The Australian Financial Reviewwww.afr.com l Friday 9 November 2012 LEGAL AFFAIRS 41

Fury as lawyers get taken for a ride

W ho says Lance Armstronghas caused the biggestscandal in cycling this year?

Lycra-clad lawyers at Herbert SmithFreehills are steaming, but not fromthe heat generated during earlymorning rides.

Their fury is being directed at themean bean-counters at Ernst &Young, who have jealously assertedexclusivity to Cadel Evans andthwarted the newly merged lawfirm’s planned bike ride with theTour de France champion.

Many of the mad cyclists at HSFwere overexcited about the prospectof treating special clients to a ridethrough the Macedon Rangesoutside Melbourne this month.

Invitations were sent, flightsbooked and legs liberally waxed andfirmed up with extra pre-workkilometres to ensure a high level ofdrug-free performance on the day.

It was all systems go untilHearsay reported on the event onOctober 12. Soon after, E&Y, whichextended a deal with Evans for threeyears in 2011 after he won themaillot jaune, spoiled everything byclaiming exclusivity over Evans.

This caught both Evans’smanagement and HSF by surprise,and the firm was forced to spreadthe news the ride had been canned.It is now trying to arrange a lunchwith the champ to patch up clientrelationships. Don’t expect anyaccountants to be invited.

A Hondagate momentJohn Keats famously said a thing ofbeauty was a joy forever, but forinstant gratification one can’t gopast a corruption inquiry.

The NSW IndependentCommission Against Corruption’sinvestigation into former stateLabor MPs is providing work toscores of lawyers and mirth to themasses as it scratches the (allegedly)ugly underbelly of political life inthe state.

This week marked the end of

public hearings in the first of threeinquiries into the dealings of seniorministers in former NSW Laborgovernments, involving claims oneof the sons of controversial Laborpowerbroker Eddie Obeid arrangedthe purchase of a Honda for thenroads and commerce minister EricRoozendaal.

Moses Obeid, one of Eddie’s fivesons, dubbed the inquiry“Hondagate” on Monday,prompting Commissioner DavidIpp, QC, to quip: “The question iswho’s the President Nixon in this?”

Ipp, a former judge in the NSWCourt of Appeal, has managed tokeep his trademark booming laughin check for most of the hearing –no mean feat given the comicalevidence of some of the witnesses.

Counsel assisting thecommission, Geoffrey Watson, SC,is a master of ironic asides and

oratorical flourishes. “Gee, this isgreat fun, isn’t it,” he said with afaux smile at a laughing Paul Obeid,another of Eddie’s five sons. Aftercounsel for Eddie Obeid, defamationgun and erstwhile Media Watch hostStuart Littlemore, QC, objected to aparticular line of questioning,Watson said: “I’m certainly nottrying to intimidate [the witness] butI’m flattered to think that anybodythought that I could.”

That was a bridge too far for Ipp,who cautioned: “All right, MrWatson, let’s leave out the rhetoricalflourishes.”

Littlemore snapped: “Just get onwith it.” But not everyone wants thiscircus to come to an end just yet.

An HSU lockoutIt was one of the more unusualexcuses for delays at the Federal

Court this week after a computerglitch locked Justice Geoffrey Flickout of recently refurbishedCourtroom 18B.

The 1½-hour delay left lawyers forthe floundering Health ServicesUnion and various governmentministers with little more to discussthan the 93 runs scored by unionbarrister Mark Irving in Melbourneat his club’s Cup Day cricket match.

Carol & O’Dea partner PeterPunch, there to put the HSUadministrator’s case, might justhave got it right when he remarked:“I hope this isn’t a sign.”

Hearsay suspects Punch won’t bethe only one wondering if the delaywas significant. Hands up whothinks MP Craig Thomson, theHSU’s best known former nationalsecretary, interpreted the judge’sslow arrival as another sign the caseagainst him is falling apart?

Ward’s rise confirmedNearly two months after Hearsayspilled the beans that Julie Wardwas being promoted to the NSWCourt of Appeal, the announcementhas finally been made by the NSWgovernment. The revelation onSeptember 21 of the formerMallesons Stephen Jaques partner’smeteoric rise, after her appointmentto the bench in 2008, was the causeof some consternation and delay ashurried efforts were made touncover the source of the leak.

Edited by Alex Boxsell, withJames Eyers, Michaela Whitbourn

and Claire Stewart

HEARSAY

Lucille Keen

Magistrates in South Australiawill be able to continue workinguntil the age of 70, with the stategovernment expected to pass legis-lation next week.

The move, which enjoyed biparti-san support, will bring the state inline with rules covering judgesemployed by the Commonwealth,Victoria and Queensland.

However, the new compulsoryretirement age for magistrates willstill be lower than in NSW and Tas-mania, where judges can sit untilthey reach 72 years of age.

There has also been debateabout whether to raise the manda-tory retirement age of High Courtjudges, which is 70, given the retire-ment this year of productive judgeWilliam Gummow, closely fol-lowed by Dyson Heydon in March.

Under South Australia’s currentlaw, magistrates must retire once

they turn 65 years old. The changewas pushed by the Liberal opposi-tion which sought, through lowerhouse MP Rachel Sanderson, tohave the extension to the retirementage inserted in a court efficiencyreform bill that dealt largely withother issues.

That effort was defeated, butwas then successfully sponsored inthe upper house by shadow attor-ney-general Stephen Wade.

The state government later sup-ported retaining the amendment,with Attorney-General John Rauclaiming the reform was alreadyon the agenda.

“This change brings the retire-

ment age of magistrates in SouthAustralia into line with the retire-ment age of Commonwealth magis-trates,” Mr Rau’s spokesman said.

“The government had originallyintended to introduce the amend-ment via a reform package to theMagistrates Act early next year butagreed to include the amendmentin this bill.”

The decision has sparked theWest Australian government toreconsider the state’s compulsoryretirement age for magistrates,which is 65.

A spokeswoman for WA Attor-ney-General Michael Mischin saidthe government was planning toamend legislation to increase thestatutory retirement age of magis-trates to 70, but that this would bedecided on a case by case basis.

“Due to the limited number ofsitting days left, it is unlikely thelegislation will be introduced thisyear,” the spokeswoman said.

Judges can work on in SA proposal

Vigilance needed to deal with offshore corruptionOpinionSteven Fleming

R io Tinto’s subsidiary inMongolia, SouthGobiResources, joined an exclusive

club last month no one wants to join:Australian businesses that have hadto deal with corruption allegations inconnection with their overseasoperations.

Fellow members include Leighton,Securency and AWB. SouthGobi’sMongolian travails come in thecontext of a sea change aroundforeign corrupt practices inAustralia, which hasn’t escaped themarket’s notice. Corruption is a hottopic in Australian boardrooms.

The Organisation for EconomicCo-operation and Development isnot satisfied the federal governmentis doing enough to stop corruptconduct by companies. In submittingits phase three report on Australia onOctober 12, the OECD workinggroup on bribery expressed “seriousconcerns that overall enforcement ofthe foreign bribery offence to datehas been extremely low”. Companiesare increasingly cognisant ofpotential legal liability underAustralian law if they engage incorruption overseas: up to 10 years’jail for individuals, and $11 million-plus in fines for companies.

This is in addition to other sourcesof significant liability, such as underthe Proceeds of Crimes Act, or to the

Tax Office, as well as potentialregulatory and civil lawsuits.

The commercial downsides ofcorrupt deals are too frequentlyoverlooked. While they may initiallyseem lucrative, bribe payers are oftenextorted by corrupt public officialswho refuse to make good on theircontractual obligations withoutfurther payments. Companies alsofind it increasingly difficult to winbusiness without further and largerbribes; and business strategybecomes increasingly distorted bynon-commercial factors.

Despite the significant downside,companies cannot simply retreatfrom markets that bear a higherdegree of corruption risk. A recentstudy found 75 per cent of top

companies operate in areas orcountries with a high risk ofcorruption. The federal governmenthas committed to a deepening ofeconomic, political and social linkswith our Asian neighbours.

Simply put, businesses cannotafford to lock themselves out of theirown future. The Association ofSouth-East Asian Nations bloc is ourlargest trading partner andmerchandise exports there grew23 per cent last year. ASEAN’s grossdomestic product is predicted togrow by 5 per cent in 2012 and itspopulation exceeds 570 million.

Complying with Australian lawhas never meant companies needwalk away from legitimate deals evenin risky jurisdictions.

The first step is to identify risk.The Corruption Perception Index

shows risky jurisdictions; companiesdealing extensively with governmentagencies or state-owned companiesshould be aware of that risk.

The second step is mitigating thatrisk by developing a commerciallysensitive compliance program withinput from all sides of the business.

The final, perhaps most difficultstep is to create a culture of vigilancewhere companies recognise the truecost of paying bribes and whereemployees are freely able to escalatetheir concerns and seek advice whendilemmas or corrupt demands arise.

n Steven Fleming is a partner atJones Day.

The change brings theretirement age ofmagistrates in SA into linewith the Commonwealth.

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