Court of appeal strikes down ASIC’S appeal on directors’ duties in AWB case

This week marked a significant development in the infamous and long running AWB scandal: the Victorian Court of Appeal shot down ASIC’s appeal against the finding that Peter Geary, the former Group General Manager of Trading of AWB, had not breached his duties as a director under the Corporations Act.

The AWB Scandal

The Australian Wheat Board got itself into hot water back in 2005, when it was found to have assisted the Iraqi government in evading United Nations Security Council resolutions by making direct and indirect payments to the government.

The Cole Royal Commission, commenced in 2005, resulted in both the Australian Federal Police and ASIC commencing investigations into criminal wrongdoing of those involved. ASIC also commenced civil proceedings against the directors of AWB for breaches of their duties. Whilst the criminal investigations were discontinued back in 2009 (AFP) and 2010 (ASIC), ASIC has had some, albeit limited, luck in these civil proceedings against the directors.

The case against Mr Geary 

At its most basic, ASIC’s case against Geary alleged that during his time as the Group General Manager of Trading at AWB, he authorised payments by AWB of sham fees and debts to the Iraqi government. This, ASIC alleged, amounted to a breach of his duty of care and diligence, and his duty to act in good faith and in the best interests of AWB.

ASIC argued that Mr Geary knew, or ought to have known, that any public revelation of these payments to Iraq “would be likely to cause substantial and enduring harm” to AWB. Accordingly, by failing to stop them, it was alleged that Mr Geary was in breach of his duties.

At first instance, Robson J of the Supreme Court of Victoria rejected ASIC’s case against Mr Geary. After a lengthy review of the evidence, his Honour found that ASIC failed to satisfy the evidentiary burden of establishing that Geary knew, or should have known, that the payments to the Iraqi government were a sham, and were not approved by the United Nations. Indeed, his Honour accepted that Mr Geary, along with others at the AWB, mistakenly believed that the UN had approved of the payment of some of the fees.

ASIC launched an appeal against Robson J’s decision.

The issues on appeal

ASIC had a number of grounds of appeal, mainly to do with Robson J’s finding of facts. These included that it was not reasonably open to his Honour to find that the “prevailing view in AWB” was that the UN had approved payment of some of the fees, that his Honour erred in failing to find that Mr Geary had knowledge of the sham nature of the fees and that his Honour should have found that Mr Geary knew or was willfully blind to the sham nature of the fees.

The Court of Appeal of Victoria noted that ASIC seeks to “require this Court, on appeal, to conduct a ‘real review’ of the evidence at trial, voluminous though it was”. The Court of Appeal reviewed the authorities on requiring an appellant court to review findings of fact made by a judge at trial, and noted that in the present case, which involves a complex “blend” of findings of fact from witnesses, inferences from those facts, and inferences drawn from documents, that determining whether a judge at first instance had made an error can be “extremely difficult”.

Appeal dismissed

Upon a detailed review of the evidence, the Court of Appeal found no reason to disturb the findings of Robson J. The Court of Appeal found that, whilst some of ASIC’s grounds of appeal “appear arguable”, Robson J’s reasons for rejecting ASIC’s case at first instance were “comprehensive”, “entirely rational” and “supported by the evidence”.

Upon publication of the Court of Appeal’s reasons, ASIC commissioner John Price said that “ASIC notes the decision … and we are currently reviewing it”. Unless a further appeal to the High Court is forthcoming, this decision appears to bring the AWB story, at least for Mr Geary, to an end.

 Whilst Mr Geary’s case resulted in a finding that he had not breached any of his duties, the complex factual nature of the dispute serves as a reminder as to the risks directors can face in their role, and the consequences they face when they breach their duties. McCabes has expertise in advising directors on their duties and guiding them through complex litigation.

 

Contributors

Luke Dominish Lawyer
Jason Dabelstein Graduate