The accountants for Al Capone were lucky they didn’t live in the era of accessorial liability, as this parable explains…
It is that time of the year again; the Easter long weekend. As you settle down at your desk on a Thursday afternoon to scroll through your to-do list and juggle whether you can leave early on the eve of a public holiday, your Outlook starts to ping in a familiar fashion as several emails hit your inbox. And they are all from your favourite client. Oh dear, you mumble as you open the first email…
“I just received this letter from one of your [expletive deleted] legal colleagues. It says something about being involved in a contravention of section one thousand and something, aiding and abetting and it even says something about threats and promises. What the actual [expletive deleted]?”
All thoughts of an early get away are set aside. You leave your office to grab your gen-y colleague in order to call your clearly worried client. But, this is 2022 and your gen-y colleague happens to be working from home. Instead you hastily arrange a Zoom meeting and your client and your gen-y colleague hover on the screen in front of you. Your client tees off:
“As you know I was the CFO of ABC Pty Ltd a few years ago. ABC was a developer, designed to invest in large-scale commercial projects for our investors. As part of my role in ABC, I was supposed to assist in scouting out investment opportunities in the building and construction sector, with a view to returning profits to ABC’s investors. As times have been a bit tough, the board decided to diversify ABC’s investments. Some board members thought it would be a good idea convince our investors to allow ABC to invest in 123 Pty Ltd, being a star-up fintech company. Three members of the board, and myself, spoke to some of ABC’s investors and represented the possibilities connected with the emerging fintech sector, and the likely return on investments. My role was to discuss the financial position of ABC and I was not responsible for the consideration of 123’s financial position or likely return on investments. This was handled by the three directors of ABC without my involvement. Five of ABC’s investors agreed to give ABC money to invest in 123. Unfortunately, some things did not go to plan, and 123 is now in liquidation. The five ABC investors are quite cross and want my guts for garters. Am I involved in this contravention business and what exactly does involved mean in this context?”
An interesting, but often difficult question to answer you think to yourself. You clear your throat and start to discuss the long standing decision of the High Court in Yorke v Lucas until your gen-y colleague helpfully interrupts to remind you that you are on mute. Your client guffaws loudly over the screen at this common, but temporary, technical incompetence. Un-muted you explain that Yorke v Lucas was concerned with a breach of the then Trade Practices Act whereby a company by the name of Treasureway Pty Ltd was found to have falsely misrepresented the average weekly turnover of its business during the sale of that business to Mr and Mrs Yorke. Lucas was the director of the agent engaged by Treasureway and was sued for being involved with Treasureway’s breach of the Trade Practices Act by aiding and abetting, counselling or procuring or being knowingly concerned in or a party to the contravention.
Your client interrupts at this point. “But, I am not being threatened with legal action under the Trade Practices Act, or whatever it is called these days. The solicitor’s letter refers to section 79 of the Corporations Act on the basis that I was knowingly involved in a breach of, wait a minute, section 1041H of the same wretched Act. How is any of this relevant?” You smile over the screen. You quickly explain that the notion that a third party should share responsibility for any wrongdoing where they are sufficiently or closely connected to the primary wrongdoer is a concept that is featured not only in the Corporations Act but also the Australian Consumer Law and the Fair Work Act and in remarkably similar terms.
Your client appears satisfied. You continue. In Yorke v Lucas the High Court in effect found that an accessory can only be liable where that person was an intentional participant and had sufficient knowledge of the element or elements of the contravention. In that particular case, the High Court dismissed the appeal on the basis that Lucas, as agent, was insufficiently aware of the relevant facts to be involved in the contravention by Treasureway.
Your client leaps at this. “Great. I was insufficiently aware of what those directors were doing. No. Wait. What I mean to say is that I had limited knowledge of the breach of the Act that these [expletive deleted] lawyers say I was involved in. Surely I can’t be liable? Can I?” It is not as simple as that you reply as a cat interrupts proceedings by climbing in front of your gen-y colleague’s screen. Accessorial liability, in a broad conceptual (but not necessarily precise) sense, depends upon the establishment of a contravention by a principal in which the accessory, in some way, intentionally participated.
Your client gulps. “Has this accessorial liability business been tested out in the courts?” Yes, you explain. For breaches of the Corporations Act, liability attached to a solicitor…“A solicitor?” your client snorts incredulously. You ignore your client and continue: the solicitor in this case was liable as an accessory for aiding and abetting the directors to breach their duties as directors by engaging in asset stripping and phoenix activity. Specifically, he was not just giving advice to his clients but was heavily involved in the recommending the transactions for which the court found the directors to be in breach of their duties as directors. In another proceeding, the wife of the primary wrongdoer – a consultant to the company of which the wife was a director – was held liable as an accessory on the basis of her involvement in a scheme to issue securities while by-passing the disclosure requirements in the Corporations Act. Sufficiently concerned, your client squeaks, “Any others?” Yes, you say deadpan. While it was not a case dealing with a breach of the Corporations Act, in a case involving the underpayment of staff, an accounting firm was found to be “knowingly involved” in its client’s underpayment of staff and hence was involved in a contravention of section 550 of the Fair Work Act.
“Bloody hell…” your client’s voice trails off. Your gen-y colleague nods earnestly over Zoom. The key takeaway you suggest to your favourite client is that you can be found liable as an accessory for a contravention of important legislative instruments like the Corporations Act by another person if it can be shown that you were involved in the second person’s contravention. Accessorial liability is a far-reaching concept and can be relevant to company directors, officers of a company and even those acting in an advisory capacity such as solicitors or accountants, including insolvency accountants acting in their capacity as receivers and managers or as a liquidator.