The former Chairman of AWB Limited (AWB), Trevor Flugge, was today found by the Supreme Court of Victoria to have breached his duties as a director of AWB in connection with payments made to the Government of Iraq while that country was subject to United Nations (UN) sanctions.
The Court found that Mr Flugge failed to make adequate enquiries about the propriety of the payment of inland transportation fees and as a consequence, failed to stop AWB engaging in improper conduct in paying the inland transportation fees to the Government of Iraq, in contravention of s180(1) of the Corporations Act. The Court also found that it had not been established that Mr Flugge knew that AWB was making payments to Iraq contrary to UN sanctions and, therefore, was not satisfied that he had breached s181 of the Act.
The Court dismissed the proceedings against the former AWB Group General Manager of Trading, Mr Peter Geary, finding that he did not contravene his duties as an officer in connection with AWB's supply of wheat to Iraq under the United Nations' Oil-for-Food Programme.
The findings follow a nine-week trial that concluded in December 2015.
ASIC is seeking the following orders be made by the Court against Mr Flugge:
- declarations that Mr Flugge has contravened the Act;
- orders disqualifying Mr Flugge from managing a corporation; and
- an order imposing a pecuniary penalty.
The Court will hold a hearing about penalties in respect of Mr Flugge on 16 February 2017*.
ASIC is currently reviewing the Court's decision and has no further comment at this time.
In 2004, the UN established an Independent Inquiry Committee (IIC) to investigate allegations that the Iraqi government had evaded the provision of Security Council Resolutions (which imposed sanctions on Iraq) through bribery, kickbacks, surcharges on oil and illicit payments in respect of humanitarian goods. In October 2005 the IIC presented its findings that, among other things, kickbacks were paid to Iraq in connection with contracts with various foreign companies—including AWB—in relation to the supply of humanitarian goods.
Arising from the IIC findings, the Australian Government established a Commission of Inquiry (Cole Inquiry) in November 2005 to enquire into, among other things, matters relating to AWB’s supply of wheat to Iraq under the OFFP. In his final report in November 2006, Commissioner Terence Cole made various adverse findings against, among others, officers of AWB and recommended that those matters be investigated by relevant agencies, including ASIC and the Australian Federal Police (AFP).
In February 2007 a taskforce was established by the Australian Government, led by the AFP, to investigate matters arising from the Cole Inquiry, with ASIC contributing staff to that taskforce. In August 2007 ASIC withdrew its staff from the taskforce and commenced a separate independent investigation.
In December 2007, ASIC commenced civil penalty proceedings in the Supreme Court of Victoria against six former directors and officers of AWB, namely , namely Trevor Flugge, Andrew Lindberg, Paul Ingleby, Peter Geary, Charles Stott and Michael Long (refer: 07-332MR).
In November 2008 the Court ordered a stay of ASIC’s proceedings against each of the defendants (except Mr Lindberg, former AWB Managing Director) until such time as they were advised that no criminal proceedings would be instituted against them.
In August 2009, the AFP announced that its investigation into criminal matters arising from the Cole Inquiry had been discontinued.
In May 2010 ASIC, based on its consideration of the evidence it had gathered, terminated its investigation into suspected criminal contraventions of the Corporations Act. As a result of this and the earlier decision by the AFP to discontinue its investigation, the Court ordered on 2 August 2010 a lifting of the stay of the proceedings against Messrs Flugge, Ingleby, Geary, Stott and Long.
In August 2012, Justice Robson of the Supreme Court of Victoria ordered that Mr Lindberg be disqualified from managing corporations until 12 September 2014 and pay a pecuniary penalty of $100,000 for contravening section 180(1) of the Act which requires company directors and officers to discharge their duties with due care and diligence (refer: 12-191MR).
In March 2013, the Victorian Court of Appeal ordered that Paul Ingleby, the former Chief Financial Officer of AWB, be disqualified from managing corporations for a period of 15 months and pay a pecuniary penalty of $40,000 (refer:13-055MR).
In December 2013, ASIC discontinued its proceedings in the Supreme Court of Victoria against Charles Stott and Michael Long for alleged breaches of their duties as officers of AWB Limited in connection with the United Nations Oil for Food Programme in Iraq, after forming a view that it was no longer in the public interest to pursue its claims (refer:13-363MR).
*Editor's note 1:
The hearing date on penalties in respect of Mr Flugge has been varied to 14 March 2017.
Editor's note 2:
The hearing on penalties in relation to Mr Flugge was conducted on 14 March 2017, with the Court reserving its decision.
Editor's note 3:
On 7 December 2017, this media release was updated to reflect to reflect the length of Mr Lindberg and Mr Ingleby's disqualifications, and add Mr Lindberg's name to the list of former directors and officers of AWB.