Australian Securities and Investments Commission v Geary

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2017 0016

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	Applicant
v
PETER ANTHONY GEARY	Respondent

---

JUDGES:	FERGUSON CJ, WEINBERG JA and SIFRIS AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	8, 9 and 10 November 2017
DATE OF JUDGMENT:	23 April 2018
MEDIUM NEUTRAL CITATION:	[2018] VSCA 103
JUDGMENT APPEALED FROM:	Australian Securities and Investments Commission v Flugge and Geary (2016) 342 ALR 1 (Robson J)

---

CORPORATIONS – Civil penalty proceedings – Alleged breaches of ss 180 and 181 of the Corporations Act 2001 (Cth) – AWB Limited (AWB) supplied hard currencies to Iraq contrary to UN Resolutions – Payments made to Iraq (a) via sham ‘inland transport fees’, (b) as compensation for purportedly contaminated wheat and (c) by way of inflated wheat price to pay debt owing to third party – AWB recovered payments from UN Escrow Account ostensibly by reason of having supplied ‘humanitarian goods’ to Iraq – Whether Geary, as an officer of AWB, knew, or ought to have known, of the improper conduct – Whether Geary breached statutory duties by failing to inquire into and prevent conduct by AWB – Whether a prevailing view existed within AWB that payments had been approved by UN and Department of Foreign Affairs and Trade – Whether Geary reasonably believed that payments had been so approved – Whether Geary knew that public revelation of wrongdoing likely to cause substantial and enduring harm to AWB – Challenge to findings of fact – No material error established.

EVIDENCE – Application of Jones v Dunkel in civil penalty proceedings – Whether trial judge erred in failing to invoke Jones v Dunkel regarding specific documents – No error established.

PRACTICE AND PROCEDURE – Appellate review of findings of fact made at first instance – ‘Real review’ of evidence led at trial – Application of Robinson Helicopter Company Inc v McDermott (2016) 331 ALR 550 to drawing of inferences from findings of fact.

---

APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr M J Colbran QC with Mr J P Moore QC and Mr C H Truong	Australian Securities and Investments Commission
For the Respondent	Mr I Hill QC with Mr A P Tragardh	Galbally & Rolfe

TABLE OF CONTENTS

SUMMARY OF FACTS…………………………………………………………………….. [6]

ASICS’ CASE AGAINST GEARY………………………………………………………… [44]

Inland transportation fee……………………………………………………….        [52]
Tigris debt………………………………………………………………………     [66]
Iron filings claim…………………………………………………………….....        [73]

DOCUMENTARY EVIDENCE…………………………………………………………….[77]

Relevant documents prior to February 2002………………………………….. [78]
Relevant documents after February 2002……………………………………... [94]

THE ORAL EVIDENCE…………………………………………………………………… [112]

Evidence of Hogan…………………………………………………………..... [116]
Evidence of Edmonds–Wilson………………………………………………… [137]
Evidence of Emons…………………………………………………………….        [143]
Evidence of Whitwell………………………………………………………… [149]
Evidence of Scales……………………………………………………………...        [152]
Evidence of McClelland……………………………………………………….. [155]
Evidence of Stewart……………………………………………………………        [161]
Evidence of Officer……………………………………………………………..        [164]
Evidence of Professor Bowker…………………………………………………. [173]
Evidence of Johnston………………………………………………………….. [175]

TRIAL JUDGE’S FINDINGS……………………………………………………………… [176]

Inland transportation fee……………………………………………………… [179]
Tigris debt……………………………………………………………………... [190]
Iron filings claim………………………………………………………………. [199]

THE PROPOSED GROUNDS OF APPEAL…………………………………………….. [206]

THE NATURE OF THE APPEAL TO THIS COURT…………………………………... [208]

CONSIDERATION OF PROPOSED GROUNDS

Ground 6     — Jones v Dunkel………………………………………………...        [225]
Ground 5     — Inconsistent finding…………………………………………... [272]
Ground 1     — The prevailing view within AWB……………………………. [276]
Ground 3(a)— Geary’s knowledge of the sham nature of the inland
transportation fee……………………………………………... [300]

Ground 2     — Incorrect application of principles under s 180
of the Corporations Act 2001 (Cth)………………………….. [334]
Ground 3(b) — The Tigris debt……………………………………………….. [390]
Ground 3(c)      —  Geary’s knowledge of the harm likely to be caused to
  AWB by the public revelation of Tigris debt and
iron filings claim………………………………………………        [395]
Ground 4     — Signing of 7 February 2003 memorandum…………………… [398]
Ground 8 — Breach of s 181 of the Corporations Act 2001 (Cth)………….. [407]

CONCLUSION…………………………………………………………………………………[ 413]

FERGUSON CJ
WEINBERG JA
SIFRIS AJA:

The Australian Securities and Investments Commission (‘ASIC’), in civil penalty proceedings, alleged that Trevor Flugge, a former Chairman and Director of the Australian Wheat Board Limited (‘AWB’), and Peter Geary, a former officer of that company, breached their duties under ss 180 and 181 of the Corporations Act 2001 (Cth) (‘the Act’).

ASIC’s allegations concerned various payments that were made by AWB during the period from 1999 to 2003, and were said to have found their way into the hands of the Iraqi government. A number of these payments were made under the guise of a fee purportedly for the distribution of wheat within Iraq (the ‘inland transportation fee’). ASIC alleged that the fee was a sham; a means by which Iraq could obtain internationally traded currencies, contrary to UN Resolutions. It alleged that both the UN and the Department of Foreign Affairs and Trade (‘DFAT’), had been deceived as to the nature of these payments.

ASIC further alleged that AWB had agreed to pay other amounts to Iraq in breach of UN Resolutions by assisting with the payment of a commercial debt owed by Iraq to Tigris Petroleum Corporation Ltd (the ‘Tigris debt’), and also by inflating contract prices so as to compensate Iraq for iron filings allegedly found in certain shipments of wheat (the ‘iron filings claim’).

When all of this came to light, it resulted in reputational damage to AWB to such a degree that, according to ASIC, it brought about AWB’s demise.

After a trial lasting several months, ASIC succeeded in its case against

Flugge,[1] but failed against Geary. ASIC now seeks leave to appeal against the dismissal of its proceeding against Geary. Flugge has not appealed.

SUMMARY OF FACTS

[1]The trial judge found that Flugge had breached his statutory duty under s 180 of the Act to exercise reasonable care and diligence, by failing to make enquiries into the propriety of AWB’s payment of certain fees to Iraq, contrary to UN Resolutions. Nevertheless, the trial judge found that Flugge had acted honestly in the sense required by ss 1317S(2) and 1318(1) of the Act. His Honour found that Flugge’s conduct was without deceit or conscious impropriety, without intent to gain improper benefit or advantage, and without such a degree of carelessness as to negate the performance of the duty in question. At the same time, his breach of duty was serious and had serious adverse consequences. It was not the sort of breach for which a Director, knowing what Flugge knew, should be excused. In the circumstances, a pecuniary penalty of $50,000 was imposed. His Honour declined to order costs against Flugge on the basis that ASIC had failed, in a number of respects, to make good its case against him. See ASIC v Flugge(No 2) (2017) 342 ALR 478.

The Australian Wheat Board was a government body founded in the late 1930’s to regulate and market Australian wheat internationally. On 1 July 1999, it was transformed into a private company, AWB, with a number of subsidiaries. One such subsidiary was AWB (International) Limited (‘AWBI’), which was the corporation authorised to hold the Single Desk, or monopoly, export rights under the Wheat Marketing Act 1989 (Cth).

After Iraq invaded Kuwait in 1990, the UN imposed sanctions on Iraq. These included the adoption of Resolution 661, which required all member states to prevent their nationals from making funds or financial resources available to Iraq.

In 1995, Broken Hill Propriety Limited (‘BHP’) had made a donation of a US$5 million shipload of wheat to Iraq. This culminated in what was referred to in this proceeding as the Tigris debt.

Also in 1995, the UN adopted Resolution 986 and introduced the Oil-for-Food-Programme (‘OFFP’). This enabled Iraq to sell its oil, with the proceeds to be held in a UN Escrow Account. The Resolution also permitted the sale of foodstuffs and other humanitarian goods to Iraq, the payment for which could be made to the suppliers out of the UN Escrow Account. The OFFP was administered by the UN in New York and did not modify the existing UN Resolution preventing funds or financial resources being made available to Iraq.

Under the OFFP, there were said to be 13 Phases. These began with Phase I which commenced on 10 December 1999, and culminated in Phase XIII which commenced on 5 December 2002. A distribution plan was prepared at the beginning of each Phase by the government of Iraq and approved by the UN Secretary-General. The distribution plan set out the procedures and obligations on the UN and Iraq for distributing humanitarian supplies within Iraq. Amounts were specifically allocated for the purchase and distribution of food. The distribution plan underwent various revisions with the different Phases of the OFFP.

Every contract between AWB and the Iraqi Grains Board (‘IGB’) was subject to the separate assessment and approval of the UN Office of the Iraq Programme (‘OIP’) (Contracts Processing and Monitoring Division) and DFAT.

A precondition of each shipment of wheat to Iraq was a ‘Permission to Export’ granted by DFAT, after consideration of each relevant contract.

Each delivery of wheat to Umm Qasr Port in Iraq required certification from the UN’s independent inspection agent, Cotecna. Each year the AWB shipped many million tonnes of Australian wheat to numerous countries around the world. Iraq was an important and profitable market.

AWB’s sales and marketing functions were principally undertaken by the Global Sales and Marketing Division (‘IS&M’), comprising different teams (known as ‘Desks’): North Asia, South East Asia, Middle East/Africa, and Europe. Together, the Desks had more than 50 staff. It was IS&M that negotiated contracts for the supply of wheat to IGB.

Between 1995 and 1998, Peter Geary had been Manager of AWB’s New York office. His role included dealing with the Australian Mission to the UN regarding the introduction of the OFFP, and conveying information back to the IS&M team in Melbourne regarding the effect of UN Resolutions, and the operation of the OFFP.

From October 1998 to June 2000, Geary worked in Melbourne as a Manager in the National Pool, which administered the distribution of proceeds from the sale of wheat to the growers who had contributed their wheat. He reported to the General Manager of the Pool, Ted Laskie, who in turn reported to the Chief Operations Officer, Michael Tighe. Tighe in turn reported to the Managing Director (Murray Rogers and, from April 2000, Andrew Lindberg). The National Pool set benchmarks for IS&M to sell wheat on its behalf.

After Geary became a Manager in the National Pool, he occupied a number of leadership roles within AWB. Between 2001 and 2006 he was Group General Manager of Trading. From February 2002, he was directly responsible for IS&M, including trade with Iraq. In that role, he reported directly to Lindberg.

In about June 1999, the IGB advised that from then on contracts for the sale of wheat under the OFFP were to include a payment by AWB of an inland transportation fee of US$12 per tonne for delivery of wheat throughout Iraq.

The inland transportation fee increased over time. Between 1999 and 2003, AWB paid approximately US$223 million to Iraq under this arrangement. From 2001, it incorporated an ‘after sales service’ fee. The inland transportation fee was payable in different international currencies, but never in Iraqi dinar.

The payments by AWB were made both directly and indirectly. They were made indirectly via shipowners to parties nominated by Iraq, through an intermediary shipping company called Ronly Holdings Limited (‘Ronly’), before being remitted to a company called Alia for Transportation and General Trade (‘Alia’), in Jordan. AWB also made these payments directly to Alia.

Alia, in turn, remitted the inland transportation fee payments to Iraq. ASIC alleged, and the trial judge found, that Geary signed a number of written internal authorisations to pay the inland transportation fee.

Sweeping reforms occurred after 1 July 1999, when AWB was transformed into a private company. On 14 July 1999, the first AWB contracts to include the inland transportation fee were agreed with the IGB.

In May 2000, the IGB approached IS&M to include a 10 per cent after sales service fee in all future contracts. Such a fee was agreed, and was included in all subsequent AWB contracts involving the sale of wheat to Iraq.

In September 2000, BHP assigned to Tigris its rights, ‘if any’, to its Iraqi assets and liabilities. These included a ‘Grain Board Receivable’ which related to the ‘donation’ previously made in 1995, now no longer viewed, it would seem, as a donation.

In 2001, AWB agreed, for a substantial fee of US$500,000, to assist Tigris to recover from Iraq the debt that BHP had assigned to it.

In March 2001, Geary was moved from the National Pool to Group General Manager Trading of AWB. It was at this time that ASIC alleged that Geary assumed the duties he was alleged, in this proceeding, to have contravened.

Geary contended that in this role, he was responsible for domestic and global trading, and risk management products for end users. He submitted, however, that this role did not then include responsibility for IS&M, or the Middle East Desk. Tim Goodacre was Group General Manager of Sales & Marketing, which included responsibility for IS&M and the Middle East Desk. In that role, Goodacre reported directly to Lindberg.

On 22 August 2001, AWB became a public company listed on the Australian Stock Exchange. The AWB Board set up several committees of its members, including the Audit Committee and the Corporate Risk Committee. On 27 November 2001, the Board approved AWB’s Corporate Governance Manual.

In February 2002, AWB’s organisational structure changed yet again. The Trading Group headed by Geary assumed responsibility for IS&M. Michael Long was General Manager of IS&M, Dominic Hogan was Regional Manager of the Middle East Desk, and Nigel Edmonds-Wilson was a Marketing Assistant.

By this time, the arrangements regarding the inland transportation fee had been in place for two and a half years. A total of 17 OFFP contracts had been approved by the UN and DFAT. A further 96 separate payments of the inland transportation fee had been authorised by AWB staff, including Laskie, Goodacre and Long, as well as Paul Ingleby (Chief Financial Officer), Michael Watson (Chartering Officer), and Sarah Scales (General Manager of AWBI).

On 12 February 2002, Geary signed the first of seven forms ultimately signed by him authorising the payment of the inland transportation fee to Alia.

In March 2002, Flugge ceased his role as Chairman of AWB. In April 2002, Chris Whitwell was appointed as an Account Manager in IS&M. In June 2002, AWB and the IGB entered into a contract designated as A1441, which assumed some significance in the course of the trial.

In late July 2002, the IGB asserted that certain shipments of wheat were contaminated with iron filings, and sought compensation from AWB.

In August 2002, a senior AWB delegation, which included Lindberg, Flugge and Long, visited Iraq to seek a resolution of the iron filings claim. While in Iraq, Lindberg, on behalf of AWB, agreed to settle that claim by paying the IGB US$6 per metric tonne. In late 2002, AWB agreed to increase the amount of the inland transportation fee it paid to Iraq by way of compensation for the iron filings claim. That payment was, of course, the subject of a specific claim of wrongdoing brought by ASIC against Geary, being the iron filings claim.

In December 2002, by agreement between AWB and IGB, the prices in two OFFP contracts, A1670 and A1680, were inflated by an amount calculated to recoup the Tigris debt. The reason for the inflation of the price was not separately disclosed in the contracts submitted to DFAT on 23 December 2002. This meant that AWB was proposing to receive money from the UN Escrow Account not referrable to wheat supplied under contracts A1670 and A1680. AWB later received payments from the UN Escrow Account.

By early 2003, AWB had been advised informally by DFAT that any compensation should be paid by reducing the price of wheat in future shipments to Iraq, or by paying money back into the UN Escrow Account.

Also at the beginning of 2003, AWB set up the Iraq Emergency Response Team. The role of that unit included making all contractual decisions in relation to AWB’s Iraq business. Geary was not a member of that unit.

On 19 March 2003, a United States led coalition invaded Iraq. On 29 May 2003, AWB was informed by DFAT that US sanctions against Iraq had ended. It may be inferred that from that point on, the UN Resolutions were of no practical significance.

On 28 November 2003, AWB received €13,381,180 in respect of contract A1680.

On 16 September 2004, Jim Cooper (AWB General Counsel) recommended payment to Tigris by AWBI of the Tigris debt. The agreement between AWBI and Tigris was drafted by AWB Legal, with the assistance of a solicitor from Blake Dawson Waldron. That firm had earlier been engaged by AWB to conduct a thorough review of the proposed arrangements with Tigris. The review was named Project Water and commenced in August 2004. The Project Water Summary was signed off by Charles Stott (General Manager of IS&M), as well as Long and Whitwell. Approval for final payment to Tigris was sought and obtained from Scales and Lindberg.

On about 9 December 2004, US$7,087,202 was paid by AWB to Tigris, after AWB deducted US$500,000 by way of a recovery fee.

After the invasion of Iraq in 2003, the United States conducted an inquiry into the payment of inland transportation fees to Iraq. It accused AWB of having acted contrary to UN Resolutions. That accusation led the Australian government to establish the Cole Royal Commission which sat from 10 November 2005 to 27 November 2006. According to ASIC, it led also to the loss of the Single Desk, and ultimately the demise of AWB.

Eventually, ASIC instituted civil penalty proceedings against various AWB Directors and officials, including Lindberg, Flugge, Ingleby and of course, Geary.[2]

ASIC’S CASE AGAINST GEARY

[2]Lindberg was ordered to pay a civil penalty of $100,000, and Ingleby, on appeal, $40,000. See ASIC v Flugge (No 2) (2017) 342 ALR 478 and ASIC v Ingleby (2013) 39 VR 554.

In a judgment that was almost 800 pages in length[3] (but reduced to 477 when reported in the Australian Law Reports),[4] the trial judge summarised ASIC’s case against Geary in enormous detail. His Honour did so in large part by reference to the pleadings, which were themselves voluminous.
[3]ASIC v Flugge and Geary [2016] VSC 779.
[4]ASIC v Flugge and Geary (2016) 342 ALR 1.

Insofar as that case was based upon Geary having had knowledge of various aspects of AWB’s wrongdoing, ASIC relied, by way of background, on Geary’s role in New York in 1996 and 1997. In that regard, Geary had helped to disseminate detailed information about the UN Resolutions and the OFFP procedures with which he would have been thoroughly familiar.

ASIC submitted that it should be inferred, therefore, that Geary had a detailed understanding of those matters. In particular, he would have been aware that no payment, in any internationally recognised currency, was to be made to the government of Iraq, or to any commercial, industrial or public utility undertaking in Iraq (Resolution 661). He would also have been aware that the UN Escrow Account could only be used to pay for exports under the OFFP (Resolution 986).

From mid-1999, Geary was said to be among a small group of AWB executives who were discussing and formulating ideas on how to pay the inland transportation fee demanded by the IGB. He received many emails recording these proposals.

Geary was also a regular recipient of internal emails concerning the settlement of the iron filings claim, and the consequent agreement to pay compensation to Iraq through the inland transportation mechanism. He was specifically requested to support a proposal to pay the iron filings claim in smaller instalments (‘not a lump sum payment’) through the inland transport mechanism and ‘preferably to a company other than the IGB and in a country other than Iraq.’ Despite what were described as known corporate governance risks, and the fact that Resolution 661 prohibited such payments, Geary acceded to the request and approved the proposal.

ASIC submitted that the trial judge should find that Geary received and understood the various communications regarding these matters. It submitted that his Honour should infer knowledge on Geary’s part from his not having expressed any surprise, or adverse reaction, in response to any of these communications.

ASIC further submitted that the trial judge should draw the desired inferences as to Geary’s knowledge from the documents alone, he having been copied in to a number of emails containing what it described in oral submissions before this Court as ‘red flags’. It relied in particular in that regard upon Geary’s failure to give evidence. It thereby sought to invoke the principle in Jones v Dunkel.[5]
[5](1959) 101 CLR 298.

Ultimately, ASIC’s case, with respect to ss 180 and 181 of the Corporations Act, was that Geary either knew or ought to have known that the public revelation of the inland transportation fee wrongdoing, the Tigris debt wrongdoing and the iron filings claim wrongdoing, would be likely to cause substantial and enduring harm to AWB. In failing to act to prevent any of this wrongdoing from taking place, he thereby contravened his obligations as an officer of that company.

Inland transportation fee

As indicated, ASIC contended that Geary either knew, or had the means of knowing of the inland transportation fee wrongdoing. ASIC further contended that Geary knew that public revelation of this wrongful conduct was likely to cause irreparable harm to AWB.

ASIC submitted that the documentary record in relation to Geary was so detailed and compelling that his knowledge of these matters should be inferred.

ASIC further submitted that in the event that the trial judge was not satisfied that Geary had actual knowledge of the kind alleged, it was nonetheless plain that, as a recipient of the documents tendered in evidence, and by virtue of his position within AWB, he had the means of knowing these things.

ASIC contended that it was obvious that Geary knew of, and fully understood, UN Resolutions 661 and 986. Between 1995 and mid-1998, he had worked in the New York office of AWB, in regular contact with the UN, and its supervision of the OFFP. In particular, Geary knew that the UN had called on Australia, as a member state, to ensure that Australian nationals (and corporations registered in Australia) acted in accordance with the UN Resolutions. This included:

(a) preventing the direct or indirect payment by Australian nationals of internationally traded currency to the government of Iraq or its instrumentalities; and

(b) ensuring that Australian nationals obtained payment from the UN Escrow Account only on account of OFFP humanitarian goods.

As regards Geary’s alleged knowledge of the inland transportation fee wrongdoing, ASIC noted that after his return to Australia in mid-1999, his responsibilities included managing the Single Desk on a day to day basis. They also included managing the team responsible for the wheat export program.

ASIC noted that Geary, among others, was copied into various emails sent by Hogan and other senior AWB staff regarding the inland transportation fee. One such email, dated 24 June 1999, was particularly significant as it recorded IGB’s insistence on a US$12 per tonne fee, and the problem which needed to be resolved being the payment mechanism because ‘all Iraq accounts have been frozen’.

ASIC submitted that, in his role as Manager in the National Pool, Geary would have been interested in the contracts between AWB and IGB, and how AWB profits might be affected by the ‘trucking fees’.

In ASIC’s submission, Geary knew that the IGB imposed the inland transportation fee on AWB, and that the fee was included in the prices in AWB’s contracts for the sale of wheat to IGB. Geary further knew that the fees were not identified or referred to in AWB’s contracts with the IGB, as they were submitted to DFAT and the OIP for approval.

ASIC noted that as at June 2000, Geary was the General Manager of Trading. Also from that time, he was a member of an executive committee known as the Executive Leadership Group (‘ELG’). That group comprised the Managing Director and Senior Executives of AWB. It devised strategy for AWB, and supervised its implementation. ASIC submitted that given that the National Pool was paying the inland transportation fee, it ought to be inferred that Geary, who at that stage was General Manager of that Pool, read all emails and attachments pertaining to matters relevant to its performance.

ASIC noted that on 7 February 2001, Geary received an email attaching a trip report prepared by Hogan and Daryl Borlace (of IS&M). ASIC argued that it ought to have been plain to Geary from reading that document that Iraq was trying to extract hard currency through the trucking fee mechanism, in contravention of the UN Resolutions. We will return to the significance of that report later in this judgment.

ASIC argued that it was clearly understood within AWB that the additional ‘service fee’ imposed upon the trucking fee was nothing more than an impost by the Iraqi government, and not a payment in any way related to trucking or the inland transportation of wheat.

ASIC submitted that the inland transport mechanism was simply a back door method by which money was to be paid through Alia to Iraq. It contended that Geary also knew about, and was involved in, the payment of fees to Alia in respect of various specified contracts. This knowledge was said to be based on his understanding of the following facts:

(a) UN Resolutions prevented hard currency from being diverted to Iraq;

(b) funds could only be recovered from the UN Escrow Account for humanitarian goods supplied to Iraq during the OFFP;

(c) the fees were being paid to Alia directly or through intermediaries including shipping companies as a means of distancing and disguising the payments made by AWB;

(d) Alia was the recipient of the fees but simply passed them on to Iraq;

(e) there was a ‘greyness’ and great deal of concern within AWB about the payment of the fees in connection with the UN Resolutions;

(f) AWB was entering into contracts with the IGB which included the fees as a component of the price;

(g) the fees were being paid to Iraq and the amount recovered by AWB out of the UN Escrow Account, and therefore at no cost to AWB;

(h) two IS&M employees had expressed the view that the increase in trucking fees and the introduction of the after sales service fees were a means of extracting more money from the UN Escrow Account;

(i) Geary was authorising payments of the fees; and

(j) AWB was paying vast amounts of ‘trucking fees’, but neither it nor Alia had any control over transport and did not receive any benefit in return in terms of improved discharge rates or reduced demurrage.

ASIC submitted that Geary had no reasonable basis upon which to assume that payment of the purported inland transportation fees through Alia to Iraq, in currencies other than Iraqi dinar, had been approved by the UN. ASIC submitted that it was commonly understood within AWB that the reference to paying the inland transportation fee meant paying Alia, and then Alia paying the Iraqis.

In addition to the knowledge set out above, ASIC submitted that Geary owed the following duties with respect to the payment of the inland transportation fees:

(a) to take reasonable steps to ensure that, when selling and exporting wheat to Iraq and obtaining payment from the UN Escrow Account, AWB was not engaging in conduct that the UN Resolutions had called on member states to prevent;

(b) to take reasonable steps to prevent conduct that would result in the direct or indirect payment of internationally traded currency to the government of Iraq or its instrumentalities;

(c) to take reasonable steps to prevent the receipt by AWB of payment from the UN Escrow Account other than on account of OFFP humanitarian goods;

(d) to take reasonable steps to ensure that the ELG and other senior AWB officials were informed of the relevant matters;

(e) to recommend against AWB’s payment of the purported fees and its receipt of payments from the UN Escrow Account in respect of the purported fees;

(f) to take reasonable steps to prevent AWB from entering into or carrying out contracts for the sale of wheat with the IGB where the contract price included an amount in respect of the purported fees, including the authorisation of the payment of the purported fees; and

(g) the revelation of AWB’s payment of the inland transportation fee would cause, or would likely cause, substantial and enduring harm to AWB.

Tigris debt

As regards Geary’s knowledge of the Tigris debt wrongdoing, ASIC submitted that Geary was aware that there was an arrangement for AWB to receive monies from the UN Escrow Account representing Iraq’s repayment of the Tigris debt. This was to be achieved through ‘loading up’ the price of wheat in contracts A1670 and 1680, and the entry into those contracts. AWB would then pay the received monies to Tigris.

ASIC further contended that Geary knew that AWB would receive a US$500,000 fee for its assistance in recovering that debt.

ASIC submitted that Geary was a regular recipient of internal emails concerning AWB’s assistance to Tigris to recover the Tigris debt.

Geary admitted that from September 2002, he knew that AWB had agreed to assist Tigris in the recovery of the Tigris debt. He contended, however, that it was reasonable for him to infer that AWB’s recovery of the Tigris debt was scrutinised and approved by AWB Legal, and known to the Australian government.

ASIC, on the other hand, submitted that Geary acquired the relevant knowledge before September 2002. Moreover, it was not reasonable for him to believe that the payment mechanism had been authorised by the legal department of AWB nor the Australian government.

ASIC relied on Geary having knowledge of the following facts:

(a) an AWB delegation visiting Iraq around August 2002 considered carrying with them a letter from Tigris to the Trade Minister of Iraq ‘asking him to stimulate action re the loan repayment’;

(b) AWB had always intended to assist BHP/Tigris in the debt recovery process;

(c) AWB had raised the possibility of settlement of the iron filings claim by AWB paying monies to Tigris as settlement of the Iraqi’s debt to Tigris;

(d) AWB proposed to IGB the ‘loading up’ of the contracts in order to obtain surplus funds from the UN Escrow Account, for the purpose of recovering part of the Tigris debt;

(e) repayment of the Tigris debt had been approved by the Iraqi cabinet;

(f) legal advice had been sought by AWB in relation to the draft agreement prepared by Tigris;

(g) the draft agreement between AWB and Tigris misrepresented the funds to be paid to Tigris on account of the Tigris debt as ‘compensation’ owed to Tigris by AWB;

(h) the draft agreement between AWB and Tigris provided for payments to be forwarded to Tigris in instalments, paid upon receipt by AWB of payments for wheat shipments from the UN Escrow Account;

(i) the Tigris debt was a pre-OFFP commercial debt and its recovery was not for a humanitarian purpose recognised by Resolution 986;

(j) the inflated price of wheat incorporated in the per tonne price was not disclosed in the contracts as submitted to DFAT and the OIP for approval;

(k) from 9 September 2004, there was a breach of UN Resolutions because the increase in contract payments to repay the Tigris debt did not properly disclose that it was not for a humanitarian purpose; and

(l) the revelation that AWB intended to obtain, or did obtain, payments in respect of the Tigris debt from the UN Escrow Account, which were not on account of OFFP humanitarian goods, would cause, or would likely cause, substantial and enduring harm to AWB.

In addition to the knowledge set out above, ASIC submitted that Geary owed the following duties with respect to the Tigris debt:

(a) to take reasonable steps to ensure that AWB was not engaging in conduct that the UN Resolutions had called on member states to prevent;

(b) to take reasonable steps to ensure that AWB was not engaging in conduct that would be likely to result in the receipt by AWB of payment from the UN Escrow Account other than on account of humanitarian goods;

(c) to take reasonable steps to ensure that the ELG and other senior AWB officials were informed of the relevant matters pertaining to the repayment of the Tigris debt and thereafter recommend against the mechanism that was ultimately used; and

(d) to take reasonable steps to prevent AWB from entering into or carrying out contracts A1670 and 1680.

Iron filings claim

ASIC contended that Geary knew that AWB was proposing and had agreed to pay the iron filings compensation by using the same mechanism that had been used to make payments of the inland transportation fee — namely, by payments in internationally traded currency from AWB to Alia purportedly in respect of a ‘fee’, which would thereafter be paid by Alia to Iraq, or its instrumentalities.

ASIC alleged that Geary further knew that AWB’s agreement to pay Iraq in excess of US$2 million through the inland transport mechanism, in respect of the iron filings claim, contravened UN Resolution 661, was contrary to DFAT advice received, and was likely to give rise to reputational and corporate governance risks to AWB.

Geary’s knowledge, which was alleged to be cumulative and to have commenced no later than November 2002, was said to be based on his understanding of the following facts:

(a) around August 2002, a delegation from AWB was to visit Iraq to discuss the alleged contamination of wheat contained in vessels from Australia;

(b) the IGB sought a US$7 per metric tonne discount on account of the contamination;

(c) AWB soon after agreed to pay to the IGB US$6 per metric tonne compensation to settle the quality claim;

(d) the compensation was to be effected using the ‘inland transport mechanism’ — being the payment of internationally traded currency through Alia to the IGB;

(e) around September 2002, two further vessels were alleged to contain contaminated wheat and US$6 per metric tonne was payable in respect of those shipments;

(f) a proposal was made to the ELG around October 2002, that the rebates for the iron filings claim be deducted from the Tigris debt owed by the IGB;

(g) in November 2002, Whitwell and Hogan had a discussion with the Iraqi Minister for Trade concerning the payment of the iron filings claim. It was resolved at this meeting that the settlement of the iron filings claim be kept separate from the Tigris debt;

(h) the Minister also requested at that meeting that repayment of the Tigris debt be through the inland transport mechanism;

(i) around December 2002, AWB again inquired whether the repayment of the iron filings claim could be passed through Tigris, rather than through Alia, for ‘corporate governance reasons’;

(j) by February 2003, Lindberg had agreed to the repayment of the iron filings claim as an addition to the inland transport fee, as requested by the Iraqi Minister for Trade, subject to the approval of the Australian government;

(k) UN Resolutions did not permit the direct or indirect payment of compensation in internationally traded currency by AWB to the government of Iraq or its instrumentalities;

(l) DFAT and the UN required that the iron filings claim be satisfied (if at all) by AWB refunding the iron filings compensation back into the UN Escrow Account, or by reducing the price of future shipments of wheat from AWB to the IGB; and

(m) the revelation that AWB intended to pay the iron filings compensation in internationally traded currency to the government of Iraq or its instrumentalities by the same mechanism used to pay the purported fees would cause, or was likely to cause, substantial and enduring harm to AWB.

In addition to the knowledge set out above, ASIC submitted that Geary owed the following duties with respect to the iron filings claim:

(i) to take reasonable steps to ensure that any payment or arrangement to pay the iron filings claim by AWB would not, or would not be likely to, constitute conduct that the UN had called on member states to prevent;

(ii) to take reasonable steps to ensure that AWB’s settlement of the claim would not result in the direct or indirect payment of internationally traded currency to the government of Iraq or its instrumentalities; and

(iii) to recommend against the proposed payment of the iron filings compensation using the same mechanism as used to make payments of the purported fees.

DOCUMENTARY EVIDENCE

ASIC divided the documentary evidence upon which it relied into two categories; those document brought into existence before February 2002, and those brought into existence after that time.

Relevant documents prior to February 2002

On 16 June 1999, Geary received an email from Hogan noting an upcoming meeting with Zuhair Daoud (Director General of the IGB) to discuss contract terms and conditions. The email stated that Zuhair ‘wanted to do this personally and not via faxes/telexes’.

On 17 June 1999, Geary received a copy of an IGB wheat tender which stated under the heading ‘Price’:

CIF Free on Truck to Silo at all Governarate [sic]. Cost of discharge at Umm Qast and Land Transport will be USD 12 per metric ton. To be paid to the Land Transport co. For more details contact Iraqi Maritin in Basrah [sic].

On the same day Geary sent an email to Hogan and others. The subject was ‘Re: Iraq’, and in the email Geary stated ‘… there are some things in the tender doc we cannot offer against …’.

Also on 17 June 1999, there was a further email, originally emanating from Graham Owen (AWB’s National Trade Finance Manager), regarding changes to the terms and conditions of the tender, and the need to deal with the payment of land transport costs demanded by Iraq. That email, copied to Darryl Borlase (IS&M), Mark Emons (Regional Manager Marketing, for the Middle East and Africa), as well as Hogan and others (but, importantly, not Geary), was in the following terms:

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????????
The USD12. 00 will be added onto CIF price — so no skin off our nose — however we need to find a way to implement this payment as Iraq a/c’s frozen.
Discretion is required here.

On 24 June 1999, Geary received an email from Hogan headed ‘Subject: IRAQ’. The email read:

1. FREE IN TRUCK
IGB have requested that the offers are submitted CIF, FREE IN TRUCK, IRAQ. The costs for this is USD 12.00 per tonne which the supplier adds to their offer. …
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.

MICHAEL … there may be a way to pay this through the vessel owners … so you have to think about the possibilities.

The next day, Geary received an email from Tim Snowball, of AWB’s New York office, headed ‘Re: IRAQ’:

A distribution plan was submitted by Government of Iraq to UN … copy is available on the internet …
Changes to contract terms and conditions
Can you advise what proposed changes to contract terms and conditions are to be agreed between IGC and UN. And what will be agreed between AWB and IGC only.
The Australian mission to the UN spoke to the UN today. The UN said that they were looking at some proposed changes to contract terms and conditions but we will not find out much more until it is finalised.

In summary, the genesis of the inland transportation fee can be distilled from these various emails. Most, but not all of them, would have gone to Geary.

Almost a year later, on 30 May 2000, Edmonds-Wilson forwarded to Geary and others, the following email from Watson and Emons:

AWB has been approached by IGB to provide ‘after sales service’
Current Action Plan:
…
-Determine what ‘after sales service required’ i.e. equipment/cash (Board approval may be required for this).

On 31 May 2000, Geary forwarded this email to Scales.

On 19 July 2000, Geary received an email from Hogan which attached a trip report. That report listed the price components of a recent wheat sale contract with Iraq, including a ‘trucking’ fee of US$14 per tonne. Geary then sent an email to Stott which attached the ‘Iraq Situation Report as at 18 July 2000’.

On 12 September 2000, Geary received an email from Hogan which set out a breakdown of the pricing of contracts A0265, A0266 and A0267, showing that the contract price included a ‘trucking’ fee of US$14 per tonne.

On 21 September 2000, Geary received the following email from Stott:

[P]ayment to Ronly relates to the US 0.20 cents per tonne fee that we agreed to pay for Ronly making Iraq freight and land transport payments on behalf of AWB. Evidently this had not been paid and Ronly only recently sent in an invoice for 1.5 million tonnes. This is an AWBI expense. …
Please urgently confirm that our obligations to Ronly in respect to the Iraq COA are now completed and as such no further payment will be made to Ronly for Iraq business.

On 7 October 2000, Geary received the following email from Snowball:

Iraq agrees to a contract for supply of wheat from Australia. This is a commercial agreement and has no involvement from UN. UN will not arbitrate/influence the terms and conditions of the contract as long as there is no threat of the oil money being used for things like purchasing weapons.

In November 2000, ‘trucking fees’ increased to US$25 per tonne with a further 10 per cent loading added to the contract price, meaning total fees increased to US$44.50 per metric tonne (a tripling of the previous US$15 fee):

** 10% will be added to px and included into trucking fee – i.e. IGB will confirm USD214.50 and T/fee will be USD44.50 ….. this has been approved by UN (as per IGB-I will get this in writing).

The IGB required the fees be paid in European currency.

ASIC placed considerable reliance upon the ‘after sales service’ fee that emerged in 2000, which it submitted ought to have caused Geary to doubt the legitimacy of the inland transportation fee, even assuming that he had failed to recognise its true nature at an earlier stage.

On 7 February 2001, several email groups within AWB including ‘AWB-International-All’ (which included Geary, as General Manager of the National Pool), were sent an email entitled ‘Iraq Trip Report’. The email contained a summary of a recent trip to Iraq by Hogan (who at this stage had become the Account Manager for Iraq and later, Regional Manager of the Middle East Desk) and Borlase. The email stated:

if you would like the detailed version than [sic] please read the attached file.

The five page report attached to the email included the following information on page four:

Trucking Fee/Services Fee — The trucking fee is now USD25.00 pmt all Governates [sic] of Iraq with a 10% service fee on the entire FIT value of the contract. We believe the increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account. AWB have agreed to remit the trucking fee in a foreign currency other than US Dollars (most likely in DM) in 2 instalments …[6]
[6]Our emphasis.

Relevant documents after February 2002

In February 2002, Geary assumed direct responsibility for IS&M, including trade with Iraq. On 18 February 2002, Geary approved the payment of €4,423,460 to Alia. Over the course of the following year, he authorised a series of further payments to Alia in relation to inland transportation fees amounting to approximately €24 million.

On 28 March 2002, Geary approved the payment of €7,700,743 to Alia in respect of inland transportation fees for contracts A0784, A0785 and A1112. On 30 August 2002, Geary approved payment of €2,867,827 to Alia in respect of inland transportation fees for contract A1111.

On 11 September 2002, Long sent an email entitled ‘Tigris/BHP/AWB/IGB’ to Norman Davidson-Kelly (who worked for BHP Petroleum until 2001, and was also President of Tigris) that was copied to Geary and others. The email noted:

We may have an angle to assist you with debt recovery, Ie the IGB has suggested we may send representatives from AWB and Tigris to Baghdad to discuss the matter.
Before we progress, would you please send to me all relevant documentation from BHP authorising AWB to negotiate/settle with Tigris/yourself on their behalf in part/full payment for the Iraqi debt to BHP.
The documentation will be scrutinised by our legal department and the authority for me to negotiate with you/IGB will need to be signed off by the Executive of the AWB.

From September to late 2002, correspondence passed between representatives of AWB and the IGB concerning the mechanism for payment of the iron filings claim, and recovery of the Tigris debt. At the instance of the IGB, AWB agreed to pay the iron filings claim using the inland transport mechanism.

On or about 11 December 2002, AWB entered into contracts A1670 and A1680 with the IGB for the supply of wheat. A memorandum sent by Edmonds-Wilson to Geary and others, explained that the contracts included provision for the payment of inland transportation fees of €51.30 per tonne and €8.40 per tonne on account of the Tigris debt.

On 7 February 2003, Geary received an internal AWB memorandum entitled ‘Iron filing rebate and Tigris Petroleum fee’. In the memorandum, it was proposed that the iron filings compensation be paid using the same mechanism as had been used to make payments of the inland transportation fee. It was said that the Australian Government should be informed ‘only … at the appropriate time prior to shipment’.

The 7 February 2003 memorandum also set out legal advice that AWB had obtained in relation to the iron filings claim. That legal advice was essentially as follows. Although there was a risk that the use of the inland transportation fee mechanism to pay the iron filings compensation claim might contravene UN Resolution 661, there could be a way forward that would enable the mechanism to be used without that consequence.

The legal advice from within AWB was that the payment might be made in instalments over time, coinciding with payments for future shipments of wheat. The payments could be made to a company other than the IGB, and in a jurisdiction other than Iraq. They may be made as part of a settlement reached between AWB and the IGB of the iron filings issue. It was also suggested that AWB Legal give further consideration as to whether, in these circumstances, the course proposed would contravene UN Resolutions.

Also in the memorandum, AWB Legal was said to have advised that there was a risk associated with the use of this mechanism for the iron filings compensation payments. It was emphasised that care needed to be taken to ensure that the new payment was legal. It was recommended that independent legal opinion be sought confirming AWB Legal’s advice. It was noted that other countries, including Russia and Pakistan, had sorted out quality problems, ‘in a similar way’, seemingly without consultation with their own national governments, or the UN.

In summary, the memorandum recommended that subject to independent legal advice being obtained, both the Tigris debt and the iron filings claim could be dealt with as suggested by AWB Legal. Importantly, the memorandum insisted that the Managing Director convey AWB’s intentions to the Australian government ‘at the appropriate time’, prior to shipment. No doubt this was bearing in mind that, at that stage, a war with Iraq was imminent, and so too therefore was regime change. The memorandum went on to say that thereafter there would be an opportunity of further negotiation with a new regime.

Geary signed the memorandum as ‘approved’, and the trial judge unsurprisingly found that he had read it.

On 10 February 2003, Geary prepared a file note addressed to Lindberg entitled ‘Iron Filing Rebate’. He noted that this was a ‘sensitive issue’. He stated:

The first vessel under the new contract is due to be loaded in early April and a lot of things may change in Iraq between then and now. As we get closer to the loading of the first vessel, we will need to advise you so you can OK the payment mechanism with DFAT, ie Minister Downer.
My guess is that DFAT and the UN will have major problems with this and if they say ‘no’, then we will have to address another way to get the monies to Iraq – either reducing prices on future contracts or supplying additional wheat – whichever the Pool prefers.

On or about 20 February 2003, Geary had a conversation with Jessica Lyons, an in-house legal advisor to AWB. In the course of their discussion, they spoke about Lindberg approving the iron filings mechanism referred to in the 7 February 2003 memorandum.

On 6 May 2003, Darryl Hockey and Whitwell published an ELG report on Iraq. Under the heading ‘Tigris Commission’, the report contained the following statement:

Tigris Petroleum (BHP) has asked for an update of status of their agreement in light [sic] current contract execution and when they will begin receiving payments. They intimated a number of influential people will need to start receiving funds and that further delays may cause difficulties going forward.

On 12 June 2003, after the US led invasion of Iraq, Long sent an email to senior AWB officers, including Geary. The email referred to the substance of a document entitled ‘Memorandum of Instruction’ from the Coalition Provisional Authority in Iraq, dated 10 June 2003. Among other things, the memorandum requested that staff review contracts under the OFFP to identify those which included a kickback, surcharge or after-sales service fee, the latter of which was described as ‘often 10%’.

On 24 July 2003, Long sent an email to Geary and others entitled ‘500k’. The email concerned, amongst other matters, arrangements for the delivery of wheat within Iraq. Long wrote:

Would appreciate some help in thinking through an appropriate authentication/delivery procedure for wheat … umm qasr is fine but if we allow say aqaba and tartous for bulk cargo …, would we be in a position to arrange trucking to silo within 2 hours each of basrah, kirhuk, Baghdad and zagho? What would the inland transport be and would we be willing to do it? What does Alia say and can they deliver? … can we arrange inland transport to all governorates if it goes to umm qasr, ie really deliver on the cnf all governorates [?] I think you can see the dilemma. [sic]

On 9 September 2004, Cooper sent an email to Scales with the subject ‘re: tigris’. Geary and Long were copied in to the email. The email contained the following statement:

Conclusion is that on the facts we have been provided there is no breach of Australian law. Facts are however quite patchy. There appears to be a breach of UN resolution 601 because the increase in contract payments to repay the Tigris debt and the processing of this higher amount through the OFF program was never disclosed and was not a payment for a humanitarian purpose.

There were numerous other documents tendered at trial, but those set out above featured most prominently in ASIC’s submissions before this Court. ASIC contended that it had made good its allegations against Geary by establishing that he had been the recipient of a number of these emails which, on their face, would have made it clear to anyone who read them closely that a number of arrangements with the IGB had been a sham.

THE ORAL EVIDENCE

Although ASIC relied heavily upon the various documents that it contended had come before Geary at the relevant times, there was also a considerable body of oral evidence led at trial. That evidence was led by ASIC. Much of it consisted of taking witnesses through the various email chains, and eliciting comments and explanations from them as to their contents from those witnesses.

One important issue, so far as this appeal is concerned, is whether there was, as the trial judge found, a prevailing view within AWB that the UN had approved the inland transportation fee. That finding was pivotal so far as the case against Geary was concerned, undermining a number of ASIC’s allegations.

With regard to that issue, evidence was given by Hogan, Edmonds-Wilson, Emons, Whitwell, Scales, Officer, Warrick McClelland (Director of AWB and member of the Audit Committee), and Brendan Stewart (Executive Chairman of AWB).

The evidence of those witnesses, did, in some respects, assist ASIC’s case against Flugge. However, when it came to the case against Geary, it is fair to say that much of their testimony worked in his favour.

Evidence of Hogan

Hogan was clearly a critical witness so far as the case against Geary was concerned. The judge referred to his evidence extensively throughout his reasons for judgment, and a number of his findings were clearly dependent upon Hogan’s account of events. In that sense, it may be concluded that his Honour found Hogan to be both truthful and reliable.

Hogan commenced employment with AWB in September 1993. He was originally employed as a Transport Officer. In 1997, he joined the Middle East Desk, which was part of IS&M. When he joined that Desk, his job was to provide administrative support for the Regional Manager.

Hogan’s position was below that of both Emons and Officer. In 1998, he was promoted to become the Manager of the Cairo office. He occupied that position from August 1998 to August 2000. He was also the backup manager to Emons with regard to various international wheat markets, including Iraq.

In August 2000, Hogan was again promoted, this time to Regional Manager for the Middle East Desk. He replaced Emons in that regard. He remained in that role from August 2000 until August 2002. He was based in Melbourne. In October 2002, he handed over the Iraq market activities to Whitwell. In July 2003, after the US invasion of Iraq, he resigned from AWB.

Hogan said that he had interacted with Geary whilst at AWB, albeit not all that frequently. He gave evidence that he would have had discussions with Geary regarding the OFFP, and some further contact with him after he had returned to Melbourne in 2000.

Importantly, so far as the proceeding before this Court is concerned, Hogan said that the Iraqis had told AWB that the proposed inland transportation fee had been submitted to the UN for approval. He added that the relationship with Iraq was fraught. Any indication by AWB that the Iraqis were not trusted in that regard might have led to trade being cut off. That had occurred with regard to a number of other origin countries at about that time. It was for that reason that various emails had emphasised the need to exercise discretion. It was not because there was anything suspicious about what was taking place.

Hogan stated that he understood the problem that had to be overcome was US sanctions against Iraq. He was firm in his evidence regarding that belief and the trial judge found that it was undisputed.

Hogan said that the actual transfer of funds into Iraq was blocked through the US banking system. He claimed that it was his belief that the UN had modified the OFFP so that a payment for wheat could actually be made to Iraq. The trial judge said that he inferred from this statement that Hogan did not believe that the trucking fee was contrary to UN Resolutions.

Hogan’s understanding, in June 2000, of the free on truck arrangements was:

that everything had been agreed and approved by the UN because it was included in the contracts gong back 12 months prior to and we were executing against those contracts.

Hogan added that his belief that the UN had approved these arrangements had been confirmed over time.

Hogan said that, in response to an enquiry in October 2000 as to why the fee was increasing, he was told that it was based on 17 Iraqi dinars per kilometre. He thought that rate, and the proposed increase from US$14 to US$25 was ‘very commercial’.

Hogan testified that it was his ‘complete understanding’ that:

the inland transport part of it had been — it was a predetermined amount between the Iraqis and the UN, that was included in their contracts and it was approved for each phase.

Hogan added that he had been told on many occasions that the Iraqis had said that the fee had been approved by the UN.

Hogan said that he was told that the after service fee was meant for ‘building storage and improving their wharf and their discharge ……… to increase their grain logistics capacity’. He added that Yousif Abdul-Rahman, who was the Director General of the IGB, had ‘advised this had all been approved by the United Nations’.

Hogan insisted that, at all relevant times, his state of mind had been that ‘[a]ll Iraq contracts are conceded as free in truck all governates Iraq with a predetermined and UN approved transport fee’. He repeated that it was his belief that all payment processes for inland transport had been UN approved. He said:

I never at any stage was told they weren’t and nobody ever said ‘Hang on, this contravenes the UN sanctions’.

When asked whether it was also a concern that the UN had passed a Resolution forbidding member states from transferring hard currency to Iraq, Hogan’s response was telling. He said:

At this stage here, we had been advised that they are approving that under the oil for food deal, so for them to make changes and we believed here at this point in time, my belief is they had changed the oil for food that you can actually make a payment to them. It doesn’t surprise me that the UN would implement something like that and not understand the mechanics that it can’t physically be done.

When questioned as to whether it was his view that AWB could add whatever it liked onto the inland transportation fee, provided simply that it was called an ‘inland transport fee’, Hogan answered affirmatively, but added the qualification that it be ‘approved by the UN’. He said that when the Iraqis told him that these fees, and subsequent increases, had been approved by the UN, he took what he was told at face value.

Under cross-examination by counsel for Geary, Hogan agreed that all Iraq contracts had been concluded ‘with a pre-determined and UN approved transport fee’. He also agreed that this had been his state of mind since at least the year 2000. He insisted that he had understood that the inland transportation fee had been approved by the UN. He never, at any stage, regarded what was being done as contrary to law. Indeed, he was adamant that he had always believed that he was acting honestly.

Hogan added that if there had been something ‘not quite right’ going on, he would have expected those documents upon which ASIC relied to have been closely guarded. However, the sheer number of people to whom they had been distributed indicated that there were no such concerns. He said that the dealings with Iraq were very open and widely known throughout AWB. No one had raised an eyebrow when inland transport had been mentioned. Everyone believed that the mechanism had been approved by the UN. Hogan himself had been of that view until at least July 2002.

Hogan was shown a further email which he had sent to Long and others on 1 July 2002, which specifically stated that all payment processes for inland transport were UN approved.

In re-examination by counsel for ASIC, Hogan again insisted that he had never, at any stage, considered what was being done to be against the law. Nor did he regard it as being in violation of UN Resolutions. He said that it was his belief that the Iraqis were being truthful when they told him that the inland transportation fee had been approved by the UN. That belief had been fortified by Snowball, who confirmed that the Iraqis had actually submitted ‘something’ to the UN regarding the payment of the fee. This information was consistent with what the New York office of AWB was telling them at the time.

Hogan said that so far as he was aware, no one within AWB had any view about the inland transportation fee mechanism that was different to his own. As previously indicated, his belief had been that the only issue that had presented itself concerned US economic sanctions and not UN Resolutions. It was not until considerably later that he finally learnt that he had been mistaken, and that the UN had never approved this particular mechanism. It was at that stage that he discovered the Iraqis had engaged in deception.

Evidence of Edmonds-Wilson

Edmonds-Wilson commenced at AWB in 1999 as an employee in the Grower Services Division. He later transferred to IS&M in 2001.

In examination in-chief, Edmonds-Wilson was asked whether it was his understanding, at the time, that AWB needed to get permission from DFAT in respect of the shipments to Iraq. He replied:

every contract with Iraq went through the relevant approval process which was the Department of Foreign Affairs and Trade in Canberra, to the Australian Mission to the UN in New York, to the UN and then back through to AWB via DFAT.

Subsequently, but still in the course of evidence-in-chief, Edmonds-Wilson asserted that it had been his understanding, at the relevant time, that AWB ‘was complying with the UN process’.

Under cross-examination by counsel for Geary, the transcript records the following question and answer:

At all times your belief was that these contracts and their conditions had been authorised, not only by the Australian government but by the United Nations?
Yes.

Edmonds-Wilson testified that it had been his belief that the contracts and their conditions had gone through a tightly regulated process, and had been approved by both the Australian Government and the UN. He said that there had never been any suggestion that Alia had been a mere ‘front’ for the Iraqi government. He had understood that Alia owned its own trucks, and had access to a large pool of subcontractors from which it could engage other trucking services.

Further, Edmonds-Wilson said that he had been told of the process that AWB had to go through to obtain UN approval, and that ‘AWB was complying with the UN process’. He accepted this as true. He could not recall, at this time, who specifically had told him of the need for UN approval, or that AWB was acting in compliance with the UN process.

Evidence of Emons

Emons was employed by AWB between September 1991 and June 2000. In June 1996, he was appointed as the Regional Manager of the Middle East, Africa and European sections, which relevantly covered Iraq.

In evidence-in-chief, Emons was asked whether he could recall having discussed with Owen whether the UN had approved the US$12 per tonne payment. He said that he could not specifically remember having done so, but would certainly have had a discussion with Owen regarding the payment, and the payment method. He was then asked whether he could recall anyone in AWB having confirmed in writing, or otherwise, that the UN had approved the trucking fees. He said:

Our source of approval was our document of a contract that was sent through the Department of Foreign Affairs to the United Nations committee which came back approved with the terms and conditions on it that discussed the trucking fee.

Under cross-examination, Emons was shown an email he wrote on 20 October 1999. The email subject was ‘Private and confidential — Iraq trucking fee’. It was addressed to Officer and copied to Watson, Rex Lister (a senior AWB employee in the contracts area) and Owen, though not to Geary. Within the body of the email, Emons referred to ‘… our contract which complies with the tender document details approved by the UN’.

Asked to explain the ‘approval’ to which he had referred, Emons said:

Each contract had to be approved by DFAT which would then supply that contract to the United Nations committee for approval. Once that approval had taken place, then the contract would become active and shipping could take place and then payment would be approved by the United Nations, I believe, back to us as the supplier.

It is important to note that the trial judge found Emons to be an unreliable witness. After a careful analysis of his evidence, which extended over nearly 20 pages of his reasons for judgment, his Honour said that he:

did not accept the evidence of Emons unless it [was] wholly corroborated by other admissible evidence. I found him untruthful and a man whose credit could not be relied on.

That finding was significant in several respects. ASIC had relied upon Emons as part of its case against Flugge. On the other hand, some of Emons’ testimony tended to support Geary’s case that there was a prevailing view within AWB that the UN had approved the inland transportation fee. To the extent that Emons’ evidence was consistent, in that regard, with that of Hogan, and other witnesses, the trial judge, in conformity with his reasoning, may have been prepared to act upon it.

Evidence of Whitwell

Whitwell served as Marketing Manager within IS&M between 15 July 2002 and 31 January 2007.

Whitwell stated during cross-examination that ‘certainly whilst I was doing the contracts, I thought they were UN approved’. He also believed that the contracts had been approved by both DFAT and the UN OFFP.

In re-examination, Whitwell said that he had been referring to the contracts, as distinct from the payments, when he spoke of his belief that they had been approved. He said that he only discovered that the payments had not been so approved when that fact emerged from the Cole Royal Commission.

Evidence of Scales

Scales commenced at AWB in 1992 as a Domestic Trader and remained in that role until 1995. In 1995–1996, Scales was a Pricing Analyst. Between 1996 and 1999, she was a Trader in derivatives in the New York office. From March 1999 to 2000, she was a Pricing Manager of AWBI. Between April 2001 and December 2006, Scales was a General Manager of AWBI.

Scales gave evidence that she was aware, at all relevant times, of the trucking fees. She said that she believed that they had been approved by the UN, as well as DFAT. In response to a question asking why she had approved a payment of 10 million deutschmarks to Alia, she explained:

I don’t recall why I did it at the time, other than to say that I was aware there were trucking fees attached to the contracts for sale of wheat into Iraq, that they had been approved by the United Nations and if these rates were reflected appropriately in the pool model and our net FOB return was accurately reflected, I would approve these fees.

Scales went on to say that she believed the payments to be UN approved because ‘… everything we did in my mind was approved by the United Nations Oil-for-Food Program and I believe, DFAT.’ She went on to say that she had no recollection of having been told that there may have been a breach of UN Resolutions. She herself, had not been involved in the contract approvals process, and had not had any dealings with either DFAT or the UN.

Evidence of McClelland

McClelland was at all relevant times a Director of AWB and a member of the Audit Committee. He gave evidence to the effect that he had learnt of the trucking fees at a Board meeting in mid-2000.

According to McClelland, the Board was told:

… that AWB was to pay for trucking within Iraq, in order to ensure that wheat was transported throughout Iraq, because in previous phases of the Oil for Food Programme the Hussein regime had not distributed goods to all Iraqi citizens.

McClelland’s evidence was that the Board was told that the payments were approved by the UN, and by the Australian Government.

Under cross-examination, McClelland said that Lindberg made a presentation at the mid-2000 Board meeting in which he explained that AWB was taking responsibility for the cost of trucking because the Iraqis had previously ‘comprehensively failed’ in relation to the transport of medicines. McClelland considered taking responsibility for the trucking fee to be a ‘very convincing’ idea, particularly because he believed that it was authorised by the UN, and the Australian Government. He added that it had raised no questions from the Board because it ‘just seemed a very sensible line to take’.

McClelland also gave evidence that he believed that the Australian Government, through DFAT, had been supportive and had provided valuable assistance to AWB in obtaining UN approval.

In re-examination, McClelland said that the exercise had been ‘a matter of trust’. He said:

… we trusted our own people, we trusted the government, we trusted the United Nations that they [had] looked at [the contracts] properly and we didn’t need to concern ourselves with that particularly.

Evidence of Stewart

Stewart was a Director of AWB between March 2000 and 2006. He was non-executive Chairman of AWBI and AWB from March 2002 to 2006.

His evidence was consistent with the prevailing view in AWB having been at the time that the inland transportation fee had been approved by the UN. He said that his understanding in about 2000 to 2002 was that ‘AWB was obliged to pay for trucking to ensure delivery of wheat within Iraq under the United Nations Oil-for Food Programme.’

In evidence-in-chief, he was asked about both the Tigris debt and the iron filings claim. He distinguished between them and the inland transport payments, the latter of which, to his mind, were UN approved. He acknowledged that the iron filings compensation claim was more of a ‘grey area’.

Evidence of Officer

Officer commenced employment with AWB in 1984. He held a number of positions at AWB over a period of some 16 years. Relevantly, he was the General Manager of Global Sales and Marketing from late 1995 until his employment ceased on 9 June 2000.

The trial judge found Officer’s recollection of the relevant events generally to be poor. He considered that Officer had difficulty in separating his memories of the primary events from what had been put to him at the Cole Royal Commission, and in the course of the trial. For these reasons, his Honour approached the evidence of Officer with ‘a degree of caution’.

Officer gave evidence of his involvement in the 1999 IGB wheat tender. He described the discussions he had had with colleagues at AWB, including in relation to the inland transportation fee.

He was asked about his recollection of the introduction of that fee. He recalled a number of discussions with Ingleby and Emons, among others. AWB had been presented with a situation where the inland transportation fee was to be paid, that the IGB had stated that they had negotiated or discussed the payment of the fee with the UN, that the UN were ‘on board’, and that AWB would be required to make the payment to a company or bank, to be advised by the IGB. Officer believed that Emons was the source of this information.

According to Officer there was, at least in mid-1999, some ‘greyness’ as to whether the UN had, or would, approve the trucking fees. That was so despite the fact that AWB had received assurances from Zuhair that the UN was ‘on board’.

Officer explained that the ‘greyness’ was addressed, to some extent, by the inclusion of a clause to the effect that payments were ‘subject to UN approval of the Iraqi distribution plan’. The presence of this clause gave Officer a high level of comfort that the UN had approved the trucking fees.

Officer also gave evidence that he considered the UN to have ultimate responsibility for approval of the inland transportation fee because of its role in ‘witnessing’ or ‘checking’ each contract, and authorising payments from the UN Escrow Account.

Under cross-examination, Officer maintained that any conversation he might have had with Flugge about the trucking fees would have been against the background of his own belief that the UN had approved these payments. Overall, therefore, Officer’s evidence was broadly consistent in that regard with that of Hogan.

In addition, evidence was led at the trial from Professor Bob Bowker, who had been a senior DFAT official at the time, and from Felicity Johnson, a consultant to the UN Office of Iraq Programme in the Contracts Processing and Monitoring Division. Their evidence was highly informative and once again broadly consistent with the oral evidence given by AWB officials.

Evidence of Professor Bowker

Professor Bowker gave evidence that he signed numerous ‘Permission to Export’, forms pursuant to Customs Regulations. He said that the AWB Contracts were closely examined to ensure they did not infringe Australia’s obligations under UN Resolutions.

The more important aspects of his evidence were as follows:

(i) If he had been an officer of AWB, it would be reasonable to conclude that upon receiving a Permission to Export form, that the trucking clause and the contract had been approved by both the UN OIP and by DFAT.

(ii) The AWB contracts clearly referred to the term ‘Free in Truck’ and the DFAT staff he supervised saw that term as appropriate.

(iii) Trucking of wheat to the silos in all the Governorates in Iraq was no surprise to DFAT given the UN approved Distribution Plans submitted by Iraq to the UN, and approved by the UN, made it clear that the distribution was to be done by Iraq.

(iv) Of the 30 Permission to Export forms he signed, 11 were during the period when there was a query that had been raised by the UN OIP about AWB’s conduct under the OFFP.

Evidence of Johnston

Felicity Johnston gave the following evidence:

(i) The UN OIP Contracts Processing and Monitoring Division was responsible for reviewing applications and preparing customs reports for circulation to the 661 Committee of the UN for approval.

(ii) Each application and contract was reviewed by a customs expert. Once the customs report was prepared, there was a checking officer responsible for checking the accuracy of the application and contract, as well as the customs officer’s report.

(iii) She had been put on notice about transport costs in Iraq. This was a serious matter that raised her vigilance in the area.

(iv) When granting extensions of time with respect to applications, there was further reference to the particular contract in question.

(v) She agreed that AWB contracts 4654 and 4655 clearly identified the term ‘discharge free in truck under the shipment terms to all silos within all governorates of Iraq’ and that the discharge rate was US$12 per tonne to be paid by the sellers to the nominated maritime agents in Iraq.

(vi) She agreed AWB’s contracts clearly spelled out terms of shipment.

TRIAL JUDGE’S FINDINGS

The trial judge noted that the case before him had been the subject of very detailed pleadings, as indeed it had been. He set out each of ASIC’s many pleaded allegations against Geary, and each of Geary’s pleaded responses. He largely expressed his findings by reference to each of those allegations and responses.

The trial judge found for ASIC in relation to Flugge, but concluded that it had failed to make good its case against Geary.

In one sense, that was hardly surprising. The case against Flugge was, in many respects, significantly stronger than the case against Geary. There was a body of evidence admissible against Flugge that was not admissible against Geary. Moreover, although Geary occupied a relatively senior role within AWB, Flugge’s position as Chairman, was of an entirely different order. His Honour was required to keep the two cases separate, and did so.

Inland transportation fee

Put simply, the trial judge found that although ASIC had established that Geary knew that the inland transportation fee was being paid to Iraq, it had failed to demonstrate that he was aware, at the relevant time, that the fee was a sham. Nor had ASIC established that Geary either knew or suspected that the UN had not knowingly approved the payments made through the inland transportation fee mechanism.

The trial judge found that Geary knew that the IGB had imposed on AWB an inland transportation fee, and that those fees were included in the contract price in AWB’s contracts for the sale of wheat. His Honour was satisfied that, due to Geary’s position and responsibilities, it was reasonable to infer that he read several emails sent to him containing information about the fees.

However, his Honour found that a reasonable person in Geary’s position would not have known or suspected any more about the sham nature of the inland transportation fee than Geary in fact did.

His Honour was not satisfied that Geary had read the 7 February 2001 trip report.

The trial judge was not satisfied that Geary knew that the UN had called on Australia, as a member state, to ensure that Australian nationals (including corporations registered in Australia) acted in accordance with the UN Resolutions, by ensuring that payment from the UN Escrow Account was only obtained in respect of OFFP humanitarian goods,[7] as ASIC alleged. His Honour was not satisfied that Geary knew or believed that ‘humanitarian needs’ did not include transporting foodstuffs, and therefore the UN Escrow Account could not be used for that purpose.
[7]OFFP humanitarian goods were defined, according to ASIC, as ‘goods supplied to the people or Government of Iraq or its instrumentalities under the OFFP, to meet the humanitarian needs of the people of Iraq’.

That said, his Honour was satisfied that Geary knew that there was no obligation on AWB to provide transport services in Iraq. His Honour found that Geary knew that there was no obligation on the transport company in Jordan or any other body to provide inland transportation services to AWB in connection with the supply of wheat by AWB. His Honour further found that Geary knew that the proposal was to pay the fee, and not physically provide the transport.

Importantly, the trial judge found that it was likely that Geary shared the view expressed by a number of AWB witnesses that the UN had approved the payment of the inland transportation fees. His Honour was not satisfied that Geary knew that the fees had not been approved by the UN.

As previously indicated, Hogan testified that it was his view that it was US sanctions that prevented payments being made directly to Iraq or its instrumentalities by bank transfer. The trial judge found that ASIC had not established that Geary thought differently to Hogan in that respect. Moreover, his Honour accepted Geary’s submission that no witness called by ASIC gave evidence that Geary had the requisite knowledge of the wrongdoing.

The trial judge was not satisfied that Geary knew that the inland transportation fees were not identified, or referred to, in the contracts for the sale of wheat that were submitted to DFAT and the UN for approval. His Honour noted that none of the AWB documents referred to by ASIC expressly indicated what had or had not been included in the contracts submitted to DFAT and the UN. ASIC’s case, therefore, depended on the drawing of an inference from those documents that the fees were not identified, or referred to, in the contracts as they were submitted for approval. His Honour found that there was no reason why Geary would draw such an inference, if he believed that DFAT and the UN had approved the payment of the fees.

Geary’s role at this time was more strategic than operational. The trial judge referred to Geary’s role as follows:

The 2001 AWB Annual Report for the year ended 30 September 2001 lists the members of the ‘Executive Management Group’ at pages 44 to 45. It states at page 45 that Geary’s role was ‘Group General Manager, Trading’ and that he was ‘responsible for domestic and global trading and risk management products for growers and end users.’ It also states at page 53 that Geary was the fourth highest paid executive officer of AWB (and the consolidated entity) after Lindberg, Ingleby and Goodacre.[47]

[47]Reasons 364-5 [2414].

AWB’s circumstances at the relevant time were set out by the trial judge as follows:

The 2001 Annual Report also noted the retention of the Single Desk as a highlight of the year and Flugge stated in the Chairman’s Report, ‘The year will be remembered for the successful campaign to retain the Single Desk (the sole right to export bulk wheat) ...’ At page 8 in his Chairman’s Report, he states that ‘The AWB group managed 24.1 million tonnes of grain with a value of approximately $5.5 billion which included approximately $3.8 billion in export income from wheat alone under the Single Desk.’ At page 9, ‘AWB argued vigorously and in many forums that the Single Desk provided significant benefits to Australian wheat growers and the nation’s economy. We demonstrated that premiums captured by this arrangement are equal to more than $140 million a year or $8.72 per tonne.
The 2001 AWB Annual Report, in the ‘International sales and marketing’ section of the ‘AWB’s Business Streams’ chapter, nominates Iraq as one of six key markets for AWB, and states that demand for AWB ‘s wheat remained strong in Iraq.[48]

[48]Reasons 365 [2415]–[2416].

It is also useful to refer back to the 1999 AWB Annual Report. It provides relevant details in relation to AWB’s circumstances, and was relied upon by Geary. The trial judge set out extracts from that Report. In substance, he noted by way of background that AWB was, at that time, an unlisted public company. In 1998/99 AWB shipped almost 16 million tonnes of Australian wheat to countries around the world.

Sales and marketing functions were undertaken by two teams:

(a) the IS&M division of AWB, comprising different desks: North Asia, South East Asia and Middle East/Africa Europe — for all products in international markets including all pool wheat exports; and

(b) AWB (Australia) Limited — for all products in the Australian and Pacific markets and grains other than wheat for export.

As the integrated service provider to the Single Desk, AWB operated under a range of regulatory and reporting requirements. AWB was one of the most heavily scrutinised exporting companies in the world.

Under the OFFP, every single contract between AWB and the IGB was subject to the scrutiny of, and had to be approved by:

(a) the UN OIP Contracts Processing and Monitoring Division; and

(b) DFAT.

Each shipment of wheat also required a Permission to Export granted by DFAT, after further consideration of each relevant AWB contract.

Payments to AWB from the UN Escrow Account were authorised by the UN Treasury.

From 1998 to June 2000 (noting that the alleged purported fees were introduced in about July 1999), Geary was a Pool Manager of the AWB National Pool. AWBI was a separate entity to AWB (which was the service company selling wheat to Iraq).

In July 1999, at about the same time that the trucking fee was introduced in OFFP contracts, sweeping reforms to the organisation commenced when the Australian Wheat Board was transformed and AWBI incorporated to hold the Single Desk export rights under the Wheat Marketing Act.

The transformation from the old statutory marketing authority was not without internal difficulties. There was a culture of tension and competition between the Pool (of which Geary was a member) and IS&M that took some time to improve. Hogan referred to an ‘us versus them’ culture between the Pool and IS&M, and said that the two divisions ‘had a barrier and that stemmed from our two previous managers … that disliked each other.’

From June 2000 to March 2001, Geary was General Manager of the National Pool, having replaced Laskie. It was at this time that Geary became a member of the ELG; when the incorporation of the trucking fee into the OFFP contracts was well established. Seven OFFP contracts including the trucking fee had already been approved by the UN and DFAT.

The function of the Pool was to manage the exposure and revenue of the Pool. The Pool would set benchmarks for IS&M to sell wheat on its behalf. The predominant interest of the Pool was the net Free on Board (‘FOB’) return to the growers of Australian wheat. It was not the task of the Pool to negotiate contracts or concern itself with the contents of contract terms and conditions which did not impact on the FOB return to growers.

The inland trucking fee did not impact on the FOB so the Pool did not need to pay attention to it. The Pool’s primary focus on the FOB was confirmed by Scales and Hogan during the course of their evidence.

From March 2001, Geary was Group General Manager Trading. In this role he was responsible for domestic and global trading, and risk management products for end users. This role did not include responsibility for IS&M or the Middle East Desk.

As previously indicated, on 22 August 2001, AWB became a public company listed on the Australian Stock Exchange. Flugge, the Chairman at the time, noted in his Chairman’s Report in AWB’s 2001 Annual Report, that ‘[i]t marked the completion of sweeping reforms that turned a 60-year old statutory marketing authority into a modern, global grains manager ...’

It was not until about February 2002 that the Trading Group headed by Geary took on IS&M. By this time the trucking fee arrangements had been in place for two and a half years and 17 OFFP contracts had been approved by the UN and DFAT.

During 2002, Geary was heavily focused on strategic rather than operational matters, as discussed elsewhere in these reasons for judgment. By 2003, Geary’s title was changed from Group General Manager Trading to Group General Manager Trading and Commodities.

Another relevant matter, so far as AWB’s circumstances at the relevant time were concerned, was the Board’s level of knowledge concerning the inland transportation fee. The trial judge dealt with this aspect of the evidence as follows:

In March 2001, when Geary moved from the Pool to the position of Group General Manager Trading, AWB had been paying the inland transportation fees under its contracts with the IGB for some eighteen months. Lindberg had taken over as managing director of AWB a year before in mid-2000. In mid-2000, the AWB board had been informed by Lindberg of the payment by AWB of the inland transportation fees and that the UN and the Australian government had approved of the payments.[49]

[49]Reasons 436 [3003].

As we have said, Geary’s conduct must be assessed through the prism of the particular role that he occupied at any given time. It must be remembered that over the years, he worked within a business structure that was constantly changing.

It was against that background that the trial judge asked whether a reasonable person in Geary’s position would have acted any differently to the way that he did? Would such a person have foreseen any risk of harm to AWB by facilitating the payment of the inland transportation fee? If so, what should such a person, in Geary’s position, have done if faced with that dilemma?

The trial judge held that, a reasonable person in Geary’s position would not have foreseen any risk of harm to AWB from continuing to make the trucking fee payments. The reasonable person in question would, of course, have been someone who genuinely, albeit mistakenly, believed that these payments had been approved by the UN. Nor, given that belief, would such a person have acted any differently to the way that Geary did.

That conclusion had to follow from the trial judge’s finding of fact that Geary was unaware, until much later in the piece, that the inland transportation fee was effectively a sham, enabling kickbacks to be paid to the Saddam Hussein regime. Having already said that we see no reason to doubt the correctness of that finding of fact, there can be no substance to the complaint that his Honour failed correctly to apply the facts to the law, as contended in ground 2.

AWB was entitled to continue trading with Iraq on terms agreed between the contracting parties. As we have said, the contracts for the sale of wheat were the subject of intense scrutiny by others, including DFAT and the UN. Moreover, AWB had its own legal department that was called upon from time to time to advise on particular transactions. Geary would have had no reason to assume that those in the legal department were unaware of the exact nature of the inland transportation fee. He would have had no reason to doubt the fact that the in–house lawyers considered the payment of that fee to be lawful.

Geary was not in the same position as Lindberg (or for that matter, Flugge or Ingleby) in that regard. Indeed, there was no evidence that he read the actual documents that were presented to the UN and to DFAT, or that he was otherwise aware of the exact nature of their contents.

Geary’s defence to ASIC’s allegations against him was, if anything, strengthened by the fact that by February 2002, 17 contracts had been approved by the UN and DFAT over the previous two and a half years. Some 96 payments representing the inland transportation fee had, by that time, been made. Many of the AWB staff, some of whom gave evidence, were specifically engaged in those operational matters. It was their task to prepare and present the relevant documents to DFAT and the UN, not Geary’s.

It was not without significance that ASIC did not call a number of persons to whom critical documents had been sent. It did not adduce evidence that those documents had been discussed with Geary, or even that they had seen or heard anything that suggested knowledge on his part of some form of impropriety.

Both DFAT and the UN were by no means strangers to the repeated and ongoing transactions involving the inland transportation fee. They were required to provide approval following the receipt of all necessary documents and information. Had they thought it necessary, they could have requested any additional material, and even insisted upon its production.

In addition, each delivery of wheat to Umm Qasr Port in Iraq required certification from the UN’s independent inspection agent, Cotecna. As a consequence, Geary might reasonably have assumed that if that body as regulator and, in effect, auditor, required any further information, it would have asked for it. In the absence of any such request, he could have assumed that Cotecna was satisfied with the documentation and information provided.

A reasonable person in Geary’s position would have expected AWB to reap substantial rewards from its participation in a profitable market. Such a person would not have anticipated reputational harm on the scale, or of the kind, that led to AWB’s demise.

The trial judge found that there was nothing falling within Geary’s particular area of responsibility within AWB that called for increased vigilance, or a further level of scrutiny on his part. He was not required to audit the auditors. His duties within AWB, at this time, were many and varied. However, they did not extend to investigating compliance with the UN Resolutions. Primarily, that was a matter for both DFAT and the UN, and not for someone occupying Geary’s role.

In these circumstances, and based on our view of the evidence, we respectfully agree with the trial judge’s finding that ASIC had failed to establish that, in the period after March 2001, Geary had contravened s 180.

The period before March 2001 was not the subject of the alleged contravention. Nonetheless, it can be said that, as far as Geary was concerned, any suggestion that he was aware, at that stage, of the impropriety associated with the inland transportation fee, would be even more problematic.

Although ASIC did not plead any duty or breach referable to that earlier period (it being time-barred), it relied upon Geary’s receipt of various emails at that time as background evidence of the progressive accretion of his knowledge. It was said to be that knowledge which, of course, formed the basis of ASIC’s pleaded case against him.

For the reasons set out earlier, in relation to ground 3(a), there was no earlier ‘knowledge’ of the kind for which ASIC contended.

The more relevant period, so far as Geary was concerned, was that from February 2002, when the IS&M Division came under the Trading Division of which Geary was General Manager. Trade with Iraq fell within that Division. Geary’s responsibilities, however, remained largely the same as they had been throughout the earlier period.

There was nothing in the later period that causes us to reach any different conclusion. The inland transportation fee had, by that stage, been in existence for over three years. There had been countless approvals by DFAT and the UN, of particular contracts. These contracts included terms which related to the trucking fee. The allegation that Geary failed to exercise due care and diligence, within the meaning of that expression in s 180, was properly rejected, as it was with respect to the Tigris debt and iron filings claim.

Ground 2 therefore, fails.

Ground 3(b) — the Tigris debt

This ground contends that the trial judge erred in failing to find that Geary knew that obtaining funds from the UN Escrow Account to pay the Tigris debt was contrary to UN Resolutions.

We have already addressed this issue, in part, in having dealt with ground 6 concerning the email by Cooper to Scales on 9 September 2004 . Having rejected ASIC’s contention that Geary should have been found to have read that email, and understood its implications, it is difficult to see how it can now be said that he ought to have been aware, at the time the Tigris payments were made, that they were wrongful, and in breach of UN Resolutions.

The trial judge’s finding that ASIC had failed to establish that Geary had read the relevant email presents a major obstacle to ASIC’s reliance upon this particular ground.

In any event, it must be remembered that the Tigris debt transaction was subjected to close scrutiny by AWB’s own legal team. It was further scrutinised by a major and reputable commercial firm of solicitors, Blake Dawson Waldron. When one factors in as well the prevailing view (shared, as his Honour found, by Geary) that the inland transportation fee mechanism had been approved by both DFAT and the UN, it is difficult to see how this ground can gain any traction.

Ground 3(b), is therefore rejected.

Ground 3(c) — Geary’s knowledge of the harm likely to be caused to AWB by the public revelation of Tigris debt and iron filings claim

This ground contends that the trial judge erred in failing to find that the public revelation of the Tigris and iron filings wrongdoing had caused substantial damage to AWB, and that Geary was aware of the likelihood that this would transpire.

The short answer to this ground is that, on the evidence, Geary did not know that either the payment of the Tigris debt, or the iron filings compensation, had involved wrongdoing on the part of AWB. Accordingly, he could not have been aware of the likelihood that the public revelation of these matters would cause substantial damage to AWB.

Ground 3(c) therefore fails.

Ground 4 — Signing of 7 February 2003 memorandum

This ground contends that by signing the 7 February 2003 memorandum as ‘approved’, Geary was in breach of his duties under s 180. ASIC alleges that the memorandum proposed a method for paying Iraq the iron filings compensation, which was contrary to DFAT advice, and which anyone closely reading that memorandum would have understood to be the case.

This ground cannot be made out. The memorandum set out the opinion of AWB Legal, which identified a method by which the iron filing payment could be made without contravening the relevant UN Resolutions. Of course, it must be acknowledged, that that method of payment was described in the memorandum as involving a ‘grey area’. There was a reference in the document to the opinion of ‘Public affairs’ (of AWB) that the advice given by AWB’s legal advisors could be accepted ‘as long as the repayment [was] legal and could not be seen to be breaking UN Sanctions’. There was then added the proviso that the legal advice should be confirmed by ‘independent legal opinion’.

ASIC led no evidence at trial as to whether any such independent legal opinion was obtained. It was not clear precisely when Blake Dawson Waldron became involved in advising as to these matters. There was, however, evidence that a solicitor named Chris Quennell of Blake Dawson Waldron was consulted in or about June 2003 regarding a number of the issues surrounding the sale of wheat to Iraq. In particular, he was asked to advise upon ‘Project Rose’, an inquiry into the legality of all of AWB’s dealings with Iraq, and whether any of them had contravened UN Resolutions.

The trial judge found that Quennell’s involvement could be summarised as follows:

On 12 June 2003, two presentations were made by Quennell, who had been engaged to conduct Project Rose. At that time, the ELG comprised the nine most senior managers in AWB, namely, Lindberg, Fuller, Ingleby, Gillingham, Kennedy, Geary, Stott, Sharpe and Scales.
The first presentation discussed the content of a complaint made by the US Wheat Associates dated 6 June 2003. During that presentation, reference was made to:
(a)allegations that AWB contracts with the IGB were inflated; and
(b)allegations that some of the funds from these contracts may have gone to Saddam Hussein’s family.

The second presentation was entitled ‘Iraq issues (internal trucking arrangements) – 12 June 2003.’ During the presentation, reference was made to the following:
(a)legal issues arising from post October 1999 contracts;
(b)that AWB was initially reluctant to agree to pay trucking fees but ultimately agreed to pay inland transportation fees to Alia;
(c)the increase in the inland transportation fees as time has gone on;
(d)s 70(2) Criminal Code Act 1995 (Cth) relating to influencing public officials; and
(e)UN Resolutions 661 and 986.[50]

…

[50]Reasons 98 [569]–[571].

His Honour noted that ASIC, though conceding that there was no direct evidence that Geary had attended one or both presentations, had submitted that:

… it should be inferred that [as a member of the ELG] at a minimum he personally received the papers anyway.[51]

[51]Reasons 98 [571].

ASIC did not call Quennell as a witness. It chose rather to rely upon certain file notes that he had made of his discussions with Flugge. There was no evidence that Geary had any involvement with Quennell. There seems to have been no particular reason why someone in Geary’s position would have been so involved.

There was no evidence as to whether, in accordance with Geary’s endorsement of the recommendation that ‘independent legal opinion’ be sought to confirm what AWB’s own legal advisors had suggested, that that was actually done.

It would be reasonable, however, for Geary to have assumed that those well above him in the AWB hierarchy, particularly Lindberg, but also Flugge, would have acted upon that recommendation. In any event, it is difficult to see how his Honour’s finding that this particular allegation against Geary could not be sustained can be impugned on the evidence led below.

Ground 4 must be rejected.

Ground 8 — Breach of s 181 of the Corporations Act

Section 181 of the Corporations Act, relevantly provides:

181 Good faith—civil obligations

Good faith—directors and other officers
(1)A director or other officer of a corporation must exercise their powers and discharge their duties:
(a)in good faith in the best interests of the corporation; and
(b)for a proper purpose.

…

As previously indicated, ground 8 contends that the trial judge should have found that Geary knew, or was wilfully blind to wrongdoing in connection with the inland transportation fee, Tigris debt, and iron filings claim. It asserts that Geary, in continuing to exercise his powers after becoming aware of each form of wrongdoing, thereby supported continuing misconduct, and breached his duties under s 181.

A director or officer of a company will be in breach of this section if they, or their involvement in certain actions, did not constitute acting in good faith, or for a proper purpose, and for the benefit of the company. Although the test is objective, based on what a reasonable person in a similar position would be expected to have done in the circumstances, the subjective beliefs and intentions of the director or officer may still be relevant.[52]
[52]See generally ASIC v Adler (2002) 168 FLR 253; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1. The trial judge dealt comprehensively with the recent case law in relation to s 181 at [1965]–[1994] of his reasons, primarily in dealing with ASIC’s case against Flugge.

Whatever the appropriate test, ground 8 must fail in light of the findings made regarding Geary’s knowledge, and role within AWB at the relevant time. ASIC, in its Written Case, did not contend to the contrary. Rather, it submitted that the trial judge should have found that Geary contravened s 181 of the Corporations Act for essentially the same reasons that he had contravened s 180.

It must follow from our rejection of grounds 3(a) and 2 that there was little, if any, evidence of any actual want of good faith on Geary’s part. Equally, and for substantially the same reason, there was no evidence that Geary’s conduct was not undertaken for a proper purpose. Nor was there any evidence that he had acted other than in the best interests of AWB.

Accordingly, ground 8 fails.

CONCLUSION

Having considered for ourselves the evidence led at trial, we are of the view that ASIC’s challenge to the trial judge’s decision to dismiss its application against Geary must fail.

In arriving at that conclusion, we have had to distinguish carefully the evidence that was admissible against Flugge, but not Geary, of which there was a considerable body. We also had to consider separately the evidence that bore directly upon the alleged inland transportation fee wrongdoing, and distinguish it from that which bore upon the Tigris debt, and the iron filings claim.

It is fair to say that ASIC’s case on the inland transportation fee was weaker, in certain key respects, than its case on the remaining two transactions. The Tigris debt, in particular, seems, with the benefit of hindsight, to have been the type of arrangement that the UN would scarcely have been likely to have approved. That particular transaction was somewhat removed from the regular and continuing wheat contracts, which were directly under both DFAT and UN scrutiny for a very long time.

Nonetheless, his Honour’s reasons for rejecting ASIC’s case in respect of the Tigris debt, (and the iron filings claim), were comprehensive, and, with respect, entirely rational. His findings regarding those matters were supported by the evidence to which he referred. We are not persuaded that the conclusions arrived at were erroneous.

In arriving at that decision, and in rejecting all of ASIC’s proposed grounds of appeal, it should not be thought that this Court in any way condones the conduct of those senior AWB officials, particularly Lindberg, and to a lesser degree, Flugge[53] and Ingleby, who were proved to have been at the centre of this entire sorry affair.
[53]As noted earlier, the trial judge found that Flugge had not acted dishonestly, or with moral turpitude, but rather had failed to exercise reasonable care and diligence in ensuring that there was no breach of UN resolutions. On any view, Geary’s role in what occurred was far less culpable than that of Flugge.

In Australian Securities and Investments Commission v Ingleby,[54] this Court spoke about the seriousness with which conduct such as that of these key AWB figures should be viewed. Harper JA set out the history of AWB’s dealings with Iraq, in relation to the payment of the inland transportation fee. He described the actions of Ingleby, and no doubt the other highly placed AWB officials involved, as ‘shameful’.[55]
[54](2013) 39 VR 554.
[55]Ibid 575–6 [98].

Speaking more generally his Honour added:

International trade is an essential component of domestic economic health. But its contribution to that health is significantly reduced unless it is conducted in accordance with just laws impartially and consistently enforced. The responsibility for such enforcement falls primarily upon the courts. The courts enlarge the economic interests of the communities they serve by ensuring that economic activity, along with all human behaviour, is governed by the rule of law.
Wheat is a very important commodity in international trade. Australia, as a major exporter of that grain and of much else, including vast quantities of minerals, is among the more significant participants in that trade. To the extent that the courts, and in particular the superior courts, can ensure the wellbeing of that trade and the reputation of Australia as a reliable and law-abiding member of the international economic community, they have a high obligation to do so.[56]

[56]Ibid 566 [47]–[48].

Given that at least several of the proposed grounds of appeal appear arguable, we would grant ASIC leave to appeal. We would, however, dismiss the appeal.

ASIC foreshadowed in its application for leave to appeal that it would seek costs against Geary, in the event that the appeal succeeded. In those circumstances there seems to be no reason why, that appeal having been dismissed, ASIC should not now be ordered to pay Geary’s costs.

- - - - -

[2018] VSCA 103

23 April 2018