Former National Secretary of the Health Services Union (HSU), Kathy Jackson, breached her duties under section 287 of the Fair Work (Registered Organisations) Act 2009 (Cth) by misusing her position to give herself a financial benefit. The Federal Court ordered Ms Jackson to repay to the HSU the sum of $1,406,538.16 as compensation for the breaches.
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Health Services Union v Jackson (No 4) [2015] FCA 865
A former National Secretary of the Health Services Union (HSU), Kathy Jackson, breached her duties under section 287 of the Fair Work (Registered Organisations) Act 2009 (Cth) (the RO Act) by misusing her position to benefit herself financially.
The action was commenced by the HSU under the RO Act to recover monies which the HSU alleged had been misappropriated from HSU funds. The Federal Court determined that Jackson had misappropriated members’ money to fund her lavish lifestyle. The Court ordered her to pay $1,406,538.16 compensation to the HSU for the detriment her actions had caused.
While serving as National Secretary of the HSU and Secretary of its Victoria No.3 Branch (the Branch) between 2003 and 2010, the Court found Ms Jackson engaged in a series of unauthorised transactions involving HSU funds as follows.
The NHDA transfers
In 2003, Ms Jackson opened a private bank account called the “National Health Development Account” (NHDA account) which was under her sole control. Ms Jackson redirected $250,000 of the HSU’s settlement of a legal dispute into the NHDA account and subsequently used these funds for her personal expenses.
The cashed cheques
Between July 2007 and May 2010, Ms Jackson signed 38 cheques payable to cash from the Branch’s account totalling almost $240,000. Those cheques were not countersigned by two other members of the Branch Committee of Management (BCOM) as required under the HSU’s Rules. Some of those funds were used to pay Committee members their $100 honorarium payments, but the remaining cash was kept by Ms Jackson in a 'kitty' which she used for personal expenses, including to pay down a personal mortgage.
The Honorarium
In March 2010, Ms Jackson arranged for a lump sum ‘honorarium’ of $63,000 to be paid to her by the Branch. This payment was in addition to her full-time salary as National Secretary and at a time Ms Jackson was no longer employed in the Branch. The payment was not properly authorised and was paid by cheque signed by Ms Jackson made out to herself.
The Elliott memorandum
In February 2010, Ms Jackson facilitated payments totalling more than $400,000 to a former HSU National Secretary, Robert Elliott. The Elliott memorandum ensured Elliott would be paid a salary of $150,000 per annum, irrespective of whether he rendered any services to the HSU. The Court found the memorandum was fabricated to justify payments, and that Ms Jackson had no authority under the Rules to bind the HSU to enter this agreement.
Credit card expenditure and overpayment of wages
Between 2003 and 2011, Ms Jackson spent almost $400,000 on HSU credit cards for personal expenses, including travel, retail purchases, food and alcohol, entertainment and fitness services. Taking into account repayments that had been made, the Court found that Ms Jackson had used $305,828.30 for personal purposes without authorisation.
Unauthorised legal expenses and leave payments
Ms Jackson incurred unauthorised legal fees of $34,725 and improperly claimed salary of nearly $68,000 while on holiday overseas when she should have taken annual leave.
Officers must exercise their powers and perform their duties in good faith, for proper purposes and in the best interests of the organisation and its members, and not to obtain personal benefit.
This case illustrates the critical role of proper governance and robust internal controls within registered organisations. The misappropriations in this case were avoidable. Organisations must promote a culture of good governance and develop well trained and competent Boards that are aware of their financial duties and act as a genuine check on the unrestrained powers of executive officers.
Registered organisations must ensure that they have clear policies and procedures, transparent financial processes, independent oversight of officers’ use of funds, and processes to respond promptly to a suspected misuse of funds.
The RO Act enables an organisation to apply to the Court for an order for the payment of compensation for any damage that has resulted from a contravention by one of its officers or employees.
Justice Tracey found that Ms Jackson had engaged in deliberate, repeated and serious breaches of her statutory duties as an officer of a registered organisation. His Honour found in relation to the conduct that Ms Jackson had no authority to deal with HSU funds in the way that she did, and that she knew this or ought to have known this.
In relation to dishonesty, Justice Tracey said at [115] – [116]:
‘It is, therefore, possible for [an officer] to act improperly even if the [officer] has no intention of acting dishonestly’ and it may be sufficient that an officer performs an act that they knew or ought to have known they had no authority to perform.
Further, the Court touched briefly on the role of the Committee of Management to have knowledge of, visibility over and ask questions about branch funds. In particular, Justice Tracey said (at 120) that:
Branch funds ‘should have been, in a Branch account… [where] it would have been necessary for all payments into the account and payments out of it to have been accounted for and audited. This would have required [the officer] to report and justify all of the payments out of the account. She would, for example, have had to explain to the Branch Committee of Management why it was she withdrew large cash payments… She would have had to attempt to justify expenditure for unlawful purposes…’
The Federal Court ordered Ms Jackson to repay the HSU the sum of $1,406,538.16 as compensation for unauthorised payments and losses caused by the breaches under section 287 of the RO Act. Justice Tracey also noted that interest and legal costs would further increase the amount owed.
Prior to the trial in the matter Ms Jackson presented a debtor’s petition and had a trustee appointed to her estate in bankruptcy. Ms Jackson was not represented at the trial. Ms Jackson’s bankruptcy limited the HSU’s prospects of recovering the misappropriated funds.
Ms Jackson filed appeals against the decision, which were dismissed.
NSD 1501 of 2013 (NSW) and VID 1042 of 2013 (VIC)