Australian Securities and Investments Commission v Flugge
[2016] VSC 779
•15 December 2016
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2007 10077
IN THE MATTER OF AWB LIMITED (ACN 081 890 459)
BETWEEN:
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Plaintiff |
| v | |
| TREVOR JAMES FLUGGE | Defendant |
- AND -
S CI 2007 10081
IN THE MATTER OF AWB LIMITED (ACN 081 890 459)
BETWEEN:
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Plaintiff |
| v | |
| PETER ANTHONY GEARY | Defendant |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12, 13, 14, 15, 19, 20, 21, 26, 27, 28 and 29 October, 4, 5, 9, 10, 11, 12, 16, 17, 18, 19, 23, 24, 25, 26 and 30 November, 3, 7, 8, 10, 11, 14 and 15 December 2015. | |
DATE OF JUDGMENT: | 15 December 2016 | |
CASE MAY BE CITED AS: | ASIC v Flugge & Geary | |
MEDIUM NEUTRAL CITATION: | [2016] VSC 779 | First revision: 30 June 2017 |
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CORPORATIONS – Civil penalty proceedings – Alleged breach of ss 180 and 181 of the Corporations Act 2001 (Cth) (the Act) – Flugge chairman of AWB Limited (AWB) – Geary an officer of AWB – Whether Flugge and Geary breached these duties in failing to inquire into and stop conduct by AWB that was contrary to United Nations Resolutions – United Nations had called on Australia, and all other member nations of the United Nations, to prevent its nationals from engaging in certain conduct with Iraq – United Nations resolutions prohibited the provision of hard currencies to Iraq – ASIC alleged that AWB had, contrary to the United Nations resolutions, supplied hard currencies to Iraq as part of its sale of wheat to Iraq – United Nations Oil-for-Food Programme permitted proceeds from the sale of Iraqi oil that was held by the United Nations in an escrow account to be used to pay for humanitarian goods and services provided to Iraq – ASIC alleged that AWB used proceeds to pay for non-humanitarian goods and services supplied to Iraq – ASIC alleged such conduct caused considerable damage to reputation and assets of AWB – ASIC alleged that Flugge and Geary knew of or ought to have known of the improper conduct by AWB and failed to stop the conduct in breach of their duties under ss 180 and 181 of the Act.
CORPORATIONS – Duty of directors and officers to inquire into possible wrongful conduct being engaged in by the company.
CORPORATIONS – Six-year limitation period – Whether a breach of duty to inquire into possible improper conduct by officers of AWB imposed on the chairman Flugge continued whilst he continued to serve as a director such that his conduct fell within six‑year limitation period imposed under the Act.
EVIDENCE – Application of Jones v Dunkel in a civil penalty proceeding.
EVIDENCE – Use of inferences to establish breach of the Act.
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| APPEARANCES: In proceeding S CI 2007 10077 | Counsel | Solicitors |
| For the Plaintiff | Mr N J O’Bryan AM SC with Mr J P Moore QC, Mr C H Truong and Ms C E Klemis | ASIC |
| For the Defendant | Mr S K Dharmananda SC with Mr R F R Pintos-Lopez | Corrs Chambers Westgarth |
| In proceeding S CI 2007 10081 | ||
| For the Plaintiff | Mr N J O’Bryan AM SC with Mr J P Moore QC, Mr C H Truong and Ms C E Klemis | ASIC |
| For the Defendant | Mr I D Hill QC with Mr A Tragardh | Galbally & Rolfe |
HIS HONOUR:
Introduction
ASIC alleges that two former officers of AWB Limited (AWB), Trevor James Flugge (Flugge) and Peter Anthony Geary (Geary), breached their duties under ss 180 and 181 of the Corporations Act 2001 (Cth) (the Act). ASIC seeks civil penalties against the defendants.
In this judgment I have used ASIC’s reproduction of the terms of the relevant emails contained in the written submissions and have assumed that they are correct. There was no suggestion at the trial that ASIC had incorrectly reproduced the emails.
AWB was incorporated on 1 May 1998 and took over the business of the Australian Wheat Board. During the period relevant to these proceedings, AWB held an effective monopoly over the export of Australian grown wheat. One of AWB’s largest customers was Iraq. During this period, the sale of wheat to Iraq was subject to United Nations (UN) sanctions arising out of the First Gulf War.
In the period 1999 to 2003, ASIC contends that AWB sold wheat to Iraq in a manner contrary to UN sanctions. Initially during the First Gulf War in 1990, the UN imposed strict sanctions on trading with Iraq or the provision of internationally traded currencies to Iraq. In 1995, the UN established the Oil-for-Food Programme (OFFP). Under the OFFP, moneys from the sale of Iraqi oil was placed in an escrow account under the control of the UN, and moneys from the account could be applied towards the sale of wheat to Iraq (along with other humanitarian uses).
The case against Flugge and Geary relates to the alleged misuse of the moneys obtained by AWB from the escrow account. In particular, ASIC says that AWB sold wheat to Iraq under the OFFP in a manner contrary to UN sanctions. Under the OFFP, subject to UN approval, AWB could obtain the price of the wheat agreed to be purchased by Iraq from the UN escrow account (the escrow account established for the purposes of Resolution 986 of the United Nations Security Council, adopted on 14 April 1995 (Resolution 986) to which funds paid from the sale of Iraqi petroleum and petroleum products where required to be paid into (the UN escrow account)).
ASIC alleges that under contracts for the sale of wheat by AWB to Iraq entered into after June 1999, AWB was to pay Iraq an inland transportation fee(purportedly for the wheat to be distributed within Iraq). Under the arrangement, AWB was to compensate itself for the payment of the inland transportation fee by correspondingly inflating the price of the wheat to be paid by Iraq and obtaining the inflated price from the escrow account operated by the UN.
ASIC alleges that the payment of the inland transportation fee was a sham and a means by which Iraq could obtain internationally traded currencies. ASIC alleges that the payments of the fee to Iraq by AWB was contrary to UN sanctions. Further, ASIC says that AWB obtained the inland transportation fees from the UN escrow account and applied the moneys for a purpose, not permitted for the funds in the escrow account, by using the money to pay inland transportation fees.
Flugge was the chairman of AWB in the period 1999 until he lost office in March 2002, when he failed to win re-election to the board. Geary was an executive of AWB during the period 1999 to 2003.
In substance, ASIC’s case against Flugge is that he knew that AWB was acting contrary to UN sanctions in paying the inland transportation fees and using moneys obtained from the UN escrow account to do so, or alternatively, that if he did not know, that he was put on sufficient notice such that he ought to have made enquiries which would have alerted him to the breaches of UN sanctions. In either case, Flugge ought to have put a stop to AWB’s conduct.
In substance, ASIC alleges that Flugge breached his duties under ss 180 and 181 of the Act by failing to stop the offending conduct, or by failing to make adequate enquiries that should have led him to stopping the offending conduct.
Flugge left AWB in March 2002. The limitation period applicable to the allegations against Flugge means that his conduct in the last few months of his term as chairman of AWB is the only conduct that is subject to ss 180 and 181. Nevertheless, ASIC alleges that Flugge had a continuing duty to stop the offending conduct, or make enquiries that should have led him to stopping the offending conduct.
The case against Geary differs in that it involves two further transactions. These transactions occurred after Flugge had left AWB, and are not the subject of allegations made against Flugge.
ASIC describes the first transaction as the Iron Filings wrongdoing. In substance, ASIC alleges that AWB agreed to pay Iraq compensation for iron filings that were allegedly found in shipments of wheat made to Iraq by AWB under the OFFP. ASIC alleges that AWB and Iraq agreed on compensation and also agreed that AWB could inflate the price of wheat sold to Iraq under later contracts, recover the inflated price from the UN escrow account, and pay Iraq the agreed compensation. ASIC alleges that the payment of the compensation was in breach of the UN sanctions against paying internationally traded currencies to Iraq and also a misuse of the UN escrow account.
ASIC describes the second transaction as the Tigris wrongdoing. In brief, shortly after the First Gulf War, BHP sold some wheat to Iraq for humanitarian purposes. BHP was not paid for the wheat. Subsequently, the debt owed by Iraq to BHP was assigned to a company called Tigris. ASIC alleges that, AWB for a fee, with the agreement of Iraq, inflated the price of wheat to be purchased by Iraq under several contracts and used the inflated element to pay Tigris the money owed by Iraq to Tigris. ASIC alleges that this transaction was contrary to UN sanctions, as the escrow account moneys were being used for a purpose other than for humanitarian aid. There is no allegation that internationally traded currencies were paid to Iraq, as the money was to be paid to Tigris.
ASIC alleges that Geary, who was a senior executive in AWB, knew of the Iron Filings transaction and knew that it was contrary to UN sanctions but failed to stop it, or alternatively ought to have known and failed to stop it. Further, AWB alleges that Geary knew of the Iron Filings transaction and that it was contrary to UN sanctions and failed to stop it, or alternatively ought to have known and failed to stop it.
Further, ASIC also alleges that Geary knew of, or ought to have known of, the payment of the inland transportation fees and failed to stop them as alleged against Flugge.
In substance, ASIC alleges that Geary breached his duties under ss 180 and 181 of the Act, by failing to stop the Iraqi Grain Board (IGB) fees wrongdoing, failing to stop the Iron Filings wrongdoing and the Tigris wrongdoing, or failing to make proper enquiries which should have led to him doing so.
After the United States of America led the coalition invasion of Iraq in March 2003, AWB’s conduct was exposed. The Australian government established a Royal Commission to investigate the conduct of AWB. The Royal Commission made damning findings against AWB and many of its officers. As a result of the Royal Commission and the publicity surrounding the exposure of AWB’s conduct, AWB’s reputation was greatly sullied. The Australian government withdrew AWB’s monopoly on the export of wheat. AWB suffered financially and was eventually taken over.
The summary I have given is very general. The pleadings distinguish between Iraq and its agencies, such as the IGB. The inland transportation fees were increased over time and another fee, called the after sales service fee, was also imposed.
In my reasons below, I fully set out the pleadings and deal with each of the allegations. It would serve little purpose to more fully summarise the pleadings at this stage.
For the reasons given below, I find that Flugge did breach his duties as a director under s 180(1) of the Act, by failing to make adequate enquiries about the propriety of the payment of inland transportation fees and as a consequence, failing to stop AWB engaging in improper conduct in paying the inland transportation fees. I also find that the breach occurred during the period in which the Act permits penalty proceedings to be instituted against Flugge.
For the reasons given below, I find that Geary did not breach his duties in relation to the payment of the inland transportation fees to Iraq by AWB, or in relation to the Iron Filings Claim (the Iron Filings wrongdoing) and the payment of the Tigris Debt (the Tigris wrongdoing).
The outline of the judgment
The judgment proceeds as follows. I examine the evidence relating to Flugge, which also includes some facts relevant to Geary. The evidence includes both documentary evidence and evidence of witnesses. I then set out the matters pleaded against Flugge and make findings in relation to each pleaded fact. Finally, based on those findings, I reach my conclusions on the breaches of duty alleged against Flugge.
I then consider the evidence, both documentary and from witnesses, against Geary. I then set out in detail the pleadings against Geary and make findings in relation to each pleading. Finally, based on those findings, I reach my conclusions on the breaches alleged against Geary.
The nature of ASIC’s case against Flugge
ASIC describes ‘the IGB fees wrongdoing’ as AWB’s increasing of the contract price of wheat sold to Iraq to obtain payment of that increased price from the escrow account and then paying those moneys to Iraq.
ASIC alleges that Flugge knew of the IGB fees wrongdoing and that he had a duty to stop the IGB fees wrongdoing.
In many instances, ASIC seeks to establish Flugge’s knowledge by drawing inferences from documents that it contends that Flugge read of from conversations he had with certain witnesses. ASIC also seeks to rely on Jones v Dunkel[1] to more readily draw those inferences, as Flugge did not give evidence to seek to rebut inferences that ASIC sought to draw.
[1](1959) 101 CLR 298.
Importantly, ASIC also seeks to more readily draw the inference that Flugge knew of the IGB fees wrongdoing from the fact that the IGB fees wrongdoing was well known within AWB.[2]
[2]Plaintiff’s closing submissions of 10 December 2015 (PCS), [756].
ASIC alleges that the certain matters were widely known in AWB. In particular, ASIC alleges that by late October 1999 it was widely known in AWB:
(a)the inland transportation, or trucking, fee was fixed by the IGB;
(b)the President of Iraq required funds on account of the trucking fee to be paid to Iraq before any cargo of wheat was unloaded in Iraq;
(c)the fee was to be paid to Iraq, being a ‘refund’ of trucking charges to Iraq;
(d)because payments of US dollars to Iraq could not be made because of UN sanctions, a method of payment to circumvent those sanctions had to be found;
(e)payment of the fee could be hidden by having the shipowners pay it to the entity nominated by Iraq, with the charter party (between AWB and the shipowner) being amended to accommodate that payment; and
(f)payment of the fee to a Jordanian entity nominated by the IGB would further disguise the fact that the payment was being made to Iraq and represented an obvious breach of the sanctions.[3]
[3]PCS, [377].
There are other matters that ASIC alleges were widely known within AWB relating to the alleged IGB fees wrongful conduct and by which ASIC seeks to infer that Flugge also had the same knowledge. I will deal with these at the appropriate point in the discussion of the relevant facts.
ASIC’s final closing oral submissions submit that AWB knew that it was acting in a manner that was flagrantly in breach of its obligation, as imposed upon Australia under UN sanctions.[4]
[4]Transcript of hearing, ASIC v Geary & Flugge, (10 December 2015) T2841, L19 – 10, T2842.
ASIC contends that within AWB it was widely understood that money for the inland transport fees was being paid to the Iraqis. ASIC submits that it is very relevant when the Court is considering the likelihood that Flugge or Geary did not hear on any AWB grapevine about the existence of the IGB fees or what was happening. ASIC submits that given the extraordinary number of people within AWB who knew what was going on, it is highly unlikely that Flugge, a chairman with the direct hands-on interest in the market that Flugge had, did not know that the IGB fees were being paid.[5]
[5]Transcript of hearing, ASIC v Geary & Flugge, (10 December 2015) T2913.
I will come to similar submissions that were made by ASIC as I go through the evidence.
The importance of these allegations is that although they were not pleaded, ASIC nevertheless relies on them to make out its case against Flugge and Geary. The allegations will require me to make findings as to whether the matters alleged by ASIC to be widely known within AWB were in fact so.
There was no submission by either Flugge or Geary that ASIC’s submissions and evidence that certain matters were widely known within AWB, were not open to be made. On reflection, I consider that the evidence, on whether the IGB fees wrongful conduct was widely known within AWB, was admissible, and the submissions made by ASIC that the IGB fees wrongdoing was widely known within AWB was an evidentiary matter going to the issue of whether I could more readily draw the inferences that either or both of Flugge and Geary knew the matters that ASIC alleged each knew.
ASIC tendered in evidence, a large quantity of documents that it is not alleged either Flugge or Geary read or was aware of. Evidence was led from former employees of AWB on events and discussions that Flugge and Geary were not alleged to be party to.
It is apparent from the way that ASIC conducted its case that it led this evidence in part to seek to establish what it alleges was widely known within AWB, and to support its case that the inference should be drawn that Flugge and Geary knew of the IGB fees wrongful conduct.[6] ASIC also submits that such inferences can be more readily drawn, as Flugge and Geary did not give evidence to rebut the inference.
[6]PCS, [756].
AWB’s structure
AWB was a major corporation that exported wheat to buyers throughout the world. As discussed below it was initially a government corporation but it was later privatised. AWB’s main office was based in Lonsdale Street, Melbourne.
The wheat sold by AWB was sold on behalf of Australian wheat growers. AWB had a near monopoly on the sale of Australian wheat overseas. Iraq was a major buyer of Australian wheat from AWB. The state instrumentality that purchased the wheat was the IGB. Wheat trade to Iraq was interrupted by the First Gulf War when the USA and its allies drove Iraq out of Kuwait that it had recently invaded.
As a consequence of Iraq’s invasion of Kuwait, the UN imposed sanctions on trade with Iraq. Those sanctions interfered with AWB’s sale of wheat to Iraq. In 1996, however, the UN introduced the OFFP. Under this program, the proceeds of the sale of Iraqi oil was placed in a UN controlled escrow account and with UN approval the moneys could be used to buy goods and services for Iraq. The AWB thereupon was able to make sales of wheat to Iraq under the oil for food program administered by the UN and obtain payment from the UN escrow account.
Prior to 1999, AWB delivered wheat to Iraq on terms described as CIF or C & F, which involved the supplier paying for cost, maritime insurance and freight (in the case of CIF trade) or cost and freight (in the case of C & F). AWB would recover those costs from the contract price. In June 1999 Iraq, however, the IGB informed AWB that it would have to pay an inland transportation fee of US$12 per tonne of wheat sold to the IGB to an Iraq instrumentality and that the AWB could add the fee to the price of the wheat sold to the IGB. Further details of UN sanctions and the dealings that led up to the payment of the fee are discussed below.
When the IGB sought the payment of the inland transportation fee Trevor Flugge was the chairman of the board of AWB. He remained chairman until early 2002 when he lost office as a director of AWB. Flugge hailed from Western Australia and was a major wheat grower in his own right. Flugge was not engaged in executive duties for AWB although as chairman he did represent AWB on activities outside his board functions. Flugge held other board positions and had a wide range of interests. Flugge was a man of some standing in the community and with the Australian Government. Peter Geary was a full time senior officer of AWB who had been representing AWB in New York and in particular in AWB’s dealings with the UN. In June 1999, however, Geary was back in Australia holding executive functions.
In June 1999, when the IGB sought the payment of the inland transportation fee, AWB had several divisions, as well as a wholly owned subsidiary, AWB International Ltd (AWBI). AWB handled the sale of wheat that was supplied to AWBI by growers. Within AWBI was a division known as the ‘Pool’. AWB was retained by the Pool to market and sell the wheat.
The Pool administered the distribution of proceeds from the sale of wheat to the growers who contributed their wheat. The Pool received the so-called Free on Board (FOB) proceeds, which described the proceeds before costs such as insurance, freight and demurrage, from the sale of the wheat and divided the proceeds up between the suppliers.
The division within AWB that administered sales to Iraq and internationally generally was known as International Sales and Marketing (IS&M). Wheat supplied to AWB was administered by the Pool.
The IS&M division included Nigel Officer (Officer), who was the Global Sales and Marketing General Manager.[7] Dominic Hogan (Hogan) was the Account Manager for Iraq and was stationed in Cairo. Hogan answered to Mark Emons (Emons), who was the Regional Manager Marketing, for the Middle East and Africa. Emons answered to Officer.
[7]Court Book (CB) 1/317. The CB references in this judgment are taken from the parties submissions. There was no suggestion at the trial that the references were incorrect.
The Chartering Manager was Michael Watson (Watson), who answered to Officer in the IS&M division.
Geary worked in the Pool section of the AWB business. Geary was the Manager Export and answered to Ted Laskie (Laskie), the General Manager, AWB International Pool, who answered to the Chief Operations Officer, Michael Tighe (Tighe).[8]
[8]Organisational chart for AWB for the period 1999 to 2003, Exhibit MFI-P4, CB 1/317.
From 1 July 1999 to 30 June 2008, AWBI was ‘nominated company B’, as it was referred to in the then Wheat Marketing Act 1989 (Cth). As a result, AWBI was authorised to export wheat in bulk from Australia without the prior permission of the Wheat Export Authority, also known at different times as the ‘Export Wheat Commission’ and ‘Wheat Exports Australia’ (WEA).[9]
[9]Flugge’s closing submissions (‘FCS’), annexure B.
In addition, for the period up to approximately December 2006, WEA could not grant permission for the export of bulk wheat by an exporter other than AWBI without first obtaining AWBI’s prior permission. AWBI’s veto power over bulk export of wheat by others was commonly referred to as the ‘Single Desk’ (discussed below).
WEA’s first report to growers in 2001 states that WEA was established on 1 July 1999, among other things, to:
(a)control the export of wheat;
(b)monitor, examine and report on AWBI’s performance in relation to the export of wheat; and
(c)examine and report to the federal government and the growers on the benefits to all wheat growers that result from its performance.[10]
[10]CB 12/9823–9831, p3.
AWBI: the national pools and the Single Desk
AWBI held the benefits of the Single Desk. AWBI was responsible for the operation of the national pools through the existing wheat export arrangements, which arrangement included the Single Desk.
AWBI was obliged to maximise net pool returns for growers. A new pool was opened for each annual wheat harvest season, and each pool usually operated for approximately two years commencing several months prior to each harvest (with pre-harvest hedging of commodity and foreign exchange exposures) and then for approximately 12 to 15 months after harvest until all the wheat in that pool had been sold and proceeds were distributed to pool participants. The Pool sold wheat principally to the export market through AWBI, although some wheat was sold domestically. The pools operated for the purpose of producing a maximum net return to growers.
In practice, the grower was paid an amount per tonne of grain delivered into the relevant pool at the time of delivery, which represented the sale price less the cost of marketing, risk management, storage, handling and delivering the grain to its final destination.
The service agreements between AWBI and AWB Ltd
AWBI contracted with AWB to provide AWBI services under a service agreement.
As a result, AWB provided to AWBI all the necessary staff, management (commodity and currency hedging) marketing operations and infrastructure (computers, finance and supply chain) in order to market and execute grains contracts and so as to maximise the returns for the growers delivering wheat into the pool. AWBI did not have its own employees until October 2006.
The Single Desk
At the times relevant to this proceeding, AWB through its wholly owned subsidiary AWBI, held a statutory monopoly for the marketing and export of bulk wheat to international markets. As noted above, this monopoly was described as the Single Desk.
Prior to 1988, the Single Desk was controlled by the Australian Wheat Board, a statutory wheat marketing authority. In 1988, the Australian Wheat Board was corporatized, and was subsequently privatised in 1999. The Single Desk was controlled by AWB’s subsidiary AWBI. On 22 August 2001, AWB listed on the Australian Stock Exchange.
ASIC submits that AWB’s control of the Single Desk assumed relevance in at least three respects. First, ASIC submits that it is an important surrounding circumstance when considering the content of Flugge’s and Geary’s duties to AWB, and the foreseeability of some of the harm which eventually accrued to AWB as a result of the revelation of its misconduct.
Secondly, ASIC submits that the fact of the Single Desk and the accompanying corporate reforms that AWB undertook in the period between 1999 and 2001 brought with it greater internal and external scrutiny on its activities, which made it more important that AWB conduct all its operations ethically and with propriety, a fact well known within AWB and reflected in AWB’s code of conduct and corporate governance documents.
Thirdly, ASIC submits that the benefits that flowed from the Single Desk were valuable to AWB and were lost following public revelation of its wrongdoing.
ASIC referred to the High Court’s decision in Neat Domestic Trading Pty Ltd v AWB Ltd,[11] where the High Court held that no public law obligation was imposed on AWBI in connection with its power to refuse consent to other companies exporting bulk wheat. ASIC submits that the decision provides a useful summary of AWB’s position as the holder of the Single Desk at the relevant times and its historic transformation from a statutory wheat board to a publicly listed company.
[11](2003) 216 CLR 277 (‘NEAT litigation’).
ASIC submits that this decision highlights the importance of the Single Desk to AWB, important circumstances surrounding the Single Desk that are relevant to the duties owed by the officers to AWB in this case, and reasons why the public revelation of AWB’s wrongdoing was likely to, and did, cause it to lose the Single Desk as a consequence of conduct the subject of these proceedings.[12]
[12]PCS, [18].
In their plurality judgment, McHugh, Hayne and Callinan JJ observed:[13]
The object of AWB, stated in its constituent document was ‘to be primarily involved in the business of Grain Trading.’ This was further defined as the undertaking of grain trading activities and investments with a view, among other things:
in relation to wheat growers who sell pool return wheat to the company or its subsidiaries, to maximise their net returns from the pools by securing, developing and maintaining markets for wheat and wheat products and by minimising costs as far as practicable.
[13]NEAT litigation (2003) 216 CLR 277, 291-292 [33], 294 [40]-[41], 296 [47].
The reference to ‘pool return wheat’ was a reference to arrangements by which Growers and others sold wheat to a single purchaser which would then negotiate the sale of that wheat overseas. At the times relevant to these proceedings that purchaser, or pool company, was AWBI. The pool company would take the amounts it received from sales of wheat of a particular grade and divide the returns (net of costs) rateable among those who had supplied the grain that was sold. These arrangements were often referred to as ‘Single Desk’ selling arrangements. There was to be a single seller of Australian wheat in overseas markets and thus no competition between sellers of Australian wheat in those markets.
…
Regulation of wheat marketing
Since the end of World War 2 there has been a series of federal Acts dealing with aspects of the marketing of wheat. (There had been earlier federal legislation affecting the wheat industry but the War of 1939-45 marks a convenient point at which to begin reference to past legislation.) As originally enacted, the 1989 Act provided a very different regime for the marketing of wheat from that provided by it at the times relevant to this matter. The Australian Wheat Board, a statutory corporation tracing its roots to the Wheat Industry Stabilization Act 1948 (Cth), played a central role in the marketing scheme for which the 1989 Act originally provided. As enacted, the 1989 Act provided for the Australian Wheat Board to control the export of wheat. By s 57, as it then stood, export of wheat, without the Board’s consent, was forbidden.
In 1997 and 1998, significant changes were made to the 1989 Act and the scheme for which it provided. The Explanatory Memorandum and the Wheat Marketing Legislation Amendment Bill 1998 (by which the second part of these changes were made) described their purpose as being to ’restructure’ the Australian Wheat Board ’from a statutory marketing authority to a grower owned company.’ From 1 July 1999, there were to be three grower-owned companies involved in the marketing of wheat – AWB, AWBI and a third company undertaking domestic trading of grains and other non-pool commercial activities not handled by AWB. A Wheat Export Authority was to control export of wheat and to monitor the performance of AWBI in relation to the export of wheat.
…
AWBI and the Act
AWBI does not owe its existence to the Act; is a company limited by shares incorporated under the Corporations Law. To a very great extent, its powers, and the powers and obligations of its organs, are regulated by the applicable companies legislation. So, for example, at the time of the events giving rise to this appeal, its board of directors owed duties to its sole shareholder, AWB. The content of those duties was to be found in the Corporations Law (Vict) and the considerable body of judge-made law affecting directors’ duties. The central duty of the board of AWBI was to observe its constitution and to pursue the interests of the company as expressed in that document. As a wholly owned subsidiary of AWB those duties would, no doubt, have required the board of AWBI to pursue the interests of its parent (and thus, its parent’s shareholders) to the extent that those interests were compatible with other obligations of AWBI. In fact the interests of the two companies coincided. The constituent documents of both AWB and AWBI required that AWBI seek to maximise returns to those who sold wheat into AWB wheat marketing pools.
AWB’s initial public offering prospectus, dated 6 July 2001, explained the importance of the Single Desk to AWB as follows:
The Australian Wheat Board was established as a statutory authority by Wheat Acquisition Regulations contained in the National Security Act 1939 (Cth). It continued in existence as a Government controlled marketing authority under successive legislation until 1 July 1999.
In 1989, the Government established the Wheat Industry Fund imposing compulsory levies on wheat sales. This fund was held and managed by the Australian Wheat Board and by July 1999 was approximately $600 million.
In June 1998, the assets and liabilities of the statutory authority (other than the Wheat Industry Fund) were transferred to AWB and AWBI, then wholly subsidiaries of the statutory authority.
In July 1999, the Wheat Industry Fund was transferred to AWB and B Class Shares were issued to the holders of units in that fund. A Class Shares were issued to persons who met the definition of ‘grower’ in AWB’s constitution. Upon the issue of these A Class and B Class Shares, AWB became a grower-owned and controlled corporation.
As part of the restructure, Government guarantees of borrowing for the pools ceased and AWB commenced directly financing pooling and commercial activities using its own capital and credit enhancement.
OPERATION OF THE NATIONAL POOL
AWBI was established as separate wholly owned subsidiary of AWB and is responsible for the operation of the National Pool on behalf of growers who deliver to it through the Single Desk. AWBI’s responsibility is to maximise net pool returns for growers who sell wheat into the National Pool, by securing, developing and maintaining export markets for wheat and minimising costs as far as practicable.
The Single Desk is established under the Wheat Marketing Act in which AWBI is appointed as the sole marketer of Australian export bulk wheat. The performance of AWBI is monitored by the Wheat Export Authority, a Commonwealth Government statutory authority. …
The operation of the Single Desk was recently reviewed in the NCP Review of the Wheat Marketing Act, which reported in December 2000. The Government responded to this review in early 2001 by retaining the existing arrangements under which AWBI is responsible for the operation of the Single Desk. The Single Desk legislation is not scheduled to be reviewed under NCP guidelines until 2010, although there will be a review of the performance of AWBI in managing the Single Desk in 2004.
…
In operating the National Pool, AWBI utilises a number of services provided by AWB. The provision of these services is covered by a Service Agreement that details the nature of the services and sets out the manner in which AWB is to be compensated for providing them. …[14]
[14]See pages 18–19 of the prospectus.
ASIC submits that AWB’s annual reports between 1999 and 2003 each emphasised the importance of retaining the Single Desk and maximising returns to the National Pool.[15] ASIC submits that AWB greatly valued the Single Desk and made great efforts to retain it, as evidenced by AWB’s own business records.[16]
[15]CB 1/615 (1999 report), CB 3/1987 (2001 report).
[16]PCS, [122].
The importance of the Iraq trade to AWB
Iraq was at all relevant times a major buyer of Australian wheat. Prior to the Gulf War in 1990 and 1991, Iraq was a major buyer with annual purchases in excess of 1 million tonnes. In 1990, Iraq was Australia’s largest wheat market and Iraq’s preference was for Australian Hard wheat, with prices achieved at a premium to other markets and sold at freight delivered (C&F) basis.[17]
[17]CB 1/121.
A number of internal information papers and Iraq briefs prepared during the OFFP revealed the importance of the Iraq trade to AWB.[18]
[18]CB 1/247.
Iraq continued to be a primary overseas market for AWB during the OFFP, and AWB became Iraq’s largest supplier of wheat, increasing its percentage of the market to 85 per cent.[19] The annual reports of AWB noted Iraq as a key market.[20]
[19]CB 3/1560.
[20]2001 report, CB 3/2003.
For the period 1 October 1999 to 30 September 2000, AWB exported 2,516,776 tonnes of wheat to Iraq (Wheat Exports Australia: Statistics 1999–2000[21]). Over the period 1 October 2000 to 30 September 2001, Australia exported 2,500,893 tonnes of wheat to Iraq.[22]
[21]CB 2/1335.
[22]CB 3/2083.
In the 2003 Investor Fact Book, it was estimated in 2001 that the Middle East (including Egypt) contributed to 25 per cent of the AWB National Pool, and the fact book set out the role of the Single Desk and the details of the wheat supply process to Iraq.[23]
[23]CB 6/3811.
An AWB document setting out ‘success stories’ for inclusion in the 2002 to 2003 Pool Performance Report (covering the period 1 October 2002 to 30 September 2003) states that Iraq was ‘one of AWB’s strategically important markets.’[24]
[24]CB 6/3893.
When the Iraq market was threatened because of the impending Iraq war, AWB undertook a number of steps to try to protect this market and also undertook detailed calculations of what the Iraq market meant for the Pool. These matters are dealt with more fully in the section dealing with the alleged IGB fees wrongdoing.
United Nations Resolutions
UN Resolutions were, and are, not binding upon Australian nationals, including AWB, unless adopted and imposed by Australian law. The UN Resolutions typically called on member states to prevent certain activities by their nationals. Whether the member states did or did not pass laws to prevent such activities was up to the particular state. In the case of the relevant resolutions to this proceeding, the Australian Government did not pass any laws to give effect to the Resolutions save requiring AWB to obtain Australian Government approval to export goods to Iraq.
The substance of ASIC’s case is that if AWB as an Australian national did not comply with what the UN had called on its member states to prevent, then AWB’s reputation would be tarnished to the detriment of AWB and its financial welfare.
On 2 August 1990, Iraq invaded Kuwait. The UN immediately, by Resolution 660 of 1990,[25] condemned the Iraqi invasion of Kuwait and demanded that Iraq withdraw immediately and unconditionally all its forces to the positions in which they were located on 1 August 1990.
[25]S/Res/660 (1990).
Shortly thereafter, on 6 August 1990, under Resolution 661 of 1990,[26] the Security Council passed Resolutions with the aim of bringing the invasion and occupation of Kuwait by Iraq to an end.
[26]S/Res/661 (1990).
The Security Council noted that Iraq had failed to comply with Resolution 660 of 1990 and had usurped the authority of the legitimate government of Kuwait. The Security Council resolved as follows:
3 Decides that all States shall prevent:
(a)The import into their territories of all commodities and products originating in Iraq or Kuwait exported therefrom after the date of the present resolution;
(b)Any activities by their nationals or in their territories which would promote or are calculated to promote the export or trans-shipment of any commodities or products from Iraq or Kuwait; and any dealings by their nationals or their flag vessels or in their territories in any commodities or products originating in Iraq or Kuwait and exported therefrom after the date of the present resolution, including in particular any transfer of funds to Iraq or Kuwait for the purposes of such activities or dealings;
(c)The sale or supply by their nationals or from their territories or using their flag vessels of any commodities or products, including weapons or any other military equipment, whether or not originating in their territories but not including supplies intended strictly for medical purposes, and, in humanitarian circumstances, foodstuffs, to any person or body in Iraq or Kuwait or to any person or body for the purposes of any business carried on in or operated from Iraq or Kuwait, and any activities by their nationals or in their territories which promote or are calculated to promote such sale or supply of such commodities or products;
4Decides that all States shall not make available to the Government of Iraq, or to any commercial, industrial or public utility undertaking in Iraq or Kuwait, any funds or any other financial or economic resources and shall prevent their nationals and any persons within their territories from removing from their territories or otherwise making available to that Government or to any such undertaking any such funds or resources and from remitting any other funds to persons or bodies within Iraq or Kuwait, except payments exclusively for strictly medical or humanitarian purposes and, in humanitarian circumstances, foodstuffs.
The Security Council also called upon all states to act strictly in accordance with the provisions of the Resolution. The Security Council decided to establish a committee, and it decided to keep this item on its agenda, and to continue its efforts to put an early end to the invasion by Iraq. The committee was called the 661 Committee and was to undertake the following tasks:
To examine the reports on the progress of the implementation of the present resolution which would be submitted to the Secretary-General;
To seek from all States further information regarding the action taken by them concerning the effective implementation of the provisions laid down in the resolution.
Resolution 661 contains three separate requirements on member states:
(a)first, that member states not make available to the government of Iraq, or to any commercial, industrial or public utility undertaking in Iraq or Kuwait, any funds or any other financial or economic resources;
(b)second, that member states should prevent their nationals and any persons within their territories or otherwise making available to the government of Iraq, or to any commercial, industrial or public utility undertaking in Iraq or Kuwait, any such funds or other financial or economic resources; and
(c)third, that member states should prevent their nationals and any persons within their territories or otherwise from remitting any other funds to persons or bodies within Iraq or Kuwait, except payments exclusively for strictly medical or humanitarian purposes and, in humanitarian circumstances, foodstuffs.
The effect of the Resolution was, first, a blanket prohibition on the provision of any funds or financial or economic resources to the government of Iraq, or to any commercial, industrial or public utility undertaking in Iraq; and second, a prohibition on remittance of funds to any other person or body within Iraq, unless for exclusively medical or humanitarian purposes. ASIC says that this was presumably to ensure that private citizens and aid agencies were not prevented from receiving funds for food and medicine.
On 4 April 1995, the UN Security Council adopted Resolution 986 of 1995,[27] which set up the OFFP and procedures for export of foodstuffs to Iraq and payments from the UN escrow account.[28] The OFFP was subsequently extended by UN Security Council Resolutions 1111, 1143, 1153, 1210, 1242, 1275, 1280, 1281, 1302, 1330, 1352, 1360, 1382, 1409, 1443, 1447.[29]
[27]S/Res/986 (1995).
[28]CB 1/30 (also CB 1/91, more legible).
[29]CB 1/91.
Resolution 986 approved the sale of petroleum and petroleum products originating in Iraq, with payments to be made into the escrow account.[30] The funds in the escrow account were to be used as follows:[31]
8.… the funds in the escrow account shall be used to meet the humanitarian needs of the Iraqi population and for the following other purposes, and [the Security Council] requests the Secretary-General to use the funds deposited in the escrow account for:
(a)To finance the export to Iraq, in accordance with the procedures of the Committee established by resolution 661 (1990), of medicine, health supplies, foodstuffs, and materials and supplies for essential civilian needs…
[30]CB 1/91.
[31]CB 1/31.
Taken together, Resolutions 661 and 986 established a regime, the sole purpose of which was to allow Iraqi oil to be sold, and the proceeds used to buy humanitarian supplies, without hard currency being made available to the government of Iraq, or any business or public undertaking in Iraq. A key component of the scheme was that the proceeds from the sale of Iraqi oil would be held by the UN in an escrow account and it was these moneys that would be used to buy humanitarian supplies to be made available to the government of Iraq.
By these UN Resolutions, the UN had called on member states to prevent their nationals from:
(a)transferring funds into Iraq or to any Iraqi government, public, industrial, or commercial entity;
(b)obtaining funds from the UN escrow account , unless it was for the supply of foodstuffs and health supplies under the OFFP to meet the humanitarian needs of the Iraqi population.
Regulation 13CA of the Customs (Prohibited Exports) Regulations 1958 (Customs Regulations) was enacted by the Australian Government to give effect to the UN Resolutions. Regulation 13CA provided:
(1) Except in accordance with a permission granted under subregulation (2), a person must not:
(a) export goods if the immediate or final destination of the goods is, or is intended to be, the Republic of Iraq; or
(b) export goods that originated (wholly or in part) in the Republic of Iraq.
(2) The Minister of State for Foreign Affairs and Trade (in this regulation called the Minister) may grant a permission for the exportation of specified goods, or goods of a specified kind, where the exportation without the permission would contravene subregulation (1), if the Minister is satisfied that permitting the exportation will not infringe the international obligations of Australia.
(3) A permission granted under subregulation (2) may specify, in relation to the exportation of goods that it permits:
(a) conditions or requirements, including times for compliance, to which the exportation is subject; and
(b) the quantity of goods that may be exported; and
(c) the circumstances in which goods may be exported.
(4) The Minister may revoke or modify a permission granted under subregulation (2) if the Minister is satisfied on reasonable grounds that:
(a) a condition or requirement of the permission has not been complied with; or
(b) permitting, or continuing to permit, the exportation of goods in accordance with the permission would infringe the international obligations of Australia.
(5) The powers of the Minister under this regulation may be exercised by a person in writing by the Minister to exercise those powers.
The approval process for Australian companies wishing to supply goods under the OFFP involved the following UN approval and approval by the Australian Government through the Department of Foreign Affairs and Trading (DFAT).[32]
[32]See affidavits of Bob Bowker, Bronte Moules and Paul Stephens and testimony of Felicity Johnston.
As to the UN contract approval:
(a)Australian suppliers would complete a pro-forma application form entitled ‘Notification or Request to Ship Goods to Iraq’, and forward this form, together with a copy of the relevant contract, to the Middle East and Africa Branch (MAB) within DFAT.
(b)MAB staff would check that the application form had been filled in properly and was accompanied by a copy of the relevant contract. Apart from checking that the goods to be supplied under the contract were not obviously outside the OFFP, MAB staff did not examine the detailed terms of the contract, as responsibility for contract approval lay with the UN itself.
(c)This documentation was then forwarded to Australia’s UN Mission in New York (UN Mission) for submission to the relevant UN body for assessment and approval.
(d)The UN Mission would receive a fax from DFAT Canberra comprising the ‘Notification or Request to Ship Goods to Iraq’ and a copy of the relevant contract. The UN Mission then checked that all areas of the pro-forma application had been completed in full and the application would also be briefly checked to ensure that the goods to be exported were on the UN list of approved goods under the OFFP. The ‘Notification or Request to Ship Goods to Iraq’ would then be stamped by the UN Mission and a UN Mission coversheet attached to the documents, and they were then sent to the Office of Iraq Programme (OIP) to be examined and processed.
(e)Customs experts at the OIP reviewed the contracts submitted under the OFFP for accuracy, price, value and conformity with the Distribution Plan and UN Resolutions and guidelines of the 661 Committee. The review conducted by customs experts included an assessment that the goods were included on the distribution plan for the relevant phase, that the quantities were within the distribution plan limits specified within the plan and querying the price of goods where it appeared unreasonable. At the conclusion of the review process the customs expert prepared a report summarising the detail of the contract application together with any causes for concern which the 661 Committee might wish to consider. Contracts for foodstuffs were generally standard form contracts and given priority due to their humanitarian importance.
(f)Following OIP processing, if the 661 Committee (or, under an expedited procedure designed for humanitarian items that was introduced in 1999, the OIP) approved the application, a written authority to export was issued by the UN and sent to the relevant country’s UN Mission. The written authority had attached to it a copy of a report prepared by the OIP for the 661 Committee concerning the OIP’s examination and assessment of the application.
(g)Once the Australian UN Mission received a written authority to export from the OIP, it faxed a copy to DFAT Canberra for forwarding to the exporter and, if it was urgent, also faxed a copy directly to the exporter.[33]
[33]See for example CB 1/99 (fax), CB 1/101 (OIP authority to export).
In the case of each contract there were two versions. One the AWB version, and a longer one described as the IGB version. The procedure laid down by the 661 Committee required the AWB contract to be provided to the Committee by the Australian government. This function was carried out by the Australian Mission to the UN in New York where the 661 Committee was based.
AWB completed an application with the contract annexed, which was delivered to DFAT for the Australian Mission to lodge with the 661 Committee.
The Committee had an executive that vetted the applications. If in order, and many were not, they were given to the Committee in formal meeting to approve or decline.
As for DFAT export approval:
(a)Once the written UN authority to export had been issued by the OIP, AWB would then request DFAT Canberra to issue a ‘permission to export’ under the Customs Regulations in respect of each shipment.[34]
(b)However, with effect from July 1999, during Phase VI of the OFFP, the IGB proposed a significant change to the terms on which it would purchase wheat (see ‘The commencement of the IGB fees wrongdoing’ below).
[34]See for example CB 1/103, 105.
USA sanctions
In addition to UN sanctions, viva voce evidence was given by former AWB employees of US sanctions involving Iraq. The exact terms of the sanctions were not tendered. Hogan said that the US sanctions prevented the use of the US banking system to transfer moneys to Iraq. The sanctions may have gone beyond this but, as I said, no specific evidence was tendered about them.
It is the US sanctions that some AWB employees said raised difficulties with making payments of the inland transportation fees to Iraq. ASIC, on the other hand, did not tender any evidence about the US sanctions and contended that it was the UN sanctions that raised difficulties with AWB paying the inland transportation fees to Iraq.
For the reasons discussed below, I find that it was probable that there was a perception among some AWB employees, particularly in 1999 when AWB tendered on the new trade terms, that the difficulties AWB encountered in paying the fees were in fact US sanctions rather than UN sanctions. Some of the emails tendered by ASIC, discussed in detail below, demonstrate that some difficulties with payment were acknowledged by employees of AWB. On ASIC’s case, it was known within AWB that a method of payment to Iraq needed to be found to circumvent UN sanctions, which prevented the payment of US dollars into Iraq. On this case, the fact that AWB employees acknowledged difficulties with payments into Iraq would demonstrate that there was knowledge of impropriety and a potential breach of UN sanctions. The evidence was that US sanctions presented practical difficulties in transferring the transportation fees to Iraq as according to Hogan if there was any mention of Iraq in a transfer of money that involved the USA transfer system the transfer would be frozen.
As discussed below, the prevailing view in AWB was that the UN had approved the payment of the inland transportation fees. The evidence on the US sanctions suggests an explanation for the difficulties that some in AWB nevertheless acknowledged they faced in making those approved payments. Although there was no evidence and no pleadings relating to the US sanctions, I consider that this evidence becomes relevant in light of ASIC’s submissions and evidence concerning what was widely known within AWB.
ASIC did not tender any evidence to rebut the evidence given by the AWB employees that US sanctions presented difficulties in AWB transferring funds to Iraq.
AWB knowledge of UN procedures
From mid-1996, information concerning the UN Resolutions, including their effect and procedures, was being circulated from AWB’s New York offices to AWB’s offices in Melbourne. Geary was the main conduit of this information to AWB as he was in New York at the time.
In May 1996, a Memorandum of Understanding (MOU) between the UN and Iraq was reached in relation to the OFFP.[35] The document recorded Iraq’s undertaking in respect of a distribution plan and following procedures in accordance with the UN escrow account.
[35]CB 1/96-1.
The distribution plan[36] itself set out the procedures and obligations on the UN and Iraq for distributing humanitarian supplies within Iraq, and amounts were specifically allocated for the purchase and distribution of food. An amount of US$207 million was allocated ‘to ensure the procurement of the current needs of the sector’ in relation to the transport of food, including provision for 1000 trucks to transport grain.[37]
[36]CB 1/96-17.
[37]CB 1/96.73, 96.83.
The distribution plan underwent various revisions with the different phases of the OFFP.[38] Importantly for present purposes nothing in the MOU, or in any version of the distribution plan, impacted on the prohibitions in Resolution 661.
[38]1999 distribution plan — CB 1/96-71 references back to Phase III distribution plan.
On 3 May 1996, Geary forwarded a memo from AWB employee R J Storey (Storey) entitled ‘IRAQ-UN Sanctions’ to a number of AWB employees (including Officer) regarding a meeting held that day between Storey, Tony Mott (Mott), Richard Rowe (Rowe) (Deputy Permanent Representative of the Australian Mission to the UN in New York) and Anastasia Carayanides (Carayanides) (First Secretary of the Australian Mission to the UN in New York) to discuss the progress of the Resolution 986 negotiations.
That memo stated:[39]
[39]CB 1/119; Geary, sch A [2].
Australian officials are quite optimistic for an outcome … It seems Iraq is keen to do a deal and all parties are more optimistic than ever before.
The sticking point last time was UN (especially the U.S. and UK) surveillance of food distribution in both the North and South of Iraq. If agreement can be reached on this issue and the audit requirements for the escrow account, then there will be an oil for food/medicine deal done. …
In regard to the apparent increase in bureaucratic involvement from Canberra with our applications, there is no pressure from the UN quarter except that the U.S and UK hold very strong on their position regarding the Sanctions rules. For example, an application stipulating payment by a ‘Letter of Credit with up to five-year terms‘ (a la BHP) would be flatly blocked by the U.S. and UK. An application, however, which stated payment to be by ‘Letter of Credit‘ with no details as to terms, would probably be approved.
We were advised that other nations clearly provide limited information in their applications to avoid the potential embarrassment of an application being rejected. There is political risk, of course, that should one go down the minimal information route and being subsequently found out, of being branded a Sanction buster.
The Australian Government will obviously not sanction such an approach.
…
7Humanitarian aid includes medical supplies, food products, agricultural equipment to produce food (including pesticides and the like).
On 9 and 10 July 1996, Flugge and Michael Long (Long), with Emons and Greg Harvey (Harvey), travelled to Iraq. As reported to the Australian government,[40] the main purpose of this visit was to re-establish high level AWB contacts with the Iraqi government and to attempt to secure sales of Australian wheat, following the agreement by the UN to allow sales of wheat to Iraq under Resolution 986.
[40]CB 1/121.
As a result of these meetings, AWB and the IGB reached an in-principle agreement for the supply of a minimum of 100,000 tonnes per month of Australian wheat to be shipped to Umm Qasr port in Iraq during the first six months of the operation of the OFFP, with further supply to occur if Resolution 986 was extended.
During this visit, Flugge met with the Iraqi Minister for Trade, during which meeting, the Minister expressed concern that AWB may lose the Single Desk. Flugge quickly dispelled these concerns, and the Minister replied that Iraq was very pleased, as this made their procurement planning more certain.[41]
[41]CB 1/122–3.
On 17 March 1997, Geary sent an email entitled ‘UN 90-day review of sec.986 operation’ to various AWB employees, detailing the operation of Resolution 986 of 1995 and the impact on AWB. It referred to ‘changes made to the Sanction’s Committee approval procedures which potentially could have ramifications for the AWB …’[42]
[42]CB 1/155.
On 24 March 1997, Geary sent an email entitled ‘IRAQ 986 PROCEDURES’ to a number of AWB employees, including Emons, Hogan and Officer, advising that he had attended a briefing arranged by the UN Secretariat ‘regarding UN procedures under 986 “Oil for Food”.’[43] Geary stated that the UN had advised on application procedures, including (amongst other things) the requirement that:[44]
[43]CB 1/157, 159. Geary, sch A [3].
[44]CB 1/157, 159. Geary, sch A [3].
1 Make sure all pages of a contract are submitted.
….
4.Contractual terms (i.e. C&F or CIF to be clearly spelled out etc., etc., etc.).
….
Whilst the Sanctions Committee will prescreen applications before monies are available in the Escrow Account, there can be no que jumping unless the UN decides the commodity is urgently required as earlier advised.
Regards
Peter Geary
At around the same time, Geary also faxed to Hogan and another senior AWB employee in the contracts area, Mr Rex Lister (Lister), a set of papers that were handed out at the UN briefing. The procedures also referred to matters the UN expected to find in a contract, such as whether it was CIF or CIP or some other contract and also what transport conditions applied, such as air or road or rail.[45]
[45]CB 1/162.
On 17 April 1997, Geary received a fax sent by Carayanides of the Australian Mission to the UN which attached:[46]
[46]CB 1/183, 185. Geary, sch A [4].
(a) a chronology of the implementation of Resolution 986;
(b)an explanatory note regarding the Oil-for-Food Programme Distribution Plan, which materially stated that the distribution of foodstuffs under the Oil-for Food Programme would be undertaken by the Iraqi Ministry of Trade through the existing rationing system;
(c) a copy of the text of Resolution 986; and
(d)a copy of the procedures to be followed by the 661 Committee in implementing the Oil-for-Food Programme, including the procedures for the payment of humanitarian food contracts from the UN escrow account , which procedures:
(i)did not contain any provision permitting payment to be made from the UN escrow account on account of funds paid to the Government of Iraq or its instrumentalities; and
(ii)stipulated that any payments in favour of the IGB arising out of any commercial dispute should be paid into the UN escrow account.
Consistent with the above, Hogan recalls that he received a lot of information regarding the OFFP — including UN documents, MOUs and distributions plans — initially from the New York office of AWB.[47]
[47] Transcript of hearing, ASIC v Geary & Flugge, (27 October 2015) T919, L27–31.
Emons recalls a lot of broad-ranging discussion within AWB at this time about the methodology and the requirements of the UN Resolutions/legislation with the finance department, the Pool and the legal department.[48]
[48]Transcript of hearing, ASIC v Geary & Flugge, (11 November 2015) T1684, L18–23.
On 7 November 1997, Hogan prepared an information paper on Iraq which described the effect of Resolution 986. He noted that:
(a)AWB had negotiated eight contracts with Iraq since the OFFP started and sold 1.45 million tonnes of wheat;
(b)there was a longstanding trade relationship with Iraq;
(c)Iraq was an ‘excellent premium market’ for AWB; and
(d)there were problems with the market given the non-commercial nature of the UN, the Sanctions Committee was both slow and cumbersome — the two main costs were the procedure and the difference between Bill of Lading weights and discharge weights, and that AWB was investigating discharge facilities at Umm Qasar.[49]
[49]CB 1/247.
On 10 November 1997, Flugge wrote a letter to the Iraqi Minister for Trade[50] which referred to:
(a)AWB’s commitment to continuing its supply of wheat to Iraq despite all the difficulties experienced by AWB and the IGB in operating ‘under United Nations requirements;’
(b)the considerable delays in the receipt by AWB of payment from the UN caused by the payment arrangement imposed on AWB and the IGB by the UN; and
(c)AWB’s recognition that the ‘United Nations requirements create special circumstances for the people of Iraq.’
[50]CB 1/251.
On 2 April 1998, Flugge wrote to the Honourable Tim Fischer, Minister for Trade, outlining AWB’s ongoing concerns as to the future of Australian wheat sales to Iraq, and to seek Mr Fischer’s assistance with a visit to Baghdad the following month. In this letter, Flugge advised that he will be in Baghdad the following month to meet with the IGB and Minister Mohamed Medi Saleh (Minister Saleh), and expected this to be ‘a difficult and problematic series of meetings for the AWB.’ Flugge noted that the visit would be ‘critical in trying to ease some of the tensions in our relationship not only to protect existing contracts and future Australian wheat sales, but also to ensure that we have a close working relationship with Iraq in order to best ensure the repayment of outstanding debt once sanctions are lifted’ and requested that the Minister consider providing a message to pass to Minister Saleh indicating the importance of the wheat trade between Australia and Iraq.[51]
[51]CB 1/271.
AWB sales prior to June 1999
For each of the first five phases of the OFFP, the usual basis on which AWB (and the Australian Wheat Board before it) sold wheat to the IGB was ‘CIF free out Umm Qasr’ or ‘C and F free out Umm Qasr’.
Between 1995 and June 1999, AWB and IGB executed:
(a)‘Standard Terms and Conditions’ which stated that payment was to be on CIF terms;[52]
(b) a number of contracts for the sale of bulk wheat on C and F terms[53] and on CIF terms.[54]
[52]CB 1/137, 141.
[53]CB 1/145, 147, 151, 153.
[54]CB 1/217, 219, 221, 223, 229, 237, 243, 253, 255, 259, 261, 265, 269, 275, 279, 281, 285, 287, 291, 297–313.
Under the CIF element of those terms, the price per tonne for which the wheat was sold included:
(i)the cost of the wheat;
(ii)the freight, or the cost of the carriage of the wheat from Australia to Umm Qasr (the ocean carriage); and
(iii)the cost of insuring the shipment against the risk of loss of or damage to the wheat during its carriage to Iraq (marine cargo insurance).[55]
[55]CB 1/137–8.
As the seller of the wheat on such terms, AWB was required to arrange, and in the first instance pay for, both the cost of the ocean carriage and the cost of the marine cargo insurance for each shipment. It would in turn recover those costs from the proceeds of the sale of the wheat.
In determining the price at which it was prepared to sell its wheat, AWB took into account the anticipated costs of the ocean carriage and marine insurance that would need to be recouped from the proceeds, as well as the FOB price it wished to obtain.
During this period, AWB sold wheat to the IGB that did not include in the sale price any allowance for the cost of the discharge of the wheat from the vessel on its arrival at Umm Qasr. That was because the IGB had full responsibility for operation of the port facilities at Umm Qasr, as well as for the wheat’s accumulation, storage and distribution to flour mills.
Under the terms of the IGB’s contracts with AWB, the obligation to effect or arrange for the discharge of the wheat from the vessel at Umm Qasr rested with the purchaser, the IGB. The costs of discharge, along with the usual port dues, were also to be borne by the buyer (the IGB).[56] AWB therefore had no obligation to discharge the wheat shipped to Iraq or to arrange for its discharge. Nor did it have any obligation to pay for the cost of the wheat’s discharge or the costs of distributing the wheat within Iraq. Under the terms of its contracts with the IGB, AWB had no obligation to make any payments in or to Iraq.
[56]CB 1/139.
Flugge’s AWB role and experience
Both Flugge and Geary held longstanding positions with AWB.
In 1984 Flugge was appointed to the Board of AWB. In 1991 he was appointed Deputy Chairman of AWB, and on or about 28 March 1995 he was appointed as Chairman of AWB, which appointment was referred to and confirmed in a letter to Flugge dated 21 August 1995.[57]
[57]CB 1/5.
Flugge was Chairman of AWB from 1995 until March 2002. ASIC alleges that while he was notionally a non-executive chairman, his experience, work and hands-on approach to international markets such as Iraq (as set out below) demonstrate that on occasions he assumed executive duties. ASIC contends that the true nature of Flugge’s role is a key consideration in the Court’s determination of his knowledge and the content of his duties in the relevant period.
Geary’s AWB roles and experience
On or about 30 July 1985 Geary was offered a position with AWB as a Registration/Payments clerk.[58]
[58]CB 1/7.
On or about 21 June 1990, Geary received a letter confirming his appointment as Assistant Manager based in London, and this letter includes an acceptance of the appointment, apparently signed by Geary, dated 28 June 1990.[59]
[59]CB 1/9.
On or about 19 May 1992, Geary received a letter confirming his appointment in Middle East Marketing, and this letter includes an acceptance of the appointment, apparently signed by Geary.[60]
[60]CB 1/13.
On 10 August 1995, Geary’s appointment as manager of AWB’s New York office was detailed in a letter from AWB. The extension of the appointment was confirmed in a facsimile from Officer to Geary dated 1 August 1997.[61] Geary’s role in that position was ‘to represent AWB political interests in the US and to manage US operations including grain marketing.’ His key working relationships included the US government and agricultural industry associations and he was responsible for providing analysis on US and Canadian agricultural policy. While in New York, Geary was at the forefront of AWB’s dealing with the UN regarding the introduction of the OFFP, and fed information back to the IS&M team in Melbourne regarding the effect of UN Resolutions on Iraq and the operation of the OFFP.
[61]CB 1/111, 117.
In around September 1998, Geary returned to Australia from New York to replace Phil Pyle as Pool Manager. In 1999, Geary was still working in the Pool. On 2 June 1999, Geary entered into a new ‘Employee Service Agreement’ witnessed by Ted Laskie (Laskie).[62] Laskie was Geary’s supervisor at this time.
[62]CB 1/327.
In this role, Geary reported to the general manager of AWBI and his responsibilities included managing the Single Desk on a day to day basis and the wheat export program, as well as ensuring that policies and procedures were in place to protect the integrity of the Single Desk. He was also required to exercise the powers and carry out the duties appropriate to the appointment and to use his best endeavours to further the prosperity and enhance the reputation of the group.
From June 2000 until 2006, Geary was a member of an executive committee known as the Small Executive Group, the Small Executive Management Group and the Executive Leadership Group (ELG), comprising the Managing director and senior executives of AWB. The ELG set out the strategy for the business of AWB, executing against strategy, reviewing activities and keeping abreast of strategy. The following documents show Geary’s continuous membership of the ELG (in its various guises): Small Executive Management Group minutes 6 June 2000[63] — Geary in attendance; Full Executive Management Group minutes 20 June 2000[64] — Geary attended; ELG action list 19 March 2002[65] — Geary responsible for items; ELG Agenda 30 September 2003[66] — Geary a member.
[63]CB 2/1067.
[64]CB 2/1071.
[65]CB 2/1079.
[66]CB 2/1081.
Geary occupied a number of senior positions within AWB and was Group General Manager of Trading from 2001 until 2006. In that role, from February 2002, he took over direct responsibility for IS&M, including trade with Iraq.
The introduction of the trucking fee or cost of discharge
We have now arrived at the beginning of the alleged inland transportation fee wrong doing.
The following part of the judgment describing the documentary evidence is essentially taken from ASIC’s written closing submissions which set out in great detail the correspondence and events relied on in chronological order.[67] ASIC’s written closing submissions were in two parts. In substance, the first part dealt with the alleged payment of the inland transportation fees and evidence and against Flugge and Geary. In substance, the second part dealt with the Iron Filings claim and the payment of the Tigris debt which relate solely to Geary.
[67]PCS.
I have relied heavily on ASIC’s written closing submission seeking to identify ASIC’s submissions on findings I should make as well as adopting ASIC’s summary of the relevant documents relied on by ASIC. In many cases, I do not comment on ASIC’s submissions on conclusions I should draw. My failure to do so does not necessarily mean that I accept the submission. In many instances the evidence and comment is not related to the case pleaded against Flugge or Geary. The relevance to the case against Flugge and Geary is limited to the case expressly pleaded against each of them which I detail below. ASIC also submit that certain matters were ‘well known’ or ‘widely known’ within AWB and thus I should be more readily able to draw the inference that Flugge and Geary knew the relevant matters which are specifically pleaded against each of them. ASIC rely on the documents and chronology of events that I set out in support of its case that certain facts were ‘well known’ or ‘widely known’ within AWB.
I now turn to the chronology of events relied on by ASIC.
By a tender dated 16 June 1999, in accordance with the memorandum of understanding between Iraq and the UN and the resolution implementing Phase VI of the OFFP, the IGB sent to AWB an invitation to tender for the supply to the IGB of 200,000 tonnes of wheat. This tender sought to introduce a different term to those previously agreed that would have AWB pay US dollars to Iraq as a term of the contract for the sale of wheat by AWB to the IGB.
The tender document included a term stating: ‘CIF free on truck to silo at all Governorate. Cost of discharge at Umm Qasr and land transport will be USD12 per metric tonne. To be paid to the Land Transport Co. For more details contact Iraqi Maritin in Basrah [sic].’[68]
[68]CB 1/360.
This was the first time that the IGB had requested such a payment be made by AWB for inland transport. The IGB apparently sought to have AWB pay Iraq a fee of US$12.00 per tonne, described as being for the cost of the discharge of the wheat from the vessel at the port of Umm Qasr and the cost of transporting the wheat by road from the port of Umm Qasr to the various Governates throughout Iraq.
As will be discussed below, AWB agreed to pay the fee. The payment of the fee is alleged by ASIC to be conduct that the Australian Government was called on to prevent by the UN resolutions. As discussed above, the Australian Government did not pass any laws prohibiting Australians from engaging in the conduct that the UN had called on Australia to prevent, save for passing the regulation referred to earlier whereby Australians were prohibited from exporting wheat to Iraq without an export approval.
There are a number of important early emails within AWB as to the new pricing terms contained in the 1999 Iraqi tender and what AWB should do in response to this term.
Geary was the recipient of many of these early emails in which the IGB fees were being discussed within AWB and the methodology to pay the fees formulated and implemented.
On 16 June 1999, Hogan, from Cairo, circulated an email addressed to Geary (and others including Watson), seeking information in preparation for Hogan and Emons’ imminent visit to Baghdad.[69] The information he sought related to UN restrictions on trade with Iraq. He wrote:
Hence Mark [Emons] requires—copy of contract, copy of their contract, copy of MOU (Copy of MOU is in a folder—I know that much) and copy of UN contract conditions—not sure how much I stipulated on UN docs regarding the contract conditions—but if you find anything relevant regarding please fax through.
[69]CB 1/367.
The email also stated that Zuhair Daoud (Zuhair), the Director General of the IGB wanted to discuss some contract terms and conditions in person. There is also a note directed specifically to Geary and Ms Sarah Scales (Scales), who worked in the Pool and was pricing manager of AWBI, informing under the topic of ‘price levels and tonnages for September to February’ that, ‘although Zuhair did not want to discuss pricing — goog [sic] to know.’[70]
[70]Geary, sch [5]; CB 1/367.
On 17 June 1999, Geary replied to Hogan’s email of 16 June 1999 referring to details of the IGB Wheat Tender which had been received that morning.[71] Under the heading ‘10. Price’, the tender referred to payment of:
CIF Free on Truck to Silo at all Governorate. Cost of Discharge at UMM QUSER and Land Transport will be U.S.D. 12 per metric ton. To be paid to the Land Transport Co. For more Details contact Iraqi Maritin in Basrah. [sic]
Geary also stated in the email that:
There are some things in the tender doc we cannot offer against, Darryl will go through these with you.
[71]CB 1/369.
The wheat tender also contained terms, the material effect of which were that each contract required UN approval and the payments to AWB would be made to the UN escrow account upon receipt from the 661 Committee.[72]
[72]Geary, sch A [6].
On 17 June 1999, in an email to another IS&M employee, Darryl Borlase (Borlase) and copied to Emons and Hogan and others,[73] Graham Owen (Owen) (AWB’s National Trade Finance Manager) commented on the IGB’s wheat tender, including the proposed new price terms (item 10):
Our price has to include Land transport costs of USD12 per tonne. Why??? and how do we pay Land Transport company when all Iraqi funds frozen????????.
[73]CB 1/371.
The problem that Owen referred to may also have been the separate US sanctions imposed on the transfer of funds to Iraq. As discussed below at paragraph 1289 and following, the US sanctions were identified by Hogan and Emons as the primary reason that AWB could not transfer US dollars to the Iraqi body nominated by the IGB, rather that UN sanctions.
On 21 June 1999, Hogan and Emons visited Iraq to discuss the 1999 Iraqi tender. Emons took handwritten notes of a meeting with Zuhair and Hogan in Iraq in the IGB office.
One of his entries is ‘Iraq meeting 21 June 1999.’ The reference to ‘Distribution plan, contract terms, through banking system, subject to UN approval. Check New York’ was in reference to the distribution plan that was going to be subject to UN approval. AWB would have to check with its New York office. All the parties present spoke about these matters.[74] The particular provision ‘CIF free on truck to silo at all governorates’ in the 1999 Iraqi tender[75] was an issue. It was discussed with Zuhair.[76]
[74]CB 1/373; Transcript of hearing, ASIC v Geary & Flugge, (12 November 2015) T1694, L25 – T1696, L10.
[75]CB 1/360.
[76]Transcript of hearing, ASIC v Geary & Flugge, (12 November 2015) T1703, L25–31; CB 1/388.
AWB objected to the payment of the inland transport fee during this first meeting in June 1999 and on subsequent trips also. Zuhair’s response at any time there was an objection was that this was a decree by the president and it was going to be a standard contract term for all suppliers into Iraq.[77]
[77]Transcript of hearing, ASIC v Geary & Flugge, (27 October 2015) T930, L5–25.
On 24 June 1999, following his return from Baghdad to Cairo, Hogan sent an email to Emons, copied to Geary and others, reporting on the outcome of the meeting with the IGB. Hogan included in this email a report on the new terms for the price at which wheat was to be supplied, which included the following:[78]
[78]CB 1/375; Geary, sch A [7].
1. FREE IN TRUCK
IGB have requested that the offers are submitted CIF, FREE IN TRUCK, IRAQ. The cost for this is USD 12.00 per tonne which the supplier adds to their offer.
Hence this part is not an issue.
The problem which still needs to be resolved is the payment mechanism as all Iraq accounts have been frozen. IGB have stated that we will be required to pay the Maritime Agents, and one possible way would be to pay this to an Iraq bank in Amman.
IGB will provide details of the banks which we can pay this through.
MICHAEL— as mentioned to you, there may be a way to pay this through the vessel owners. Mark will discuss this with you, so you have to think about the possibilities.
Reason for wanting suppliers to pay this amount is due to the excessive amount of Iraqi Dinars placed into the market by the Ministry of Finance for every Phase (Phase V = 23 billion Dinars, which has an impact on their currency rates).
ASIC submits that the need to find a means to pay the fee to Iraq, other than directly, necessarily involved absence of UN approval of such payments.
Emons explained in his evidence that, as well as UN sanctions, the United States had placed restrictions on currency transfers to Iraq. Emons says that the US restrictions were the source of AWB’s concerns about transferring moneys to Iraq or its entities.
A possible solution was to pay the US dollars into an account in an Iraqi bank situated in Jordan.
According to Hogan, discretion was required in relation to implementing the inland transportation fee of US$12.00:[79]
The USD12.00 will be added onto CIF price – so no skin off our nose - however we need to find a way to implement the payments as Iraq a/c’s frozen. Discretion is required here.
[79]CB 1/381.
As Hogan explained in his evidence, the problem with making a payment to an entity in Iraq by AWB was that payment could not be made using US banks. AWB would receive US dollars from the escrow account in New York. On the other hand, the existence of UN sanctions meant that payments of US dollars to Iraq or its instrumentalities should not be made, rather that they could not be made.
TFASOC — paragraph 5................................................................................................. 245
Findings on paragraph 5................................................................................................ 246
TFASOC — paragraph 6................................................................................................. 246
Flugge’s responsibilities as director and chairman AWB.......................................... 246
TFASOC — paragraphs 7 and 8.................................................................................... 248
Statutory duties................................................................................................................ 248
TFASOC — paragraph 9................................................................................................. 249
United Nations Resolutions on trade with Iraq.......................................................... 249
TFASOC — paragraph 10............................................................................................... 249
TFASOC — paragraph 11............................................................................................... 250
TFASOC — paragraph 12............................................................................................... 250
TFASOC — paragraph 13............................................................................................... 251
TFASOC — paragraph 14............................................................................................... 252
TFASOC — paragraph 15............................................................................................... 252
TFASOC — paragraph 16............................................................................................... 253
TFASOC — paragraph 17............................................................................................... 255
Non-justiciable issues...................................................................................................... 256
TFASOC — paragraph 18............................................................................................... 265
The inland transportation fee and the after sales service fees.................................. 265
TFASOC — paragraph 19............................................................................................... 265
TFASOC — paragraph 20............................................................................................... 268
TFASOC — paragraph 21............................................................................................... 268
TFASOC — paragraph 22............................................................................................... 271
TFASOC — paragraph 23............................................................................................... 275
TFASOC — paragraph 24............................................................................................... 277
TFASOC — paragraph 25............................................................................................... 277
TFASOC — paragraph 26............................................................................................... 281
TFASOC — paragraph 27............................................................................................... 281
TFASOC — paragraph 28............................................................................................... 283
TFASOC — paragraph 29............................................................................................... 283
TFASOC — paragraph 30............................................................................................... 285
TFASOC — paragraph 31............................................................................................... 286
TFASOC — paragraph 32............................................................................................... 286
TFASOC — paragraph 33............................................................................................... 287
TFASOC — paragraph 34............................................................................................... 287
Flugge’s involvement in events and transactions concerning the IGB fees............ 288
TFASOC — paragraphs 35–36....................................................................................... 288
Discussions with Emons................................................................................................. 288
Flugge’s knowledge — Introduction............................................................................ 308
US sanctions..................................................................................................................... 310
Flugge’s knowledge of the inland trucking fees......................................................... 311
TFASOC — paragraph 37............................................................................................... 312
Discussions with Officer................................................................................................. 312
Flugge’s submissions on Officer’s evidence................................................................ 315
Officer’s evidence before the Cole Inquiry.................................................................. 316
Ronly Holdings Limited................................................................................................. 319
The absence of evidence of approval casts doubt on Officer’s evidence................ 320
Flugge’s conclusion as to Officer’s evidence............................................................... 321
TFASOC — paragraphs 38–40....................................................................................... 324
Flugge’s visit to Baghdad October 1999....................................................................... 324
The relevant emails relied on......................................................................................... 325
ASIC’s submissions on the October 1999 Iraqi trip.................................................... 326
Flugge’s submissions on the October 1999 Iraqi trip................................................. 329
The October 1999 meeting with the IGB revealed no impropriety.......................... 331
Findings on the October 1999 Iraqi trip........................................................................ 332
Resolution of paragraphs 38, 39 and 40........................................................................ 337
TFSAC — paragraph 41.................................................................................................. 338
The Washington meeting............................................................................................... 338
The Washington meeting in March 2000..................................................................... 339
Evidence of Mr Alistair Nicholas.................................................................................. 340
Evidence of Tim Snowball.............................................................................................. 344
Evidence of Felicity Jane Johnston................................................................................ 348
Evidence of Bronte Nadine Moules.............................................................................. 356
Evidence of Graeme Robert Tangye Bowker............................................................... 361
ASIC submissions on Washington meeting................................................................ 363
Flugge’s submissions on the Washington visit........................................................... 368
Summary of evidence on Washington meeting.......................................................... 372
Findings on ASIC pleading in TFASOC [41]............................................................... 379
TFASOC — paragraph 42............................................................................................... 380
Flugge raises issue of trucking fees for Emons to raise with IGB............................ 380
Findings on TFASOC 42................................................................................................. 381
TFASOC — paragraph 43............................................................................................... 381
Iraq trip report in February 2001................................................................................... 381
TFASOC — paragraph 44............................................................................................... 385
The Single Desk and the risk of harm to AWB if it was lost..................................... 385
TFASOC — paragraph 45............................................................................................... 385
TFASOC — paragraph 46............................................................................................... 387
TFASOC — paragraph 47............................................................................................... 387
Harm arising out of the revelation of AWB’s conduct............................................... 387
TFASOC —paragraph 48................................................................................................ 392
Flugge’s knowledge........................................................................................................ 392
Interviews and admissions by Flugge.......................................................................... 392
The August 2002 delegation to Iraq.............................................................................. 393
Discussions with Wells and Dawson in 2003.............................................................. 393
Flugge’s telephone conference with Chris Quennell and James Cooper on 30 April 2004................................................................................................................................ 393
Interview with ABL solicitors in 2005.......................................................................... 395
Leonie Thompson notes.................................................................................................. 396
Leon Zwier’s notes.......................................................................................................... 398
Interview IIC investigators in 2005............................................................................... 400
General submissions by ASIC on Flugge’s knowledge............................................. 400
TFASOC — paragraph 48(a).......................................................................................... 404
Knowledge of paragraph 44........................................................................................... 404
Knowledge of paragraph 45........................................................................................... 404
Knowledge of paragraph 46........................................................................................... 404
TFASOC — paragraph 48(b).......................................................................................... 405
TFASOC — paragraph 48(c).......................................................................................... 406
TFASOC — paragraph 48(d).......................................................................................... 414
TFASOC — paragraph 48(e).......................................................................................... 414
TFASOC — paragraph 48(f)........................................................................................... 416
TFASOC — paragraph 48(g).......................................................................................... 420
TFASOC — paragraph 48(h).......................................................................................... 422
TFASOC — paragraph 48(i)........................................................................................... 423
Discussion between Flugge and Michael Long in September 2002......................... 425
TFASOC — paragraph 48(j)........................................................................................... 427
Summary on Flugge’s knowledge................................................................................ 428
TFASOC — paragraph 49............................................................................................... 429
Duties of Flugge he relevant legal principles.............................................................. 429
The relevant legal principles.......................................................................................... 432
Flugge’s submissions on the duties owed by Flugge................................................. 436
Flugge’s duties................................................................................................................. 436
Flugge’s defence on limitation period.......................................................................... 442
TFASOC — paragraph 50............................................................................................... 444
Flugge’s alleged contraventions.................................................................................... 444
TFASOC — paragraph 50A............................................................................................ 446
TFASOC — paragraph 51............................................................................................... 447
TFASOC — paragraph 52............................................................................................... 452
TFASOC — paragraph 52A............................................................................................ 454
TFASOC — paragraph 53............................................................................................... 455
TFASOC — paragraph 54............................................................................................... 456
TFASOC — paragraph 55............................................................................................... 469
Relief. 469
TFASOC — paragraph 56............................................................................................... 470
TFASOC —paragraph 55................................................................................................ 470
TFASOC — paragraph 56............................................................................................... 471
TFASOC — paragraph 57............................................................................................... 471
TFASOC — paragraph 58............................................................................................... 472
Findings on relief............................................................................................................. 473
The case against Geary — factual background..................................................................... 473
Introduction...................................................................................................................... 473
The Tigris and Iron Filings wrongdoing...................................................................... 474
Overview........................................................................................................................... 474
The documentary evidence led by ASIC against Geary............................................ 479
AWB engaged by Tigris to assist with recovery......................................................... 479
Iron Filings Claim made................................................................................................. 481
Tigris and AWB agree on debt recovery commission................................................ 495
Loading up of contracts and requests for payment through Alia............................ 495
Advice from DFAT on quality refunds to Iraq........................................................... 500
Sale on ‘loaded-up’ contract confirmed....................................................................... 503
ASIC’s conclusion in relation to the Iron Filings wrongdoing................................. 554
Evidence concerning Geary’s knowledge.................................................................... 555
Geary’s knowledge of UN Resolutions........................................................................ 557
Geary’s alleged knowledge of the IGB Fees wrongdoing, the Single Desk and Harm 560
Geary’s interest in trucking fees.................................................................................... 563
ASIC’s submissions on Geary’s knowledge of the Iron Filings and Tigris wrongdoing 587
ASIC’s summary of Geary’s knowledge...................................................................... 588
ASIC’s submissions on what the AWB board was informed about the Iraq trade 593
IGB fees wrongdoing...................................................................................................... 593
ASIC’s submissions on Tigris wrongdoing................................................................. 595
Iron filings......................................................................................................................... 597
ASIC’s submissions on the duties and responsibilities of Geary............................. 597
ASIC’s submissions: legal principles concerning the duties of executive officers 597
ASIC’s submissions on the duties and responsibilities of Geary in AWB.............. 599
ASIC’s submissions on the alleged contraventions by Geary................................... 602
Geary’s submissions on context.................................................................................... 603
Geary’s duties................................................................................................................... 608
Geary concessions............................................................................................................ 610
ASIC’s pleaded case against Geary............................................................................... 611
Emails................................................................................................................................ 611
The evidence generally against Geary.......................................................................... 614
FASOC — paragraphs 1, 2 and 3................................................................................... 615
FASOC — paragraph 4................................................................................................... 616
FASOC — paragraph 5................................................................................................... 618
FASOC — paragraph 6................................................................................................... 619
FASOC — paragraph 7................................................................................................... 620
Geary’s statutory duties.................................................................................................. 620
FASOC — paragraph 8................................................................................................... 620
Geary’s statutory duties.................................................................................................. 620
FASOC — paragraph 9................................................................................................... 620
United Nations Resolutions on trade with Iraq.......................................................... 621
FASOC — paragraph 10................................................................................................. 621
FASOC — paragraph 11................................................................................................. 621
FASOC — paragraph 12................................................................................................. 622
FASOC — paragraph 13................................................................................................. 622
FASOC — paragraph 14................................................................................................. 623
FASOC — paragraph 15................................................................................................. 623
FASOC — paragraph 16................................................................................................. 624
FASOC — paragraph 17................................................................................................. 624
FASOC — paragraph 18................................................................................................. 624
FASOC — paragraph 19................................................................................................. 624
AWB’s sales of wheat to Iraq and the purported fees................................................ 625
FASOC — paragraph 20................................................................................................. 625
FASOC — paragraph 21................................................................................................. 625
FASOC — paragraph 22................................................................................................. 625
FASOC — paragraph 23................................................................................................. 626
FASOC — paragraph 24................................................................................................. 627
FASOC — paragraph 25................................................................................................. 628
FASOC— paragraph 26.................................................................................................. 629
FASOC— paragraph 27.................................................................................................. 629
FASOC— paragraph 28.................................................................................................. 629
FASOC— paragraph 29.................................................................................................. 630
FASOC— paragraph 30.................................................................................................. 630
FASOC— paragraph 31.................................................................................................. 631
FASOC — paragraph 32................................................................................................. 631
FASOC — paragraph 33................................................................................................. 631
FASOC — paragraph 34................................................................................................. 632
Payments to Alia.............................................................................................................. 632
FASOC — paragraph 35................................................................................................. 632
The Single Desk and the risk of harm to AWB if it was lost..................................... 633
FASOC — paragraph 36................................................................................................. 633
FASOC — paragraph 37................................................................................................. 633
FASOC — paragraph 38................................................................................................. 633
FASOC — paragraph 39................................................................................................. 634
FASOC —paragraph 40................................................................................................ 634
Allegations as to Geary’s knowledge........................................................................... 636
FASOC — paragraph 40(e)............................................................................................. 640
Resolution of paragraph 40(e)....................................................................................... 659
FASOC – paragraph 40(f)............................................................................................... 664
Resolution of paragraph 40(f)........................................................................................ 670
FASOC — paragraph 40(g)............................................................................................ 671
Resolution of paragraph 40(g)....................................................................................... 674
FASOC —paragraph 40(h)........................................................................................... 676
FASOC —paragraph 40(i)............................................................................................ 677
Paragraph 23..................................................................................................................... 681
Paragraph 24..................................................................................................................... 686
Paragraph 25..................................................................................................................... 687
Paragraph 26..................................................................................................................... 688
Paragraph 27..................................................................................................................... 689
Paragraph 28..................................................................................................................... 689
Particular 33(b)................................................................................................................. 691
Resolution of paragraph 40(i)........................................................................................ 691
FASOC — paragraph 40(j)............................................................................................. 693
Duties of Geary relating to Purported Fees................................................................. 694
FASOC —paragraph 41................................................................................................ 694
Contraventions relating to Purported Fees................................................................. 697
FASOC —paragraph 42................................................................................................ 697
FASOC — paragraph 43................................................................................................. 699
FASOC — paragraph 44................................................................................................. 700
FASOC — paragraph 45................................................................................................. 700
FASOC — paragraph 46................................................................................................. 701
The Tigris Debt................................................................................................................. 701
FASOC — paragraph 47................................................................................................. 701
FASOC — paragraph 48................................................................................................. 702
FASOC — paragraph 49................................................................................................. 702
FASOC — paragraph 50................................................................................................. 703
Geary’s knowledge in relation to the Tigris Debt....................................................... 703
FASOC —paragraph 51................................................................................................ 703
FASOC — paragraph 51(a)........................................................................................... 703
Resolution of paragraph 51(a)....................................................................................... 709
FASOC —paragraph 51(b)........................................................................................... 710
Resolution of paragraph 51(b)....................................................................................... 710
FASOC —paragraph 51(c)............................................................................................ 711
FASOC —paragraph 51(d)........................................................................................... 711
Resolution of paragraph 51(d)....................................................................................... 712
FASOC —paragraph 51(e)............................................................................................ 713
Resolution paragraph 51(e)............................................................................................ 714
FASOC —paragraph 51(f)............................................................................................ 715
Further particular 21....................................................................................................... 715
Resolution of paragraph 51(f)........................................................................................ 716
FASOC —paragraph 51(g)........................................................................................... 716
Resolution of paragraph 51(g)....................................................................................... 717
FASOC —paragraph 51(h)........................................................................................... 720
Duties of Geary in relation to the Tigris Debt............................................................. 721
FASOC —paragraph 52................................................................................................ 721
Resolution of paragraph 52............................................................................................ 726
Contraventions in relation to the Tigris Debt.............................................................. 734
FASOC — paragraph 53................................................................................................. 734
FASOC — paragraph 54................................................................................................. 735
FASOC — paragraph 55................................................................................................. 736
FASOC — paragraph 56................................................................................................. 736
FASOC — paragraph 57................................................................................................. 737
Iron Filings Claim............................................................................................................ 737
FASOC — paragraph 58................................................................................................. 737
FASOC — paragraph 59................................................................................................. 737
FASOC — paragraph 60................................................................................................. 739
FASOC — paragraph 61................................................................................................. 740
Knowledge and involvement of Geary in relation to the Iron Filings Claim......... 740
FASOC —paragraph 62................................................................................................ 740
FASOC —paragraph 62(a)........................................................................................... 741
Resolution of 62(a).......................................................................................................... 748
FASOC — paragraph 62(b)............................................................................................ 748
FASOC — paragraph 62(c)............................................................................................. 749
FASOC — paragraph 62(d)............................................................................................ 750
Geary’s responsibilities and duties in relation to the Iron Filings Claim................ 751
FASOC — paragraph 63................................................................................................. 751
Contraventions in relation to the Iron Filings Claim................................................. 754
FASOC — paragraph 64................................................................................................. 754
FASOC — paragraph 65................................................................................................. 755
Knowledge of paragraph 40(a)...................................................................................... 756
Knowledge of paragraph 40(b)...................................................................................... 756
Knowledge of paragraph 40(c)...................................................................................... 756
Knowledge of paragraph 40(d)...................................................................................... 757
Knowledge of paragraph 40(e)...................................................................................... 757
Knowledge of paragraph 40(f)....................................................................................... 757
Knowledge of paragraph 40(g)...................................................................................... 759
Knowledge of paragraph 40(h)...................................................................................... 759
Knowledge of paragraph 40(i)....................................................................................... 760
Knowledge of paragraph 40(j)....................................................................................... 762
Knowledge of paragraph 62........................................................................................... 763
FASOC — paragraph 66................................................................................................. 763
FASOC — paragraph 67................................................................................................. 763
FASOC — paragraph 68................................................................................................. 764
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