Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd

ICAC REPORT JUNE 2014 Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd

ICAC REPORT JUNE 2014 This publication is available on the Commission’s website www.icac.nsw.gov.au and is available in other formats for the vision-impaired upon request. Please advise of format needed, for example large print or as an ASCII file.

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© ICAC The Hon Don Harwin MLC The Hon Shelley Hancock MLA President Speaker Legislative Council Legislative Assembly Parliament House Parliament House Sydney NSW 2000 Sydney NSW 2000

Mr President Madam Speaker

In accordance with s 74 of the Independent Commission Against Corruption Act 1988 I am pleased to present the Commission’s report on its investigation into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions.

Assistant Commissioner, the Hon Anthony Whealey QC presided at the public inquiries held in aid of these investigations.

The Commission’s findings and recommendations are contained in the report.

I draw your attention to the recommendation that the report be made public forthwith pursuant to s 78(2) of the Independent Commission Against Corruption Act 1988.

Yours sincerely

The Hon Megan Latham Commissioner

© ICAC Contents

Summary of investigation and results 6 Chapter 5: Operation Cabot – the allocation is queried 28 Results 6

Recommendation that this report be made public 7 Chapter 6: Operation Cabot – Edward Obeid Sr intervenes: Ms Heaney is taken out of the action 31 Chapter 1: Background 8

How the investigations came about 8 Chapter 7: Chapter 7: Operation Cabot – the critical questions concerning Edward Obeid Sr’s Why the Commission investigated 8 contact with Mr Duffy 38 Conduct of the investigations 8 Mr Duffy 38 The public inquiries 8 Edward Obeid Sr 41

Chapter 2: Operation Cabot – introduction 10 Chapter 8: Operation Cabot – corrupt conduct Cherrydale Park 10 findings and s 74A(2) statements 42

Corrupt conduct 42 Chapter 3: Operation Cabot – Mr Dunn’s favours for Edward Obeid Sr 13 Steve Dunn 42 Mark Duffy 43 Cherrydale Park is sold 13 Brian McDougall 43 Edward Obeid Sr asks a favour of Mr Dunn 14 Dennis Milling 43 Edward Obeid Sr opens Pandora’s Box 15 Edward Obeid Sr 44 The conversation with Mr De Silva 16 Section 74A(2) statements 45 Mr Dunn does another favour 18

Chapter 9: Operation Cabot – corruption Chapter 4: Operation Cabot – the water prevention 46 allocation 20 An extraordinary allocation is made 20 Lack of clarity in policy formulation 46 Why did Mr McDougall make the allocation he did? 25 Administration of the policy 47 Was there any connection between Edward Obeid Sr and Recent changes 49 Mr McDougall in relation to the allocation? 27

4 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 10: Operation Meeka – an overview 50

The facts – in-principle agreement is reached 51 The structure 52 A foot in the door 53 Edward Obeid Sr’s involvement in family business matters 55 The critical question: did Edward Obeid Sr know of the family interest in DHS? 56

Chapter 11: Operation Meeka – corrupt conduct findings and s 74A(2) statements 59

Edward Obeid Sr 59 Paul Obeid 59 Section 74A(2) statements 59

Appendix 1: The role of the Commission 60

Appendix 2: Making corrupt conduct findings 61

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 5 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Summary of investigation and results

This report of the NSW Independent Commission Against Results Corruption (“the Commission”) concerns two operations known as Cabot and Meeka. Chapter 8 of this report contains corrupt conduct findings against Edward Obeid Sr in respect of the Operation Operation Cabot was concerned with whether, between Cabot public inquiry. 2007 and 2008: The Commission found that Edward Obeid Sr engaged • the Hon Edward Obeid MLC (“Edward in corrupt conduct by misusing his position as an MP Obeid Sr”) misused his position as a member to benefit his family’s financial interests by improperly of Parliament (MP) to influence other public influencing Steve Dunn, a senior bureaucrat formerly officials to exercise their official functions with with the NSW Department of Water and Energy (DWE), respect to the review and grant of water licences in the discharge of Mr Dunn’s public official duties. The at Cherrydale Park without disclosing that he, nature of the improper influence was that: his family or a related entity had interests in the licences • Mr Dunn was to use his contacts at the DWE to seek information about water licences in • certain public officials improperly exercised their the Bylong Valley for Edward Obeid Sr and to official functions with respect to the review and facilitate Edward Obeid Sr speaking with a DWE grant of water licences at Cherrydale Park. official to obtain further information about water Operation Meeka was concerned with whether, between licences affecting Cherrydale Park 2005 and 2008, Edward Obeid Sr misused his position • Mr Dunn was to use his position with NSW as an MP to attempt to influence other public officials to Maritime and his former position with the DWE make decisions favouring Direct Health Solutions Pty Ltd to reassure the owner of Cherrydale Park, (DHS) without disclosing that he, his family or a related John Cherry, that there were no plans to place entity had an interest in that company. restrictions on Cherrydale Park water licences so that Mr Cherry would not reduce the amount he In addition to the public inquiries held for the purpose would lend the Obeid family for the purchase of of these operations, the Commission also conducted a that property. public inquiry into other allegations that Edward Obeid Sr misused his position as an MP to advance his and his The Commission also found that Edward Obeid Sr family’s financial interests arising from leases at Circular engaged in corrupt conduct by misusing his position and Quay and that certain other public officials exercised their influence as an MP to benefit his family’s financial interests official functions with respect to retail leases at Circular by engaging Mark Duffy, then DWE director-general, so Quay for the purpose of benefiting Edward Obeid Sr or his that, in the carrying out of his official functions, Mr Duffy family (Operation Cyrus). These allegations are dealt with would unwittingly fulfil Edward Obeid Sr’s expectations in a separate report. that his financial interests with respect to the water licences affecting Cherrydale Park would be favoured.

6 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Statements are made in that chapter pursuant to s 74(2) Although the investigation into the granting of the water of the Independent Commission Against Corruption Act licences at Cherrydale Park raised some systemic problems, 1988 (“the ICAC Act”) that the Commission is of the as noted in chapter 9, they are being addressed by the opinion that consideration should be given to obtaining NSW Office of Water (NOW), formerly a part of the the advice of the Director of Public Prosecutions (DPP) DWE, and the Commission is satisfied that there is no need with respect to the prosecution of Edward Obeid Sr for for it to recommend further changes. The Commission common law criminal offences of misconduct in public has noted, however, that the weaknesses in poor policy office in relation to his use of his position to influence the formulation, management, resourcing and business systems actions of Mr Dunn and Mr Duffy. identified during the course of its investigation are not necessarily exclusive to the water licence conversion Chapter 11 of this report contains a corrupt conduct process. These weaknesses could indicate a vulnerability to finding against Edward Obeid Sr in respect of the corruption elsewhere in NOW. The Commission considers Operation Meeka public inquiry. The Commission found that it would be prudent for NOW to consider how it can that Edward Obeid Sr engaged in corrupt conduct by hold managers accountable for the actions of their staff misusing his position as an MP to further his own interests while also providing managers with the tools to monitor by arranging for finance minister Michael Costa to meet and control behaviour. The Commission encourages with businessmen Paul Dundon and Mitchell Corn for the NOW to consider the lessons that can be learnt from this purpose of them promoting the services of DHS to the investigation and their applicability to other areas of its NSW Government so as to benefit DHS and without operations. disclosing his family’s financial interest in DHS. The Commission is not of the opinion that consideration Recommendation that this report should be given to obtaining the advice of the DPP be made public with respect to the prosecution of Edward Obeid Sr for any criminal offence arising out of this conduct. This Pursuant to s 78(2) of the ICAC Act, the Commission is because the Commission does not consider there is recommends that this report be made public forthwith. sufficient admissible evidence upon which to base a This recommendation allows either Presiding Officer of a prosecution. House of Parliament to make the report public, whether or not Parliament is in session. The Commission has not made any corruption prevention recommendations in this report. For Operation Meeka, recommendations to prevent MPs misusing their positions have already been made in relation to operations Jasper and Acacia (the report, titled Reducing the opportunities and incentives for corruption in the state’s management of coal resources, was released in October 2013). Since these recommendations have been accepted by Parliament, there is no need for their repetition here.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 7 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 1: Background

This chapter sets out some background information which in the Commission’s opinion imply that: concerning the investigations by the NSW Independent Commission Against Corruption (“the Commission”) into (i) corrupt conduct, or allegations of corrupt conduct in each of Operation Cabot (ii) conduct liable to allow, encourage or cause and Operation Meeka. the occurrence of corrupt conduct, or How the investigations came (iii) conduct connected with corrupt conduct, about may have occurred, may be occurring or may be about to occur. In November 2012, the Commission received a complaint alleging that there had been some “high level” interference The role of the Commission is explained in more detail with the then NSW Department of Water and Energy in Appendix 1. Appendix 2 sets out the Commission’s (DWE) in the issuing of water licence allocations in approach to making corrupt conduct findings. the Hunter Valley. Initial enquiries by the Commission revealed that, in 2008, a property owned by the Obeid An MP who uses his or her position to influence the family, Cherrydale Park in the Bylong Valley, had received exercise of public official functions in order to obtain a an annual groundwater allocation of 860 megalitres (ML). benefit for themselves or members of their family betrays This appeared excessive when compared to allocations the public trust. It was both necessary and in the public made to other properties in the Bylong Valley. The interest to determine whether Edward Obeid Sr had so Commission decided to investigate whether the Hon acted and to identify whether any other public official had Edward Obeid MLC (“Edward Obeid Sr”) had misused acted corruptly. Accordingly, the Commission decided to his position as a member of Parliament (MP) to influence conduct investigations into these matters for the purpose the granting of the allocation. This became Operation of ascertaining whether any corrupt conduct had occurred Cabot. and to ascertain whether there were any corruption prevention issues that needed to be addressed. In mid-May 2012, the Commission received a complaint alleging that Edward Obeid Sr had misused his position as an MP to obtain favourable treatment by the NSW Conduct of the investigations Government for Direct Health Solutions Pty Ltd (DHS), Both investigations involved obtaining information and a company in which his family had a financial interest. This documents by issuing notices under s 22 of the ICAC Act became Operation Meeka. as well as interviewing and obtaining statements from a number of witnesses. Seven compulsory examinations Why the Commission investigated were conducted.

One of the Commission’s principal functions, as specified in s 13(1) of the Independent Commission Against The public inquiries Corruption Act 1988 (“the ICAC Act”), is to investigate The Commission reviewed the information that had been any allegation or complaint that, or any circumstances gathered during the investigations and the evidence given

8 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd at the compulsory examinations. After taking into account that material and each of the matters set out in s 31(2) of the ICAC Act, the Commission determined that it was in the public interest to hold a public inquiry in relation to each investigation. The Commission also took into account that there was cogent evidence that tended to support the allegations that Edward Obeid Sr had misused his position as an MP in order to benefit his family’s financial interests.

In determining to conduct the public inquiries, the Commission also took into account evidence it had obtained with respect to another allegation that Edward Obeid Sr had misused his position as an MP to advance his own personal financial position or that of his family by influencing other public officials to exercise their official functions with respect to leases at Circular Quay (Operation Cyrus). The Commission decided that, as all the allegations concerned the conduct of Edward Obeid Sr, it was in the public interest to deal with them in consecutive public inquiries, with the evidence adduced in relation to any one investigation being treated as evidence in relation to all matters.

The three public inquiries were conducted between 28 October and 25 November 2013. Assistant Commissioner the Hon Anthony Whealy QC presided at the inquiries. Ian Temby AO QC and Ben Katekar acted as Counsel Assisting the Commission. Evidence was taken from 14 witnesses.

At the conclusion of the public inquiries, Counsel Assisting prepared submissions setting out the evidence and the findings and recommendations the Commission could make based on the evidence. These submissions were provided to all relevant parties and submissions were invited in response. All submissions have been taken into account in preparing the report.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 9 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 2: Operation Cabot – introduction

Cherrydale Park sources, including those in the Hunter region. The DWE first established a water sharing plan for this area in 2009. Bylong Valley is, by all accounts, a beautiful and somewhat Between 2000 and 2009, however, there was a need to remote rural area in the Upper Hunter region of NSW. prepare for individual water entitlements to be converted Traditionally, it is a pastoral area and has, for many years, to the new system. been occupied by interests associated with farming. Bylong Valley is a winding but relatively flat valley that Prior to 1972, there were a number of water licences in crosses the Great Dividing Range between the Goulburn the Hunter region which, for irrigation purposes, were River National Park and Wollemi National Park, well unrestricted; that is, they did not have volumetric controls to the north-west of Newcastle. Through it flows the attached to them. One of the tasks of the water licensing Bylong River, a tributary of the Goulburn River system. section was to allocate volumetric controls to those The Bylong River rises in the Central Tablelands of the hitherto “unrestricted” licences. This was a necessary Capertee Valley within Wollemi National Park, just below step before the establishment of the water sharing Goat Mountain. It flows generally north-east, joined by arrangements contemplated by the new legislation. In several tributaries before reaching its confluence with the 2005, there were about 30 or 40 such irrigation licences Goulburn River north of the village of Bylong. It traverses in the Goulburn River area, of which the Bylong Valley about 48 kilometres, falling about 530 metres over its formed part. In the valley itself, there were only a handful length, and eventually flows into the Hunter River and of unrestricted licences. Two of these – the ones with thence into the Tasman Sea at Newcastle. which this investigation is concerned – were attached to Cherrydale Park. In 2007, Cherrydale Park, which had Operation Cabot is concerned with events surrounding a originally been two properties but was later merged into dispute that emerged within the Newcastle branch of the one, was owned by John Cherry. DWE in 2008. The dispute centred on conflicting views as to the legitimacy of water licence allocations made by Mr Cherry gave evidence that, for some eight to 10 years the department affecting a farming property in the Bylong before he sold Cherrydale Park in late 2007, he had grown Valley known as Cherrydale Park. lucerne on the property. Although the total area of irrigable land on the property was about 200 acres (80 hectares), In 2007–08, one of the functions of the DWE was the Mr Cherry’s very clear evidence was that no more than management of water resources. Obviously enough, in about 60 acres (24 hectares) had been irrigated during his a state where, from time-to-time, various regions are time on the property. He said that, even in a very dry year, ravaged by drought, there emerges a need to manage he had never used more than 1 ML of groundwater per day water resources in these areas. This is especially so for up to 260 days of the year. where groundwater is required for irrigation purposes. Following the enactment of the Water Management Act This evidence was important. As later findings will show, 2000, the water licensing section of the DWE (for the although there was a deal of confusion within the water northern region of NSW) became involved with the task licensing section of the DWE as to the precise rules to of establishing water sharing plans for particular water be applied in fixing or establishing volumetric allocation

10 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd for unrestricted licences, one practice or convention was During a telephone conversation that occurred on clear: all DWE personnel agreed that it was historical 19 November 2008, Ms Heaney had raised these matters use, not present or future use, that governed volumetric with Damian Obeid, a representative of Locaway Pty allocations. It was tolerably clear, and agreed by all, that Ltd. It was alleged she did so in a rather aggressive and the relevant rate to be applied – in other words, the possibly abusive manner. This, in turn, led to a complaint formula – was 6 ML per hectare of historically irrigated by Edward Obeid Sr to Mark Duffy, then DWE land, at least for lucerne growing. Mr Cherry’s evidence, director-general. Within a short period of time, particularly therefore, suggested that, as at 2007, an appropriate as a consequence of the actions of Dennis Milling, acting allocation for the two unrestricted licences at Cherrydale state director of licensing at the time, Ms Heaney’s Park would have been in the vicinity of an annual amount proposed inspection trip to Cherrydale Park was cancelled. of 144 ML for the entire property. In addition, she was effectively “carpeted”; that is, suspended on full pay and later subjected to a disciplinary In late 2007, Cherrydale Park was purchased by Locaway process. Adverse findings were made against her, including Pty Ltd, a company representing the family interests of a finding that she had behaved “unprofessionally” in her Edward Obeid Sr. The water licences, however, remained dealings with Damian Obeid. She later left the department. in Mr Cherry’s name during 2008, pending the repayment by the purchaser of certain vendor loans outstanding Importantly for present purposes, on 27 November 2008, under the contract. Mr Milling confirmed Mr McDougall’s annual 860 ML allocation to Cherrydale Park, and wrote to As events will show, on 18 August 2008, the DWE inform Mr Cherry that this confirmation had occurred. determined that, at the expiration of 14 days, it intended to The confirmation of the allocation was made, it must be grant Cherrydale Park an annual groundwater allocation said, notwithstanding that the 860 ML allocation was of 860 ML. This determination must have proceeded, as vastly greater than the allocation to any other farm in the will be seen, on the basis that 143.2 hectares had been Bylong Valley. It was greater, indeed, to the extent of irrigated historically at the property. 360 ML – a very substantial margin.

This allocation was made by a senior water licensing This public inquiry examined the actions of Edward officer from the DWE, Brian McDougall. The dispute, Obeid Sr and also the activities of Steve Dunn, a senior to which reference has been made earlier in this report, bureaucrat formerly with the DWE, in relation to the centred on the conflicting view of a second senior water licence allocation. It examined the determination licensing officer, Sue Heaney. In November 2008, Ms made by Mr McDougall, the response by Mr Duffy to Heaney raised with Mr Cherry and Locaway Pty Ltd the Edward Obeid Sr’s complaint, Ms Heaney’s treatment by prospect that a physical inspection of the property and the DWE, and Mr Milling’s confirmation of the original an examination of historical usage might reveal that Mr allocation. These were scrutinised to determine whether, McDougall’s allocation had been erroneous and, indeed, in the circumstances of this extraordinary water licence unjustified. There was a threat that the McDougall allocation, any person had engaged in corrupt conduct allocation might be revisited. within the meaning of the ICAC Act.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 11 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Many of the facts are not in dispute. This report will set out those facts indicating, however, where there are areas of dispute and resolving those disputes in the course of establishing the events that occurred and their significance to the issues in the inquiry.

12 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 3: Operation Cabot – Mr Dunn’s favours for Edward Obeid Sr

Cherrydale Park is sold The vendor agrees to assign all of his interest in the Water Licences on the same day as the repayment of On 5 September 2007, Mr Cherry signed an agency the moneys advanced pursuant to special condition sales agreement in favour of Peter Druitt. The agent 52 (a) and (b). had recommended the sale of Cherrydale Park by public auction and estimated the gross selling price at $3 million. For this inquiry, the Commission was concerned only with On 17 September, however, Obeid Corporation Pty Ltd two of the water licences. offered $3.4 million for the property, and that offer was accepted by 24 September, on which date Mr Druitt The sale was completed on 15 November 2007. Between the prepared a property sales advice. The contract of sale, at initial offer and completion of the contract, there had been a $3.65 million, included furniture, plant and equipment, number of contacts and dealings between Mr Cherry, Edward was dated 27 September 2007, and, as has been said, was Obeid Sr, and present and past officers of the DWE. between Mr Cherry and Locaway Pty Ltd. These included two emails, one dated 26 September and A deposit of $365,000 was paid, and the contract was subject the other dated 27 September 2007, which came to Brian to two special conditions, which are of present relevance: Gardoll at the DWE. He was the person in charge of water licensing for NSW. Those emails referred to the eight 52. The purchase price shall be paid as follows: licences at Cherrydale Park, two of which were described (a) An advance by The Cherry Superannuation in the later email as: Fund of $2,380,000.00 (“the CSF Advance”) 1) 20BL010609 (Domestic, Irrigation, Stock, No to be secured and on the terms set out in extraction limit on condition sheet) Schedule F; 2) 20BL013169 (Domestic, Irrigation, Stock, No (b) An advance from the vendor of $250,000.00 to extraction limit on condition sheet) be secured and on the terms set out in Schedule G; and These two licences were commonly called perpetual or (c) The balance of $1,020,000.00 (plus or minus unrestricted licences. They differed from other water adjustments in accordance with this contract) on licences on the property that permitted domestic use. The completion. 27 September email came from Mr Dunn, who had left the DWE in August 2007 to work at the Maritime Authority 53. WATER LICENCES of NSW (“Maritime”)1 , and went in the first instance to Marwan El-Chamy of the DWE, who then sent it on to his In this clause, ‘Water Licenses’ means Bore License Numbers 20BL010609, 20BL013169, superior, Mr Gardoll. The other email (26 September) came 20BL114555, 20BL132415, 20BL167073, from Adam Badenoch, chief of staff to the then minister of 20BL167074, 20BL167075 and 20BL167076 the Crown, Ian Macdonald. This email went directly to attached to this contract as Schedule H. Mr Gardoll. The purchaser acknowledges that the Water Licenses will not be assigned to the purchaser or the purchaser’s 1 The Waterways Authority replaced the Marine Ministerial Holding Corporation nominee until the monies advanced pursuant to in 2000. It changed its name to Maritime Authority of NSW in 2006 and traded under the name NSW Maritime. For convenience, each of these entities will be Special Condition 52 have been repaid in full. referred to in this report as “Maritime”.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 13 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 3: Operation Cabot – Mr Dunn’s favours for Edward Obeid Sr

Edward Obeid Sr asks a favour of Particularly interested in any conditions that may apply to bores 1 to 4 relating to the use or extraction Mr Dunn limits that are not included with the licence details, Mr Dunn worked at the DWE until 15 August 2007. or any WSP provisions that may apply or be likely to He was the director in charge of compliance licensing and apply? corporate services. On that date, however, he moved to a I assume this is a routine inquiry, if you need a formal very senior position with Maritime (see Operation Cyrus request or the property vendor’s authority to provide report). Mr Dunn knew Edward Obeid Sr well. He had this information, please let me know or contact the worked with Edward Obeid Sr when the latter was the vendor’s solicitor, Slater and Elias Lawyers Pty Ltd, minister for fisheries. Mr Dunn had become acting director Mr Anthony Cordato… of fisheries when the former incumbent had lost his position. He later became CEO of fisheries. The two Thanks men became friendly and were closely associated over Steve a period of some 15 years. Mr Dunn admired Edward Obeid Sr and the latter, in turn, recognised Mr Dunn’s The third step taken by Mr Dunn was to speak again to exceptional administrative talents. Mr El-Chamy on 27 September 2007 after the email had been received. As it happened, Mr El-Chamy had been On 16 September 2007, Edward Obeid Sr rang Mr Dunn the wrong man to ask to provide information about the and asked him to come to his parliamentary office to licences. This was because his area of control was in the discuss a matter. Mr Dunn did so. The discussion between southern part of the state, not in the northern area where the two men focused on the property in the Bylong Valley the Bylong Valley was located. In fact, Mr El-Chamy being purchased by Obeid family interests. Edward Obeid reported the conversation to his superior, Mr Gardoll. Sr told Mr Dunn that he had a query about water licences First, this was because the request related to a property on the property. He wanted to know what he would be outside his area and, secondly, because he was “a little bit allowed to do with the licences “because he wanted to uncomfortable” with talking directly to Edward Obeid Sr, a grow crops”, and that he had “big plans” for the property. politician, on the subject. He well knew that “Eddie Obeid was a very high profile client”. In the circumstances, Mr Mr Dunn knew that Edward Obeid Sr was seeking a El-Chamy was content to pass the task of dealing with favour from him. It is obvious that this was so. Mr Dunn the request to Mr Gardoll. During the second telephone was perfectly prepared, for his part, to accommodate call, it is likely that Mr El-Chamy told Mr Dunn that he Edward Obeid Sr’s request. Although Mr Dunn had left had passed the enquiry to his superior because the licences the DWE, he had contacts there that he thought would be were not in his area. able to help. Mr El-Chamy was one such contact. Prior to Mr Dunn’s departure from the DWE, he had reported to The fourth step taken by Mr Dunn was to ring Edward Mr Gardoll, and Mr Gardoll, in turn, reported to Mr Dunn. Obeid Sr later that evening. In this conversation, Mr Dunn accepted that he was likely to have reported his progress There were at least four separate steps taken by Mr with Mr El-Chamy. Dunn to assist Edward Obeid Sr around the latter part of September 2007. First, on 26 September 2007, Mr The situation regarding the email of 26 September 2007 Dunn rang Mr El-Chamy in his office and told him he is somewhat less certain. It is clear that it was sent by Mr wanted some information about water licences in the Badenoch, chief of staff to Mr Macdonald. It went directly Bylong Valley. He then put Edward Obeid Sr on the to Mr Gardoll and asked “Brian” to “chase up the following telephone to speak directly to Mr El-Chamy (“here speak licence numbers for me”. The stipulated licences were the to your fellow countryman”). Edward Obeid Sr chatted water licences on Cherrydale Park. The email concluded, to Mr El-Chamy about some common interests, including “Any info you might be able to provide would be most some events in Lebanon, and then confirmed that he was appreciated”. seeking information about water licences on a property he was buying. Before the call was terminated, Mr Dunn Mr Badenoch was not a particularly helpful witness. He spoke again to Mr El-Chamy, who asked that Mr Dunn had to be “pushed” to concede that the request to send send him details of the licences so that he could obtain the the email to Mr Gardoll, which was clearly not done at Mr information being sought. Badenoch’s initiative, was likely to have emanated from a source connected to the purchaser of the property. He The second step taken by Mr Dunn was to send the would concede no more than that it was a “possibility” 27 September 2007 email to Mr El-Chamy. Having that he may have been asked to send the email by Mr identified the relevant licences, the email states: Macdonald. He could not, however, sensibly nominate

14 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd anyone else who may have asked him to send the email. Edward Obeid Sr a considerable amount of money. The Commission will return to the circumstances surrounding Relevant telephone records show a call between Edward this later favour after describing a number of intervening Obeid Sr and Mr Macdonald took place on the evening events that occurred during the early and middle part of of 25 September 2007, which lasted two minutes and 43 October 2007. seconds. Both Mr Macdonald and Mr Badenoch were in Sydney on 26 September 2007, and the email in question Edward Obeid Sr opens Pandora’s was sent at about 6.30 pm on that day. Whilst noting that Edward Obeid Sr denied asking Mr Macdonald for Box assistance, the Commission accepts on the balance of On 2 October 2007, Mr Cherry received a telephone call probabilities that it was Edward Obeid Sr who, through from Mr De Silva who was, at the time, an experienced whatever channel, initiated the request that ultimately led and highly qualified senior licensing officer with the DWE. to Mr Badenoch’s email. Although Mr Gardoll was reluctant to agree that it was The evidence is also rather unclear as to precisely what he who had instructed Mr De Silva to make the call, the information, if any, was conveyed to Mr Dunn or to Commission finds that Mr De Silva had been asked by Mr Edward Obeid Sr as a consequence of the emails. Both Gardoll to contact the owner or occupier of Cherrydale of the emails found their way to Mr Gardoll. He accepted Park in connection with the establishment of volumetric that he may have asked his subordinate, Hemantha De controls for the unrestricted licences. The reasons for Silva, to obtain the relevant information. But whether the Mr Gardoll’s instigation of this contact is not clear. It is information went back to Mr Dunn or not, and how it did reasonable to conclude, however, that it was first triggered (if it did), is not really revealed by the evidence. Mr Gardoll by the telephone and email enquiries described earlier. Mr was of limited assistance in this regard. Mr Dunn, for his Gardoll denied speaking to Edward Obeid Sr and denied that part, said he had no recollection of speaking to Mr Gardoll he knew, at this time, that the Obeid family were purchasing about the water licences at Cherrydale Park. the property. He also denied speaking to Mr Dunn.

It must be said that, in themselves, the September emails Mr De Silva’s recollection was that, prior to Mr Gardoll’s and the circumstances in which they originated, were not initiation of the contact, there had been an earlier request in any way sinister or criminal. On one view of it, it was for information. This is consistent with, and indeed borne perfectly reasonable for the prospective purchaser of a out by, the receipt of the 26 and 27 September emails. Mr valuable rural property to make enquiries about the water De Silva was unclear, however, as to the precise terms of licences attached to the property. Indeed, the contract the October direction given to him by Mr Gardoll. Nor for sale contemplated in its special conditions that the could he recall the precise reasons given by Mr Gardoll as purchaser was “obliged to make its own enquiries” in this to why he should make contact with the owner. He was regard. These would normally be expected to be made told that there was “an understanding that the property with the responsible officer in the relevant department. was going to be sold” and that “they’re interested in that There is, however, something untoward and rather property”. During his evidence, Mr Gardoll advanced a troubling about the apparent ease with which Edward possible alternative reason why Mr De Silva did what Obeid Sr sought favours from senior bureaucrats, and he did, but the Commission finds that it was far more perhaps a minister, in the pursuit of his own financial likely that Mr Gardoll was motivated by the emails, and interests. Edward Obeid Sr was anything but shy in asking possibly by a later telephone call, to give Mr De Silva his these senior people for favours, and in expecting that those instructions. favours would be carried out. There is something equally In any event, the call was made. As might be expected, worrying about the fact that senior bureaucrats were, Mr Cherry was very concerned that the DWE was it seems, prepared to respond so readily to requests for now, possibly as a consequence of Edward Obeid Sr’s favours from, or on behalf of, a parliamentarian. Especially intervention, considering the allocation of volumetric in the case of Mr Dunn, it will be necessary to say more controls. In his mind, the licences were unrestricted and on this subject at a later point in this report. their value might be diminished by such an allocation. In Mr Dunn was asked to do a further favour for Edward practical terms, Mr Cherry was concerned that the value Obeid Sr some time later on 30 October 2007. This of the security for the “vendor loans” would be lessened. was a more significant and important favour. It had the In Mr Cherry’s mind, Edward Obeid Sr had, as the latter potential to prevent the contract for purchase between described it, “opened Pandora’s Box”. Mr Cherry and Locaway Pty Ltd from going off the rails. Mr Cherry spoke to his solicitor, Rod Slater, a few days At the very least, if successful, it was calculated to save later. Mr Slater advised his client to “diarise” the various

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 15 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 3: Operation Cabot – Mr Dunn’s favours for Edward Obeid Sr

conversations he had both on 2 October 2007, and with any licensing matter with which he was concerned. thereafter, concerning the issue. Mr Cherry subsequently Mr De Silva impressed as a thoroughly honest and diligent prepared diary notes of his conversations in accordance public servant. It is fair to say, however, that the Bylong with his solicitor’s advice. Valley licences were not a pressing DWE concern at the time Mr De Silva made his telephone call. There were The Commission accepts that the diary notes are a other areas that required more urgent attention in the reasonably reliable, but necessarily incomplete, account of Newcastle licensing office. Initially, Mr De Silva may well the conversations Mr Cherry had with Mr De Silva and have thought that Mr Gardoll wanted him to expedite Edward Obeid Sr in the early part of October 2007. the allocations for this particular property. But, having spoken to Mr Cherry, he soon understood that the owner The conversation with Mr De Silva did not want that at all. In this situation, Mr De Silva, a naturally diffident man, may well have been disposed to The diary notes record that Mr De Silva, having let the matter drop for the time being until the allocations introduced himself, said to Mr Cherry: “I understand there for Cherrydale Park naturally arose for attention at a later has been a sale. I would like to talk to you about your time. groundwater licences and establish volumetric controls”. The suggestion that the allocation issue was to be left Mr Cherry told Mr De Silva that he was not happy talking alone for a few months would not have pleased Mr Cherry. about such matters on the telephone. He asked him where This assurance meant no more than that the topic was he had obtained the information that there had been a sale, likely, if not certain, to rear its ugly head again in a few and who had suggested his telephone call. Mr Cherry’s months time. In that context, Mr Cherry immediately recollection was that Mr De Silva was at first hesitant spoke to Edward Obeid Sr and also to his solicitors. The about this, but then said, after being prompted by Mr conversation with Edward Obeid Sr is quite well recorded Cherry, that his “boss” had told him to make the contact. in his diary note. There is no need to set it out in full in this Mr De Silva’s recollection, on the other hand, was that he report; however, certain features deserve repetition. told Mr Cherry that it was “his manager” who had told him to do it. Mr Cherry told Edward Obeid Sr about the telephone conversation he had received and that he was not happy (In an earlier Commission inquiry on another matter, that the issue of volumetric controls had been raised. He Mr Cherry said that Mr De Silva identified his “boss” as described it as “the last thing you want”. Edward Obeid Sr. Mr Cherry’s recollection was faulty on that occasion. His notes are a more reliable guide.) Edward Obeid Sr immediately admitted that he had been the indirect cause of the contact. The note reads: It appears that Mr De Silva then had a general discussion with Mr Cherry telling him that the enquiry was “of a Yes I asked my mate who is the head of the department general nature” and that “the Department was moving to just to look into it – we want to try to irrigate the volumetric controls” in the Hunter Region. Mr De Silva whole 200 acres and I thought I could establish mentioned an assessment rate of “6 ML per hectare of something now while I still had influence. Water is irrigated land”. Mr Cherry said he was not happy talking going to get more difficult in the future. about this matter on the telephone and Mr De Silva Edward Obeid Sr denied this statement and submissions concluded the conversation saying, “I will leave the matter made on his behalf to the Commission suggest it is unlikely alone for a few months”. he would have made these statements, presumably Mr De Silva denied making this final comment. He also because his political tenure was not, at the time, in any said initially that, although he reported back to Mr Gardoll, way under threat. The Commission, however, finds Mr Gardoll did not instruct him to “leave the matter that Edward Obeid Sr used this language during the alone for a few months” or to close the file. Mr De Silva conversation. Edward Obeid Sr was attempting to agreed, however, that, in fact, nothing more was done for appease Mr Cherry and to justify his intervention. He a period of approximately eight months. His recollection is a persuasive man and the words attributed to him by was further tested and he ultimately agreed that, although Mr Cherry are stamped with his characteristic ability to he could not recall the conversation, it may have been appease, cajole and persuade. the case he did nothing because he had been given that Mr Cherry, however, was not easily persuaded. He instruction. remonstrated with Edward Obeid Sr and reminded him The Commission is satisfied that Mr De Silva would not that he had, on earlier occasions, asked Edward Obeid Sr have done anything dishonest or underhand in his dealings to be careful about this matter. He said, “If you want to

16 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd deal with the licenses in any way just pay me the full 3.4 “slimey” in one particular context, scarcely a flattering million and you can do what you like”. term or epithet. It is equally clear from the submissions that have been made, and also the cross-examination that He told Edward Obeid Sr that Mr De Silva had satellite occurred during the public inquiry, that Edward Obeid Sr maps in front of him during the telephone call. He had did not like Mr Cherry. There were a number of reasons mentioned applying volumetric controls to the land “at the why this was so and it is not necessary for the Commission rate of 6 ML per hectare of irrigated land”. Mr Cherry to dwell on them. The animosity between the two men repeated that this was the last thing he wanted and that was mutual. The Commission finds that Mr Cherry’s such a restriction might affect the value of the security for dislike of Edward Obeid Sr did not in any essential way his superannuation fund, which was advancing the major colour the truthfulness or reliability of his evidence. part of the vendor loan. Edward Obeid Sr said, “I was just trying to fix the entitlements – sorry – I will make sure On the other hand, Edward Obeid Sr’s evidence was there is no further enquiry – nothing further happens”. plainly designed to justify his actions and to denigrate Mr Cherry wherever he could. Where there is a clash Stuart Littlemore QC, who represented Edward Obeid between the evidence of the two men, the Commission Sr in the public inquiry, accused Mr Cherry, when he used finds that the evidence of Mr Cherry is to be preferred. the word “fix”, of “verballing” his client untruthfully and maliciously. The Commission, however, accepts that Mr The conversations between Edward Obeid Sr and Mr Cherry, in recounting the conversation, used the word “fix” Cherry, as they have been found by the Commission, in a non-pejorative sense; that is, meaning to “establish the have a ring of truth about them. Given the personality entitlements”. Mr Cherry did not suggest that Edward of the two men, they reflect the reality of the way in Obeid Sr was speaking of a dishonest action. There was a which the conversations were likely to have emerged. further conversation with Edward Obeid Sr on 5 October Edward Obeid Sr was at pains to mollify and appease Mr 2007 when Edward Obeid Sr and two agents came to the Cherry. He was endeavouring at the same time, with all property to make an inventory of plant and equipment. Mr the persuasion he could muster, to justify his intervention Cherry said he took Edward Obeid Sr aside and angrily on the licensing issue. The Commission finds that it is remonstrated with him once again. Edward Obeid Sr highly likely that, once he had been told that it was on the justified his action by saying that “we just wanted to make cards that restrictions were certain to be applied to the sure we could irrigate the whole 200 acres or as much as licence, Edward Obeid Sr wanted to secure for himself possible”. the best possible volumetric allocation. He was shrewd enough to see the advantage that could be secured. The At some stage Edward Obeid Sr said, “I talked to my conversations with DWE officers that Edward Obeid Sr colleague – Mr Herman [sic] De Silva is a very nice man”. had initiated through Mr Dunn and Mr Badenoch were And later he said, “I can assure you that the file is closed – likely to have alerted him to the almost certain prospect of the matter will go no further”. licence restrictions. Mr Cherry, on the other hand, had a There were forceful submissions made on behalf of rather obstinate view that nobody could put restrictions on Edward Obeid Sr to suggest that the Commission should his licences at all. He was wrong about that, but that was not find that Mr Cherry was a truthful or reliable witness. no doubt his genuine point of view at the time. He was accused of being heavily biased against Edward The truth of the situation is well corroborated by the Obeid Sr and it was suggested that this bias coloured his letter that was written on 12 October 2007 by Langes evidence in many respects. The Commission, however, Lawyers (the solicitors for Mr Cherry’s superannuation regards Mr Cherry, generally speaking, as a reliable fund) to Tony Cordato (the Obeid family’s solicitor in witness. His diary notes, although incomplete, give the the conveyancing transaction). In that letter, the author, general flavour of what transpired between himself and Richard Joice, reminded Mr Cordato that clause 53 of Edward Obeid Sr. He was wrong in at least one respect, the contract provided that the water licences were not to as has been said, in his oral evidence. The Commission, be assigned by the vendor until the monies advanced by however, considers that the notes that Mr Cherry made the Cherry Superannuation Fund, and by the vendor, had only a few days after his conversations are to be regarded been repaid in full. The letter also reminded Mr Cordato as reliable, reasonably accurate and helpful. that, “the mortgage [was being provided] to your client Apart from that particular lapse, the Commission finds on the basis that the Vendor would be able to retain that Mr Cherry’s oral evidence can be accepted. He was the Water Licences on the same bases on which they a careful, precise and cautious witness. It is true that he currently exist”. This included the understanding that the did not like Edward Obeid Sr. He called him a “slime” and water licences would not be subject to any volumetric

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 17 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 3: Operation Cabot – Mr Dunn’s favours for Edward Obeid Sr

restrictions and would “continue to be unrestricted under It is clear, however, that these facts were never disputed by current policy for at least the next 10 years”. The letter Mr Cordato following receipt of the letter, nor were they then continued: by Edward Obeid Sr himself at the time. Indeed, they have never been challenged by Edward Obeid Sr until he gave We have now been informed that the Vendor was his evidence in this inquiry. The Commission considers that telephoned by Mr Heman Tha [sic] De Silva from the contents of the letter are generally consistent with Mr the Department of Water and Energy on Tuesday Cherry’s evidence and inconsistent with that of Edward the 2 October 2007 who informed the Vendor that Obeid Sr. he understood that there had been a sale of the Vendor’s property and that he wished to talk to the Vendor about establishing volumetric controls on the Mr Dunn does another favour unrestricted Water Licences held by the Vendor. The position thus reached was quite an awkward one Immediately after this conversation, the Vendor then for Edward Obeid Sr. It is little wonder that, by this time, phoned the principal of your client, Mr Paul Edward he felt that he was being “bested” by Mr Cherry. His Obeid, who confirmed that he had contacted the Head attempts to intervene on the issue of the water licences of the Department of Water and Energy to attempt to now confronted him with a situation that might cost his establish volumetric controls. family interests as much as $500,000. Clearly, he needed At a meeting on the property on Friday 5 October to put Mr Cherry’s mind at rest once and for all. It must between the Vendor and Mr Obeid, the Vendor have occurred to him that Mr Dunn was the best person again made it clear that Mr Obeid’s interference in to do this. attempting to have volumetric controls applied to Edward Obeid Sr put Mr Dunn and Mr Cherry into the entire property would reduce the value of the contact with one another. Mr Cherry, thus prompted by security to our client and that this was a concern in Edward Obeid Sr, rang Mr Dunn on 30 October 2007. circumstances where the amount being lent by our Surprisingly, Mr Dunn has no recollection of this telephone client and the Vendor was over 70% of the sale price of call. It is particularly surprising as Mr Dunn is not a the property. bureaucrat who is likely to forget important telephone calls. We understand that Mr Obeid informed the Vendor This was an important telephone call, precisely because both in the telephone conversation and the meeting it was a highly unusual one. Mr Dunn had left the DWE that he would ensure that no action was taken by two-and-a-half months earlier. He now had nothing to do the Department to place volumetric controls on the with the department. He was now being asked by Edward unrestricted Water Licences. While we are hopeful Obeid Sr to mollify and reassure Mr Cherry about what that the assurances given by Mr Obeid will prove to be was happening in the department concerning his water the case nevertheless, as the solicitors for the trustees licences. of The Cherry Superannuation Fund, we remain concerned that the actions of Mr Obeid may have There are at least three sources for Mr Cherry’s narrative already put in place a Department review which could of the telephone call he had with Mr Dunn. The first result in a material adverse change to the value of the emerges from two diary notes made by his solicitor, Mr security to be taken by our client. Slater, on 30 October 2007. The first note refers to a call at 10.11 am. It appears Mr Slater spoke to Mr Cherry The reference to Paul Obeid in this letter is clearly at length who told him that “the purchaser rang him this incorrect. It is not contentious that it ought to have been a morning” and argued that the discussions with the water reference to Edward Obeid Sr. authorities were “due enquiry only” and that there would The letter then suggested that, if any restrictions were to be “no negative effect on the water licences”. It seems be placed upon the water licences prior to settlement, the that “the purchaser” – in this context presumably Edward amount to be lent would be reduced by $500,000. Further, Obeid Sr – had promised that an assurance from a senior that if, following settlement, restrictions were placed on source would be given. The note records: “Purchaser is to the licences, the purchaser would be required to reduce get head of water authority to ring JC and confirm above”. the principal by a repayment of $500,000 upon receiving Mr Slater sent this part of the note to Mr Joice and told notification of the restriction having been imposed. The him that his instructions were to “revert to original deal”. letter then asked Mr Cordato to obtain “your client’s instructions with respect to the above proposals”. The second diary note refers to a call at 10.55 am on the same day. A copy of this was again sent to Mr Joice. It In his evidence at the public inquiry, Edward Obeid Sr records: “JC advises he has had a call from Mr. Obeid’s strongly disputed a number of the facts recited in this letter.

18 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd water contact. JC’s instructions are to proceed with the contract took place on 15 November 2007 and the original deal, i.e. mortgage as set out in contract”. purchaser thereupon took possession of the property. Edward Obeid Sr, and Mr Dunn in particular, had The second source is a more detailed attendance note reassured Mr Cherry. He was apparently satisfied that the prepared by Mr Slater. This refers to the second call from allocation issue was “now forgotten”, “everybody is busy”, Mr Cherry and it records a summary of Mr Cherry’s and “no further action” would be taken. conversation with “Mr. Obeid’s water contact”: Mr Dunn, it must be said, had no justification for his Had a call of Steve Dunn role in reassuring Mr Cherry other than to do a favour Head of Maritime Board (formerlly [sic] Head for Edward Obeid Sr. The Commission considers Mr of Water Board). Dunn’s behaviour in this regard as highly reprehensible. It was behaviour totally inconsistent with the proper Went through Gazettes on website – could not conduct of an officer of Maritime. It was behaviour find what he was looking for. entirely inconsistent with the proper conduct of a former Advised dept. busy and things have gone quiet. senior officer of the DWE. In particular, Mr Dunn had no business to represent to Mr Cherry that “no further JC to call Obeid and say he is happy with Mr. Dunn’s action” would be taken by the DWE. Either Mr Dunn assurances and matter will proceed as before. obtained such an assurance from some unidentified person in the DWE or he expressed his own opinion The third source is a scribbled note made by Mr Cherry based on unknown and unidentified facts. It was scarcely shortly after these calls. It has at the top of it Mr Dunn’s helpful to the Commission’s inquiry that Mr Dunn had mobile telephone number, presumably the one Mr Cherry no recollection of the telephone call to Mr Cherry. Either had been given by Edward Obeid Sr. The scribbled note way, Mr Dunn’s behaviour was quite improper. As has includes the following: been said, Mr Dunn’s intervention served Edward Obeid Steve Dunne [sic] NSW Maritime Sr’s interests in the conveyancing transaction and saved it from going off the rails. That was the purpose sought Licensing Water allocations – NSW – Director to be achieved by both men and Mr Dunn’s intervention General succeeded admirably. Eddie faxed some copies of licences ... Has not been gazetted No water sharing plan gazetted It is now forgotten everybody is busy – no further action No timetable No specific info on website Ring me anytime if any problems

The note then refers to the fact that Mr Cherry rang Edward Obeid Sr and told him that on the basis of his assurance, and that of Mr Dunn, he would not insist on the threatened reduction clause in the mortgage. It concludes: “I am depending on both of you”.

Mr Cherry gave evidence broadly confirmatory of these three conversations. The Commission accepts the reliability and truthfulness of Mr Cherry’s evidence in this regard.

Mr Dunn’s second favour for Edward Obeid Sr had undoubtedly been successful. The settlement of the

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 19 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 4: Operation Cabot – the water allocation

An extraordinary allocation is made “without restriction”. These rules suggested that the first step necessary was to determine “an authorised area”. In May 2008, Mr De Silva was a senior licensing officer Secondly, the history of usage test required the officer and team leader in the DWE’s licensing section at to “use maximum area irrigated in the last 6 years”. The Newcastle. Below him worked a number of subordinate formula to be applied for “inland valleys” was 6 ML per licensing officers, some of whom were engaged on hectare multiplied by “maximum area irrigated in the last conversions of unrestricted licences in preparation for the 6 years” (some officers interpreted this as meaning proposed water sharing arrangements contemplated by the “average use” over six years, whereas others thought it Water Management Act 2000. These officers included Ms meant maximum in any one of six years). The final step Heaney and Mr McDougall. In mid-2008, Ms Heaney was required by the rules was to apply “the property ceiling that the primary coordinating officer in relation to the project. was in place in the early-mid 1980’s [sic] if appropriate”.

It appears that the licensing section at Newcastle was Quite apart from this written document (the provenance somewhat under-resourced at the time. The process of of which seemed somewhat uncertain), the general view volumetric allocation was laborious and time consuming. of the majority of officers called in the public inquiry was Licensing officers, in general terms, were required to that the historical test required a history of irrigation use notify occupiers that the process was underway and to over a period of at least six years but perhaps up to seven inform them that information to assist the process might or eight years. The ceiling to be applied in the Hunter area be required. There was often a need for site inspections was said to be a maximum of 486 ML per annum for any and for discussions, if not negotiations, with landholders. one property (this was so even if there were more than Allocation decisions frequently required verification one licence on the property.) It must be said that even of irrigation use by, for example, checking electricity this “ceiling” was rather uncertain. Mr Gardoll, however, consumption, the purchase of irrigation equipment and by who was the director of licensing for NSW in the relevant reference to other documentary material. Aerial photos period, confirmed his understanding that the “rule” in the and topographical maps were used. The department kept Bylong Valley at the relevant time was that a maximum of paper files, often incomplete, and had access to basic 486 ML per annum was applicable to farming properties, computer records from which licensing histories might be generally. Others said there was no “cap” or that it had no obtained. application to perpetual licences. There was yet another view, unverified, that the ceiling applied only to new and History of usage for irrigation purposes was a primary renewed groundwater licences received after 1986. consideration in the allocation process. The precise ambit of this test, however, appeared to be uncertain and differing One directive was firmly embedded as a matter of policy, views were expressed by the officers called in as witnesses although as will be seen later it was not always applied to the public inquiry. All agreed that history of usage was in practice. This was a policy relating to the procedure at paramount but the precise formula to be applied differed in the final stages of volumetric allocation. As Mr Gardoll some instances. explained, there was a policy that any water allocation required the involvement of two different officers. The The Commission had before it a document from the policy was ultimately reflected in a written document that DWE containing “volumetric conversion rules” for licences was freely available in the licensing office in Newcastle,

20 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd and elsewhere in the state, from about 2008 onwards. Mr they appeared to be seeking information about current Gardoll said it was a policy that, in any event, had been irrigation usage. applied even before preparation of the written document Damian Obeid sent Mr De Silva’s letter to Mr Cherry containing rules for licensing officers. The relevant “rule” (Mr Cherry must have been dismayed to find that the was in these terms: assurances he had been given the previous year were now 6. Every approval requires two signatures: no longer operative). Damian Obeid pointed out that the DWE letter had not arrived until 10 June 2008 and said: Ensure every approval is “recommended” by an officer and “approved” by another appropriately As we both know that in the best interest of the delegated officer. This provides for a checking process, property we would like to retain the current status quo. opportunity for a second opinion to be considered and However, if this is not possible we have been advised protection against accusations of corruption and third that an allocation of between 480 ML and 600 ML party interrogation. would be required to sustain the current needs for irrigation of 200 acres. Mr Gardoll said that this policy, and the resultant rule, should have been known to all officers in the Newcastle In this letter, it will be seen that Damian Obeid was talking branch. This was particularly the case because Mr Gardoll about a “current need” to irrigate all the land available for irrigation purposes on Cherrydale Park. himself worked out of the Newcastle office. He had frequently reminded employees in his office of the policy Various extensions of time were sought from the DWE and insisted that it be observed. and readily granted to enable an appropriate response to be made by Mr Cherry/Locaway Pty Ltd. The volumetric allocation process for Cherrydale Park began in late May 2008. The first step in the process was On or about 11 June 2008, there were two telephone a letter dated 28 May 2008, apparently prepared by Ms conversations between Edward Obeid Sr and Mr Cherry. Heaney and signed by Mr De Silva. It was addressed to According to Mr Cherry, in the first telephone call Edward Locaway Pty Ltd and referred to “the recent purchase Obeid Sr had said, “His friend was in charge of water of the property”. The letter requested the purchaser to reserves ... he asked me whether he should ring him to fix indicate on an enclosed map “the location and purpose the problem”. of any spearpoints, wells, bores, dams or pumps on the Mr Cherry strenuously resisted this suggestion and asked property”. It also asked that, if there were any of these, Edward Obeid Sr not to intervene at all. He said, “Eddie details of irrigation should be provided on the sheets under no circumstances are you to contact anybody about accompanying the letter. this matter”.

The letter and accompanying sheets, according to the There was a second call in which Mr Cherry told Edward evidence, were “standard form” documents sent out Obeid Sr that he intended to have his lawyers give an in every case where the allocation process was about opinion on the matter. to be undertaken. Rather surprisingly, given the policy and formula mentioned earlier, neither the letter nor the Mr Cherry had no knowledge or information about the attached sheets made reference to historical use. Rather, current irrigation situation at Cherrydale Park. He had

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 21 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 4: Operation Cabot – the water allocation

been given the sheets sent by the DWE. He returned number 3 was currently being used for 22 hours per day these to Damian Obeid and asked him to complete the for 300 days of the year. The annual volume of water said information required. He asked him to indicate on a to be extracted from the bore was 540 ML. The area map the location of the wells and, specifically, to provide irrigated using bore water from this well was said to be information “as to current usage”. 88.2 hectares. In relation to well number 5, it was said to be operated 22 hours per day for 300 days per year. The Mr Cherry’s initial legal advice from his solicitor appeared annual volume of water extracted was 275 ML. The area to be inconclusive. On 3 July 2008 or thereabouts, irrigated was said to be 55 hectares. Damian Obeid provided Mr Cherry with the information on current usage and sent him a coloured map. The The map faxed with the letter and the forms was, as a forms sent by the DWE had been completed by the farm consequence of the fax process, completely indecipherable. manager in conjunction with Damian Obeid. Mr Cherry It was not suitable for any analysis. told Damian Obeid that his lawyers were still looking at the position. On 7 July 2008, he informed Damian Obeid: The faxed material, it appears, was, however, scrutinised by Ms Heaney. On 18 July 2008, she wrote a letter to Richard Joice advises that his opinion re water on Locaway Pty Ltd, which read: Cherrydale may not be all you had hoped for. In consequence I have arranged for Richard to brief Dr Thank you for your faxed response relating to a water John Griffiths S.C. at the NSW Bar. allocation for ‘Cherrydale Park’. By letting us know that you required more time was sufficient in terms of He told Damian Obeid that he would be in touch with responding to our letter within the 28 day period. him after the legal advice had been obtained. It seems, however, that John Griffiths was otherwise engaged and I have received some faxed information from Mr John no subsequent opinion was obtained from him. Cherry regarding water use on the property. However, we need to determine what area of the property has The DWE had extended the time for a response to been irrigated on a regular basis. I have enclosed 31 July 2008. On 15 July 2008, Mr Cherry sent a letter a map of the property to mark the areas of regular with attachments to Mr De Silva at the Newcastle office. irrigation. Please return this by post or e-mail as faxed He also faxed a copy of the same letter and accompanying maps tend to be impossible to read. documents to the Newcastle office for the attention of On 28 July 2008, Mr Cherry received an aerial Mr De Silva. As it happened, the original documents photograph of the property from Damian Obeid. The that contained the coloured map did not arrive at the accompanying letter states: Newcastle office until 29 August 2008. The faxed material, however, arrived on the date it was sent; that is, Please find enclosed the aerial picture of Cherrydale. 15 July 2008. The pink shaded area shows the paddocks that have been irrigated recently. The black lines show In his letter to Mr De Silva, Mr Cherry said: approximately where the irrigation mains are located in each paddock ...I have enquired of Locaway as to its current usage of water and other pertinent data requested in the forms On 30 July 2008, Mr Cherry wrote to Ms Heaney, provided with your letter. stating:

The attached forms, completed by Locaway show that I refer to your letter to Locaway Pty Limited in relation the wells numbered 3 and 5 on the attached map are to Cherrydale Park Water Licenses held in my name. currently being used for irrigation while the other wells are used only for domestic or stock-water use ...... Now as to your letter of 18/7/2008 I attach correspondence from Locaway Pty Limited which As you are aware, the licences for wells 3 and 5 should fully answer the further queries raised by you. If are granted in perpetuity and are unrestricted as to you require further information please contact me. volumetric extraction. Mr Cherry’s letter attached a copy of the 28 July 2008 Mr Cherry asked Mr De Silva to notify him if restrictions letter from Damian Obeid and the aerial photograph. It is were to be imposed so that appropriate representations important to note that this material, which was sent by could be made to the department. post, was not received by the Newcastle office until The forms attached to the letter indicated that well 19 August 2008. On 30 July 2008, Mr Cherry had also

22 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd faxed a letter to Mr De Silva. This fax states: The second document was a letter also dated 18 August 2008. It states: I refer to my letters to you dated 15/7/2008 and 16/7/2008. Since that time a Ms Heaney from Department of Water and Energy (DWE) has your Department has sought further and additional completed the review of existing groundwater information which has been supplied today. spearpoints, wells and bores on your property, based on information you supplied and our records. The I attach a copy of my letter to your Ms Heaney so review was done to determine an annual allocation that you remain fully aware of all matters pertaining of groundwater to your property. This allocation will to to [sic] issues involving the Cherrydale Water facilitate the transfer of your licences to the Water Licences. I would appreciate you obtaining a copy of Management Act. the coloured map sent to Ms Heaney, directly from he r. In relation to groundwater licences, the meaning of the word perpetual is ‘to be in effect for an unlimited There then occurred an event which, in hindsight, may duration’. Your licence to extract groundwater was be thought to have precipitated the events that followed. issued as a perpetual licence and this status of the Mr De Silva, who, up to that time, had sole delegated licence will remain unchanged. ‘Perpetual’ is a term authority to approve or vary recommended allocations that describes time only, not other matters such as was, on 2 August 2008, appointed to the role of executive volume. ‘Unrestricted’ is a colloquial term that is not a officer licensing strategist. This meant that, from that day factual description of a perpetual licence. onwards, he was no longer the senior licensing officer in charge of approving or disapproving recommendations. In ... early August 2008, Mr McDougall was appointed to the The Department has determined to grant you an position of acting senior licensing officer. Ms Heaney, who annual groundwater allocation of 860 megalitres had been working on the Cherrydale Park file, went on (143.2 ha x 6 megalitres per hectare). This allocation leave on 24 July 2008 and did not return to the office until does not include water used for stock drinking water or 9 August 2008. domestic use...

On 18 August 2008, Mr McDougall signed and forwarded The basis of the determination must have been the two documents to Mr Cherry. The first stated: “current” irrigated use of the property notified by Damian Obeid to Mr Cherry through the completed forms. The Notice of intention to vary conditions figure of 143.2 hectares represented the total of the for licences ... under section 115 and 116C of Part 5 irrigated areas claimed in the forms for both properties. of the Water Act 1912 It may also be observed that the terminology in Mr McDougall’s letter and the notice of intention to vary I, Brian McDougall, having delegated authority from conditions raised a potential legal issue. Mr Littlemore the Water Administration Ministerial Corporation, argued that the effect of the two documents was to have determined that 14 days from the date of immediately grant the groundwater allocation of 860 ML, this notice, the Water Administration Ministerial subject only to a contrary submission being made by the Corporation will make a decision whether to vary the landowner. Senior counsel pointed to the use of the words conditions of licence ... as follows… : “the Department has determined” in the letter, contrasting THE VOLUME OF GROUNDWATER it with the terms of the notice of intention accompanying EXTRACTED FROM THE WORKS the letter. It is not necessary for the Commission to AUTHORISED BY THIS LICENCE AND BY determine this point. It may be accepted that a respectable LICENSES 20BL013169 SHALL NOT EXCEED argument could be mounted to that effect. It might also 860 MEGALITRES IN ANY 12 MONTH be argued, however, that the “determination” by the DWE PERIOD COMMENCING 1ST JULY. (The in relation to any property could be set aside if fraud were complete set of conditions relating to these licenses involved. follows on page 2 & 3). The argument might also be affected by condition 6 in The notice informed Mr Cherry that he could make a the conditions accompanying the correspondence. This written submission with respect to the proposed action provided: within 14 days. The form, inaccurately, directed any enquiries relating to the notice to Mr De Silva. THE DEPARTMENT OF WATER AND ENERGY SHALL HAVE THE RIGHT DURING THE CURRENCY OF THIS LICENSE TO VARY AT

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 23 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 4: Operation Cabot – the water allocation

ANY TIME THE VOLUMETRIC ALLOCATION, The following statement appears in the document: OR THE RATE AT WHICH THIS ALLOCATION IS TAKEN. On this property I have measured a GPS mapped farm area of 95 ha, which is fully serviced with irrigation Because of the events that occurred later, there is, as has mains, pumps and irrigators. The farm area is largely been said, no need to determine the issue to finality. serviced with 150 and 200 mm AC mains and two Model Brigg Boom Irrigators. Another issue arising from the written submissions is this: how much land was being irrigated on Cherrydale This existing system, has to the best of your Park when the 860 ML allocation was made, and how managers knowledge been in operation since the early much had been irrigated over previous years? All DWE 1980s. So this farm appears to have had a long and personnel agreed that it was historical use, not future continuous use pattern of irrigation on this area. use, that governed volumetric allocation. Current usage [Emphasis added] was relevant to the assessment of historical use but was The final version of Mr Watson’s report – the document not determinative. This was particularly so in the case submitted to the DWE – omitted the reference to 95 of Cherrydale Park because the new owner had been in hectares as the area available for irrigation. In fact, it possession for no more than a little over nine months when omitted altogether any references to the extent of the area the forms were completed. It was, therefore, not possible under irrigation. Damian Obeid denied that he had played to take into account a full year’s irrigation under the new any role in the change to Mr Watson’s report, although he ownership. acknowledged that it was possible that he may have asked This, again, is a question that need not be answered him to “chop out the reference to the 95 hectares”. It is definitively. Having regard to Mr Cherry’s evidence, it clear that the 95 hectares figure, if it were accurate, was is clear that up to November 2007 when the sale at the entirely inconsistent with the amount claimed in the forms property was completed, no more than about 60 acres examined by Ms Heaney, and later presumably accepted annually had been irrigated over previous years; that is, by Mr McDougall, as the “current irrigation” basis for the 24 hectares, which, at 6 ML per hectare, would have given volumetric allocation. rise to a 144 ML allocation. Mr Cherry had said that, even In any event, Damian Obeid made it perfectly clear in in a dry year, he had never used more than 1 ML per day his evidence that the information in the forms sent to the for up to 260 days of the year. The volumetric allocation DWE did not relate to current irrigation. He said it had granted here was well over three times as great as that. been compiled by Barry Gregory, the manager on the farm. It is true that the forms lodged by Mr Cherry on Damian Obeid said that the information Mr Gregory was 15 July 2008 claimed an irrigated area of 88.2 hectares required to provide for inclusion in those forms was “The and 55 hectares respectively. Mr Cherry, however, said he area that we could irrigate in the future” (emphasis added). had no idea what area was being irrigated by the time they Therefore, the tentative position reached is that, by were lodged. He accepted at face value the information July 2008, the area under irrigation at Cherrydale Park provided to him by Damian Obeid. Even if it be accepted may have increased since the settlement of the sale in that they provided information as to current usage, these November 2007. There is no reliable evidence, however, forms did not say how long that usage had been current. as to the precise area of current usage as at July 2008, nor Obviously enough, it had not been for a full year. for how long – if it exceeded the usage during Mr Cherry’s As to the position of the irrigated state of the property at tenure – this may have been the position. While Mr Cherry July 2008, some guidance is provided by a draft report believed that he was supplying the DWE with current dated 16 September 2008 from Ross Watson, a consulting irrigation usage, it seems clear that the figures in the forms agronomist. It seems that, when a subsequent challenge to sent to the DWE did not relate to current usage at all. Mr McDougall’s determination was in the offing, Damian They related to the potential for irrigation usage in the Obeid engaged Mr Watson to prepare a report for the future. It is clear that what was required to ascertain the DWE that would advocate a need for a higher allocation true position as to both current and historical usage was for the farm. The draft report suggested that, in lieu of the a careful inspection of the coloured plan sent by Damian standard 6 ML of irrigation water, there would be a proper Obeid to Mr Cherry and then to the DWE, an assessment basis for 10 ML of irrigation water for each hectare under of reliable information as to past irrigation records and, lucerne production. more significantly, a property inspection to ascertain the actual area under irrigation as at July/August 2008.

24 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Why did Mr McDougall make the All right. Now you agree that the allocation he did? requirement was that two officers be involved? It is clear that Mr McDougall made the allocation ---Not necessarily. primarily on the basis of the material supplied to him in the forms; that is, the claim that the current usage as at July You agree that the practice followed 2008 extended over an area of 143.2 hectares. As the was for there to be two officers Commission has pointed out, this was simply incorrect. Mr involved? Cherry’s evidence was that over a period of many years the maximum amount under irrigation had been about ---As I said before with new 24 hectares. Mr Watson’s draft report suggested that, applications this was not a new when he inspected the property, there were 95 hectares application. either under irrigation or, as is more likely, then available If Mr Gardoll tells us that the practice for irrigation – the report is ambiguous. Damian Obeid’s was that there be two officers evidence confirmed that the figures in the forms related involved do you say he’d be wrong? not to current usage but to intended usage. Had he (or the property manager) been queried by Mr McDougall, this ---Um, that’s Mr Gardoll’s opinion. would have been apparent. Do you say if he tells us that he Mr McDougall was an unsatisfactory witness. He required there to be two officers maintained that he had made an inspection of the property involved and two signatures that he’d sufficient to have enabled him to be satisfied with regard to be wrong? historical usage. He had, however, only been once to the ---Well that’s provided he told me. property, and that was in 2004 when he went to inspect a well in mid-winter. His visit had nothing to do with I’m sorry? ascertaining irrigation usage. On that occasion, he did not measure or ascertain the area under irrigation. He was not ---That is provided that he told me there for that purpose, or any related purpose. He claimed, that that was a requirement. however, that he had driven past the property on a number Would you look please at page 311? of occasions over the years. He suggested that this was good enough to inform him that irrigation was occurring ---Yeah. on the property. It is clear that driving past the property Do you have that? could not possibly allow him to ascertain the area under irrigation; it could not substitute for a proper and detailed ---Yes. inspection. All he could know was that there was irrigation activity on the property but, as he was forced to concede You’ve seen that before haven’t you? to the Commission, he simply had no idea as to the area ---I have, you showed it to me last under irrigation. time I was here.

Mr McDougall readily agreed that he had acted both in And you had seen it before then had the capacity of a recommending officer and a determining you not? officer. This was a clear breach of the policy enunciated by Mr Gardoll. A fair idea of Mr McDougall’s unsatisfactory ---No. performance as a witness, and his contempt for his Do you say that you have not been superior, can be seen in the following exchange: aware of this document as at August [Counsel Assisting]: Mr McDougall, pay attention to 2008? my question. Do you say it was ---Correct. impossible for two officers to be involved before you made the offer of Do you see it is, it bears the name of 860 megalitres per annum? Brian Gardoll, Director, Licensing?

[Mr McDougall]: ---Well it wasn’t convenient put it ---Correct. that way.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 25 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 4: Operation Cabot – the water allocation

He worked, did he not, out of the One matter arising in Edward Obeid Sr’s written Newcastle office at the relevant time? submissions was the proposition that Ms Heaney may have drafted the letter and/or the notice of intention ---Correct. to vary conditions. Certainly, during her disciplinary As did you? proceedings in 2008 and 2009, she had suggested that she was the person who had prepared the documents. She had ---Yes. said in these proceedings that, if an error had been made in the documents, it was her error but that Mr McDougall And you had worked there for a should have picked it up and corrected it. number of prior years? At the Commission’s public inquiry, however, Ms Heaney ---Yes. said that she had reflected on these statements. She was As had he? now no longer sure that she had prepared the documents. It is not necessary for the Commission to make a final ---Yeah, I was there longer than decision on this point because, as will be seen, Ms Brian. Heaney’s behaviour both before and after 18 August 2008 was firmly consistent with the view that she was entitled Yes, but he had worked there for a to seek further information from the owners of Cherrydale number of prior years? Park with a view to recommending a determination. ---Yeah. She accepted, as was plainly correct, that she herself had no authority to make any such determination. All How many years had you been in her subsequent actions were inconsistent with her being Newcastle by that time? aware of, or in some way complicit with, Mr McDougall’s actions in making the 18 August 2008 determination and ---I’m just trying to think, probably forwarding the documentation to Mr Cherry. six or seven. Mr McDougall was queried on the point by Mr Littlemore Okay. And he’d been there for what, but maintained that he was the one who had prepared the four or five? notice and letter. He did not move from this position in his written submissions. ---Probably something like that, yeah. There are two final matters to be mentioned concerning Mr Okay. Do you see item 6 on the page? McDougall’s evidence. First, Mr McDougall claimed that he [this item is the “two-officer” rule was, in any event, justified in making the allocation he did referred to earlier] on the basis of the aerial photographs he had seen prior to ---Yes. his determination. As has been observed earlier, both the coloured map sent by Mr Cherry on 15 July 2008, and the Read it to yourself please? later aerial photograph sent on 30 July 2008, did not arrive at the Newcastle office until after Mr McDougall had made ---Yeah. his determination. They arrived after, and not before, he had Do you say that you were unaware of sent the letter and notice to Mr Cherry. In this regard, Mr that requirement as at August 2008? McDougall was not telling the truth. ---I was unaware. Secondly, on 24 November 2008, Mr Milling, who was at that time acting as director of licensing while Mr Gardoll In the light of Mr Gardoll’s evidence, it is inconceivable was on leave, made a note of his discussion that day with that Mr McDougall would have been unaware of these Mr McDougall concerning the August allocation. The note requirements. Mr McDougall accepted that he was both reads as follows: the recommending officer and the determining officer in relation to Cherrydale Park. It was undoubtedly he who Following your contact I have: made the “offer” to Mr Cherry in the correspondence of 18 1. Spoken to B McDougall the a/Team August 2008. He said he had prepared the documentation Leader Licensing at Newcastle – he prior to the allocation. does not recall approving the specific Notice of Intention to Vary Conditions The allocation was made contrary to the two-officer on the 18 August 2008. He is of policy. It was made in the absence of a proper physical view [sic] that this would indicate that inspection of the property, without reference to the he would have no reason to query the applicable ceiling and without a proper assessment of documents presented for signature historical use. when examined.

26 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd This statement attributed to Mr McDougall is at 18 August 2008 but it does not appear that Mr considerable variance with the evidence he gave at the McDougall consulted her, as he should have done. public inquiry. This is particularly so in relation to his Counsel Assisting submitted that Mr McDougall’s evidence as to the matters he claimed to have taken into conduct appears to have been “a combination of account in reaching his determination. If in November arrogance, incompetence and deliberate and flagrant 2008 he could not recall approving the notice of intention disregard of policies and procedures which bound Mr issued on 18 August 2008, how could he at the public McDougall in the exercise of his functions”. There is inquiry so clearly recall the matters he took into account undoubtedly force in this submission but in the end the in arriving at his decision? Does this not raise serious Commission simply does not know why Mr McDougall concerns about the reliability and truthfulness of his acted in the way he did. evidence concerning these matters? There appears to be no evidence to suggest that he was As to the contents of Mr Milling’s note, Mr McDougall directed to make the allocation by a more senior officer. said that he could not recall making the statement to The only conceivable possibility is that Mr Gardoll told Mr Milling. At first, he said he would deny “making him to do it, perhaps following a conversation between this comment” to Mr Milling. And then, when pressed, Mr Gardoll and Mr Dunn. There was evidence of contact said, “Well I’m surprised that that’s Dennis’ view on the between those two men at some point in the latter part matter”. of 2008 and it may have concerned Cherrydale Park. This evidence, which came from Mr De Silva, was too In the Commission’s view, there is no doubt that Mr vague and uncertain to be the basis of any firm finding by Milling’s note is an accurate reflection of the statement the Commission. In any event, Mr Gardoll emphatically made by Mr McDougall to him at the time. On that basis, denied the suggestion that he had acted to benefit the Mr McDougall’s evidence as to the matters he took into Obeid family interests and there is simply insufficient account may possibly be seen as recent inventions made evidence for a finding of that nature to be made, to justify his unwarranted decisions at the time. On the particularly a finding of such seriousness. other hand, in his statement to Mr Milling, Mr McDougall may have simply been intending to throw the blame for his For his part, Edward Obeid Sr – on the basis of the mistake onto Ms Heaney. The Commission is unable to evidence earlier stated – had no problem with asking determine, if a choice needs to be made, which possibility senior public officials to do favours in connection with is the more likely. The Commission is unable to reach the Cherrydale Park water licences. In particular, Mr a final conclusion beyond stating that, for the reasons Cherry’s evidence concerning the first conversation given, the allocation was unjustified and that the fault lay he had with Edward Obeid Sr on 11 June 2008 is very squarely on the shoulders of Mr McDougall. instructive. Edward Obeid Sr was prepared to “ring his friend in charge of water reserves” to have him “fix the problem”. Edward Obeid Sr would no doubt argue that Was there any connection this meant no more than address the issue promptly between Edward Obeid Sr and and in accordance with proper procedure. While the Mr McDougall in relation to the Commission has doubts as to whether Edward Obeid Sr’s remarks to Mr Cherry warrant such a benign allocation? interpretation, there is ultimately no evidence that Whatever reservations the Commission has about Mr Edward Obeid Sr, in fact, instituted any interference McDougall’s evidence, and there are a number, the fact with the process. remains that there is no direct evidence to suggest that Mr McDougall’s inexplicable and unwarranted actions Edward Obeid Sr, or anyone on his behalf, contacted appear to have been the sole precipitator of the Mr McDougall or urged him to make the decision he did. extraordinary allocation made in favour of Cherrydale Rather, the evidence points to Mr McDougall being solely Park. The Obeid family interests were, as it happened, responsible for what appears to have been an erroneous the beneficiaries of Mr McDougall’s grandiose decision. allocation made in dereliction of the rules for a proper The evidence does not establish that Edward Obeid Sr, water allocation process. The Commission is unable to or anyone on his behalf, played a part in the allocation. reach a conclusion as to why Mr McDougall did what he did or why he chose to do it in the manner he did. Mr McDougall was an evasive and argumentative witness who gave inconsistent and unsatisfactory evidence. It may well be that, given the rather hostile and frosty relationship between Mr McDougall and Ms Heaney, he simply decided to make his determination without any serious input from her. Ms Heaney was in the office on

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 27 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 5: Operation Cabot – the allocation is queried

On 26 August 2008, Mr Cherry informed the DWE that and have been applied to all perpetual bore licenses he had received Mr McDougall’s notifications on across NSW. 25 August 2008. Surprisingly, he foreshadowed an objection to the allocation and sought an extension of time Ms Heaney then repeated the DWE’s standard until 9 September 2008. Subsequently, further extensions understanding of the word “perpetual” and confirmed that were sought and granted. On 28 August 2008, Mr all perpetual bores “have been converted at a rate of 6 ML Cherry raised the issue of a possible appeal with Damian per hectare or less”. She explained that the restriction was Obeid. In this discussion, it is likely that Mr Cherry initiated “due to the increased number of groundwater suggested that Damian Obeid should obtain favourable users and the limited supply of groundwater”. expert reports from agronomists querying the sufficiency Ms Heaney also confirmed that allocations for perpetual of the DWE formula; that is, the multiplier of 6 ML per groundwater licences were determined “on the basis of hectare. Hence, the preparation of Mr Watson’s “final” history of use and not on intended production”. She wrote: report and that of a second agronomist from Elders, Carlos Rahme. Each of these reports, which were commissioned Therefore the only variables to be determined are and paid for by Damian Obeid, favoured a multiplier well whether the conversion will be at a rate of 6 megalitres above that used by the DWE. per hectare or less, and the area of land being irrigated on Cherrydale over recent years. On 6 October 2008, Mr Cherry forwarded these two reports by both mail and fax to “the Senior Natural For history of use, you need to provide us with proof Resources Officer” at Newcastle. In his accompanying of irrigation on Cherrydale over the past 10 or so letter, Mr Cherry made a brief submission and requested years, including the types of crops and areas irrigated. an opportunity to put further submissions to the DWE on Some forms of proof include photos showing irrigation the issue. areas (aerial photos would be best), electricity notices showing the use of bore/irrigation pumps, or receipts On 9 October 2008, these documents found their way showing sales of crops produced. to Ms Heaney. Curiously enough, Ms Heaney responded to Damian Obeid at Cherrydale Park rather than to Mr On 14 October 2008, Damian Obeid forwarded Cherry. It may be that this was simply a mistake and this letter to Mr Cherry and asked for his input. The occurred because Mr Watson’s report of 16 September evidence is largely silent as to any discussion between 2008 had been addressed to “Mr Damien [sic] Obeid, Mr Cherry and Damian Obeid at this point. Mr Cherry, Cherrydale, Bylong, NSW, 2849”. however, obviously took the view that acceptance of Mr McDougall’s August “offer” might be the better course to Ms Heaney’s letter states: follow. Although it is a matter of surmise, perhaps both Mr Cherry and Damian Obeid saw possible difficulties, or at Thank you for your faxed letter dated 6 October 2008 least inconvenience, in the “requisition” that Ms Heaney relating to irrigation requirements for Cherrydale. had raised in her letter of 9 October 2008. It may also All perpetual groundwater licenses across New be the case that there was some discussion between Mr South Wales are being provided with an allocation. Cherry and Mr McDougall at this time. Be that as it may, However, when dealing with perpetual groundwater Mr Cherry faxed a critical letter to Mr McDougall on licences there are several matters that cannot be varied 30 October 2008, which states:

28 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd I refer to your determination of groundwater Your confirmation that Mr. McDougall’s allocation in respect of the above licences dated aforementioned determination is effective would be 18/8/2008 and advise the acceptance thereof by appreciated. me and the current occupier. My submission of 6/10/2008 is hereby withdrawn. In cross examination of Ms Heaney and in submissions, counsel for Edward Obeid Sr suggested that Ms Heaney’s As it happened, Ms Heaney was probably absent from “concerns” in her letters of 9 October 2008 and the office on 30 and 31 October. In addition, she was on 12 November 2008 were essentially related to the leave at TAFE between 3 and 7 November 2008. She submission made by Mr Cherry in his letter of 6 October returned to work on 8 November 2008. 2008; that is, they related to the issue as to the multiplier applicable for future irrigation use. It is clear, however, that On 12 November 2008, Ms Heaney, having received this was not Ms Heaney’s primary concern. no reply to her letter of 9 October 2008, and apparently being unaware that Mr Cherry had “accepted” the As to the secondary issue, she simply confirmed in her McDougall allocation on 30 October 2008, wrote a correspondence, as was clearly the case, that in the further letter to Damian Obeid. This was similar to her DWE’s view, the multiplier for volumetric allocation was previous letter but contained two additional matters. a constant 6 ML per hectare. There was no room for First, it (incorrectly) referred to the ceiling on allocations further discussion on that point. Ms Heaney’s greater as 460 ML for any one property (it should have been concern was that she needed proof of historical use and, 486 ML). The ceiling issue had not been mentioned at all additionally, in her November letter, she reminded Damian in her previous letter. Secondly, the letter contained the Obeid that there was a ceiling in place. These matters following: “Please attend to this matter at your earliest powerfully support or suggest that, as at 12 November convenience as these allocations need to be completed 2008, she was unaware of Mr McDougall’s allocation, before December 2008”. and she was unaware of Mr Cherry’s acceptance of it. Indeed, Ms Heaney said that, even as at 18 August On 18 November 2008, Mr Cherry sent a fax (with 2008, she simply did not have enough information to attachments) to Ms Heaney, which states: make a recommendation to her senior officer. This clearly Dear Ms Heaney, remained the case after the coloured map and the aerial photo arrived at the Newcastle office. Whatever their … value in determining current usage, they did not, and could not have, determined historical use. I refer to your letter to Mr. Obeid dated 12/11/2008. There appears to be some confusion in relation At about 10.30 am on 19 November 2008, Damian Obeid to this matter and to rectify that I have enclosed telephoned Ms Heaney. The ensuing conversation was one attachment “A” – letter to Mr. Brian McDougall dated in which each of the participants became at times rather 30/10/2008 heated. There is no need for the Commission to determine precisely who said what during the conversation. Nor is – attachment “B” inter alia determination made by it necessary to determine who was the more aggressive Mr. McDougall dated 18/8/2008. of the two. It is sufficient to say that Ms Heaney’s

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 29 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd behaviour was later found in disciplinary proceedings to be allocation of 860mgl. She then told me that as far as unprofessional. As has been said, the Commission’s task the department was concerned Cherrydale park was is not to determine whether this finding was correct or one farm and that on that basis 460mgls was the not. Nor is it required, in the circumstances, to determine maximum that they could allocate. I told her that there whether Damian Obeid’s conduct fell below the level of was infact [sic] two property’s [sic] Cherrydale and acceptable behaviour, or whether his remarks provoked Bimbal Park but she would not accept this. Ms Heaney unnecessarily. In any event, the conversation between them ended abruptly with each maintaining Damian Obeid was wrong about this. The two properties a stubborn position: Damian Obeid insistent that the had been merged and were correctly treated by the allocation had been made and accepted, and Ms Heaney department as one. insistent that, in the absence of verified historical use, the Sue told me that this allocacation [sic] was not the allocation could be revisited. final determination and that we needed to provide Damian Obeid immediately reported to Mr Cherry by way her with proof of the history of the irrigation. At this of fax his version of the conversation. His fax states: point I became very confused and told her that we are excepting [sic] the original allocation given to I called Sue at 10.30am this morning to discuss a us by Brian and she became very upset again telling letter that I had received at “Cherrydale Park” this me that I can interpret the wording of Brians [sic] week. I started the conversation by explaining to Sue letter any way that I wish but that it was not the the reason for my call, was to let her know that the final determination and that I would have to provide letter I had received was identical to another letter that her with the relevant documentation by the end of she had sent me on the 9th of October 08 and that I November or she will make her own determination ... thought there must be some mistake in duplication. she then became abusive and told me “how would you like to get no water allocation at all” I immediately The letter was not, in fact, identical, the differences questioned whether this was a threat and if it was I have been earlier noted and, particularly in relation to the would rather her deal with you direct. ceiling, they were significant. Damian Obeid accepted that this was so. ...

Sue was a bit shocked and confused (which signalled John as you can see from the conversation Sue to me that she was not on top of her paperwork) ... Heaney was determined to completely disregard Brian then she became agitated when I told her that we McDougall’s letter. I accept that it would have been had already received a letter from Brian McDougall better not to call her but my intentions were to tell her allocating Cherrydale with 860 mgls. that they had sent the letter to the wrong person and that I had previously been sent the same letter minus Sue became very agitated at this point questioning point 4 by her 6 weeks previous. If you could let me why Brian had sent this letter (it was quite obvious know what your response will be I would appreciate it. that she knew nothing of this letter and was upset at it being sent without her knowledge). I then explained again that you were handling this issue at [sic] that from my understanding we had accepted the

30 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 6: Operation Cabot – Edward Obeid Sr intervenes: Ms Heaney is taken out of the action

On 20 November 2008, Ms Heaney sought permission The Commission is unable to conclude precisely how from Mr McDougall to undertake an inspection at Bylong Edward Obeid Sr became aware of the events of on 25 November 2008. Her request said simply: “Need 19 November 2008. The likelihood is, of course, that to go to Bylong for a perpetual bore inspection next Damian Obeid told his father what had happened. Who Tuesday”. better to intervene than Edward Obeid Sr with his connections, authority and influence? Who more likely At about 2.30 pm on 21 November 2008, the request was to ask him for assistance than Damian Obeid? What is approved by Mr McDougall. The field trip was, in fact, to clear, in any event, is that a fax was sent from Linkban Cherrydale Park. That morning, Ms Heaney had arranged Pty Ltd (an Obeid family company) to Edward Obeid to meet Damian Obeid and Mr Cherry at the property to Sr’s parliamentary office on 21 November 2008. The fax resolve, as she saw it, the difference of opinion between arrived at 10.28 am and contained the letter that Damian herself and Damian Obeid. Obeid had sent to Mr Cherry on 19 November 2008.

Meanwhile, on the morning of 21 November 2008, Edward Obeid Sr readily accepted that, after he received Edward Obeid Sr had become aware that there was a the fax, he spoke to Mr Duffy, then DWE director-general, difference of opinion between Ms Heaney and other DWE on two occasions on 21 November 2008. He also officers as to what volumetric control should be fixed for arranged for a copy of the Damian Obeid/Mr Cherry letter Cherrydale Park. He was also aware that there had been to be furnished to Mr Duffy. As to his first call, Edward a verbal “stoush” between his son, Damian Obeid, and Ms Obeid Sr gave evidence as follows: Heaney. [Counsel Assisting]: ---And I suggest to you that during It might be thought highly likely that Damian Obeid would the course of that day you spoke about have told his father about the altercation he had had the matter to Mark Duffy? with Ms Heaney, and have done so fairly soon after the heated telephone conversation of 19 November 2008. [Edward Obeid Sr]: ---Yes, I believe so. Surprisingly, however, Edward Obeid Sr said he could not recall having been made aware of this by Damian Obeid, And I suggest to you that you got although he agreed he was certainly aware as to what had a copy of the letter at page 262 to happened. Equally as surprising, Damian Obeid claimed Mark Duffy during the day, that’s the he could not recall discussing the “barney” with anybody. Damian Obeid/John Cherry letter? He may have discussed it, he said, with one or two of his ---Yes. brothers. It was “possible but unlikely” he had discussed it with his father. You got that to Mark Duffy?

Given the animosity between Mr Cherry and Edward ---Yes. Obeid Sr by this time, it is highly unlikely that Mr Cherry would have contacted Edward Obeid Sr to tell him what And your request to him I suggest to had happened. There was no suggestion in the evidence or you was to sort the matter out? in any cross examination of Mr Cherry to suggest that the ---No. two men had discussed the matter.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 31 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 6: Operation Cabot – Edward Obeid Sr intervenes: Ms Heaney is taken out of the action

What was your request to him do you Mr Duffy, for his part, did not deny that he had a say? conversation with Edward Obeid Sr on the morning of 21 November 2008 but he had no recollection of its ---Just pointing out to him the content. He also accepted that there had been a second behaviour of his department and how call at 2.30 pm but again he could not recall its content. incompetent they are. Mr Duffy accepted in his evidence, somewhat reluctantly, the possibility that the Damian Obeid/Mr Cherry fax and Yes. And you wanted him did you not its contents came to his attention on that day and that, to pursue the matter? later in the day, he spoke about the issue to his executive ---Well as far as I was concerned officer, Peter Leihn. the Head of the Department had In November 2008, Mr Leihn was the executive officer allocated that [sic] megalitres and it of the DWE’s director-general. He had an office opposite was her behaviour and the way she Mr Duffy’s and regularly reported to him. Mr Leihn’s tasks handled the client that concerned me included providing executive support to Mr Duffy. Mr and that’s what I raised with him. Leihn gave evidence that, on the evening of 21 November Right. So you wanted something done 2008, Mr Duffy called him to his office. Mr Duffy showed to bring Sue Heaney to book for the Mr Leihn the Damian Obeid/Mr Cherry fax and its way she had spoken to your son? contents (although he retrieved it from him after Mr Leihn had made a brief note about its contents). Mr Duffy asked ---Well, I wanted him to understand Mr Leihn to investigate and report back on why “there that his department, people in his was a difference of two numbers, 460 and 860, from the department were behaving like that Licensing branch and whether the allegation by Mr Damian so it was up to him what course of Obeid of … misconduct, unprofessionalism stated in his action he should take but should be fax was indeed correct”. Mr Duffy told Mr Leihn that made aware of it. “Eddie Obeid’s son had an interest in the property”.

And you wanted to ensure did you Mr Duffy did not accept the evidence of Mr Leihn. He said not that the 860 megalitre allocation there was discussion only about one issue. He maintained stuck? that “his focus” was on this one issue from the outset, which was “the human resources side of the matter”. He ---No. I didn’t raise that issue with said he did not have any conversation with Mr Leihn about him. It was already nominated, it was “matters of licences”. already allocated by the Head of the Department but Sue Heaney was He also maintained he had not heard of Cherrydale trying to rewrite it and I thought that Park prior to this incident and said in answer to Counsel was bad behaviour and the way she Assisting: spoke to Damian. I’ve never heard of Damian Obeid, so I don’t believe The first call from Edward Obeid Sr to Mr Duffy occurred I’ve got any understanding of this and, and your at about 10.51 am on 21 November 2008. The second call question suggest[s] that the water licences were was at 2.30 pm. Edward Obeid Sr denied saying in either controversial then in the context of this letter they I call that he wanted Ms Heaney disciplined, and denied suppose were part of a controversy but in the general that he had made it clear in the telephone calls that he community they weren’t controversial were they? wanted the 860 ML allocation confirmed. In his evidence, Mr Duffy accepted that he may possibly Edward Obeid Sr spoke to Mr Dunn shortly before he have received the letter in question, although, as has been received the fax. This call was at 10.23 am. It also appears said, he was quite reluctant to make the concession. In his that Edward Obeid Sr rang Mr Dunn at 2.35 pm that day, later written submissions to the Commission, however, he some five minutes after he had his second call with Mr suggested that he had never received this document and Duffy. This call with Mr Dunn lasted about 12.5 minutes. that Mr Leihn had invented the evidence as some type of Edward Obeid Sr accepted that it was “possible” that he “conspiracy” against Mr Duffy. had been discussing with Mr Dunn the Damian Obeid/Mr The Commission accepts Mr Leihn’s evidence and finds Cherry letter and the conversation that he (Edward Obeid that, in one form or another, the Damian Obeid/Mr Sr) had had with Mr Duffy. Mr Dunn was unable to recall Cherry fax and its contents found their way to Mr Duffy’s the content of either conversation. office on 21 November 2008. The Commission finds that a complaint about the issue was made by Edward Obeid

32 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Sr and that it related to both the behaviour of Ms Heaney On 24 November 2008, the following Monday, Mr Leihn and the unresolved issue of the different views as to the attended the concluding part of a meeting that Mr Duffy water entitlement for the property. It could hardly have had organised with Erica Stafford, the DWE’s human been otherwise because both issues were plainly raised in resources (HR) director, and Garry Hodson, the DWE’s the letter and were entirely intertwined. executive director of strategic corporate development. These two senior officials had been called to a meeting The critical question is whether Edward Obeid Sr with Mr Duffy because of his concern about the matters intervened inappropriately in the issue that had arisen he had raised with Mr Leihn the previous Friday, between Damian Obeid and Ms Heaney. In particular, 21 November 2008. In the meeting, Mr Duffy had said did he ask Mr Duffy to intervene and have Ms Heaney that he wanted Ms Heaney sacked but he pointed out dismissed or disciplined? And did he ask Mr Duffy to sort to Mr Leihn, when he arrived, that Mr Hodson and Ms out the difference of opinion over the allocation, ensuring Stafford had told him that he could not sack Ms Heaney in the process that the Obeid family interests secured the “without due process”. Mr Leihn agreed with this advice. higher allocation? A further critical question is whether Mr Mr Leihn described Mr Duffy’s demeanour as agitated and Duffy improperly acceded to these requests. extremely angry, even more agitated than he had been the previous Friday. Mr Hodson said, however, that Mr The Commission will revisit these critical questions after Duffy had regained his composure towards the end of the outlining the final sequence of events culminating in Mr meeting. Mr Hodson described Mr Duffy as “a dynamic Milling’s confirmation of the allocation for Cherrydale and very passionate Director-General, very passionate for Park. his Department”. Mr Duffy’s constant theme throughout his evidence was Ms Stafford told the Commission that she was the person that, for some time, he had been extremely concerned with the responsibility for determining whether there about unsatisfactory conduct in the Newcastle licensing should be disciplinary proceedings initiated against Ms office. There had been a history of poor performance Heaney. There had been complaints on other matters and dissent and, in that situation, he wanted something about Ms Heaney and, as at 24 November 2008, these done about Edward Obeid Sr’s complaint promptly and matters were being considered by the DWE’s HR efficiently. Mr Leihn had described Mr Duffy’s demeanour section. These other complaints, it appears, had been in on the afternoon of 21 November 2008 as “generally part initiated by Mr McDougall and then pursued by Mr one of agitation”. In fairness to Mr Duffy, when he gave Milling. Later, Ms Stafford determined that there would his evidence, he was particularly agitated and it may be disciplinary proceedings initiated against Ms Heaney, be accepted that this is a not uncommon aspect of his and that they should be conducted by an external body. personality and demeanour, particularly when he is placed The complaints to be investigated were to include both the under stress. earlier complaints and the later allegation of unprofessional Throughout his evidence, Mr Duffy maintained that under conduct in relation to Damian Obeid. Ms Stafford made no circumstances would he have intervened to assist this decision in an independent manner but she could have Edward Obeid Sr in maintaining or securing his water been in little doubt that her decision was consistent with entitlement. Moreover, if such a request had been made, the position that Mr Duffy had been urging. he said he would have remembered it because he would Tasked as he had been by Mr Duffy, on 24 November have immediately seen it as “entirely corrupt”. Mr Duffy 2008, Mr Leihn attempted to call Mr Milling at the insisted that he did not have a high regard for Edward DWE’s Murwillumbah office. His recollection was that Obeid Sr and would not have acceded to any request from he attempted to contact Mr Milling sometime after the Edward Obeid Sr for partial treatment. mid-morning meeting in Mr Duffy’s office. Eventually, Mr Leihn, for his part, was equally adamant that he had he made contact. He told Mr Milling there had been a not been asked to do anything improper by Mr Duffy. He complaint from a landowner about one of his officers, Ms had not been asked to allocate 860 ML to Cherrydale Heaney. He told Mr Milling that there was a difference of Park. He had not been asked to require the DWE opinion about the correct water allocation. He mentioned officers responsible for allocation to make or confirm the difference between the two amounts in question. Mr that allocation. He did not indicate to Mr Milling that he Milling asked Mr Leihn the identity of the landowner. Mr wanted this to happen or that Mr Duffy wanted this to Leihn told him it was Damian Obeid. Mr Leihn asked Mr happen. He accepted, however, that his instructions from Milling to investigate the matter (“urgently” according to Mr Duffy were to make sure the matter was attended to Mr Milling) and report the facts back to him. “expeditiously”. The question at issue, as he understood it, Mr Duffy spoke to Edward Obeid Sr by telephone at was which allocation figure was correct. about 12.17 pm on 24 November 2008. It is likely this

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 33 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 6: Operation Cabot – Edward Obeid Sr intervenes: Ms Heaney is taken out of the action

conversation included reference to the outcome of the I have requested that Brian and Sue call me jointly at meeting between Mr Duffy and the HR section. 8.30am in the morning to discuss the matter at which time I shall ask Ms Heaney to give me written outline At about 2 pm on that day, Mr Milling rang Mr Leihn and of the conversation she engaged in with Mr Obeid. told him that Ms Heaney had been scheduled to visit the [Emphasis in original] property in question and that he was going to prohibit her from going to the property. Mr Milling asked Mr Leihn At about 3.25pm on 24 November 2008, Mr Milling whether he thought this was appropriate. Mr Leihn agreed sent a memo to both Mr McDougall and Ms Heaney. that it would be inappropriate, particularly in view of the This required them “to call me jointly at 8.40 am Tuesday allegation of misconduct, that she should be the person to morning to discuss above matter”. This matter was undertake the property inspection. identified in the memo as “Obeid/Cherry at Bylong”. The memo required Ms Heaney to “prepare a dot point Mr Milling sent a note to Mr Leihn on the afternoon of summary of the details of dates on which [she had] had 24 November 2008. The note identified the “advice” contact with above parties and advise also the contents of given by Ms Heaney to “a Departmental customer” any discussions [she] had with those parties”. It confirmed concerning “the volumetric water allocations at Bylong”. that Mr Milling had cancelled Ms Heaney’s proposed The note observed that “the matter requires URGENT field trip to Bylong on the Tuesday morning “as the above attention” (emphasis in original). It then listed a number of matter requires urgent resolution”. matters investigated to this point by Mr Milling. The note confirmed that by the afternoon of 24 November 2008, On 25 November 2008, Mr Leihn met with Mr Milling in he had already spoken by telephone to Mr McDougall in Sydney. Mr Milling had come to Sydney for that purpose. Newcastle and knew or appreciated: Mr Leihn mentioned the Obeid name to Mr Milling several times. As indicated in his memo of 24 November • Mr McDougall’s version of the allocation and the 2008, Mr Milling spoke by telephone the next morning general nature of the difference of opinion between to Ms Heaney who, by this time, felt no doubt that she Mr McDougall and Ms Heaney was under threat. She described Mr Milling’s manner as • that the file had been found adjacent to Ms “bullying” and said that he would not let her answer. In Heaney’s work station any event, it does not appear that she explained in any satisfactory manner the reasons why she was querying the • that information on the file did “not provide insight correctness of the McDougall allocation. into the reasons for Ms Heaneys advice to the land holders” Mr Milling and Mr McDougall had been friends for about 30 years, but because of the different career path each had • that Ms Heaney had a field journey proposed for followed with the DWE, they were working in different the following day to Bylong (Mr Milling by then had locations when the Obeid issue blew up. Both Mr Milling instructed Mr McDougall to cancel this field trip). and Mr McDougall did not like Ms Heaney. They held In his “report” to Mr Leihn, Mr Milling states: her in poor regard, as she did them. It is likely that, in all the circumstances, Ms Heaney felt that her two superiors I am unable in the absence of being able to have were “ganging up” on her and this may have led to her lack the files reviewed in conjunction with any “missing” of cooperation with Mr Milling. During the disciplinary information held by Ms Heaney to provide a definitive proceedings later held, she told that inquiry that she response to the concern raised by the landholders ie regarded it “as a personal matter” as to why she did not which is correct allocation. speak more openly to Mr Milling.

All evidence suggests that the details provided in During the course of 25 November 2008, Mr Duffy spoke Department NOTICE of August 18 would have been to, or sought to speak to, Edward Obeid Sr. Mr Duffy sent correct but that can only be confirmed by examining Edward Obeid Sr a text message later that evening. The the file. content of the message and the earlier discussion, if it took Regards the alleged behaviour of Ms Heaney during place, are not known. Mr Duffy insisted that he had other the telephone conversation with Mr Obeid on the 19th reasons to discuss business with Edward Obeid Sr at this November I confirm that similar instances plus other time, particularly in relation to the troublesome issue of the serious matters have been reported to me by staff disposal of the electricity assets of the state. previously and that I have initiated action through In the meantime, Mr Milling had commissioned Andrew the departments [sic] Human Resources Branch to Phillipa, a senior licensing officer at Newcastle, to undertake serious disciplinary action against Ms examine the water allocation file and report back to him. Heaney. Ms Heaney has NOT been advised of that This was done with considerable expedition. investigation as of this time as I understand.

34 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd On 27 November 2008, having reviewed the file, Mr Intent issued on 18th August 2008 – that decision Phillipa reported the following to Mr Milling: was based upon the above review findings [this was a reference to the Phillipa review] /the (unreported) General Comments review undertaken by B. McDougall on the 26th 1. Quality of documentation is very poor. November and the antedotel [sic] evidence contained in faxed correspondence provided to me by Peter 2. There is no record of any assessment of history of Leihn, Executive Director, ODG. use of the property. It is also recorded that on the morning of 25th 3. All documents relating to more than one licence is November at 9.30am I spoke to Ms Heaney in [sic] held on one file only. regards to the above referenced matter.

4. The volume identified for the 116C notice is relevant 1. I had requested her the day prior by email to historical area irrigated. (opened at 5.50pm) to prepare a ‘dot’ point list of the details of her conversations etc with the 5. The letter of 12 November 2008, should not have landholders (Obeid and Cherry). Ms Heaney been issued as a submission objecting to the volume advised her supervisor at 9.00am on the 25th as determined was withdrawn on 30 October 2008. that she would not be preparing such a list – she advised me that she had not done that list Comment (2) highlighted the correctness of Ms Heaney’s when we spoke. concerns about the McDougall allocation, although perhaps Mr Phillipa did not see the situation in that way. 2. Ms Heaney advised that she had made no Comment (4) was ambiguous: did it mean merely that the diary notes on the conversations and had also volume identified for the 116C notice ought to have been not made any file notes. calculated on the basis of historical area irrigated? Or did it mean that it had been calculated on that basis? Perhaps it 3. Ms Heaney was not able to demonstrate meant something else altogether. In view of comment (2), during our conversation any valid justification it appears rather unlikely that Mr Phillipa was stating that for her having advised that the s116 Notice Mr McDougall’s calculation had been based on the actual of Intention previously provided to the licensee historical area irrigated. Presumably that was not known was incorrect. because of the absence of any assessment of historical use 4. I repeatedly asked her if she had spoken to her of the property on the farm. supervisor about her concerns and she stated Comment (5) rather begs the question: if Ms Heaney “I spoke to Hemantha” – Hemantha is not had been correct in insisting that there was no record her supervisor and has no involvement in the of assessment of history of use on the file, why was it matter. not within the proper function of the licensing section to 5. I further asked why if there were problems the reappraise that issue, raise requisitions and, if necessary, Notice of Intent had been submitted by her require an inspection? Why would it not be proper in for approval in the first instance – Ms Heaney that situation to determine whether a different allocation responded by saying it was not the final should be made? And why was it not within the DWE’s decision and that DWE could review it before proper function to do so notwithstanding that Mr Cherry finalising etc. had purported to accept Mr McDougall’s “offer”? In her evidence at the public inquiry, Ms Heaney indicated that Ms Heaney terminated the call be [sic] hanging up at this was precisely the view she had taken at the time, and 9.38am – during the last 4 minutes of the call I had it was a view she continued to hold at the time she gave been joined in the office by Mr P Leihn. I at all times evidence. had remained polite and courteous to Ms Heaney. Mr Milling said he took Mr Phillipa’s report on board Ms Heaney’s reference to “Hemantha” was a reference but, notwithstanding the absence of any assessment of to her former supervisor, Mr De Silva. He had been her historical use on the file, he determined then and there to supervisor for a considerable time prior to his promotion in confirm the allocation. The matters he took into account, August 2008. There was plainly a good deal of trust and and his contemporaneous views on the issues, can be best respect between Ms Heaney and Mr De Silva. The latter seen in the note he sent to Mr Leihn on 27 November thought highly of Ms Heaney’s work but well knew that 2008: she and Mr McDougall were often at loggerheads. Ms Heaney had spoken to Mr De Silva after the altercation I have this day determined that the Department will with Damian Obeid. It was he who counselled her to make proceed to alter the licenses as per the Notice of

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 35 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd arrangements with the licences’ owner and the occupier areas available for irrigation. The draft report referring to to inspect the property. He had urged her to approve the 95 hectares, it will be recalled, was never forwarded to the allocation if, upon inspection, it could be justified or to DWE. recommend varying it, if it could not. As appears from his curt reference to “Hemantha”, Mr Milling was more than In his note to Mr Leihn, Mr Milling did not include any somewhat dismissive of Mr De Silva’s involvement and detail as to what it was Mr McDougall had told Mr Milling his genuine attempts to resolve the impasse. Ms Heaney’s in his “unreported review”. In his evidence, however, current supervisor at the time of the dispute was Mr Mr Milling repeated Mr McDougall’s unsatisfactory McDougall. He was, to say the least, unlikely to have been assertion that he (Mr McDougall) had driven past the sympathetic to her views or inclined to assist her in relation property frequently and that this had sufficed as a property to the dispute with Damian Obeid. inspection.

Mr Milling’s evidence was far from satisfactory. First, The Commission considers that Mr Milling had no he attempted (unsuccessfully) to maintain that he was justification whatsoever for confirming the McDougall unaware that the cancelled visit to Bylong Valley related allocation. He did so in the complete absence of an to the property that was the subject of the dispute. It is appropriate assessment of historical use. The Commission clear from Mr Leihn’s evidence that he knew precisely that is satisfied he did so in a partial manner for a complex set fact. Secondly, he maintained that the name Obeid was of reasons. First, the fact that the dispute concerned the not mentioned to him during his first conversation with Obeid family, and a property purchased by the Obeid Mr Leihn on 24 November 2008. This is also at variance family interests, was plainly a factor, although by no with Mr Leihn’s evidence. Mr Milling’s own response to means a determinative factor, in his decision. Secondly, the initial conversation is headed “Obeid/Cherry”. Thirdly, his decision was prompted in part by the knowledge during his evidence Mr Milling attempted to claim that he that he was likely to be satisfying an urgent and pressing had contacted Mr Cherry or, more likely, his manager to directive from the director-general to promptly resolve a confirm the area historically irrigated. In addition, he had customer complaint. Thirdly, he was in part supporting and regard to the agronomist’s reports on the file in determining “backing up” his friend of many years, Mr McDougall. In the irrigated area. These two claims were made against the process, he was heaping a good deal of opprobrium on the background that Mr Phillipa’s report confirmed that a departmental officer he did not like. Finally, and perhaps “there was no record of any assessment of history of use most significantly, he was simply careless as to the correct on the file”. application of proper departmental principles in making an assessment. The Commission is satisfied that, in several respects, Mr Milling was not telling the truth. As to the suggested Mr Milling’s subsequent letter to Mr Cherry confirming approach to Mr Cherry or his manager, Mr Cherry’s the allocation rather resounds with the satisfaction of a job evidence as to historical usage could not conceivably have well done. The letter is in these terms: justified Mr Milling’s confirmation of Mr McDougall’s Dear Mr Cherry, allocation. Similarly, with the property manager there is no reason to suppose that his evidence as to history of use, I refer to recent communications (both written and had he been approached, would have been any different verbal) between yourself and departmental staff from that of Mr Cherry. concerning the granting of a groundwater allocation to Licence Numbers 20BL010609 and 20BL013169. Most tellingly, there is no mention in Mr Milling’s note to Mr Leihn that he had based his confirmation on In confirmation of my telephone discussion with Mr information received from Mr Cherry or his manager. Cherry on this day the following is advised:- This would have been a critical piece of information in the allocation process. It would have been critical in any report 1. The Department’s Notice of Intention in respect on the process. The matters Mr Milling itemised in his of the above referenced licenses, having been note make no reference to any such source of information. accepted by yourself shall now be actioned. Finally, in the letter of the same day that Mr Milling wrote 2. Any inconvenience occasioned to yourself to Mr Cherry, there is no mention, as might surely have or associated parties during recent been expected, of any discussion with either Mr Cherry or communications is regretted. his manager concerning history of use. Action to formerly amend the above referenced In relation to Mr Milling’s supposed reliance on an licenses, such that the combined annual extraction limit agronomist’s report, neither of the reports on the file authorised by those licenses shall be 860 megalitres, forwarded to the DWE make any mention of the area shall be undertaken within the next week. irrigated at Cherrydale Park. They speak only of future

36 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Upon completion of that action you will be forwarded finalised documentation formalising the changes identified above.

In concluding I again apologise for any inconvenience incurred and invite you to contact me direct should you have any further questions or queries.

Yours sincerely,

Dennis Milling

Manager Licensing (North)

Mr Milling reported the outcome to Mr Leihn on 27 November 2008. On 28 November 2008, a copy of Mr Milling’s letter to Mr Cherry was forwarded by email to Mr Duffy.

On that day, 28 November 2008, Mr Hodson wrote to Ms Heaney informing her that disciplinary proceedings would be instituted against her and that she had been suspended on full pay as from 27 November 2008.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 37 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 7: Operation Cabot – the critical questions concerning Edward Obeid Sr’s contact with Mr Duffy

Counsel Assisting argued that Edward Obeid Sr effectively embarrassing interlude for the DWE. It was submitted directed Mr Duffy to “fix the water licence issue”, and that that none of Edward Obeid Sr’s actions could be said to was doing much more than simply seeking the assistance constitute anything approaching corruption or, for that of the director-general as a concerned member of the matter, reprehensible behaviour. public. Counsel Assisting argued that Edward Obeid Sr was utilising his access to and his influence over Mr Duffy, The submissions for Mr Duffy took an unusual turn. derived from his position as a member of the Legislative During the public inquiry, it was clear from the cross Council (MLC), to raise a complaint regarding his son’s examination, and matters put by Greg Willis on Mr treatment by Ms Heaney relating to the allocation of water Duffy’s behalf, that his position was a simple one: he had rights at his family property. In so doing, Edward Obeid Sr not been asked by Edward Obeid Sr to do anything that was in reality putting pressure on Mr Duffy for the purpose related to the water licences. Notwithstanding the thrust of seeking to advance his personal interests and that of his of Mr Leihn’s evidence, Mr Duffy maintained that the family in respect of those water rights. only directive he gave related to the disposition of the complaint against Ms Heaney, asserting that she had been In the case of Mr Duffy, Counsel Assisting argued that guilty of inappropriate conduct towards a member of the his intervention in relation to Ms Heaney’s conduct was public. Mr Duffy, it will be recalled, gave evidence that he undoubtedly a factor in the decision to institute disciplinary would never have done any favours for Edward Obeid Sr. proceedings against her, and that the directive given to Had he been asked to intervene in relation to the water Mr Leihn was given by Mr Duffy at the request of, and licensing issues, he said he would have regarded it as a to benefit, Edward Obeid Sr. It was submitted that this matter of undoubted corruption. should be properly seen as a favour for Edward Obeid Sr deliberately instituted and implemented by Mr Duffy as a In Mr Duffy’s written submissions, however, the strategy to benefit Edward Obeid Sr. Counsel Assisting argument was advanced for the first time on his behalf argued that the overall purpose was to sideline Ms Heaney, that Mr Leihn had “misled and lied to the Commission” to remove her from the fray, and to ensure that the in his evidence and that Mr Leihn himself “had behaved McDougall allocation was confirmed without further ado. corruptly”. The obvious difficulty with this submission is Counsel Assisting also argued that this was precisely what that it was not a matter that was ever put to Mr Leihn was achieved in the end. and, in the Commission’s view, does not, in any event, fairly arise for determination on the basis of evidence given On Edward Obeid Sr’s behalf, Mr Littlemore maintained in the public inquiry. that his client’s initial telephone call to Mr Duffy was nothing more than a genuine and legitimate complaint. Mr Duffy Mr Littlemore argued that his client was entitled, as would be any member of the public, to raise the issue The Commission has come to a clear view that of unprofessional conduct by a departmental officer. Mr Duffy’s conduct, though impetuous and unwise in Moreover, on a broader front, Mr Littlemore suggested some respects, was not reprehensible, nor was it improper. that the events, which occurred throughout July to In particular, the Commission rejects the submission November 2008, might aptly be described as a “cock-up”, that Mr Duffy deliberately and wilfully engaged in partial and that Mr Milling’s actions, even if unjustified, were behaviour at the express direction of Edward Obeid Sr. an attempt to “hose down” or atone for an extremely It is true that his odd behaviour on the morning of

38 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd 24 November 2008 undoubtedly placed pressure on Ms The Commission does not know with any precision Stafford to agree to take disciplinary action against Ms the details of the conversations between Mr Duffy Heaney. But Ms Stafford’s decision to proceed against and Edward Obeid Sr on 21 November 2008. The Ms Heaney was essentially an independent one made by Commission does not, however, accept Edward Obeid Sr’s her on grounds that appeared to her to be sufficient. Mr benign assertion that he was “just pointing out to Duffy Duffy had “calmed down” by the end of the meeting and, the behaviour of his Department” and its “incompetence”. after that meeting, left the disciplinary process entirely The Commission rejects Edward Obeid Sr’s evidence in to his HR colleagues. He had made his position clear. this regard. Edward Obeid Sr is a shrewd and persuasive He acknowledged, however, that due process had to be man. It is clear that he had been tasked (probably by followed and left it at that. Damian Obeid) to resolve the acute problem posed by Ms Heaney. He had to lance the boil. It was his choice as to As far as Mr Duffy is concerned, the critical question how he would go about this task. Edward Obeid Sr was revolves around his conversations with Edward Obeid Sr no stranger to seeking favours from compliant bureaucrats on 21 November 2008 and the nature of the directions (for example, Mr Dunn). Mr Duffy was, however, he subsequently gave Mr Leihn on that afternoon and altogether a different kettle of fish. the following Monday. The Commission accepts Mr Leihn’s evidence that there were two aspects to the Mr Duffy did not much like Edward Obeid Sr. He did direction given by Mr Duffy. Notwithstanding Mr Duffy’s not have a high regard for him. The two had personal impassioned submission to the contrary, the Commission issues going back a number of years. The turmoil in the also accepts that Mr Duffy must have had the Damian Australian Labor Party at that time (the premier, deputy Obeid/Mr Cherry fax, or its contents, in his possession premier and treasurer had resigned towards the end of on 21 November 2008. It makes no sense that Mr Leihn 2008), centred as it had been on power-broking and the would have involved Mr Milling in an expedited process divisive issue of electricity privatisation, further distanced relating to the water licence allocation issue, had he not them. In the Commission’s estimation, Mr Duffy was not been directed to do so by his superior. the sort of person who would do favours for an MP. He was not in any way beholden to Edward Obeid Sr. Given the contents of the fax, it makes perfect sense, however, that Mr Duffy would have mentioned as In relation to Mr Duffy’s character and the likelihood that problems requiring resolution both Ms Heaney’s behaviour he would engage in corrupt conduct, the Commission towards Damian Obeid and the difference of opinion as to received a late “joint submission”. This was from the Hon the correct water entitlement at Cherrydale Park. As has Michael Egan, Michael Lambert and Dr Tom Parry. These been said, the two matters were completely interwoven three people had worked closely with Mr Duffy over a in the letter. If Ms Heaney were correct in her assertion considerable number of years. Mr Egan, a former treasurer that the wrong allocation had been made, and that the of NSW, employed Mr Duffy as a senior policy advisor and McDougall determination was not “final”, this, although chief of staff. Mr Lambert was secretary of Treasury from not excusing her conduct, may well have mitigated the 1994 to 1996 and had extensive dealings with Mr Duffy in outcome. Quite apart from that issue, if the DWE had the period from 1995 to 1996 as well as in the period when issued a flawed allocation, that needed to be cleared up as Mr Lambert was acting secretary of Treasury in 2011. At well. that time, Mr Duffy had been chief executive of the DWE.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 39 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 7: Operation Cabot – the critical questions concerning Edward Obeid Sr’s contact with Mr Duffy

Dr Parry worked with Mr Duffy when Mr Duffy had been meant that Edward Obeid Sr’s words, whatever their chief of staff to Mr Egan. Mr Duffy also worked with Dr precise content, amply lit the fuse under Mr Duffy’s Parry when the latter was chairman of the Independent irritation and frustration. It engendered his agitated state, Pricing and Regulatory Tribunal. Dr Parry was chairman of which was described so vividly by a number of witnesses. the First State Super Trustee Corporation when Mr Duffy was a director. Mr Duffy was asked during the public inquiry whether he may have “dropped his guard” on this occasion. He The submission states: denied that he had done so. The Commission considers, however, that he did effectively “drop his guard” and that, On the basis of our professional and personal in his agitation and frustration, he failed to appreciate that interaction with Mark over many years each of us is of he was being manipulated by Edward Obeid Sr. While Mr the view that it would be completely out of character Duffy had not the slightest intention of benefiting Edward of Mark to have sought to influence the determination Obeid Sr, his actions started a chain of events, which, of the terms of a water licence to favour Mr Edward as Edward Obeid Sr no doubt shrewdly anticipated, Obeid, the purchaser of Cherrydale Park, or indeed in culminated in the removal of Ms Heaney and the favour of any party. confirmation of the allocation.

And in reference to the water licence allocation, the These events have been described earlier. Mr Leihn, following was stated: conscious that HR was attending to the first issue, Based on a particular view of events, it is asserted that moved promptly to have the second issue resolved; he this decision was taken at the direction of Mark Duffy clearly inculcated in Mr Milling a sense of urgency and ... who was seeking to provide a favourable outcome a need for a prompt response. He concurred with Mr to Mr Obeid. What is not captured in the evidence Milling’s suggestion that Ms Heaney’s proposed visit that we have read is an assessment of the character to Cherrydale Park should be cancelled (Mr Duffy had and values of Mark Duffy which we are in a position nothing to do with that decision). Mr Milling, for his part, to provide. On the basis of many years working with was plainly keen to please his superiors and to do so with Mark Duffy, we respectfully submit that the assertion the upmost expedition. His unwarranted confirmation of impropriety on the part of Mark Duffy is totally of the allocation has been earlier described. Although inconsistent with Mark’s values and philosophy. Not the decision to discipline Ms Heaney was ultimately only is it inconceivable that Mark Duffy would do Ms Stafford’s decision, Mr Duffy plainly concurred. Ms anything improper to provide a favourable outcome to Stafford, in turn, whilst resolutely independent, could not anyone, but also in view of his known attitude to Mr have been other than aware that disciplinary action against Obeid, it is inconceivable to us that he would seek to Ms Heaney was at the forefront of the director-general’s favour Mr Obeid. agenda. These opinions coincide with the impression formed by the All these events had their origin in Edward Obeid Sr’s Commission of Mr Duffy during the public inquiry. careful “handling” of Mr Duffy and Mr Duffy’s subsequent agitated responses to Edward Obeid Sr’s approach. There Against this background, the Commission returns to the is perhaps a double irony in all this. First, Ms Heaney was critical telephone conversation when Edward Obeid Sr probably correct in her view that the McDougall allocation first spoke to Mr Duffy on 21 November 2008. Whatever was flawed. She was probably justified in her suspicion precise words were used in this conversation, Edward that an inspection would have warranted a revised Obeid Sr was indubitably “pulling strings”. It is likely that allocation. Her abrupt banishment from the process, he had deliberately eschewed asking for a direct favour, however, meant that this critical issue was never properly which would have been rejected outright and probably met examined. Secondly, Mr Duffy did not consider that he with indignation. It is likely that Edward Obeid Sr focused was doing a favour for Edward Obeid Sr, whereas in truth his persuasion on Ms Heaney’s behaviour. But he would that is unwittingly what he had been persuaded to do. have most likely linked this behaviour to the “attack” by Ms Heaney on the departmental allocation which had, in any For all these reasons, the Commission does not accept the event, been accepted by the licence owner, Mr Cherry. submission that Mr Duffy acted deliberately and partially towards the Obeid family interests. The submission As it happened, Mr Duffy at this time was unhappy with by Counsel Assisting relied in part on the number of the water side of his department, generally, and with the telephone calls between the two men during the relevant Newcastle office, in particular. Detailed reasons were week. Mr Duffy and Edward Obeid Sr, however, had given by Mr Duffy for this dissatisfaction. There is no need other issues to discuss at the time, indeed, important to repeat the detail of those reasons in this report. It had issues (for example, the electricity privatisation issue). been a festering sore for years. That situation, however, The Commission is not prepared to draw an inference

40 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd that these calls represented evidence of the deliberate the chain would take action and, it was no doubt hoped, implementation of a wrongful strategy between them. uphold the original determination.

Mr Duffy was clearly a “big picture” bureaucrat and he The Commission is satisfied that this was Edward Obeid showed, after his initial indignation, no real interest in the Sr’s agenda and that it permeated his approach to Mr resolution of the water licence issue. That was left for Mr Duffy. It is true, as Mr Littlemore argued, that there Milling to decide and for Mr Leihn to report the result, were many aspects of the water allocation process and, whatever it may have been. indeed, the general behaviour within the Newcastle office, that could be described as a “cock-up”. It is true The Commission makes no adverse finding against Mr also that some of the actions of Mr Milling and others in Duffy. the licensing section reflected an overall desire to bring an end to what was clearly an embarrassing episode for the Edward Obeid Sr DWE. The licensing section was in a number of respects dysfunctional and poorly organised. Edward Obeid Sr’s The critical question in relation to Edward Obeid Sr and actions were designed to use this dysfunctional and his dealings with Mr Duffy focuses, as has been observed, rather disorganised system to his advantage, and he on the nature of his approach to Mr Duffy and on his plainly succeeded in that aim. intentions in making this approach. The Commission has rejected Edward Obeid Sr’s evidence as to what he claimed he said to Mr Duffy. In his evidence, Edward Obeid Sr was deliberately attempting to minimise his approach to Mr Duffy. While the Commission does not know the precise terms of the conversation, it is in no doubt that Edward Obeid Sr’s intention was to achieve, by whatever means, a clear outcome – the sidelining of Ms Heaney and the confirmation, in one form or another, of the McDougall allocation. Edward Obeid Sr claimed that he was not concerned with the issue of the water licence allocation because, as he put it, the “head of department” had already granted it. The Commission rejects this evidence. The whole point of Damian Obeid’s letter to Mr Cherry (and this is the document Edward Obeid Sr sent to Mr Duffy) was the threat Ms Heaney’s attitude, and her proposed inspection, posed to the original determination. Edward Obeid Sr would have been well aware that this was so. He was brought into the fray to deal exactly with that threat. Whatever words Edward Obeid Sr used, the Commission finds that he plainly intended to trigger a response that would eliminate the serious threat posed by Ms Heaney. With her departure, the coast was clear to secure confirmation of the original allocation.

The Commission accepts the submission of Counsel Assisting that, in his approach to Mr Duffy, Edward Obeid Sr was making use of his knowledge of, and acquaintance with, Mr Duffy, derived from his position as an MLC, to precipitate Mr Duffy into a series of responses that would benefit his interests in respect of the water licences. After all, if Damian Obeid had been merely dissatisfied with the manner in which he had been spoken to by Ms Heaney, he could simply have lodged a complaint with the DWE. Edward Obeid Sr’s sudden presence in the issue, and his direct approach to the director-general, clearly concerned a much wider issue and represented an intervention on a broader and more powerful basis. Pressure had to be brought to bear at the highest level so that those lower in

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 41 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 8: Operation Cabot – corrupt conduct findings and s 74A(2) statements

Corrupt conduct Steve Dunn In making findings of fact and corrupt conduct, the The position of Mr Dunn in this matter has been Commission applies the civil standard of proof on the fully examined in the earlier part of this report. Karen balance of probabilities, which requires facts to be proved McGlinchey, counsel for Mr Dunn, argued that his first to a reasonable satisfaction taking into account the enquiry for Edward Obeid Sr was just that and nothing decisions in Briginshaw v Briginshaw (1938) 60 CLR 336 at more; an enquiry such as any member of the public might 362 and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd make. The second “favour” – the conversation with Mr (1992) 67 ALJR 170 at 171. Cherry – was simply a private favour, not related to any official position then occupied by Mr Dunn. Indeed, this Corrupt conduct is defined in s 8 and s 9 of the ICAC Act. latter argument was taken up by Edward Obeid Sr who, Those sections and the Commission’s approach to making in written submissions, argued that anything Edward findings of corrupt conduct are set out in Appendix 2 to Obeid Sr had requested of Mr Dunn could not be seen as this report. affecting or possibly affecting any “official function” being First, the Commission makes findings of relevant facts exercised by Mr Dunn “in his capacity as a public official”. on the balance of probabilities. The Commission then The corollary to this argument, it may be presumed, is that determines whether those facts come within the terms of the conduct in question, if it were otherwise established as s 8(1) or s 8(2) of the ICAC Act. If they do, the falling within s 8 of the ICAC Act, would not amount to Commission then considers s 9 and the jurisdictional the criminal offence of misconduct in public office because requirements of s 13(3A) of the ICAC Act. Mr Dunn had not been acting either as an officer of the In the case of s 9(1)(a), the Commission considers whether, DWE or Maritime at the time. if the facts as found were to be proved on admissible The Commission rejects these arguments. First, it is evidence to the criminal standard of beyond reasonable appropriate to see the two “favours” by Mr Dunn as part doubt and accepted by an appropriate tribunal, they would and parcel of the one overall favour carried out at Edward be grounds on which such a tribunal would find that the Obeid Sr’s request and for the benefit of the Obeid person has committed a particular criminal offence. family’s financial interests at Cherrydale Park. Viewed in In the case of s 9(1)(b), the Commission considers this way, the conduct went well beyond the assistance whether the conduct under consideration could involve a that might be given to a member of the public. Secondly, disciplinary offence. Section 9(2) provides that it does not it is impossible to suggest that Mr Dunn’s interventions matter that proceedings or action for such an offence can (and, in particular, the conversation with Mr Cherry) no longer be brought or continued. were unconnected with his public office. It is precisely because Mr Dunn had recently held a senior position with In their submissions to the Commission, Counsel Assisting the DWE, and had continuing connections and influence did not suggest any other part of s 9(1) as a basis for there, that he was chosen as the vehicle to “reassure” Mr making a corrupt conduct finding. Cherry. Moreover, his then current position as a senior public official at Maritime gave those assurances even greater weight.

42 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd The test as to whether misconduct occurs in public office occupying any present position with the DWE. He made is met where it can be shown that the conduct occurs “in it clear that he was now in a senior position with Maritime. the course of or connected to the particular public office” Secondly, Mr Dunn did not have any authority or power to (R v Huy Vinh Quach [2010] VSCA 106; (2010) 201 A ensure that nothing would happen with the water licences Crim R 522). It must follow that, in a situation such as the in the future and did not claim that he had such authority present, where the entire weight of Mr Dunn’s assurance or power. His reassurance to Mr Cherry could properly rests on both his previous position with the DWE and his be seen, in its terms, as no more than reassurance as to a present position with Maritime, and where in any event he temporary stay. Thirdly, he did not, in any other respect, remained a public official at that time, his conduct, partial compromise his position with Maritime. In other words, his as it was, satisfies the “connection” test. behaviour, although improper, did not bring Maritime into serious disrepute. The Commission also takes into account The Commission’s conclusion is that, for the reasons that Counsel Assisting did not submit that Mr Dunn’s already given, Mr Dunn acted in a partial and, indeed, actions could constitute or involve a disciplinary offence or improper manner to benefit the Obeid family interests. grounds for his dismissal. Consequently, his behaviour falls within s 8(1)(b) of the ICAC Act. The Commission is not satisfied, however, that There is insufficient evidence to establish a finding of Mr Dunn’s conduct amounts to the criminal offence of corrupt conduct in respect of Mr Dunn’s behaviour in misconduct in public office. His conduct in doing favours undertaking the two favours he carried out at Edward for Edward Obeid Sr had, on this occasion, no serious Obeid Sr’s request. consequences. It could not be said to be conduct that falls so far below acceptable standards as to merit criminal Mark Duffy sanction. This is not to say that it was anything other than inappropriate behaviour. For the reasons previously stated, the Commission finds that the evidence does not disclose any criminal conduct The next question is whether Mr Dunn’s conduct on the part of Mr Duffy. The Commission finds that Mr constitutes or involves a disciplinary offence. The written Duffy’s actions, precipitated as they were by Edward submissions for Maritime state that, on the evidence Obeid Sr, involved no wrongdoing on Mr Duffy’s part. presented before the Commission, Mr Dunn’s dealings with DWE personnel and others concerning the water licences were not matters connected with his role at Brian McDougall Maritime. Water licence issues, following Mr Dunn’s posting to the DWE, were properly to be managed by In this report, there has been significant criticism of Mr DWE personnel without his involvement. The submission McDougall. The evidence, however, is not sufficient to concludes, “Such activity was inconsistent with the proper enable any finding against him in terms of corrupt conduct and expected conduct of an officer of Maritime”. as defined in s 8 of the ICAC Act. Accordingly, no finding of corrupt conduct is made against Mr McDougall. The Commission accepts this submission. It is not, however, satisfied that Mr Dunn’s behaviour constitutes or involves a disciplinary offence, as required by s 9(1)(b) of Dennis Milling the ICAC Act. First, Mr Dunn did not hold himself out as Mr Milling has also been criticised in this report. His

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 43 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 8: Operation Cabot –corrupt conduct findings and s 74A(2) statements

conduct was partial, sufficient for it to fall within therefore, comes within s 8(1)(a) of the ICAC Act. s 8(1)(b). It is clear, however, that Mr Milling’s conduct was not of a kind sufficient to attract the sanction provided by The two principal arguments advanced on Edward Obeid the criminal offence of misconduct in public office. Sr’s behalf are as follows. First, in his approaches to Mr Dunn, Edward Obeid Sr did not use his position as an There remains, however, the question posed by MP. Secondly, if he did so, those approaches could not s 9(1)(b) of the ICAC Act; namely, whether Mr Milling’s have impacted on Mr Dunn’s official functions because conduct could constitute or involve a disciplinary offence. the favours sought did not concern Mr Dunn’s position at The Commission’s earlier finding was that Mr Milling’s Maritime; they related to the DWE, where Mr Dunn no confirmation of the water allocation for Cherrydale Park longer held a position as a public official. had been prompted by a mixture of ineptitude and partial considerations. Although the matter is perhaps “close to As to the first argument, the Commission is satisfied that the line”, the Commission is not satisfied that Mr Milling’s Edward Obeid Sr used his position as an MP to obtain behaviour constitutes or involves a disciplinary offence. favours from Mr Dunn with respect to the Cherrydale This is so for four reasons. Park water licences. In each case, the favours were intended by Edward Obeid Sr to favour his family’s First, as has been made abundantly clear in this report, interests. The relationship between Edward Obeid Sr there was considerable confusion in the DWE as to the and Mr Dunn remained essentially that of an MLC and precise “rules” to be applied when allocating volumetric senior bureaucrat, and the influence that Edward Obeid Sr controls to unrestricted licences. Mr Milling’s “ineptitude” exercised over Mr Dunn to obtain the favours he sought is to be moderated and explained by that significant arose from the relationship between them, which had factor. Secondly, to the extent that Mr Milling was doing come about because of Edward Obeid Sr’s role as an MP. the bidding of both Mr Leihn and the director-general, Edward Obeid Sr’s conduct was plainly connected to his he did not believe that he was acting wrongly in any public office as an MP. way. Mr Milling clearly believed, albeit wrongly, that his confirmation of Mr McDougall’s allocation was justified. Edward Obeid Sr’s second argument is also without merit. Thirdly, his knowledge of the Obeid family involvement For the reasons given earlier in rejecting Ms McGlinchey’s was by no means a determinative factor in his decision. submissions, it is also clear that the favours entrusted by Fourthly, the expedition he was required by his superiors to Edward Obeid Sr to Mr Dunn were connected with Mr bring to the task hindered the more careful consideration Dunn’s public office. Mr Dunn’s actions had “a sufficient he should have given the problem. Accordingly, the and necessary” connection to his public office. Those Commission makes no finding of corrupt conduct against actions were carried out in the purported course of his Mr Milling. duties or, at the very least, were sufficiently connected with those duties so as to answer the statutory description in s 8(1)(a) of the ICAC Act. Edward Obeid Sr The Commission is satisfied that Edward Obeid Sr Edward Obeid Sr’s use of his influence to obtain favours misused his position as an MP to benefit his family’s from Mr Dunn with respect to the Cherrydale Park water financial interests by improperly influencing Mr Dunn in licences (as set out in chapter 3) did not, in this instance, the discharge of Mr Dunn’s official duties. The nature of result in conduct that could amount to a criminal offence by the improper influence was that: Mr Dunn. Nonetheless, it is clear, in the Commission’s view, that Edward Obeid Sr’s use of his position as an MP to • Mr Dunn was to use his contacts at the DWE request favours from Mr Dunn may properly be categorised to seek information about water licences in as corrupt conduct on two possible bases. First, under the Bylong Valley for Edward Obeid Sr and to s 7(2) of the ICAC Act, an attempt to commit or engage in facilitate Edward Obeid Sr speaking with a DWE conduct that would be corrupt conduct is to be regarded as official to obtain further information about water corrupt conduct under s 8(1) or s 8(2). Secondly, under licences affecting Cherrydale Park s 8(1)(a), any conduct that could adversely affect the honest • Mr Dunn was to use his position with Maritime or impartial exercise of official functions by a public official is and his former position with the DWE to reassure corrupt conduct for the purposes of s 8. the owner of Cherrydale Park, Mr Cherry, that The Commission finds that Edward Obeid Sr was there were no plans to place restrictions on attempting to have Mr Dunn exercise his official functions Cherrydale Park water licences so that Mr Cherry in a manner that was partial to the financial interests would not reduce the amount he would lend the of Edward Obeid Sr. The Commission also finds that Obeid family for the purchase of that property. this conduct could have adversely affected the impartial Although Mr Duffy did not intend to do any favours for exercise by Mr Dunn of his official functions and, Edward Obeid Sr, and did not believe he had done so, it

44 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd is clear that Edward Obeid Sr’s intentions were to use Accordingly, the Commission is satisfied in the case of his position and influence as an MP to benefit his family’s Edward Obeid Sr that the jurisdictional requirements of financial interests by engaging Mr Duffy so that, in the s 13(3A) of the ICAC Act are satisfied. carrying out of his official functions, Mr Duffy would unwittingly fulfil Edward Obeid Sr’s expectations that Section 74A(2) statements his financial interests with respect to the water licences affecting Cherrydale Park would be favoured (by not In making a public report, the Commission is required by having the water allocation made by Mr McDougall the provisions of s 74A(2) of the ICAC Act to include, reduced). in respect of each “affected” person, a statement as to whether or not in all the circumstances, the Commission The Commission considers that Edward Obeid Sr’s is of the opinion that consideration should be given to the conduct in relation to his dealings with Mr Duffy is corrupt following: conduct within s 8(1)(a) of the ICAC Act. This is because it is conduct that could affect, either directly or indirectly, (a) obtaining the advice of the DPP with respect the impartial exercise of Mr Duffy’s official functions. to the prosecution of the person for a specified Edward Obeid Sr’s conduct also comes within s 8(1)(c) of criminal offence the ICAC Act as it is conduct on his part that constitutes or involves a breach of public trust. The purpose of his (b) the taking of action against the person for a conduct was to advance his personal interests and was, specified disciplinary offence therefore, incompatible with the proper discharge of his role as an MP. (c) the taking of action against the person as a public official on specific grounds, with a view For the purposes of s 9 of the ICAC Act, it is relevant to to dismissing, dispensing with the services of consider the common law offence of misconduct in public or otherwise terminating the services of the office. In R v Huy Vinh Quach, the elements of the offence public official. of “misconduct in public office” were identified by the Victorian Court of Appeal thus: An “affected” person is defined in s 74A(3) of the ICAC Act as a person against whom, in the Commission’s (i) a public official; opinion, substantial allegations have been made in the course of, or in connection with, the investigation. (ii) in the course of or connected to his public office; The Commission is satisfied that Mr Dunn, Mr Duffy, Mr McDougall, Mr Milling and Edward Obeid Sr are (iii) wilfully misconducts himself; by act or “affected” persons. omission, for example, by wilfully neglecting or failing to perform his duty; For the reasons given above, the Commission is not of the opinion that consideration should be given to obtaining the (iv) without reasonable excuse or justification; advice of the DPP with respect to the prosecution of Mr and Dunn, Mr Duffy, Mr McDougall or Milling for any criminal offence or that consideration should be given to the taking (v) where such misconduct is serious and of any other action against them. meriting criminal punishment, having regard to the responsibilities of the office of the The Commission is of the opinion that consideration officeholder, the importance of public objects should be given to obtaining the advice of the DPP with which they serve and the nature and extent respect to the prosecution of Edward Obeid Sr for the of the departure from those objects. criminal offence of misconduct in public office in relation to his use of his position to influence the actions of Mr Dunn The Commission is satisfied for the purposes of s 9(1)(a) and Mr Duffy. Edward Obeid Sr gave his evidence subject of the ICAC Act that, if the facts as found in relation to to a declaration made pursuant to s 38 of the ICAC Act. Edward Obeid Sr in his separate dealings with each of Mr The effect of this declaration is that his evidence cannot Dunn and Mr Duffy were proved on admissible evidence be used against him in any criminal prosecution other than to the criminal standard of beyond reasonable doubt a prosecution for an offence under the ICAC Act. There and accepted by an appropriate tribunal, they would be is, however, potentially other admissible evidence available grounds in each case on which such a tribunal would find from Mr Dunn and Mr Duffy concerning the approaches that Edward Obeid Sr committed a criminal offence of Edward Obeid Sr made to them. misconduct in public office. In each case, the conduct is of sufficient seriousness to warrant criminal sanction.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 45 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 9: Operation Cabot – corruption prevention

Water has always been a limited natural resource in of a proper physical inspection of the property, without Australia. It is vital to sustaining communities and to reference to the applicable ceiling and without a proper developing the economy. Water is also a highly valuable assessment of historical use. resource for those who can access it. Despite the allocation policy as it was formulated containing With the introduction of the Water Management Act 2000, sensible controls, which were designed to address the risk licences that were previously unrestricted with regards of rent seeking behaviour, it was highly ambiguous on key to volumetric extraction limits were to be converted to issues. Management did not step in to compensate for the restricted licences. This had substantial implications for failings of the policy and, in fact, appears to have worsened licence holders. Limiting water use could potentially affect the situation. The whole process was under-resourced, the type of operations they could undertake and, ultimately, making it vulnerable to corrupt allocation and the internal the profitability of their enterprise and property. Further, systems did not support the business rules. since the Water Management Act 2000 had made water rights tradable, it allowed for excess allocations to be sold Lack of clarity in policy formulation or leased for a profit. This meant that if a licence holder did not use their allocated amount of water up to the imposed The goal of the licence conversion process was to impose limit, that water could be sold to another licence holder and a limit based on historical water use on the licensed a profit obtained. property. This was to ensure that unrestricted licence holders did not lose water entitlements upon which they Incentives such as these often result in “rent seeking” were depending and that only water rights excess to their behaviour, whereby individuals expend resources on requirements were removed. To achieve this goal, the DWE lobbying – properly or improperly – in order to influence had developed “volumetric conversion rules” to guide the decision-makers and capture the value of an asset through conversion process. The rationale for these rules and further a transfer of resources and rights. It is typified by attempts management instructions was clear. The DWE was aware to manipulate a given policy and regulatory environment that those holding water licences would be motivated to in order to secure a part of the existing wealth. In water try to get the highest allocation possible and that some may licensing, rent seeking activities would focus on securing a engage in rent seeking behaviour. To counteract this risk, higher than needed water allocation that could then be used it was a requirement that licensing officers take steps to to generate a profit on the property or the excess traded establish “historical water use”, conduct a physical inspection for a profit. The present inquiry was launched because of of the property and obtain a second signature from a more the extraordinary water allocation to Cherrydale Park. The senior licensing officer. allocation was so much above the norm that it gave rise to a suspicion that corruption was involved. The volumetric conversion rules were ambiguous. They did not specify how to establish historical water use, stating Given the high risk of rent seeking, the DWE would be only that officers should “use the maximum area irrigated expected to have in place a framework of controls to in the last 6 years”. As outlined in chapter 4, DWE officers ensure that allocations were made on a consistent and interpreted this requirement in differing ways; some officers equitable basis. As described in chapter 4, however, the considering this meant “average use” over six years, whereas water allocation at the centre of this investigation was made others thought it meant “maximum in any one of 6 years”. contrary to the DWE’s two-officer policy, in the absence While the general view of the majority of officers called

46 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd in the public inquiry was that the historical test required a ran by virtue of having an effective manager. Once Mr history of irrigation use over a period of at least six years, McDougall replaced Mr De Silva in August 2008, however, establishing this was not straightforward, since crop types these local business rules were disregarded. and areas may have changed substantially from one year to the next. Similarly, while many staff members thought The ability of senior managers (such as those at Mr Milling’s that there was a ceiling of 486 ML per annum for any level) to closely manage staff was also stretched at this one property in the Hunter Valley, this was not uniformly time. In the years preceding Mr McDougal’s allocation understood nor clearly articulated in policy. The rules, which to Cherrydale Park, the DWE had undergone significant spoke of a ceiling “if appropriate”, scarcely gave useful organisational change. Water regulation had been moved guidance. from the NSW Department of Natural Resources to the newly formed DWE, and the regional structure of the Policy guidance that is ambiguous, silent about crucial organisation had been abolished in favour of a centralised details or poorly communicated can lead to great variability model run from the head office in Parramatta. In addition in outcomes. The ambiguity contained within the DWE’s to impacting on staff morale, the changes weakened conversion rules allowed Mr McDougall a high degree managerial control by separating managers from the offices of latitude in his consideration of the Cherrydale Park and areas for which they were responsible. Mr Milling, allocation and allowed him to claim that historical use was acting state director of licensing, for example, was in charge equivalent to a “capacity to irrigate”. A property inspection, of the Newcastle office (among others) but was based in he maintained, could be carried out by simply driving past a Murwillumbah, some 670 kilometres away. Conversely, Mr rural property on a number of occasions. Against the loose Gardoll, the state director, had minimal responsibility over criteria of unclear policy guidance, Mr McDougall’s chosen the Newcastle office but was based there. interpretation did not necessarily stand out as spectacularly irregular. Since senior managers were located off site and visited only sporadically, they could not effectively oversee the day-to-day operation of each of the offices under their Administration of the policy control. It was difficult for managers based in different areas to be knowledgeable about local policies and Management practices, particularly when there was an absence of organisational-wide policy guidance. For example, Mr In the absence of clear policy guidance, it is possible that Milling claimed to be unaware of the 486 ML cap in place management can fill the gap by closely and effectively for the Hunter Valley. This was extraordinary, given his managing staff to ensure organisational goals are met. In the supervisor, Mr Gardoll, had a clear view that the cap was in DWE, in place of a workable, detailed organisational-wide place. In these circumstances, regional managers were not policy on water licence conversions, each regional office in positions to provide effective oversight to local offices. team leader developed a conversion process for their office. Consequently, they had to rely on local team leaders to keep Under Mr De Silva’s supervision, historical water use was them informed of any local issues that arose. verified via a relatively rigorous process, whereby information received from licence holders was compared to a number of Ultimately, responsibility for ensuring that business rules other sources to establish its veracity. Site inspections were are being followed lies with management. Where it also carried out wherever possible. A reasonable process becomes apparent that rules are not being followed or

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 47 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 9: Operation Cabot – corruption prevention

that there is a problem with a process, it is an expectation the requirement to conduct site inspections to verify that that management will intervene to rectify the situation. bores were in existence and operational. The intent of This did not occur when senior managers became aware this requirement was clear. The DWE knew that water of the Cherrydale Park allocation. When Mr Milling was licence holders would be likely to exaggerate about or made aware of the Obeid complaint against Ms Heaney, even deliberately mislead the extent of their irrigation he commissioned a separate review of the licence file by needs in order to gain the highest water allocation possible. an independent licensing officer in the Newcastle office. Nevertheless, it was often impossible for licensing officers This review noted that there was “no assessment of to undertake site inspections due to frequent travel history of [water] use of the property” and that the “quality embargoes within the DWE. This forced officers to rely of documentation [on file] was very poor”. The review, on desktop information to determine historical water use, therefore, conveyed that the justification for the decision including information provided by the licence holder, despite was, at best, undocumented and, at worst, non-existent. the rules explicitly noting that this was “not ... a reliable method of gathering information, nor an efficient use of Instead of attempting to rectify what was likely a failure time and resources”. The position was made worse by the to follow proper process, Mr Milling spoke with the inadequacy of the standard forms, which, on their face, officer responsible, Mr McDougall, and on the basis of his required no more than for the landowner to report “current assurances, confirmed the allocation. In doing so, he did not usage”. There was no mention of “historical irrigation use”. seek to have Mr McDougall record a clear and proper basis Rather than establishing consistency, the rules – along with for his decision on the licence file. Even more startling was the travel embargo – instead forced staff to work around Mr McDougall’s apparent claim at the time that he could their provisions. not recall making the allocation; that, it appears, Mr Milling may have simply “rubber-stamped” his subordinate’s draft In such an environment, the risk for corruption increases. document or one he had prepared himself. Such a process The incentive remains the same for water licence holders speaks volumes for the failure of the system. Mr Milling to seek the transfer of the highest volume of valuable water made no recorded comment on this situation. By himself assets they can from the regulator. The regulator, however, ignoring the business rules that Mr McDougall should have is poorly placed to combat this ever present risk of rent observed in the first instance, Mr Milling was, in effect, seeking when policy guidance is unworkable or in conflict condoning the complete disregard for the business rules of with other workplace directives. The prospect of having a his division. site inspection could no longer serve as an effective control on behaviour as staff were often not permitted to travel. Mr Milling also failed to adhere to departmental rules himself when confirming the allocation to Cherrydale Park, since he did not provide any basis for his decision on file. In An inability to enforce business rules making his determination, Mr Milling noted only that his In addition to clear policy, effective management and “decision was based upon the above review findings/the adequate resourcing, an organisation requires effective (unreported) review undertaken by B. McDougall ... and the business systems to exert control over the processes. The antedotal [sic] evidence contained in faxed correspondence DWE was also lacking in this area. provided to me by Peter Leihn”. He did not make reference to relevant departmental policies nor did he seek to outline At the time of the licence conversions, the DWE relied how the evidence demonstrated that 860 ML was the predominately on a paper-based filing system. To work correct allocation. Combined with his acceptance of Mr on a file, staff would remove a file from locally-housed McDougall’s undocumented allocation, this suggests that Mr compactors, add any documentation relevant to their Milling had little interest in following or enforcing standard decision, and then return the file to the compactors. There practice. was no file tracking system to record file movements and, since individual staff members were solely responsible While the weakness in policy and ambiguity in the rules for files, standards of recordkeeping were highly variable. clearly contributed to problems in the process, the failure of Neither Mr McDougall nor Ms Heaney appeared to keep management to run the office and the process effectively track of their respective use of the file for Cherrydale Park. appears to have been the more critical failure. The business rule as articulated by Mr Gardoll that “every Resourcing approval process requires two signatures” was also very difficult for management to enforce. Again the intent of this As described earlier in this report, the licensing section of business rule was clear. A second signature would require a the Newcastle office was under-resourced from a staffing team leader to check and sign-off on a subordinate’s work perspective and the process of volumetric conversion was before approval could be given. The intention being that laborious and time consuming. One particular aspect of this would ensure a licensing officer was not being overly the conversion rules that was inadequately resourced was generous in their allocation and they would have to explain

48 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd the rationale for their decision to a more senior officer. providing an audit trail to improve accountability. Had WLS When Mr McDougall became acting team leader, however, been in place at the time of the Cherrydale Park conversion, he gained the delegation to approve licensing decisions it would have been impossible for Mr McDougall to approve without obtaining a second signature. The possibility of his own decision and to do so without the knowledge of corruption occurring in this situation was dangerously high. Ms Heaney, who had been working on the conversion. Without any accessible database of water licence approvals, He would have had to document some evidence of an Mr McDougall’s manager, Mr Milling, had no way of assessment of historical water use to justify his decision knowing that this requirement had been overlooked. and then submit this to a more senior manager for approval. WLS represents a far better controlled recordkeeping and Similarly, since Mr Milling was based in Murwillimbah and decision management system than paper-based files. To could not access a complete version of the file, Mr Milling date, NOW has not been able to transfer all licences in the was largely beholden to Mr McDougall as a source of state to WLS due to funding pressures. information. The file management system placed minimal accountability on staff to follow proper process when making licensing decisions. The remote location of managers, Applicability of lessons learnt combined with a rudimentary information management Over the past 10 years, NOW has managed a process of system, meant that there was little accountability for transitioning water use in NSW from the Water Act 1912 frontline team leaders to follow prescribed processes. to the Water Management Act 2000. This has occurred progressively with the introduction of water sharing plans Recent changes under the Water Management Act 2000. It is anticipated that the final water sharing plans will be completed and commence within the next 12 months. This means that Workable policy guidance very few water licences still need to undergo a conversion The lack of clear and applicable policy guidance has been process. Given this conversion process is now largely recognised for some time by the DWE (part of which is complete, it is not necessary for the Commission to make now known as the NSW Office of Water (NOW)) as formal recommendations for improvement to this process. problematic. In 2010, NOW created the Regulatory Reform While the Commission looked only at this one aspect Team with the aim of revising, updating and creating policies of NOW’s operations, the weaknesses in poor policy to guide frontline staff in the performance of their roles. To formulation, management, resourcing and business systems date, an updated procedures manual for Water Act 1912 are not necessarily exclusive to the water licence conversion licences has been released and the same is planned in 2014 process. The weaknesses outlined above could indicate a for Water Management Act 2000 licences. To ensure that vulnerability to corruption elsewhere in the organisation. new policies are workable and implemented effectively, the NOW remains a regulator with responsibility for ensuring Regulatory Reform Team has been developing policies in that all users, as well as the environment, have access to close consultation with frontline staff. Further, the policy sustainable water supplies. documents will, in the first instance, be disseminated via regional managers to ensure they are aware of their content Water continues to be a valuable asset in NSW and, so long and accountable for their enforcement. Access to all the as this remains the case, there will be strong incentives for manuals will also be available on the staff intranet to ensure those wishing to access this asset to lobby and manipulate. staff across the state can access relevant policy information While actions have been taken to address policy and record when required. management weaknesses, should similar weak management practices exist elsewhere in the organisation, NOW’s An online file management system business rules and intended controls will not operate as intended. Given this, it would be prudent for NOW to NOW has recently introduced a more sophisticated record consider how it can hold managers accountable for the management system, called the Water Licensing System actions of their staff while also providing managers with the (WLS), which has a far greater capacity to enforce business tools to monitor and control behaviour. NOW is encouraged rules than the previous predominately paper-based system. by the Commission to consider the lessons that can be WLS is an online database and interface that forces licensing learnt from this investigation and their applicability to other officers to follow a prescribed process when processing a areas of its operations. licence file. Each part of an assessment must be completed and uploaded to the system in order before it is electronically submitted to an appropriately-delegated officer for approval. Formal decision notices cannot be generated before approval has been given. The system also records when and by whom each part of an assessment was completed, thus

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 49 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 10: Operation Meeka – an overview

On a day in August 2005 when the NSW Parliament was 23 August 2005 to Mr Costa states: sitting, Edward Obeid Sr approached Michael Costa, who was the newly-appointed minister for finance at the time. Absenteeism is costing the NSW public sector The two men were on good terms. They saw eye-to-eye well over $700 million in direct salary costs as on a number of political issues. Edward Obeid Sr was the illustrated in the enclosed document. This figure does leader of the Terrigals, a group within the major centre unity not contemplate costs associated with overtime, faction of the Australian Labor Party. Mr Costa was part of replacement labour, business interruption, workers this group. compensation claims, insurance premiums, litigation or the cost of negative public perception. According to Mr Costa, Edward Obeid Sr gave him a business card with a name on it. Edward Obeid Sr said, Absenteeism, and the entitlement culture towards sick “This company has an interesting system to deal with sick leave usage, is the bane of community services such as leave. It’s worthwhile having a discussion with them”. Public Safety, Health and Transport. It is a good ‘bad news’ story, frequently picked up in the media, with The company in question was DHS. It had been registered negative implications for incumbent governments and on 20 April 2005. Paul Maroon – an employee of the Obeid industry at large. family business – had been the original director and secretary ... of the company. The issued capital, as at August 2005, was held by SS Nominees Pty Ltd (later known as Equitexx Pty Direct Health Solutions has a unique, and proven, Ltd), an Obeid family company. The original founders of the absence management system that benefits employers company were two entrepreneurial young businessmen, by reducing absence by up to 30%. Importantly, it Paul Dundon and Mitchell Corn. There were two eventual benefits employees and Union members, by providing financial backers of the company: first, Rocco Triulcio, a cost effective, professional medical advice, at no cost to long-time friend and business associate of the Obeid family them or their families. (he had been an occasional joint venturer with the Obeid family interests), and, secondly, the Obeid family through In line with objectives, Public Sector organisations in its family trust. Edward Obeid Sr’s second son, Paul Obeid, the UK and US have achieved a 30% reduction in was the catalyst for the involvement of the Obeid family. the frequency and duration of absence within twelve Throughout this early period, it was he who had the major months of implementing an outsourced absence involvement on behalf of his brothers. It is to be presumed management solution similar to that offered by Direct that it was Paul Obeid who had instructed Mr Maroon, Health Solutions. through the Obeid family accountants, to register the Enclosed is an overview of the Direct Health Solutions company. to Absence Management. I would welcome the As at August 2005, the two backers were already providing opportunity to discuss with you and your colleagues venture/seed capital as needed to move the project along. what Direct Health Solutions can do to reduce absenteeism. As a result of Edward Obeid Sr’s introduction, Mr Dundon and Mr Corn were invited to a meeting with Mr Costa. The letter is signed by Mr Dundon as “Managing Director”. In preparation for that meeting, Mr Dundon prepared an The enclosure was a lengthy and detailed submission – the extensive brief for submission to Mr Costa. His letter of brief referred to above.

50 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd It seems that the letter and brief found their way to Edward with the absenteeism problem in various government Obeid Sr’s parliamentary office. From there, they were departments, including health, education, transport and taken by Edward Obeid Sr personally to Mr Costa. An corrective services. internal briefing note was prepared for the minister and the meeting took place on 5 October 2005. Edward Obeid Sr, however, did not at any time inform Mr Costa that his family had a significant financial interest Ian Neale, executive director to the minister, wrote a file in DHS. Even though the approach to the minister was note as follows: ultimately unsuccessful, the principal concern of the Commission’s investigation was whether Edward Obeid 2 On 5 October 2005 the Treasurer met with Paul Sr’s failure to disclose his family interest in DHS is capable Dundon, Managing Director, and Mitchell Corn, of constituting corrupt conduct within the meaning and Director of Direct Health Solutions (DHS). I was in framework of the ICAC Act. attendance. Edward Obeid Sr has steadfastly maintained that he simply The DHS people outlined their program for managing did not know of the Obeid interest in DHS at the time of his sick leave and claimed significant success with the approach to Mr Costa. He said he was not informed of the program overseas. However, they have no experience existence of the Obeid involvement by his son Paul Obeid, in Australia. and thought he was simply arranging an introduction for the The Treasurer encouraged them in seeking out a benefit of Mr Dundon. He claimed that the approach for potential Government client and applying their his assistance came from Mr Triulcio, not from his son, Paul program as a pilot. Obeid. Edward Obeid Sr also maintained that he did not at the time know that his long-time friend, Mr Triulcio, had an The Treasurer expressed interest in the program, interest in DHS. He understood that Mr Triulcio was simply particularly in its adoption by agencies with endemic a friend of Mr Dundon’s. If it be accepted that Edward sick leave problems. Obeid Sr did not know of the Obeid family interest in DHS at the time of his approach to Mr Costa, there is no case It may be inferred that this was a polite way of informing Mr against Edward Obeid Sr. Dundon that the finance ministry, a relatively small ministry with no absenteeism problems, was itself not interested in This then is the simple issue: can the Commission be the project. A year later, when DHS was “up and running”, satisfied on the balance of probabilities (applying, however, a further meeting was held with Mr Costa, but despite the Briginshaw caution) that, at the time he did the favour a renewed presentation of the company’s potential, Mr for DHS, Edward Obeid Sr knew of his family’s financial Dundon’s rhetoric fell once again on barren soil. interest in that company and, if so, whether his failure to say anything about those interests constitutes corrupt conduct? Returning to the events in 2005, it is clear that Edward Obeid Sr’s approach had successfully brokered an introduction to Mr Costa. It had enabled Mr Dundon to get The facts – in-principle agreement “a foot in the door” of a powerful and influential minister, is reached one who was by all accounts particularly concerned The essential facts are as have been stated. It is necessary 2Mr Costa appears to have been referred to at this time as treasurer. He was not, in fact, appointed as treasurer until 17 February 2006. only to flesh them out in a relatively brief fashion.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 51 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 10: Operation Meeka – an overview

Mr Dundon and Mr Corn came up with the idea for the Sorry? proposal. It was probably Mr Corn’s idea but Mr Dundon, who was something of a persuasive salesperson, seized upon ---Was meant to come from um, the notion. The pair needed money to get the project off the family, family money. the ground. Mr Corn had done some property development The family, all right. Well it’s a bit work with Mr Triulcio. He approached him and the latter of a broad term and I’m not [an] was soon enthused with the project. It was Mr Triulcio who accountant but when you say from suggested that the venturers approach Paul Obeid. Like Mr the family was it some, it was a Triulcio, he too was involved in property development. The trust was it? suggestion was that Mr Triulcio’s company and the Obeid family’s business structure would provide venture capital in ---Well it was a little bit different, equal shares. Commissioner, because Rocco actually put the money in on our The initial approach to Mr Triulcio had been made in late behalf and over a period of um, it 2004. The approach to Paul Obeid was probably made in would have been six months it was early 2005. There were a number of meetings in the early paid back. part of 2005, when details were thrashed out between the four. As has been said, DHS was registered in April 2005. So you gave your share to Rocco as At that time, it was inoperative, but ready to be activated if it were to reimburse him for what an agreement could be reached. he put in on your half?

As it happened, agreement in principle was reached in May ---It’s hazy it went something like or June 2005. Mr Dundon, who by now was designated as that. the proactive member of the team, took a few weeks off The following exchange also took place at the public inquiry: and then set up in earnest, working for some two months out of the Obeid business premises at Birkenhead Point. [Assistant Commissioner]: I mean did it come out of a drawer Here, in the one office complex, the five Obeid brothers or a bank account or what? worked, often pursuing their differing interests but within an overall joint administrative structure (more will be said [Paul Obeid]: ---No, no, it was a, it was a joint later about the structure of the Obeid financial group). venture account that we had Mr Dundon worked out of the boardroom, assembling as together and - - - his first task the software necessary to launch the project. No, I know, I know you had a joint Secondly, he set about preparing a brief or prospectus to venture account but where did the show to any prospective clients whether they were in the money you were repaying him come private or public sector. A company logo and stationery from? From, from which Obeid or were also procured. Meetings were held between the four family account? men on a monthly basis at Birkenhead Point to map progress and to hammer out any potential problems. Occasionally, ---No, it didn’t come from an Mr Maroon was in attendance. Obeid family account. We were in a project together and he was, The agreement in principle was this: Mr Triulcio’s company Rocco was earning the funds and and the Obeid family interests would be jointly responsible distributing as he, as, as he would for investing up to $300,000 in DHS. Initially, part of earn the funds and he took our this investment would be used to fund the software and share out of those funds, we were Mr Dundon’s early involvement with the concomitant entitled to funds from him from expenses. Mr Triulcio’s company would actually advance profits of a joint venture - - - the $300,000. The Obeid liability to the project was to be met by Mr Triulcio reimbursing himself from profits earned But whose our share, you say ours? elsewhere to satisfy the amount “contributed” by the Obeid family interest. Paul Obeid described the arrangement as ---Well I’m saying family, it’s my, follows: my five brothers, my four brothers. [Assistant Commissioner]: But I just want to know where your The structure money was coming from? It will be recalled that Mr Maroon was the original director [Paul Obeid]: ---Well my, my money was meant and shareholder of the company. All the issued capital of to come from – well we were DHS was held by SS Nominees Pty Ltd, an Obeid family putting the money in.

52 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd company. SS Nominees Pty Ltd had been appointed, the whole family – to keep their business interests and pursuant to a deed of trust dated 14 May 2002, as the their investments hidden from view. It appears they were trustee of the Obeid Family Trust No 2. The beneficiaries of particularly concerned about information as to their the trust were Edward Obeid Sr’s five sons. investments coming to the attention of the media. The family had a dislike and distrust of the media based on, as On 29 September 2005, when the in-principle agreement they saw it, intrusive and unfair reporting. was formalised, the share structure of DHS was rearranged. Fifty-five shares were allocated to Challenge Property Investments Group Pty Ltd, a Triulcio company. Those A foot in the door shares were later transferred to RRM Group Pty Ltd, Once the in-principle agreement had been established, Mr another Triulcio company. Twenty shares were allocated Dundon worked away assiduously on the project from the to Creative Solutions Pty Ltd, a Mitchell Corn company, Birkenhead Point office. Edward Obeid Sr said he thought and 25 shares were allocated to Molly Malone Solutions he had met Mr Dundon there, although Mr Dundon claimed Pty Ltd, a Paul Dundon company. The registered office of that he had never actually met Edward Obeid Sr; he had, DHS was originally SJ Sassine & Co, the Obeid family however, seen him several times at Birkenhead Point and accountants’ office. In August 2007, the registered office knew who he was (“a very powerful person in NSW was moved to that of John F Campo & Associates, the political circles”). Mr Dundon had met all the Obeid brothers accountants for Mr Triulcio. (“they knew why I was there”). Sid Sassine had been the accountant for the Obeid family At one of the meetings held at Birkenhead Point, the for many years. On 30 April 2007, he wrote to John Campo participants had been discussing the best way to “showcase” to ask that the registered office be changed, and stated: Mr Dundon’s product. Mr Dundon convinced Paul Obeid In accordance with the instructions received from that the government might present a good opportunity for our clients, could you please prepare a Declaration of business. In that regard, he mentioned Mr Costa’s name; Trust identifying that 50% of the shareholding held this was because Mr Costa had been reported in the press by Challenge ... is in fact held non-beneficially. Such as being concerned about absenteeism in government shares are to be held in trust for SS Nominees (No 1) departments. Paul Obeid knew that Mr Costa was a close Pty Limited as trustee for Obeid Family Trust No 2. political ally of his father’s. Paul Obeid told the others that he would “ring up and find out how best to get a meeting” with Similarly, with respect to Direct Health Solutions Unit Mr Costa. He then called his father. The conversation, as Trust, could you also prepare a Declaration of Trust recalled by Paul Obeid, is as follows: indicating that 50% of the units issued and held in the name of Challenge … is held in trust for SS Nominees [Counsel Assisting]: And then you called your father? (No 1) Pty Limited as trustee for Obeid Family Trust [Paul Obeid]: ---And then I called my father. No 2. Each of Paul Obeid and Mr Triulcio confirmed that half of And what did you say to him? the shares in DHS held by Challenge Property Investments ---Look, I can’t recall exactly what Group Pty Ltd were held on trust for the Obeid family. was said but I mentioned to him In his compulsory examination with the Commission, that there was a, there’s a company Mr Maroon claimed that he had set up DHS on his own that has, in the business of managing initiative because he thought “it was a good idea”. He had absence management and sick leave no money of his own, however, and appeared to play a and I would [have] explained to very minor role after the establishment of the company. His him that it’s a possibility to save the position with the Obeid family was that he was something Government millions of dollars. of a low level jack of all trades. He was a bookkeeper, And you told your father that you was useful at IT work and acted frequently as a data were investing in it didn’t you? entry person. His evidence as to his personal interest in the establishment of the company is completely at odds ---No, I, I, I wouldn’t have, I did not with the evidence of all the other participants. Mr Maroon tell him that we were investing in the knew, however, that SS Nominees Pty Ltd was the sole business at that stage, I don’t talk shareholder in the company and that it was the trustee for on the phone [about] my personal the Obeid Family Trust No 2. business, we, we don’t talk on phones The complex structure reflected a common determination about personal business. among Edward Obeid Sr and his sons – indeed, it permeated Did you think – sorry, did you say to

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 53 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 10: Operation Meeka – an overview

your father, is this what, is this your hadn’t seen Rocco, we had a parting evidence to the Commission, that of the ways for I think eight to ten you were aware of a company called years before that and we only just got, Direct Health Solutions, is that right? become friends around that period around the 2005 period, 2004/2005 ---No, I was quite clear, I said that I so - - - have got a chap, Paul Dundon - - - The context in which you mentioned Yes? Mr Triulcio[‘s] name to your father ------and I mentioned Rocco was first of all, that Mr Triulcio was as well and I said that there is a investing in the company? company, there’s a company that ---No - - - he wants to get a meeting with the Government, he wants to be able to Why else did you mention - - -? showcase or make a presentation to the Government, he believes that he ---What I mentioned [was] that can save the Government millions Rocco brought Paul Dundon to us of dollars, along those lines, and you with a great business concept and it know, my father obviously not being could save the government million of one that wants the detail said, look, dollars and we’d like to get a meeting you know, who does he particularly, to do a present or make a presentation who does he, would like to meet and to the government and in particular I said he would like to meet, possibly Michael Costa. it was Michael Costa and he said It was a great business concept? well, you know, what, get, get him to actually put a formal request in ---It was a good business concept, writing, he needs to put his profile yes. and, and what benefits there are to And Mr Triulcio had introduced you the Government and get him to put to it? it in writing and then he passed me onto his PA who gave me the details. ---That’s right. I passed those details back onto Paul and I lost, I lost track of it from there. Paul Obeid maintained that he hadn’t mentioned the family’s investment to his father at this point because, although there Couple of things arising out of that, was “a hand shake agreement”, the formal documents had first of all, you said you mentioned not yet been signed. There is no doubt, however, that the Rocco’s name? in-principle agreement had been operative from about May or June 2005 and that various sums of money had already ---I’m pretty sure I mentioned Rocco’s been provided to Mr Dundon from the capital venturers. name as well. Thus, by 23 August 2005, the Obeid family regarded themselves as under an obligation to reimburse Mr Triulcio In that conversation? for part of the monies advanced to Mr Dundon. ---Mmm. Mr Triulcio, for his part, recalled the discussion at the And you know that your father knows meeting when Mr Costa’s name had been mentioned. He Mr Triulcio? did not remember whether Paul Obeid had mentioned his father’s name but he understood him to be saying that ---Yes, he does. he would arrange for his father to deliver a letter, or other document, to Mr Costa. He said he assumed “that it would And you know that your father knew be through Mr Eddie Obeid that the letter would get to at that time that you were in joint Costa”. He said he “took it for granted”. Surprisingly, Mr ventures with Mr Triulcio? Dundon claimed that it never occurred to him that Paul ---In 2005 we were just starting some Obeid would give the letter to his father. He accepted, as joint ventures with Rocco then, we he now knew, that the letter had, in fact, been delivered were looking at joint ventures. We by Edward Obeid Sr to Mr Costa. He accepted that

54 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd he knew at the time that Edward Obeid Sr was a very Summary from chapter 5: powerful person in NSW politics and, indeed, he had seen him at Birkenhead Point on several occasions. He denied, • Edward Obeid Sr was active in the family’s however, that “he had any hope or anticipation that Mr business activities. He retained considerable Edward Obeid Snr would be able to smooth a way for control over the family businesses and finances. an introduction to Mr Costa that would be helpful for his • Edward Obeid Sr had an office at Birkenhead business venture”. The Commission does not consider that Point and attended the office three or four days Mr Dundon was being candid in these particular answers. It a week. defies belief that Mr Dundon, a shrewd and alert business person, did not believe, indeed expect, that Paul Obeid • The family was a closely connected unit that would make use of his father’s position and influence with accorded Edward Obeid Sr great respect. This Mr Costa. The Commission considers that Mr Dundon was carried over to business decisions, particularly attempting in this evidence to distance himself from Edward those that were important, and those that Obeid Sr. concerned him directly. • Edward Obeid Sr was consulted by his sons when Mr Dundon made it clear in his evidence that, as he decisions were made that could benefit the family understood it, the documentation he was to prepare would enormously or harm the family. be given by him to Mr Maroon and then handed on to Paul Obeid. • Edward Obeid Sr used his wide range of contacts to initiate business opportunities for the family. As was said earlier, Edward Obeid Sr claimed that he had He exercised his sphere of influence to facilitate been approached by Mr Triulcio at his parliamentary office. business that his sons wanted to do. Mr Triulcio raised with him “a scheme ... that could save a lot of sick leave and absenteeism”. Edward Obeid Sr told Summary from chapter 6: Mr Triulcio to “get a fully explained brief and we’ll send it onto the Treasurer”. He could not recall any discussion with • The Obeids treat the whole of their operations Paul Obeid. Mr Triulcio, however, denied that he made this as a family unit, where – within that unit – the approach to Edward Obeid Sr and denied the conversation. actions of each individual are accepted to have been taken on behalf of the whole family. Edward Obeid Sr’s involvement in • All of the family’s diverse business interests operate for the benefit of the family as a whole. family business matters The family operates, in effect, as a single economic unit. If accepted, Paul Obeid’s evidence seeks to cast doubt on the proposition that Edward Obeid Sr had knowledge of • Edward Obeid Sr expressed pride in his sons and, the family business activities. It seeks to cast doubts on the implicitly, what they have achieved. He would extent his sons sought Edward Obeid Sr’s advice in relation derive pleasure from any major increase in their to those business activities. This aspect of Paul Obeid’s personal assets and any increase in their financial evidence coincides with evidence given by Edward Obeid Sr security, and that would increase the family pride himself. Edward Obeid Sr was at pains to distance himself he feels. from family business matters, referring to them as “the boys’ The Commission accepts that these findings, based as they businesses” and suggesting that, at the time, he no longer were on specific evidence not tested before the present had any connection with them at all. inquiry, should be approached with a degree of caution. In this regard, it is relevant to note that findings concerning The Commission, however, is entitled to have some regard a similar issue were made by this Commission in its July to a number of them, since they tend to reflect a pattern 2013 investigation report, Investigation into the conduct of Ian of general family and business behaviour. The Commission Macdonald, Edward Obeid Senior, Moses Obeid and others is not bound by the rules or practice of evidence and can (Operation Jasper). Those findings related to the Obeid inform itself on any matter in such manner as it considers family business affairs as they were structured in 2008. necessary or appropriate (see s 17(1) of the ICAC Act). However, the findings are relevant to, although not of It is apparent, however, that some matters are of limited course determinative of, the principal issue being examined use; for example, Edward Obeid Sr did not have an office in in the present inquiry. The following two lists are summaries Birkenhead Point in 2005. Apparently, at that time he was of findings taken from chapters 5 and 6 of the July 2013 content to meet and discuss business matters with his sons report. in the coffee shop downstairs. Paul Obeid said his father was at Birkenhead Point “frequently”. Secondly, it is unlikely that Edward Obeid Sr would have been specifically asked to give

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 55 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd CHAPTER 10: Operation Meeka – an overview

advice about the wisdom of the family investment in DHS – from a particular finding are considerations which it was relatively “small beer” in the scheme of things. must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of What the findings lend support for is this: the Commission the tribunal. In such matters “reasonable satisfaction” rejects those parts of Edward Obeid Sr’s evidence that should not be produced by inexact proofs, indefinite suggest that he had no involvement or interest in family testimony, or indirect inferences. business affairs whatsoever. It rejects his evidence that he was totally disinterested in the family trusts and their In Neat Holdings Pty Ltd v Karijan Holdings Mason CJ, activities. At all times, Edward Obeid Sr would have Brennan, Dean and Gaudron JJ said at 171: maintained a general interest in the family investments, while not necessarily being involved in the detail. His position …the strength of the evidence necessary to establish as the respected head of the family meant that, in general a fact or facts on the balance of probabilities may terms, his sons would have been frank and open with their vary according to the nature of what it is sought to father in any business matters they discussed with him. prove. Thus authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary “where so serious a matter as fraud is to be The critical question: did Edward found”. Statements to that effect should not however Obeid Sr know of the family be understood as directed to the standard of proof. interest in DHS? Rather they should be understood as merely reflecting a conventional perception that members of our society The facts concerning the meeting with Mr Costa and should not ordinarily engage in fraudulent or criminal its aftermath have already been recorded. There is no conduct and a judicial approach that a court should controversy in relation to the various structural changes not lightly make a finding that, on the balance of that occurred in connection with DHS. After some years, probabilities, a party to civil litigation has been guilty it appears that approximately $480,000 had been invested of such conduct. by the capital venturers in the project. Later, in about 2012, These authorities make it plain that in civil proceedings there the structure of DHS altered again when Mr Dundon are no hard and fast rules by which serious allegations can effectively bought out all other interests. be proved from circumstantial evidence. The question to It is necessary now to address the critical question. be asked is, taking due account of what was said in Neat Holdings Pty Ltd v Karijan Holdings, has the allegation been On behalf of Edward Obeid Sr, Mr Littlemore submitted proved on a balance of probabilities (Palmer v Dolman; that the evidence of Edward Obeid Sr, Paul Obeid and Dolman v Palmer [2005] NSWCA 361 per Ipp JA with Mr Triulcio left no room for a finding that Edward Obeid whom Tobias and Basten JJA agreed). The standard to be Sr knew in August 2005 of his family’s involvement applied remains the civil standard, even though a high level with DHS. Secondly, senior counsel submitted that the of satisfaction is required. in-principle agreement did not, in any event, become binding until September 2005, when the share restructure was In the Commission’s view, it has been shown on the balance implemented. Mr Littlemore placed particular reliance of probabilities that Edward Obeid Sr did know of his on the well known Briginshaw caution. He argued that, family’s financial involvement in DHS at the time he spoke particularly in the light of Edward Obeid Sr’s denial that he to Mr Costa and delivered Mr Dundon’s letter and brief to knew of his family’s involvement in DHS, the Commission the minister. The reasons that have led the Commission to would be slow to draw the inference that necessarily be comfortably satisfied as to this conclusion may be briefly required the rejection of this evidence. stated.

Briginshaw v Briginshaw has been quoted many times. It is First, the Commission accepts that there was a telephone helpful, however, to repeat Sir Owen Dixon’s statement at conversation between Paul Obeid and his father in which 361–362: the issue of an approach to Mr Costa was discussed. This conversation must have occurred shortly after the meeting Except upon criminal issues to be proved by the at which Mr Dundon suggested an approach to Mr Costa. prosecution, it is enough that the affirmative of an Paul Obeid had told those at the meeting he would make a allegation is made out to the reasonable satisfaction of telephone call and “find out how best to get a meeting with the tribunal. But reasonable satisfaction is not a state Mr Costa”. There can be no doubt that Paul Obeid took the of mind that is attained or established independently view that his father could secure an introduction with Mr of the nature and consequence of the fact or facts to Costa for them. Paul Obeid said he wanted to impress Mr be proved. The seriousness of an allegation made, Dundon. What better way to secure an introduction and the inherent unlikelihood of an occurrence of a given impress Mr Dundon than to arrange for his father to look description, or the gravity of the consequences flowing after the task? Paul Obeid and Mr Triulcio both appreciated

56 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd at the meeting that the relationship between Edward could save the government millions of dollars and we’d Obeid Sr and Mr Costa, and Edward Obeid Sr’s authority like to… make a presentation to the government and in and influence, might very well carry the day. Despite his particular Michael Costa. [Emphasis added] evidence to the contrary, Mr Dundon would have been in no doubt that Paul Obeid’s suggestion was a very good These words, by themselves, were apt to indicate to move. Edward Obeid Sr that the family and Mr Triulcio were involved financially in the proposal. This finding, coupled as it is with the acceptance of Mr Triulcio’s statement that he was not the one who had In any event, the Commission rejects so much of Paul approached Edward Obeid Sr and asked for a favour, means Obeid’s evidence that suggests he did not tell his father that Edward Obeid Sr’s evidence as to who approached him about the family involvement in DHS. It simply makes must be rejected. The Commission finds that Edward Obeid no sense that he would not have told his father of the Sr was not telling the truth when he insisted that it was Mr arrangement that had been reached between the Obeid Triulcio who approached him concerning the issue. family and Mr Triulcio. The company had been set up as long ago as April 2005 and the in-principle agreement had been The Commission is satisfied that Edward Obeid Sr operative in a financial sense since May or June 2005. As fabricated the Triulcio version to distance himself from the has been said, venture money had been handed over to Mr unhelpful fact that it was Paul Obeid who had asked him Dundon and there was already, in terms of the arrangement for assistance in getting into Mr Costa’s office. It is clear between the Obeid family and Mr Triulcio, a clear that Edward Obeid Sr fabricated this evidence precisely understanding that by August 2005 there was an obligation because, if it were accepted that he had been tasked by his to repay Mr Triulcio the family’s share of the money he had son to approach Mr Costa, it was then most likely, if not advanced towards the project. inevitable, that Paul Obeid would have told his father, at least in general terms, that the Obeid family had agreed to Secondly, it needs to be acknowledged, as Paul Obeid’s invest in DHS. Similarly, it was likely, if not inevitable, that evidence makes clear, that all the brothers had been Paul Obeid would have told his father that the investment consulted about the proposal for the investment in involved Edward Obeid Sr’s good friend, Mr Triulcio. Why DHS. They had discussed it in some detail and, after would Paul Obeid not mention these matters to his father? consideration, they had all agreed to make the investment. They were not matters to be concealed from the family. It simply makes no sense to suggest that Paul Obeid or one They were certainly not matters to be withheld from the of his brothers would not have mentioned the Obeid family well-respected head of the family. Indeed, they were matters involvement in the investment to Edward Obeid Sr. Edward that were highly likely to be mentioned and thus likely Obeid Sr was at the Birkenhead Point premises frequently to enthuse Edward Obeid Sr’s attention for the task he and there were regular family luncheons held at the Obeid undertook to carry out. household in Hunters Hill. The family was a close-knit group both socially and in a business sense. Paul Obeid said he did not like to discuss business matters over the phone. But surely that stricture did not apply to Thirdly, Edward Obeid Sr well knew who Mr Dundon was. his father? And, in any event, that is precisely what Paul He had seen him, if not met him, at Birkenhead Point and Obeid was doing: discussing business over the phone with would have noted that he had been working from those his father. premises for a period of approximately two months. The business connection between the Obeid family and Mr Although in his evidence Paul Obeid sought to distance his Dundon, whatever its precise content, would have been father from knowledge of the Obeid family involvement in obvious to Edward Obeid Sr. DHS, his evidence as to the conversation he had with his father carries with it, in its terms, the clear suggestion that Fourthly, if Mr Dundon and the others wanted to get the there was family involvement and further, involvement on material to Mr Costa, why did they not simply post it to the part of Mr Triulcio. The evidence was as follows: him? The answer is that they rightly apprehended that Edward Obeid Sr’s personal intervention with Mr Costa ...I was quite clear, I said that I have got a chap, Paul would be likely to result in an invitation to a meeting with Dundon … I mentioned Rocco as well and I said that the minister. But Edward Obeid Sr was no mere postman or there is a company, there’s a company that he wants courier. The fact that he personally took the letter and brief to get a meeting with the Government. [Emphasis to Mr Costa’s office indicates that he was providing a level added] of personal support to the entire venture and, in particular, to the proposed meeting. Again, it makes no sense, if he And: were being asked by Paul Obeid to go to this trouble and to What I mentioned [was] that Rocco brought Paul personally endorse the venture, that he would be kept in the Dundon to us with a great business concept and it dark.

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 57 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Finally, there are the matters referred to earlier as arising out of the findings in the Operation Jasper report. As has been said, Edward Obeid Sr would have maintained a general interest in the family investments, while not being involved in the detail. He would have expected that his sons would be frank about any business matters they discussed with him, especially if his involvement was being sought, as it was in this instance.

The Commission is satisfied on the balance of probabilities that Edward Obeid Sr knew of his family’s financial involvement in DHS at the relevant time. The Commission also finds that Edward Obeid Sr intended that his intervention in the matter would benefit his family’s financial interests in DHS. Consequently, he was under an obligation to inform Mr Costa about the Obeid family interest in the company, and this he deliberately refrained from revealing.

The Commission rejects the relevance of Mr Littlemore’s submission that the in-principle agreement may not have become legally binding until September 2005. Whatever the legal position, the plain fact of the matter is that, in terms of the understanding between the parties, there was as at August 2005 an acceptance by the Obeid family interests that they were to repay Mr Triulcio their share of any monies he had already advanced to DHS. Whether this understanding would have withstood court scrutiny in a legal context is not to the point. The parties were not in any sense in dispute and were content, even before formalisation, to regard the arrangements they had made as binding.

58 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Chapter 11: Operation Meeka – corrupt conduct findings and s 74A(2) statements

The Commission has set out its approach to the task of a statement made by Paul Obeid in his evidence that, had making findings of fact and of corrupt conduct earlier in this Mr Costa been told of the Obeid family interest in DHS, he report in relation to Operation Cabot. The Commission (Mr Costa) “would have run a mile”. adopts the same approach in connection with Operation Meeka. It is clear that this statement by Paul Obeid, however, was made very much with the benefit of hindsight. It is by no Edward Obeid Sr means clear that this would have been his attitude or approach back in 2005. The Commission has given careful consideration Edward Obeid Sr used his position as an MP to further his to Counsel Assisting’s submission but has concluded that own interests by arranging for Mr Costa to meet with Mr there is insufficient evidence to ground a finding that Paul Dundon and Mr Corn for the purpose of them (Mr Dundon Obeid knew that his father intended to conceal the family and Mr Corn) promoting the services of DHS to the NSW involvement from Mr Costa or that he, in fact, did so. Rather, Government so as to benefit DHS and without disclosing the Commission finds that Paul Obeid was at the time his family’s financial interest in DHS. His conduct was indifferent to the manner of approach likely to be taken by his conduct by a public official that involved the partial exercise father. Paul Obeid had complete confidence in his father to of his official functions (and therefore comes within succeed in interesting Mr Costa in the project. He would have s 8(1)(b) of the ICAC Act). His conduct also involved a left it entirely to his father to determine the best way to engage breach of public trust (and therefore comes within s 8(1)(c) the minister’s intention. He would not have turned his mind of the ICAC Act). On each basis, the conduct is corrupt to the question whether the Obeid family interest should or conduct within s 8 of the ICAC Act. should not be disclosed to Mr Costa.

The Commission is satisfied for the purposes of The Commission makes no finding of corrupt conduct s 9(1)(a) of the ICAC Act that, if the facts as found in against Paul Obeid. relation to Edward Obeid Sr were proved on admissible evidence to the criminal standard of beyond reasonable Section 74A(2) statements doubt and accepted by an appropriate tribunal, they would be grounds upon which such a tribunal would find The Commission is satisfied that Edward Obeid Sr and Paul that Edward Obeid Sr committed a criminal offence of Obeid are “affected” persons for the purposes of this matter. misconduct in public office. The conduct was both wilful The Commission is not of the opinion that consideration and serious enough to warrant criminal sanction. should be given to obtaining the advice of the DPP with Accordingly, the Commission is satisfied that the respect to the prosecution of Edward Obeid Sr for the jurisdictional requirements of s 13(3A) of the ICAC Act offence of misconduct in public office. This is because the are satisfied. Commission does not consider there is sufficient admissible evidence to make out the elements of the offence.

Paul Obeid The Commission is not of the opinion that consideration should be given to obtaining the advice of the DPP with Counsel Assisting submitted that an inference is open to respect to the prosecution of Paul Obeid for any criminal conclude that Paul Obeid knew of his father’s intention to offence. conceal the Obeid family interest in DHS from Mr Costa. A particular feature relied on to support this submission was

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 59 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Appendix 1: The role of the Commission

The ICAC Act is concerned with the honest and The role of the Commission is to act as an agent for impartial exercise of official powers and functions in, and changing the situation which has been revealed. Its work in connection with, the public sector of NSW, and the involves identifying and bringing to attention conduct which protection of information or material acquired in the course is corrupt. Having done so, or better still in the course of of performing official functions. It provides mechanisms so doing, the Commission can prompt the relevant public which are designed to expose and prevent the dishonest authority to recognise the need for reform or change, and or partial exercise of such official powers and functions then assist that public authority (and others with similar and the misuse of information or material. In furtherance vulnerabilities) to bring about the necessary changes or of the objectives of the ICAC Act, the Commission may reforms in procedures and systems, and, importantly, investigate allegations or complaints of corrupt conduct, promote an ethical culture, an ethos of probity. or conduct liable to encourage or cause the occurrence of corrupt conduct. It may then report on the investigation The principal functions of the Commission, as specified and, when appropriate, make recommendations as to any in s 13 of the ICAC Act, include investigating any action which the Commission believes should be taken or circumstances which in the Commission’s opinion imply considered. that corrupt conduct, or conduct liable to allow or encourage corrupt conduct, or conduct connected with The Commission can also investigate the conduct of corrupt conduct, may have occurred, and cooperating with persons who are not public officials but whose conduct public authorities and public officials in reviewing practices adversely affects or could adversely affect, either directly and procedures to reduce the likelihood of the occurrence or indirectly, the honest or impartial exercise of official of corrupt conduct. functions by any public official, any group or body of public officials or any public authority. The Commission may make The Commission may form and express an opinion as to findings of fact and form opinions based on those facts as whether consideration should or should not be given to to whether any particular person, even though not a public obtaining the advice of the Director of Public Prosecutions official, has engaged in corrupt conduct. with respect to the prosecution of a person for a specified criminal offence. It may also state whether it is of the The ICAC Act applies to public authorities and public opinion that consideration should be given to the taking of officials as defined in s 3 of the ICAC Act. action against a person for a specified disciplinary offence or the taking of action against a public official on specified The Commission was created in response to community grounds with a view to dismissing, dispensing with the and Parliamentary concerns about corruption which had services of, or otherwise terminating the services of the been revealed in, inter alia, various parts of the public public official. service, causing a consequent downturn in community confidence in the integrity of that service. It is recognised that corruption in the public service not only undermines confidence in the bureaucracy but also has a detrimental effect on the confidence of the community in the processes of democratic government, at least at the level of government in which that corruption occurs. It is also recognised that corruption commonly indicates and promotes inefficiency, produces waste and could lead to loss of revenue.

60 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Appendix 2: Making corrupt conduct findings

Corrupt conduct is defined in s 7 of the ICAC Act as c. reasonable grounds for dismissing, dispensing with the any conduct which falls within the description of corrupt services of or otherwise terminating the services of a conduct in either or both s 8(1) or s 8(2) and which is not public official, or excluded by s 9 of the ICAC Act. d. in the case of conduct of a Minister of the Crown or Section 8 defines the general nature of corrupt conduct. a Member of a House of Parliament – a substantial Section 8(1) provides that corrupt conduct is: breach of an applicable code of conduct. a. any conduct of any person (whether or not a public Section 13(3A) of the ICAC Act provides that the official) that adversely affects, or that could adversely Commission may make a finding that a person has engaged affect, either directly or indirectly, the honest or or is engaged in corrupt conduct of a kind described in impartial exercise of official functions by any public paragraphs (a), (b), (c), or (d) of s 9(1) only if satisfied official, any group or body of public officials or any that a person has engaged or is engaging in conduct that public authority, or constitutes or involves an offence or thing of the kind described in that paragraph. b. any conduct of a public official that constitutes or involves the dishonest or partial exercise of any of his Section 9(4) of the ICAC Act provides that, subject to or her official functions, or subsection 9(5), the conduct of a Minister of the Crown c. any conduct of a public official or former public or a member of a House of Parliament which falls within official that constitutes or involves a breach of public the description of corrupt conduct in s 8 is not excluded trust, or by s 9 from being corrupt if it is conduct that would cause a reasonable person to believe that it would bring the d. any conduct of a public official or former public integrity of the office concerned or of Parliament into official that involves the misuse of information or serious disrepute. material that he or she has acquired in the course of his or her official functions, whether or not for his or Section 9(5) of the ICAC Act provides that the her benefit or for the benefit of any other person. Commission is not authorised to include in a report a finding or opinion that a specified person has, by engaging in Section 8(2) specifies conduct, including the conduct of conduct of a kind referred to in s 9(4), engaged in corrupt any person (whether or not a public official), that adversely conduct, unless the Commission is satisfied that the affects, or that could adversely affect, either directly or conduct constitutes a breach of a law (apart from the ICAC indirectly, the exercise of official functions by any public Act) and the Commission identifies that law in the report. official, any group or body of public officials or any public authority, and which, in addition, could involve a number of The Commission adopts the following approach in specific offences which are set out in that subsection. determining whether corrupt conduct has occurred. Section 9(1) provides that, despite s 8, conduct does not First, the Commission makes findings of relevant facts amount to corrupt conduct unless it could constitute or on the balance of probabilities. The Commission then involve: determines whether those facts come within the terms of s 8(1) or s 8(2) of the ICAC Act. If they do, the a. a criminal offence, or Commission then considers s 9 and the jurisdictional b. a disciplinary offence, or requirements of s 13(3A) and, in the case of a Minister of the Crown or a member of a House of Parliament, the

ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing 61 the granting of water licences and the engagement of Direct Health Solutions Pty Ltd APPENDIX 2

jurisdictional requirements of s 9(5). In the case of such matters ‘reasonable satisfaction’ should not be s 9(1)(a) and s 9(5) the Commission considers whether, produced by inexact proofs, indefinite testimony, or if the facts as found were to be proved on admissible indirect inferences. evidence to the criminal standard of beyond reasonable doubt and accepted by an appropriate tribunal, they This formulation is, as the High Court pointed out in Neat would be grounds on which such a tribunal would find Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 that the person has committed a particular criminal ALJR 170 at 171, to be understood: offence. In the case of s 9(1)(b), s 9(1)(c) and s 9(1)(d) ...as merely reflecting a conventional perception that the Commission considers whether, if the facts as found members of our society do not ordinarily engage in were to be proved on admissible evidence to the requisite fraudulent or criminal conduct and a judicial approach standard of on the balance of probabilities and accepted that a court should not lightly make a finding that, on by an appropriate tribunal, they would be grounds on the balance of probabilities, a party to civil litigation which such a tribunal would find that the person has has been guilty of such conduct. engaged in conduct that constitutes or involves a thing of the kind described in those sections. See also Rejfek v McElroy (1965) 112 CLR 517, the Report of the Royal Commission of inquiry into matters in relation A finding of corrupt conduct against an individual is a to electoral redistribution, Queensland, 1977 (McGregor J) serious matter. It may affect the individual personally, and the Report of the Royal Commission into An Attempt professionally or in employment, as well as in family and to Bribe a Member of the House of Assembly, and Other social relationships. In addition, there are limited instances Matters (Hon W Carter QC, Tasmania, 1991). where judicial review will be available. These are generally limited to grounds for prerogative relief based upon Findings of fact and corrupt conduct set out in this report jurisdictional error, denial of procedural fairness, failing to have been made applying the principles detailed in this take into account a relevant consideration or taking into Appendix. account an irrelevant consideration and acting in breach of the ordinary principles governing the exercise of discretion. This situation highlights the need to exercise care in making findings of corrupt conduct. In Australia there are only two standards of proof: one relating to criminal matters, the other to civil matters. Commission investigations, including hearings, are not criminal in their nature. Hearings are neither trials nor committals. Rather, the Commission is similar in standing to a Royal Commission and its investigations and hearings have most of the characteristics associated with a Royal Commission. The standard of proof in Royal Commissions is the civil standard, that is, on the balance of probabilities. This requires only reasonable satisfaction as opposed to satisfaction beyond reasonable doubt, as is required in criminal matters. The civil standard is the standard which has been applied consistently in the Commission when making factual findings. However, because of the seriousness of the findings which may be made, it is important to bear in mind what was said by Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362: …reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In

62 ICAC REPORT Investigations into the conduct of the Hon Edward Obeid MLC and others in relation to influencing the granting of water licences and the engagement of Direct Health Solutions Pty Ltd Level 21, 133 Castlereagh Street Sydney, NSW, Australia 2000 Postal Address: GPO Box 500, Sydney, NSW, Australia 2001 T: 02 8281 5999 1800 463 909 (toll free for callers outside metropolitan Sydney) TTY: 02 8281 5773 (for hearing-impaired callers only) F: 02 9264 5364 E: [email protected] www.icac.nsw.gov.au Business Hours: 9 am - 5 pm Monday to Friday