January 2007;[50]
(d)$5,000 to the UITBB[51] on 7 February 2007;[52]
(e)$1,000 to the Pat Clancy Memorial Fund to assist the New Theatre Building Refurbishment Programme on 18 August 2008;[53] and
(f)$5,500 to the Sydney Alliance on 1 September 2009.[54]
28.The last of these small distributions was provided in 2009. They total $14,950.
Grant to MUA
29.On 21 June 2006, the MUA wrote to the CTDTUR seeking $300,000 in funding from the Trust to support ‘a comprehensive programme to develop an international Network to Defend Workers Rights’.[55] On 23 June 2006 the CTDTUR board approved the grant,[56] which was purportedly for ‘international solidarity work’. Prior to the MUA’s formal grant application, Andrew Ferguson sent Peter McClelland an email. It recorded his shock that the MUA were making a submission to the Trust and stated that ‘in any case mua is a worthy cause and got knocked around by waterfront dispute years ago’.[57]
30.The following year, minutes of the CFMEU NSW’sCommittee of Management dated 14December 2007 recorded a recent donation of $330,000 being made to the CFMEU NSW by the MUA.[58] The minutes stated that the donation was: