ASIC v Lindberg (No 2)
[2010] VSCA 19
•19 February 2010
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No 3902 of 2009
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | |
| Applicant | |
| v | |
| ANDREW ALEXANDER LINDBERG (No 2) | Respondent |
---
| JUDGES: | MAXWELL P, BUCHANAN and WEINBERG JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 27 January 2010 |
| DATE OF JUDGMENT: | 19 February 2010 |
| MEDIUM NEUTRAL CITATION: | [2010] VSCA 19 |
| JUDGMENT APPEALED FROM: | Re AWB Limited (No 10) [2009] VSC 566 (Robson J) |
---
PRACTICE AND PROCEDURE – Abuse of process – Stay of proceedings – Civil penalty proceedings – Two sets of proceedings with related subject-matter – First proceeding commenced in 2007 – Second proceeding instituted in 2009 after failed attempts to include allegations in first proceeding by amendment – Whether reasonable explanation for failure to include allegations when first proceeding issued – Prejudice to respondent by reason of delay – Appellant acting in public interest – Whether issue of second proceeding circumvented rulings refusing leave to amend – Appeal allowed – Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 23.01.
---
| APPEARANCES: | Counsel | Solicitors |
For the Applicant | Mr M J Colbran QC with | Australian Securities and Investments Commission |
| For the Respondent | Mr D G Collins SC with Mr K J A Lyons and Ms M Tittensor | Galbally & O’Bryan |
MAXWELL P
BUCHANAN JA
WEINBERG JA:
Introduction
On 19 December 2007, the appellant (‘ASIC’) brought a proceeding (‘the first proceeding’) against the respondent alleging breaches of the respondent’s duties as a director and officer of AWB Ltd (‘AWB’) arising out of the alleged payment of fees, said to be transportation and service fees, to the former government of Iraq.
ASIC sought declarations, civil penalties and injunctions. The breaches of duty were pleaded as contraventions of ss 180(1) and 181(1) of the Corporations Act 2001 (Cth). ASIC alleged that the payments were bribes to facilitate the sale of wheat by AWB to the Iraqi Grain Board. ASIC alleged that the purpose of the fees paid by AWB was to allow the government of Iraq to obtain internationally traded currency and thereby circumvent United Nations sanctions against Iraq.
Between 1996 and 2003, the United Nations operated the Oil-for-Food Programme, whereby proceeds from Iraq’s oil imports were held in a United Nations escrow account and, where authorised by the United Nations, used by Iraq to buy humanitarian goods. During this period, United Nations resolutions otherwise prohibited the provision of any financial or economic benefit to Iraq, including the provision of hard currency.
AWB sold wheat to the Iraqi Grain Board under the Oil-for-Food Programme. Between 1999 and 2003, Iraq imposed and AWB paid a purported inland transportation fee in connection with all AWB shipments of wheat to Iraq. The fee was paid by AWB in hard currency to a Jordanian company which was part owned by the government of Iraq. From 1999, each AWB contract with Iraq was inflated by the amount of the purported inland transportation fee and this amount, having been paid to the Jordanian company, was later obtained by AWB from the United Nations’ escrow account. The inland transportation fee was a sham, for neither AWB nor the Jordanian company in fact organised or provided transportation of wheat inside Iraq. In an effort to evade detection of AWB’s payment of the sham fees and their recovery from the United Nations’ escrow account, the sham fees were not referred to in the contracts submitted by AWB to the United Nations for approval, the contracts referred to meaningless or sham trade terms and the fees were paid to the Iraqi Grain Board via the Jordanian company.
The respondent was appointed Managing Director of AWB in 2000. ASIC alleged that by February 2001, the respondent knew or ought to have known that the fees were bribes to enable the government of Iraq to obtain currency and were or were likely to constitute contraventions of the United Nations sanctions. ASIC alleged that the respondent breached his duty by ‘authorising, permitting or assisting’ AWB to enter the relevant contracts. The statement of claim contained detailed allegations regarding five contracts which AWB had entered into over the period December 20001 – December 2002 (‘the five contracts’).
ASIC also alleged that by November 2002 the respondent knew or ought to have known that AWB had agreed:
(a)to pay an Iraqi Grain Board claim for the delivery of contaminated wheat by AWB to it by inflating the price of wheat on subsequent contracts and paying hard currency to the government of Iraq; and
(b)to help the Tigris Corporation recover a debt owed to it by the Iraqi Grain Board for a previous shipment of wheat by BHP (the debt having been assigned to Tigris) by AWB inflating the price of wheat sold by AWB to the Iraqi Grain Board.
It was alleged that the respondent had breached his duty by causing or permitting these things to occur.
The first proceeding was thus concerned with alleged breaches of the respondent’s duties committed in the period 2000–2002, before the government of Iraq fell and the payment of the fees ceased (‘the pre-war allegations’).
The amendment applications
On 21 November 2008 Robson J ordered that the first proceeding be listed for trial on 13 July 2009 and that ASIC deliver a list of documents and witness statements. ASIC did not provide the list of documents or witness statements. Instead, on 1 May 2009, ASIC applied to amend the statement of claim. The proposed amendments sought to raise a number of new allegations of breach of duty by the respondent. The application to amend the statement of claim was refused.[1]
[1]Re AWB Limited (No 3) [2009] VSC 209.
Robson J held that ‘[t]he fact that the trial date will be vacated if the amendment is allowed is the main prejudice to Mr Lindberg’.[2] That was so because many of the matters complained of by ASIC had happened some nine years earlier. Further, delay would ‘unfairly prejudice Mr Lindberg in the conduct of his defence … in the context where his professional reputation and character is at risk’.[3] His Honour said that ‘[n]o satisfactory explanation was provided … for ASIC not having raised these allegations earlier to avoid the trial date being vacated’.[4]
[2]Ibid [52].
[3]Ibid [44].
[4]Ibid [43].
On 4 June 2009, however, on the application of ASIC, the trial date was refixed to 19 October 2009. ASIC again applied for leave to amend its statement of claim. The application largely failed,[5] not because the amendment would delay the trial but because of the form of the proposed amendments, which were variously described by Robson J as ‘embarrassing’, ‘too vague, general and unintelligible’ and failing to allege material facts.
[5]Re AWB Limited (No 5) [2009] VSC 258.
On 6 August 2009, ASIC renewed its application to amend the statement of claim after casting the allegations in a different form. Once again, the application was refused.[6] The reasons for the refusal are considered below.[7] An application for leave to appeal to this Court from that decision was refused.[8] The Court observed that the proposed amendment raised new material, which might properly be the subject of a further proceeding. In the course of the appeal hearing, counsel for ASIC said that his client was contemplating that course.
[6]Re AWB Limited (No 7) [2009] VSC 413.
[7]See [59]–[67] below.
[8]ASIC v Lindberg [2009] VSCA 235.
The allegations of conduct after March 2003
Amongst the allegations which ASIC sought unsuccessfully to add by amendment were allegations that, in the period after March 2003, the respondent had misled the board of AWB about various matters. As will appear, attention was focused on three particular sets of allegations, which have been identified throughout as ‘Project Rose’, ‘the Independent Inquiry Committee (”IIC”) Investigation’ and ‘the Tigris Agreement’ respectively.
In what follows, we will refer to these three sets of allegations collectively as ‘the post-war allegations’. The first two concerned investigations, commenced after the fall of the Iraqi government, into AWB’s pre-war dealings. The third concerned a post-war transaction. In each case, it was alleged that the respondent had either failed to inform the AWB board, or had misled the board, about relevant matters.
The hearing of the first proceeding commenced on 19 October 2009. On 6 November 2009, ASIC commenced a second proceeding against the respondent (‘the second proceeding’). The statement of claim in the second proceeding included the post-war allegations which Robson J had refused to permit ASIC to include (by amendment) in the first proceeding.
On 11 November 2009, the respondent sought an order that the second proceeding be permanently stayed, pursuant to r 23.01 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) or, alternatively, in the exercise of the inherent jurisdiction of the Court. On 9 December 2009, Robson J made an order permanently staying the second proceeding, holding that the second proceeding constituted an abuse of the Court’s process.[9]
[9]Re AWB Limited (No 10) [2009] VSC 566.
Robson J said that, although the allegations in each proceeding were ‘technically different’, in substance the complaints in both cases were founded on the same allegation, namely, that the respondent knew or ought to have known that the payment of inland transportation fees was in fact the payment of bribes for the purpose of allowing the government of Iraq to obtain hard currency.[10] The same issue was raised in the second proceeding as in the first, but extended to a later time period. His Honour found that ASIC had all the material it relied upon to support the second proceeding as early as December 2007, when the first proceeding was instituted. He said that there was a sufficient degree of overlap between the proceedings to raise a prima facie case of abuse of process and that there was ‘no reasonable justification’ for the second proceeding in that ‘ASIC should and could have made the allegations in the first proceeding’.[11]
[10]Ibid [273].
[11]Ibid [286].
His Honour said that it was unfair for the respondent to have to defend the first proceeding while defending the second proceeding. If the second proceeding was stayed pending the hearing and determination of the first proceeding, Robson J said that the respondent would be prejudiced in the presentation of his defence by the existence of the second proceeding. If the proceedings were consolidated and heard in the future, his Honour said that would involve ‘a circumvention of my decision on the amendment applications’ and thereby ‘deny Mr Lindberg the fruits and benefits of successfully opposing ASIC’s applications to amend’.[12] Robson J referred to the considerable publicity given to ASIC’s opening in the first proceeding, which he said was especially damaging to the respondent’s credit and reputation, and added that he ‘should not have to put up with it twice if that can be avoided’.[13]
[12]Ibid [295]. See [52]–[68] below.
[13]Ibid [302].
The power which his Honour invoked was the ‘inherent jurisdiction [of the Court] to stay its proceedings as an abuse of process if the proceedings are unjustifiably oppressive and vexatious or manifestly unfair or otherwise bring the administration of justice into disrepute among right-thinking people.’[14] His Honour acknowledged that the jurisdiction was only to be exercised in exceptional cases, sparingly and with the utmost caution.[15]
[14]Walton v Gardiner (1993) 177 CLR 378; Rogers v R (1994) 181 CLR 251; Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75.
[15]Jago v District Court of New South Wales (1989) 168 CLR 23.
In addition to holding that the second proceeding constituted an abuse of the Court’s process, Robson J also held that the respondent had established an estoppel based upon the decision of the High Court in Port of Melbourne Authority v Anshun Pty Ltd.[16] His Honour held that an Anshun estoppel could be established even though the first proceeding had not been determined.
[16](1980) 147 CLR 35 (‘Anshun’).
Leave to appeal
ASIC wishes to appeal from the decision. A threshold question is whether ASIC requires leave to appeal.
An order striking out, dismissing or staying a proceeding because it is an abuse of process is generally regarded as interlocutory.[17] In Anshun, however, Gibbs J said that Tampion v Anderson[18] had nothing to say about ‘a case in which the abuse of process lies in an attempt to litigate an issue which is res judicata’.[19] Accordingly, to the extent to which the trial judge’s decision rested on estoppel, it may be final notwithstanding the lack of a final determination founding the estoppel.
[17]See Tampion v Anderson (1973) 3 ALR 414; Little v State of Victoria [1998] 4 VR 596; Re Luck (2003) 203 ALR 1, [9] (McHugh ACJ, Gummow and Heydon JJ).
[18](1973) 3 ALR 414.
[19]Port of Melbourne Authority v Anshun Pty Ltd (1980) 147 CLR 35, 38.
In any event, we will grant leave for we consider, for the reasons that follow, that the decision below is wrong and substantial injustice would be done by leaving the decision unreversed.[20]
[20]Neimann v Electronic Industries Ltd [1978] VR 431.
The difference between the proceedings
In refusing the third application by ASIC (August 2009) to amend the first proceeding, Robson J was at pains to emphasise the distinction in time and substance between the allegations in the first proceeding and the allegations in the proposed amended statement of claim. He said:
In my view, the attempts by ASIC to extend its complaints to Mr Lindberg’s conduct after the Government of Iraq had fallen, and to the alleged conduct of using bogus inland transportation fees to channel money to the former regime which had by necessity ceased, seeks to introduce different issues altogether which are not for the purpose of determining the real questions in controversy but rather raise new questions.[21]
[21]Re AWB Limited(No 7) [2009] VSC 413, [10].
As ASIC pointed out on this appeal, however, his Honour subsequently relied upon what he said was a substantial identity of issues between the two proceedings, in concluding that the second proceeding was an abuse of process. He said that there was ‘a sufficient degree of overlap between the first and second proceedings to raise a prima facie case of abuse of process’.[22]
[22]Re AWB Limited (No 10) [2009] VSC 566, [285].
As his Honour noted, the common element in the proceedings was the allegation of knowledge, actual or imputed, on the part of the respondent that the inland transportation fees paid by AWB were in fact bribes designed to enable the government of Iraq to obtain hard currency. A substantial distinction between the proceedings lay, however, in the nature of the allegations of breach. In the first proceeding, the respondent was alleged to have erred in failing to prevent AWB from entering into the relevant contracts and agreements.[23] The second proceeding was concerned with the progressive laying bare of AWB’s misconduct by its competitors and the IIC Investigation. The respondent was alleged to have breached his duty to the board in falsely assuring it that AWB had acted properly and in seeking to explain away the allegations of AWB’s wrongdoing.
[23]See [5]–[6]. above.
Another substantial distinction between the proceedings concerned the alleged knowledge of the respondent. The first proceeding depended upon the respondent’s being proved to have known the true nature of AWB’s payments at or prior to the fall of the government of Iraq in March 2003. The second proceeding was not so limited. Even if the respondent was unaware in the pre-war period of the true nature of AWB’s payments, ASIC could succeed in the second proceeding if it established that the respondent knew the truth when he later assured the board of AWB that the allegations against the company were false.
On this analysis, the degree of overlap was quite modest. The two proceedings involve distinct types of wrongdoing, alleged to have been committed in different periods.
Was ASIC’s conduct unreasonable?
An important element in the decision to stay the second proceeding was his Honour’s finding that ASIC acted unreasonably in failing to incorporate in the first proceeding the allegations made in the second proceeding. He said, ‘ASIC had all the material evidence that it now relies on to support the second claim as early as December 2007’ for ‘all the material evidence was disclosed in the Cole Report.’[24]
[24]Re AWB Limited (No 10) [2009] VSC 566, [277], [279].
With respect, this conclusion of fault overlooked three matters. First, the evidence which Commissioner Cole received and set out in his report for the most part was not in the form that could establish a case in court. Secondly, Commissioner Cole’s opinion was that the testimony he had heard was not sufficient to establish wrongdoing on the part of the respondent.
Thirdly, his Honour did not direct attention to evidence which demonstrated that ASIC had properly employed its limited resources in establishing the existence of evidence to enable it to launch the first proceeding before it was barred by the effluxion of time. The evidence was given in a detailed affidavit by Brendan Caridi, a senior manager employed by ASIC.
His Honour shortly rejected Mr Caridi’s explanation as unsatisfactory, saying:
Mr Caridi sought to explain that ASIC’s failure to plead [the post-war allegations] was because ASIC was focused on the five contracts the subject of the first proceeding and not focused on other possible breaches of the Corporations Act 2001.[25]
In fact, Mr Caridi’s explanation was lengthy and detailed, as senior counsel for ASIC pointed out on the appeal. What follows is a summary of that explanation, with relevant extracts from Caridi’s evidence.
[25]Ibid [116].
In the period February to August 2007, ASIC participated in a task force set up by the Commonwealth Attorney-General, in accordance with the Royal Commissioner’s recommendations, to investigate the findings contained in his report. The task force was led by the Australian Federal Police. Nine ASIC staff participated in the work of the task force. They were withdrawn on 28 August 2007, when ASIC commenced its own investigation under s 13 of the Australian Securities and Investments Commission Act2001 (Cth) (‘ASIC Act’) to examine suspected breaches of the Corporations Act 2002 (Cth) identified by the Royal Commissioner.
Critical to an understanding of what followed, however, is the reason which Mr Caridi gave for ASIC’s commencement of its own, separate, investigation. ASIC took this step, he said, because it was:
concerned that the statutory limitation period for bringing civil proceedings in respect of some of the conduct considered by the Cole Inquiry had expired or would expire in the near future, and because the Task Force had not started to investigate possible civil penalty contraventions …[26]
[26]Affidavit of Brendan Francis Caridi, 16 November 2009.
Mr Caridi set out the text of the statutory notices issued by ASIC from 28 August 2007, in which the scope of the ASIC Act investigation was defined as:
an investigation into suspected contraventions of sections 180, 181, 182, 184, 1307(1) and 1309 of the Corporations Act 2001 (“the Act”), sections 135.1(7), 135.4 (7) and 136.1 of the Criminal Code (Cth) and sections 81, 82 and 321 of the Crimes Act 1958 (Vic) concerning the affairs of -
AWB Limited (ACN 081 890 459); and
AWB (International) Limited (ACN 081 890 413),
arising out of, or in connection with the supply of wheat to Iraq, in particular in relation to contracts for the supply of wheat numbered A1111, A1112, A1441, A1670 and A1680.
According to Mr Caridi’s affidavit:
The ASIC Act investigation was not intended to be (and could never be) an exhaustive examination of every aspect of all conduct considered by the Cole Inquiry. At all times, the investigation (which is on-going) has focused upon what appears to be the most serious corporations-related conduct capable of proof. Initially, this meant that the investigation was guided almost exclusively by the Cole Report’s findings in relation to possible breaches of the Corporations Act.
Despite the wider ambit of the investigation as a whole (as described above), from the outset of the ASIC Act investigation, ASIC was concerned that:
limitation periods in respect of civil penalties contraventions in connection with Oil-for-Food contracts prior to contract A1111 had already expired or would expire before ASIC would be able to commence proceedings;
limitation periods in respect of civil penalties contraventions in connection with contracts A1111 and A1112 might expire in late December 2007;
limitation periods in respect of civil penalties contraventions in connection with contracts A1441, A1670 and A1680 might expire during 2008;
and accordingly, that the ASIC Act investigation should focus in the first instance on civil penalties contraventions in connection with contracts A1111, A1112, A1441, A1670 and A1680 (the five contracts), with a view to filing proceedings by no later than 20 December 2007.
ASIC’s investigation of conduct in relation to the five contracts focused on those AWB officers (including Mr Lindberg) who were involved in entering into and carrying out those contracts, who had supervisory responsibility in relation to those contracts, and/or who had involvement in events relating to those contracts, such as the Tigris transaction and the iron filings claim. In light of the looming limitations deadlines, this early phase of the investigation was focused on those persons’ conduct in relation to, or arising out of, the five contracts, and did not examine those persons’ conduct more broadly.
In any event, as of late 2007, ASIC had no reason to think that there might be reason to investigate Mr Lindberg's conduct beyond the five contracts. In particular, while those involved in the ASIC Act investigation were aware of Project Rose, Project Water and the Volcker Inquiry in a general way, those matters were not a priority in terms of investigation, and ASIC had no spare resources available to investigate them. In this respect I refer to the tasks that ASIC was required to undertake in preparation for the first proceeding and the other five civil penalties proceedings, as referred to below.[27]
[27]Emphasis added.
Unsurprisingly, ASIC’s decision-making reflected the availability of investigative resources. In this regard, the critical section of Mr Caridi’s affidavit was the following:
As at late 2007, ASIC did not have any additional resources to devote to what at that time would have been a speculative investigation into Mr Lindberg’s communications to the Board of AWB in relation to Project Rose, the Volcker Inquiry and the Tigris Agreement. I say that such an investigation would have been speculative because Mr Lindberg’s conduct in that respect was not the subject of adverse findings in the Cole Report (and in relation to Project Rose and the Volcker Inquiry was not the subject of any findings whatsoever), and had not otherwise been the subject of any complaint to ASIC.
In order to have undertaken such an investigation, ASIC would have needed to divert resources from its investigation of conduct in connection with the five contracts. Given the significant findings of wrong doing that had been made by Commissioner Cole in relation to such conduct, in my view it would have been wrong for ASIC to have diverted its resources in this manner, and thereby delayed the preparation of the December 2007 proceedings, and run a very real risk that those important proceedings would become statute-barred.
ASIC has a finite budget and limited number of staff, and must focus on obtaining the greatest possible public benefit with the available resources. In ASIC’s deterrence role, this typically means that resources must necessarily be focussed upon investigating and litigating those aspects of a given matter that disclose conduct of a serious nature, and that the allocation of resources is guided by the information at hand suggestive of unlawful activities.
From the beginning of the ASIC Act investigation, ASIC focussed on investigating matters that had been identified by Commissioner Cole as potential breaches of the Corporations Act and related breaches of other laws. In my experience, that course was the obvious and most appropriate course to take. It would have been impractical and counter-productive to divert resources to review material not of direct relevance to the findings that were being investigated.
The first proceeding was filed on 19 December 2007, together with civil penalty proceedings against five other defendants. Thereafter, the ASIC Act investigation continued, but its focus changed. According to Mr Caridi:
At this time, aside from the matters pleaded against the defendants to the December 2007 proceedings, ASIC was not aware of any likely civil penalties breaches that might warrant further investigation. Accordingly, the focus of the ASIC Act investigation switched to consideration of the suspected criminal breaches of the Corporations Act identified in the Cole Report. As stated above, the Cole Report did not recommend the investigation of any such breaches in relation to Mr Lindberg.
In March and April 2008, several of the defendants to the 2007 proceedings notified ASIC that they were contemplating seeking a stay of those proceedings, because of the possibility of criminal charges against them relating to the same matters. Stay applications were subsequently filed by all six defendants, in late April 2008 and (in the case of the respondent) early May 2008. The applications were heard in July 2008 and judgment was handed down on 12 November 2008. His Honour stayed all of the proceedings except that against the respondent.
In the period March to November 2008, ASIC did not consider or investigate the possibility of additional civil penalty allegations against the respondent. The explanation given by Mr Caridi was as follows:
As a result of the conclusions reached by Commissioner Cole, at that time ASIC had no cogent reason to believe or suspect that additional civil penalties breaches might have been committed by Mr Lindberg (beyond those already identified and pleaded in the first proceeding).
ASIC took the view that as a result of the stay applications brought by the defendants to the December 2007 proceedings, there was great uncertainty as to whether, and if so when, the December 2007 proceedings might be permitted to continue, and accordingly there was little utility in devoting scarce resources to matters that were effectively (and at that time, indefinitely) stayed.
Each of the six civil penalties defendants had argued (in summary) that the civil penalties proceedings should not continue unless and until it became clear whether criminal charges would be brought in relation to the same or substantially the same conduct. ASIC therefore took the view that the best means of ensuring that the civil penalties proceedings (or at least some of them) could proceed was to focus resources on the investigation of criminal offences and thereby resolve as quickly as possible the question of whether any, and if so, which, of the civil penalties defendants would be the subject of a brief to the Commonwealth Director of Public Prosecutions and therefore which defendants would be likely to have criminal charges brought against them in relation to the same or substantially the same conduct.
On 12 December 2008, following the refusal of his stay application, the respondent filed his defence to the first proceeding. According to Mr Caridi, ASIC came to the view, after considering that defence, that it was very likely that matters which would be the subject of evidence in the trial of the first proceeding would also be in issue in each of the other 5 December 2007 proceedings which had been stayed. In order to avoid multiple hearings in respect of the same, or substantially the same, factual matters, ASIC on 21 January 2009 filed its own stay application, seeking to have the first proceeding stayed until it could be heard together with the other five December 2007 proceedings. The application was heard on 19 February 2009. On 24 February his Honour delivered judgment refusing the application.
Mr Caridi’s affidavit described how, in the period August 2008 to April 2009, the continuation of work in the investigation led to a conclusion by ASIC that the post-war allegations could, and should, be introduced into the first proceeding ‘so that all the relevant issues and alleged causes of action concerning the defendant could be agitated and determined in the one proceeding.’ Mr Caridi summarised the development of ASIC’s thinking in these terms:
The fact that Commissioner Cole did not make any adverse findings against Mr Lindberg meant that the ASIC Act investigation proceeded initially on the assumption that Mr Lindberg was unlikely to have committed any breach of relevant laws, and later on the assumption that his conduct in relation to the five contracts—as pleaded in the first proceeding—represented the totality of his wrongdoing. As a consequence of this, prior to early 2009 the investigation and litigation of additional contraventions by Mr Lindberg was not a priority. Further, as the regulator responsible for enforcing the provisions of the Corporations Act as a model litigant, ASIC needed to ensure that it had a proper legal and evidentiary basis for alleging, in accordance with its belief, that Mr Lindberg had committed additional—and very serious—breaches of the Corporations Act.
As a result of the matters described above it was not until early April 2009 that ASIC considered that there was sufficient evidence available to plead new allegations against Mr Lindberg to the effect that he either failed to give material information to the AWB Board, or gave material information that was false or misleading, in relation to:
·the progress and findings of Project Rose;
·the concerns and proposed findings of the Volcker Inquiry; and
·the content of the Tigris Agreement.
Senior counsel for the respondent was given leave to cross-examine Mr Caridi on his affidavit. The content of the affidavit went virtually unchallenged, however. No issue was taken with any aspect of the chronology, nor was it suggested that Mr Caridi had in any respect misrepresented the course of the decision-making in ASIC, or the reasons for it. Rather, the cross-examination was directed at establishing that ASIC could, and should, have included the post-war allegations in the first proceeding when it was filed in December 2007. Senior counsel sought to make the point, which his Honour ultimately accepted, that once ASIC had concluded in December 2007 that the respondent had had pre-war knowledge of the illegal payments, it would have been but a small step to allege that his post-war dealings with the AWB board must necessarily have been misleading and therefore in breach of his duties.
In response, Mr Caridi repeated – a number of times – what he had stated in his affidavit, namely, that ASIC’s ‘entire focus’ in the period August to December 2007 was on the five contracts[28] and on the respondent’s pre-war knowledge of them. The following exchange is illustrative:
COUNSEL:Once you’d reached a conclusion [about Mr Lindberg’s pre-war knowledge], didn’t it follow that Mr Lindberg must have misled the Board from that time on because he had actual knowledge of the wrong-doing but he was purporting to have examinations conducted, investigations and reporting that the investigations didn’t disclose there had been any reporting?
CARIDI:To you it might be that we must have, but the fact is that it was not the investigation priority at that point.
[28]See [5] above.
Mr Caridi acknowledged that, by December 2007, ASIC had formed a different view from the Royal Commissioner regarding the five contracts. He said:
In December of 2007 we disagreed with Commissioner Cole, respectfully, and we commenced proceedings. We weren’t looking in relation to whether he [Lindberg] misrepresented in terms of Project Rose. We hadn’t formed a different position to Commissioner Cole by that stage. In fact, we hadn’t during 2008 either. It was earlier this year [2009], when the trigger had been pulled in terms of – or the line had been crossed in terms of ASIC forming a different position against Commissioner Cole.
Thus, by December 2007 ASIC had formed the view that it could responsibly plead the pre-war allegations. But the consideration had gone no further. According to Mr Caridi, ASIC did not then contemplate further civil proceedings against the respondent, but no decision was made not to investigate the post-war conduct.
Senior counsel for the respondent asked Mr Caridi whether ASIC ‘thought it important’ to complete their investigations in relation to all potential civil penalty proceedings against the respondent so that they could be dealt with together. Mr Caridi responded:
Firstly, in relation to prior to 2007, it was not possible to complete the whole of the investigation before December of 2007. We had limitation periods that were bearing down upon us. January of 2008 onwards we were looking at the whole of the conduct, which incorporated a number of persons of interest and quite complicated conduct over a long period of time. At the point at which we felt that we were in a position to commence the further proceedings, we did commence those further proceedings, or attempted to.
Mr Caridi was prepared to accept counsel’s proposition that the task of investigating the post-war conduct might not have been ‘a difficult investigation requiring months of work by large numbers of people’, but pointed out that ASIC had other investigative priorities. Thus it was that, following the filing of the December 2007 proceedings, ASIC reduced the number of staff working on the AWB investigation, in order to release staff for other investigative activities.
In the course of the cross-examination, Senior counsel drew attention, as did the judge in his reasons,[29] to the fact that ASIC had on 4 December 2007 conducted a formal examination[30] of Mr Brad Cooper (an AWB manager). It was pointed out to Mr Caridi that, in the course of that examination, Mr Cooper was asked questions about dealings between the respondent and the AWB board at a July 2004 board meeting. Mr Caridi’s response was unequivocal:
At the time that Mr Cooper was examined, it was in relation to the five contracts. To the extent that we would have asked Mr Cooper questions relating to the [July 2004 board meeting] … it would be in relation to trying to establish that Mr Lindberg had particular knowledge, and [if] we did ask him that question … it would be to try to establish, for instance, that Mr Lindberg had a guilty mind which established that, at an earlier point in time, he was aware of the contracts being uplifted or uploaded with inland transportation fees.
[29]Re AWB Limited (No 10) [2009] VSC 566, [98], [114].
[30]Pursuant to s 19 of the ASIC Act.
Mr Caridi had expressly instructed his staff to conduct a series of such examinations, ‘the focus of which was in relation to the contracts, the five contracts. They weren’t to depart outside that, that was to be for another day …’.
ASIC’s conduct was not unreasonable
On this application, the onus rested upon the respondent to persuade the Court that the conduct of ASIC, as plaintiff, was unreasonable – indeed, so unreasonable that, taken together with the resultant prejudice to the respondent, it justified the Court in taking the extreme step of permanently staying the second proceeding. In our view, the respondent failed to discharge that onus. The judge fell into error in deciding that he had done so.
As will be apparent from what we have set out above, the evidence given by Mr Caridi was clear, cogent and consistent – and almost wholly unchallenged. Contrary to the submission made to the trial judge on behalf of the respondent, it was in no respect misleading. Mr Caridi did not suggest, either in his affidavit or in his cross-examination, that it was a lack of evidence as at December 2007 which explained ASIC’s failure to include the post-war allegations in the first proceeding. The judge correctly noted in his reasons that ASIC eschewed any such explanation.[31]
[31]Re AWB Limited (No 10) [2009] VSC 566, [118].
As Mr Caridi made emphatically clear, both in his affidavit and under cross-examination, the explanation was quite different. It rested on the administrative imperative which ASIC faced – as do other regulatory authorities – to make decisions about investigative priorities and about the effective deployment of limited investigative resources. Nothing emerged in the course of the evidence to suggest that the decisions which ASIC took were other than reasonable in the circumstances. The account given by Mr Caridi afforded, in our view, an entirely reasonable explanation for the decisions which ASIC took, and for the sequence of events which occurred, between August 2007 and April 2009.
It is clearly in the public interest, and wholly consistent with ASIC’s statutory obligations, that decisions about the institution of civil penalty proceedings be made with care. Although ASIC is not subject to a duty of fairness akin to prosecutorial fairness as such,[32] it is obliged to discharge the duty of fairness of all Commonwealth agencies in civil proceedings, and to act in that regard as a ‘model litigant’.[33] It must not be forgotten that ASIC is acting, in some respects, in a role analogous to that of a prosecutor when it commences a civil penalty proceeding.[34] In the circumstances which obtained at December 2007 it would have been quite improper for ASIC to have included the post-war allegations in its pleading. As Mr Caridi said, ASIC would not, and could not, do so until it had satisfied itself – by proper investigation – that such a case could be made out on admissible evidence.
[32]Adler v ASIC (2003) 46 ACSR 504, [671]–[678] (Giles JA); ASIC v Rich [2009] NSWSC 1229, [507] (Austin J).
[33]Scott v Handley (1999) 58 ALD 373 [45] (Spender, Finn and Weinberg JJ), cited with approval and applied in ASIC v Rich [2009] NSWSC 1229, [523]. See also ASIC v Loiterton [2004] NSWSC 172, [38], [270] where ASIC itself accepted that it had an obligation of ‘prosecutorial fairness’ in the conduct of civil penalty proceedings. In addition, see generally the Memorandum of Understanding between the Australian Securities Commission and the Commonwealth Director of Public Prosecutions dated 22 September 1992, and still in operation.
[34]ASIC v Adler (2002) 168 FLR 253, [1] (Santow J).
There can, in our view, be no criticism of ASIC’s decision in August 2007 to focus resources on those potential claims against the respondent (and the others) in relation to which the expiry of limitation periods was looming. Nor of the decision in the first part of 2008, to change the focus of the investigative work to possible criminal charges. Given what subsequently occurred – with the staying of five of the six civil penalty proceedings pending the outcome of criminal proceedings – this would seem to have been an entirely appropriate setting of priorities.
‘Circumventing’ the amendment applications
Senior counsel for the respondent informed the judge, and confirmed on the appeal, that if his application for a permanent stay of the second proceeding should fail, he would seek an adjournment of the first proceeding in order that it be consolidated with the second proceeding and heard with it at some time in the future. He would take this course in order ‘to lessen the prejudice that [the respondent] will otherwise suffer’.[35]
[35]Re AWB Limited (No 10) [2009] VSC 566, [294].
In his Honour’s view, the fact that the institution of the second proceeding would require an adjournment of the first proceeding, in order to minimise the adverse impact on the respondent, meant that to allow ASIC to conduct the second proceeding would involve:
a circumvention of my decision on the amendment applications. In other words, the institution of the second proceeding, unless stayed, will deny Mr Lindberg the fruits and benefits of successfully opposing ASIC’s applications to amend. It will lead to him suffering the very prejudice which I found would be unfair to him. In part the unfairness was the ever-increasing effluxion of time since disputed conversations were held as long ago as 2000 or 2001. In order to ensure Mr Lindberg received a fair trial on the allegations made against him, I considered it unfair to further adjourn the trial date.[36]
[36]Ibid [295].
His Honour continued:
If the second proceeding is not stayed, Mr Lindberg will either be vexed by two trials arising out of the same events with the other concomitant prejudices I have referred to, or he will be denied the benefits of the decision on the amendment application and be subjected to the unfairness that the decision sought to avoid. In my opinion, such a result would bring the administration of justice into disrepute among right-thinking people.
In any event, I consider that the bringing of the second proceeding to circumvent the result of the amendment applications brings the administration of justice into disrepute.[37]
[37]Ibid [301].
We do not take his Honour to have been suggesting – nor was it submitted on behalf of the respondent – that ASIC’s institution of the second proceeding was an improper attempt to ‘circumvent’ the result of the amendment applications. Rather, we take his Honour to have held – as the respondent submitted in this Court – that the effect of the second proceeding going ahead would be such a circumvention.
It was common ground on the appeal that if the second proceeding were not stayed, the hearing of the first proceeding should be adjourned to enable it to be consolidated and heard together with the second proceeding. (Senior counsel for ASIC made clear that ASIC would join with the respondent in seeking such an adjournment). It was likewise common ground that such an adjournment would cause the respondent to suffer the very prejudice – by reason of a delay of up to 12 months – which his Honour had treated as a significant factor bearing upon his refusal of ASIC’s applications to amend.
It does not follow, however, that the institution of the second proceeding is an abuse of process on that account. Contrary to his Honour’s view, we do not consider that these consequences for the respondent ‘would bring the administration of justice into disrepute among right-thinking people’. The putative ‘right-thinking person’ would, we have no doubt, be taken to have a good understanding of the fundamental difference between a plaintiff’s application to amend a pleading, on the one hand, and a defendant’s application for a permanent stay of the proceeding, on the other.
The present case illustrates these differences very clearly. As noted earlier,[38] the last of the amendment applications was heard by his Honour in late August 2009. His Honour’s ruling on this application was delivered on 18 September 2009, approximately one month before the date fixed for the commencement of the trial of the first proceeding.
[38]See [11] above.
As noted earlier, his Honour rejected ASIC’s application for leave to include the post-war allegations in its statement of claim. His Honour summarised his decision in these terms:
After carefully reviewing the statement of claim, the amended statement of claim and the further amended statement of claim, I have come to the conclusion that the questions in controversy relate to Mr Lindberg’s conduct prior to the fall of the Government of Iraq (that is the Government under the control of the Saddam Hussein). In my view, the attempts by ASIC to extend its complaints to Mr Lindberg’s conduct after the Government of Iraq had fallen, and to the alleged conduct of using bogus inland transportation fees to channel money to the former regime which had by necessity ceased, seeks to introduce different issues altogether which are not for the purpose of determining the real questions in controversy but rather raise new questions. In view of the short period until the trial begins, I have disallowed such amendments. As for the amendments sought to be made to the existing questions in controversy, I have generally allowed the amendments, save for some which I have previously disallowed. Accordingly, I have disallowed those claims relating to the Tigris Agreement, Project Rose and the IIC inquiry.[39]
[39]Re AWB Limited(No 7) [2009] VSC 413, [10] (emphasis added).
As his Honour’s detailed reasons make clear, the reference here to ‘the real questions in controversy’ was a reference to the provisions of r 36.01(1) of the Supreme Court (General Civil Procedure) Rules (Vic), which confer the Court’s power to permit amendments. That rule provides:
(1) For the purpose of—
(a)determining the real question in controversy between the parties to any proceeding; or
(b) correcting any defect or error in any proceeding; or
(c) avoiding multiplicity of proceedings—
the Court may, at any stage order that any document in the proceeding be amended or that any party have leave to amend any document in the proceeding.[40]
[40]Emphasis added.
Dealing first with the proposed allegations concerning Project Rose, his Honour said:
The allegations concerning Project Rose are new, although they were foreshadowed in the May claim. Insofar as they allege that Mr Lindberg was informed of a complaint by the Americans that AWB was engaging in conduct the UN sought to prevent and that he purported to have that allegation investigated, but failed to inform the AWB, those allegations do not appear to be for the purpose of determining the real question in controversy between the parties to the proceeding.
As discussed below, the allegation that Mr Lindberg knew of certain conduct and failed to inform the board of it is already pleaded in the contravention pleas and is limited to his conduct (including his failure to do things) during the period prior to the collapse of the Government of Iraq.
As to the allegations that Mr Lindberg misled the AWB board about the investigation and the truth of the situation, that is an entirely new allegation.[41]
[41]Re AWB Limited (No 7) [2009] VSC 413, [67]–[69].
Accordingly, his Honour concluded, the proposed amendments did not fall within r 36.01(1)(a) or (b). As to sub-r (1)(c), (‘avoiding multiplicity of proceedings’), his Honour said: ‘There is no evidence that ASIC will or could institute separate proceedings over this issue.’[42] His Honour had specifically asked senior counsel for ASIC whether there was any evidence that ASIC would institute separate proceedings, and was told that there was not. Mr Caridi confirmed in his evidence on the stay application that it was not until after the dismissal of its appeal to this Court against his Honour’s refusal of leave to amend.
[42]Ibid [71].
His Honour’s reasons in relation to the IIC Investigation were essentially the same.[43] In relation to the Tigris Agreement, his Honour reiterated that the ‘real question in controversy between the parties’ concerned the respondent’s knowledge up to the fall of the government of Iraq.[44]
[43]Ibid [76]–[79].
[44]Ibid [143]–[145].
His Honour concluded that, since none of the sub-paragraphs of r 36.01(1) was engaged, he had no discretion to permit any of the relevant amendments.[45] In other words, the amendment application failed not because of any prejudice to the respondent but because of his Honour’s view that giving leave to amend would serve none of the purposes for which the power under r 36.01(1) was conferred. This is the first, and perhaps the most important, difference between the character of ASIC’s amendment application and the character of the respondent’s application for a permanent stay.
[45]Ibid [71]–[72].
In the alternative, however, his Honour did proceed to consider what his decision would have been if (contrary to his own view) he did have a discretion in the matter. He said:
If [the court’s discretion was enlivened], then in my discretion I would not allow the amendments. ASIC led evidence which suggests that it did not discover that this plea was open until late February or early March of this year when it interviewed a board member. ASIC explained the history of the proceedings and how their investigative officers were originally helping the Commonwealth task force investigate the recommendations of the Cole inquiry. Be that as it may, the amendment seeks to add an entirely new question to the proceedings some two months before the trial starts.[46]
[46]Ibid [72] (emphasis added).
As appears from the words we have highlighted, his Honour here found it unnecessary to reach any concluded view about the sufficiency or otherwise of the explanation then advanced by ASIC as to the late decision to seek to include the post-war allegations. Rather, the decisive factor was the one earlier noted, that the amendment sought to add ‘an entirely new question to the proceedings some two months before the trial starts’. It was this aspect which, his Honour considered, would cause delay and prejudice. His Honour accepted that the amendment could lead to the trial date being vacated, in order to allow the respondent to deal with the new allegation:
The evidence of [the respondent’s solicitor] in his affidavit of 17 August 2009 suggests that the amendment could lead to the trial date being vacated to allow Mr Lindberg to deal with this new case. ASIC concedes that it would open up the trial to the knowledge of the board members. The amendment would greatly increase the scope of the trial. In my view, any further delay would be unfair to Mr Lindberg. His career has been put on hold and the strain of these proceedings on him must be intolerable.
ASIC refers to the important role it plays in protecting the public interest and cites the observations of Gray J in ASIC v West.[47] I accept entirely the importance of the duties ASIC performs in the public interest. However, the rules direct that the existing questions in controversy be heard promptly and the requirements of justice dictate that Mr Lindberg has the case against him resolved sooner rather than later.[48]
[47][2008] SASC 111, [6].
[48]Re AWB Limited (No 7) [2009] VSC 413, [73]–[74].
In short, the question which his Honour was required to address on the amendment applications was whether he had the power to permit amendments and, if so, whether that power should be exercised. His conclusion that he lacked the power turned on his view as to the scope and limits of the first proceeding (as to what ‘the real question in controversy’ was) and on the fact that there was no issue at that time of avoiding a multiplicity of proceedings. His alternative conclusion – that, if he had the power, he would not be inclined to exercise it – turned, not on any dissatisfaction with ASIC’s explanation, but rather on the lateness of the application and on the novelty of the allegations sought to be added.
The stay application raised quite different issues. It is a drastic step for a court to prevent a litigant from ever prosecuting a particular claim. The grant of a permanent stay is therefore a most exceptional course. It is one thing to refuse a late application for amendments in a proceeding set down for imminent trial. It is quite another to prevent a party from ever litigating a claim, especially when that party is a public authority acting in the public interest. On the latter application, the question for his Honour was whether the second proceeding could properly be characterised as an abuse of process.
Conclusion
In arriving at the conclusion that the second proceeding constituted an abuse of the Court’s process, his Honour mistook the facts in important respects and failed to take into account material considerations. Our reasons may be summarised as follows. First, in treating the second proceeding as if it were an echo of the first proceeding, his Honour failed to take into account the significant distinctions between the issues in the proceedings which he had identified in the earlier amendment ruling. Secondly, in characterising as unreasonable ASIC’s conduct in failing to incorporate in the first proceeding the allegations made in the second proceeding, his Honour failed to take into account evidence which established that ASIC had properly concentrated its limited resources on instituting proceedings in respect of causes of action which were on the point of becoming statute-barred. Thirdly, we think that his Honour in assessing (un)reasonableness gave insufficient attention to the public interest in the adjudication of allegations of significant wrongdoing in the conduct of an Australian company’s foreign business.
The anticipated consolidation of the proceedings will undoubtedly work real prejudice to the respondent. As noted earlier, it was common ground on the appeal that this was so. But in our view the prejudice associated with a delay of up to 12 months falls far short of the degree of prejudice which would be required to be established before the extreme step of a permanent stay could be justified.[49]
[49]Jago v District Court of New South Wales (1989) 168 CLR 23, 33–4 (Mason CJ).
As noted earlier, the parties were agreed that, if the second proceeding were not stayed, the proceedings should be consolidated. The question of an Anshun estoppel will therefore not arise.
Accordingly, we will allow the appeal and set aside the order that the second proceeding be permanently stayed.
- - -
19
21
0