Plaintiff v ANDREW ALEXANDER LINDBERG

Supreme Court of Victoria|2009-07-17|Before: ROBSON J

CORPORATIONS - Civil penalty proceedings by ASIC - Application to further amend the amended statement of claim - r 13.03 Supreme Court (General Civil Procedure) Rules 2005.

The Australian Securities and Investments Commission

1 ASIC seeks to further amend its statement of claim. I attach, as annexure 1, the proposed further amended statement of claim dated 1 May 2009, attached to its interlocutory process of 1 May 2009.

2 Mr Lindberg opposes the amendments and relies on his outline of argument of 7 May 2009 and the submissions of Mr Collins SC made on 4 June 2009. The summary of the amendments is attached as annexure 2. I have numbered the objections 1 to19 for convenience.

3 ASIC relies on the submissions of Mr N J O'Bryan SC of 4 June 2009 and ASIC's written response of 18 June 2009. The submissions of 18 June 2009 seek to withdraw some of the proposed amendments and to make further proposed amendments. Where the amendment is withdrawn, I will treat it as such. As to the proposed further amendments, I will deal with them where they are minor. Mr Lindberg opposes ASIC application for leave to file the further proposed amendments but has made no further submissions on them. In the circumstances, I will not rule on the further proposed amendments but will await any further application by ASIC to make any amendments that may arise from these reasons.

4 Since preparing these reasons and shortly prior to delivering them, I received further written submissions from Mr Lindberg dated 24 June 2009. I have taken these into account. The structure of my reasons may reflect the amendments made to accommodate the submissions of 24 June 2009.

5 For the following reasons, I give leave to ASIC to further amend its amended statement of claim, substantially in the form proposed in the draft of 1 May 2009, save for those amendments disallowed which are set out below. I direct that the Further Amended Statement of Claim ("FASOC") be filed and served by 24 July 2009. I order that ASIC pay the costs thrown away by reason of the amendments and the costs of the application of 1 May 2009. I direct that the defendant file and serve his defence to the FASOC, in the form previously adopted, by 14 August 2009.

7 ASIC's case against Mr Lindberg may be summarised as follows.[1]

8 Between 1996 and 2003, the United Nations operated the Oil-for-Food Program (OFFP) whereby proceeds from Iraq's oil imports were held in an UN Escrow Account and, where authorised by the UN, used by Iraq to buy humanitarian goods. During this period, relevant UN resolutions otherwise prohibited the provision of any financial or economic benefit to Iraq , including hard currency.

9 Between 1996 and 2003, AWB sold bulk wheat to the Iraqi Grain Board (IGB) under the Oil-for-Food Program.

10 Between 1999 and 2003, Iraq imposed, and AWB paid, a purported inland transportation fee in connection with all AWB shipments of wheat to Iraq. The fee was paid by AWB in hard currency to the IGB, via a Jordanian company, Alia, which was part-owned by the government of Iraq.

11 From 1999, each AWB contract with Iraq was inflated by the amount of the purported inland transportation fee, and this amount, having been paid to Alia by AWB, was later obtained by AWB from the UN Escrow Account.

12 The inland transportation fee was a sham. Neither AWB nor Alia in fact organised or provided transportation of wheat inside Iraq. The purpose of the sham fee was to provide the government of Iraq with a flow of hard currency, which the UN resolutions establishing the Oil-for-Food Program had forbidden. In an effort to evade detection of AWB's payment of the sham fees and their recovery from the UN Escrow account:

(a) the sham fees were not referred to in the contracts submitted by AWB to the UN for approval. Instead, the sham fees were incorporated into the total sale price per tonne of wheat;

(b) contracts submitted to the UN by AWB referred to meaningless or sham trade terms (for example, "CIF Free in Truck to All Governates of Iraq"); and

13 Each payment to Alia was contrary to relevant UN sanctions because it resulted in the government of Iraq obtaining hard currency. The recovery of each payment from the UN Escrow Account was not made for legitimate humanitarian purposes and accordingly, was contrary to relevant UN sanctions.

14 Further allegations are made about the misuse of the UN Escrow Account in relation to what is called "the Tigris debt" and the iron filings claim. These transactions also allegedly involved inflating the sale price of wheat in a similar manner to the inland transportation fees.

15 All these matters were well known to AWB. By virtue of his position as managing director of AWB, his personal involvement in some of these matters, and his receipt of key communications, each of these matters became known to Mr Lindberg at various times between 2000 and 2003.

16 The revelation of these matters caused substantial damage to AWB.

17 Mr Lindberg knew or ought to have known that the revelation of AWB's conduct was likely to cause substantial and irreparable harm to AWB, including the loss of the single desk, which was of great financial and commercial value to AWB.

18 Mr Lindberg, as managing director, was responsible for reporting these matters to the board and for taking reasonable steps to investigate and prevent AWB from engaging in conduct contrary to UN resolutions.

19 Mr Lindberg is alleged to have breached his duties under ss 180(1) and s 181(1) of the Corporations Act by failing to take adequate steps to:

(a) follow up serious matters of concern in relation to the payment of purported inland transportation fees, raised with Mr Lindberg in late 2000 or early 2001 by Arthur Andersen;

(b) prevent AWB from entering into wheat contracts which provided for the payment and recovery of sham fees;

(d) make enquiries with relevant AWB employees concerning the true commercial characteristics of certain wheat contracts;

(f) ensure that AWB complied with relevant UN Resolutions;

and by permitting AWB to enter into the contracts including the sham fees.

20 The critical issue in these proceedings is Mr Lindberg's knowledge of the sham fees, particularly that the payment of these sham fees was contrary to UN resolutions and that disclosure of these payments would have been likely to cause substantial and irreparable damage to AWB.

21 The amended statement of claim alleges that Mr Lindberg knew or ought to have known of these matters.[2] The proposed FASOC seeks to further amend the allegation of his knowledge to include that he "knew facts that ought to have put him on a train of inquiry that would have disclosed" the sham payments.[3]

22 As can be seen from this general summary, the scheme of the pleading is to first allege that certain things happened and then to allege that, by reason of matters alleged, Mr Lindberg knew or ought to have known of certain relevant matters including that the inland transport fees were a sham.[4]

23 ASIC contends that it is necessary to keep in mind several factors when considering the proposed amendments.

24 ASIC submits that its case against Mr Lindberg alleges breaches by him of ss 180 and 181 of the Corporations Act 2001 (Cth). ASIC submits that s 180 of the Corporations Act requires that the circumstances of AWB be taken into consideration, along with the characteristics of the office which Mr Lindberg held in AWB and Mr Lindberg's duties and responsibilities arising out of holding that office.

25 ASIC contends that the relevant circumstances of AWB and the characteristics of Mr Lindberg's office include matters such as AWB's corporate structure, its management arrangements, the size and nature of its business, the composition of its board, Mr Lindberg's position and responsibilities within AWB, the particular management functions which Mr Lindberg performed, his experience and skills, the manner in which responsibility for the business was distributed between directors and employees and the circumstances of the specific case.[5] ASIC contends that these matters are alleged and particularised in paragraphs 3, 12F - 12R, 18 - 35, 88A - 90B and 96 - 96B of the FASOC. ASIC submits that all these matters affect the content of the duty owed by Mr Lindberg pursuant to s 180 of the Act.[6]

26 ASIC contends that similarly, s 181 of the Corporations Act, in requiring an assessment of whether a director has acted in good faith in the best interests of the company and for a proper purpose in the performance of the functions attaching to the office of director,[7] necessarily requires that the nature of the director's office, the responsibilities of the director and the circumstances of the company be considered.

27 ASIC contends that the structure of the FASOC is to first set out the background facts and circumstances concerning AWB which are relevant when considering the nature of the office which Mr Lindberg held and the duties and responsibilities to AWB that ASIC alleges he had while he was in that office. It submits that the background facts and circumstances include the matters which are enumerated in the headings of the table of contents on page 2 of the FASOC, which was included, for ease of reference, to identify the key subjects in respect of which ASIC contends Mr Lindberg owed duties and had responsibilities arising out of his office.

28 ASIC submits, generally, that many of the criticisms made by Mr Lindberg of the amendments sought to be included in the proposed FASOC proceed upon the basis that the allegations are irrelevant because they are not material to any cause of action alleged.

29 ASIC contends that, on the contrary, the question of whether Mr Lindberg has breached ss 180 and 181 of the Corporations Act in the manner alleged can only be determined after the Court has made relevant findings about the nature and scope of his role, his duties and responsibilities, the characteristics of AWB,[8] the circumstances in which AWB found itself in connection with the subject matter of this proceeding (namely AWB's substantial export wheat trade with Iraq, which was subject to stringent UN sanctions and trade regulations in the relevant period) and Mr Lindberg's actual or imputed knowledge. ASIC asserts that all of these background facts and circumstances are relevant to the issues in the case.

Content of Pleading

13.02 (1) Every pleading shall -

(a) contain in a summary form a statement of all the material facts on which the party relies, but not the evidence by which those facts are to be proved;

....

Documents or conversations

13.03 The effect of any document or the purport of any conversation, if material, shall be pleaded as briefly as possible, and the precise words of the document or conversation shall not be pleaded unless those words are themselves material.

Particulars of Pleading

13.10 (1) Every pleading shall contain necessary particulars of any fact or matter pleaded.

....

(3) Without limiting paragraph (1), every pleading shall contain particulars of any -

....

(b) disorder or disability of the mind, malice, fraudulent intention or other condition of the mind, including knowledge or notice-

which is alleged

34 Paras 12F to 12H allege that Mr Lindberg was aware of certain demurrage and delay problems, was told about them and attended meetings about the issue. Mr Lindberg submits that these paragraphs are irrelevant and not material to any cause of action alleged.

35 ASIC submits that these paragraphs are relevant to ASIC's case against Mr Lindberg. ASIC contends that Mr Lindberg's involvement in and knowledge of inland transportation fees, changes to AWB's contracts with Iraq, shipping issues (including demurrage) and insurance problems which had been experienced by AWB are of critical relevance in assessing:

(a) his role, duties and responsibilities and the circumstances of AWB at the relevant time within the meaning of s 180;

(b) Mr Lindberg's interest and involvement in the Iraq wheat trade and the importance of the Iraq trade to AWB; and

(c) whether Mr Lindberg was aware or should have been aware of impropriety by AWB with respect to the Oil-for-Food Program.

ASIC contends that these matters will define the content of the duty under s 180. ASIC submits that they are therefore material to the causes of action alleged against Mr Lindberg.

36 ASIC alleges that paragraph 12G pleads a circumstance relevant to AWB, namely the limited appointment of Alia as protective agent, where Alia's appointment did not extend or relate to the inland transportation of wheat and where Alia's appointment (unlike the purported inland transportation arrangements) was formally recorded in writing.

37 Mr Lindberg does not accept that these paragraphs are relevant to: (a) the causes of action alleged; or (b) assessing the matters ASIC refers to. Mr Lindberg alleges that the allegations are vague, referring in general terms to "demurrage" and "chartering" issues. Mr Lindberg contends that the new paragraph 12F asserts that the defendant became aware of "significant demurrage costs" and "the details of AWB arrangements for the shipment of wheat". Mr Lindberg submits that the pleading does not identify those demurrage costs or the details of those arrangements. As a result, he submits that the pleading fails to disclose or define the issues to be raised at trial.

38 Mr Lindberg submits that in any event, the particulars do not support the allegations in paragraph 12F.

39 Mr Lindberg submits that paragraph 12J remains embarrassing. He contends that there is a complete absence of any particulars to support the allegation or to disclose or define the issues to be raised at trial.

40 Paras 12F to 12N relate to demurrage and Mr Lindberg allegedly being informed of issues concerning "contractual performance." Paragraph 12F alleges, in substance, that Mr Lindberg knew that AWB had significant demurrage costs as a result of delays in the discharge of AWB shipments to Iraq. Paragraph 12G deals with the appointment of Alia as a protective agent. Paragraph 12H alleges a meeting which discussed demurrage. Paragraphs 12I, 12J, 12K and 12L deal with meetings that Mr Lindberg allegedly attended. Paragraphs 12M and 12N deal with communications received by Mr Lindberg.

41 ASIC asserts that paragraphs 12F to 12N are relevant in assessing Mr Lindberg's role, duties and responsibilities at the relevant time. Mr Lindberg's responsibilities and duties are pleaded in paragraphs 96A, 96B and 96C. None of those paragraphs seek to rely on paragraphs 12F to 12N in defining his responsibilities and duties.

42 Paragraphs 12F to 12N appear to have two functions in the claim. First, the pleas are in the nature of particulars to support the allegations of knowledge in paragraph 35. Secondly, the pleas are relied on in alleging the conduct said to constitute the breach of duty by Mr Lindberg in paragraph 97.

43 As to the issue of knowledge, paragraph 35 alleges that by reason of the matters alleged in paragraphs 12 to 34N, including 12F to 12N, Mr Lindberg knew or ought or ought to have known of certain matters or knew facts that ought to have put him on a train of enquiry that would have disclosed certain matters.

44 It is not clear to me what particular facts alleged in paragraph 12F to 12N are relied on to establish knowledge of which particular matters referred to in paragraph 35. Further, it is not clear whether a particular fact is relied on to establish actual knowledge or that Mr Lindberg ought to have known of the particular fact alleged or facts otherwise known to him ought to have put him on a train of enquiry that would have disclosed the particular fact alleged. As to the latter, it is not clear what these other facts are.

45 For example, is the allegation in paragraph 12F relied on to establish that Mr Lindberg had actual knowledge that AWB was continuing to make purported inland transportation payments in connection with its trade with the IGB notwithstanding the concerns that had been raised in the Arthur Andersen Report in December 2000 and the trip report in February 2001 as alleged in paragraph 35(a)?

46 As to the issue of the contravention of Mr Lindberg's alleged duties, paragraph 97 does seek to rely on paragraphs 12F to 12N although it is not clear to what extent it does so. The paragraph is not easy to understand. I shall seek to take an example to explain its role in the pleading.

(a) that Mr Lindberg had a responsibility to take reasonable steps to prevent AWB from entering into contracts which included the inland transportation fee;[9]

(b) that Mr Lindberg owed a duty to AWB to exercise his powers and discharge his duties with the degree of care and diligence a reasonable person would exercise;[10]

(c) that Mr Lindberg failed to take steps to prevent AWB from entering into contracts which included the inland transportation fee;[11] and

(d) by doing so Mr Lindberg breached his duty as aforesaid.[12]

48 In that context, ASIC seek to rely, inter alia, on paragraphs 12F to 12N in making out the allegation that Mr Lindberg failed to take steps to prevent AWB from entering into contracts which included the inland transportation fee. Further, paragraph 97 contains some twenty plus instances of Mr Lindberg failing to do something that he allegedly ought to have done if he exercised the required degree of care and diligence.

49 By rolling up the plea in this fashion, it is not clear what relevance, if any, paragraphs 12F to 12N have and which of the twenty odd paragraphs allege failures to act.

50 In my opinion, Mr Lindberg is entitled to know precisely what matters he is alleged to have known that give rise to each of his alleged failures to act. The pleading is vague and too general.

51 In my opinion the pleadings in paragraph 12F to 12N are embarrassing.

53 Mr Lindberg complains that this paragraph is "vague, general and unintelligible."

54 ASIC submits that this criticism is unjustified. ASIC contends that paragraph 12I is simply and clearly expressed in its terms and readily understood as a material allegation in support of Mr Lindberg's actual or constructive knowledge of Iraqi wheat contracts at the relevant time.

55 However, to address this criticism, ASIC proposes to give additional particulars of paragraph 12I, which are contained in the amended version of the FASOC filed with their submissions in order to make the allegation clearer and more complete.

56 I agree that the pleading is too vague, general and unintelligible. The allegation does not plead the material effect of what Mr Officer said. Rule 13.03 provides:

The effect of any document or the purport of any conversation, if material, shall be pleaded as briefly as possible, and the precise words of the document or conversation shall not be pleaded unless those words are themselves material.

58 The same criticism Mr Lindberg made in respect of paragraph 12I is made by Mr Lindberg of paragraph 12J. Again, ASIC submits that this criticism is unjustified for the same reasons as those provided in response to paragraph 12I.

59 Further, ASIC submits that this paragraph is material and relevant to allegations of a breach of s 180 of the Corporations Act.

60 ASIC contends that Mr Lindberg's involvement in the meetings of AWB's corporate risk committee is of critical significance in assessing:

(a) the nature of his role, duties and responsibilities in connection with the OFFP; and

(b) whether Lindberg was aware or should have been aware of impropriety by AWB with respect to the OFFP.

61 ASIC refers to para 96(d) of the FASOC and contends that the corporate risk committee was responsible for formulating risk minimisation strategies, including those relevant to the contractual terms on which AWB supplied wheat to Iraq. As far as I am aware, the FASOC does not contain a para 96(d).

62 ASIC submits that Mr Lindberg's attendances at the meetings provides one of the factual bases for alleging that his responsibilities included the formulation of the risk minimisation strategies referred to in para 96(d) of the FASOC. ASIC contends that these allegations are therefore highly material to the causes of action alleged.

63 I agree that the allegation is too vague and general. The committee's function is not pleaded. With greater particularity, the allegation may have been a material allegation. Leave to amend is disallowed.

64 Mr Lindberg complains that these paragraphs are vague and are not material to any cause of action alleged against him.[13]

65 ASIC submits that these paragraphs, and in particular the issue of the significance of AWB's wheat trade with Iraq and Mr Lindberg's recognition of this, are relevant to:

(a) assessing Mr Lindberg's role, duties and responsibilities in connection with this part of AWB's business;

(b) whether Lindberg was aware or should have been aware of impropriety by AWB with respect to the OFFP; and

(c) the balancing of the commercial importance of Iraq to AWB and the political and reputational risks that the country posed to AWB;

and are therefore material to those causes of action alleged against him.

66 ASIC submits that it will contend that the wheat market in Iraq was so important to AWB's revenue (a circumstance relevant to AWB) that Mr Lindberg's responsibilities included taking reasonable steps to protect that market by ensuring that AWB complied with the international sanctions applicable to that market (e.g. paras 96A(f), (fa), (fg)[sic] and (i) FASOC) and by preventing or halting impropriety by AWB with respect to the OFFP.

67 For reasons discussed under objection 1, I do not accept that these allegations are relied on in alleging Mr Lindberg's responsibilities or duties.

68 ASIC contends that Mr Lindberg's recognition of the matters alleged in paragraph 12O and 12P is relevant to the balancing of the commercial importance of Iraq to AWB and the political and reputational risks that the country posed to AWB. I put aside the issue that paragraph 12P may be an allegation of evidence rather than of a material fact. In my opinion, it does support the allegation in paragraph 35(c).

69 I fail to see how the fact alleged in paragraph 12O supports the allegation in paragraph 35(c).

71 Mr Lindberg complains that these paragraphs raise a new cause of action and are vague and embarrassing. He asks: what is it that he should have informed the board of? Mr Lindberg submits that the court ought not allow the amendments in the absence of any explanation of: (a) why they were not pursued earlier; or (b) how they will effect the trial.

72 ASIC contends that the substance of these new allegations is that Mr Lindberg, as Managing Director of AWB, improperly executed deeds of release by and on behalf of the AWB Board in favour of Messrs Officer and Emons when they ceased their employment with AWB in mid-2000. ASIC contends that these deeds acknowledged that AWB had made "agency payments" to overseas agents for wheat sales in 1999 and 2000.

73 ASIC submits that these allegations are relevant to:

(a) Mr Lindberg's knowledge of the payments that AWB was making to overseas agents in respect of such sales, which may tend to support actual or constructive knowledge of similar payments in Iraq; and

(b) the question whether it was appropriate for Mr Lindberg and AWB to be giving releases of this sort, in respect of matters which were of such significance to the company, without informing or advising the AWB Board of either the subject matter of the releases or the fact that the releases had the effect contended in paragraph 12R, or seeking approval from the AWB Board with respect to the releases.

74 ASIC says that in response to Mr Lindberg's criticism of these paragraphs, the paragraphs have been redrafted to make these points clearer.

75 As far as I am aware, no issue has been raised in these proceedings or allegation made that Mr Lindberg "improperly executed" the deeds.

76 In those circumstances, leave to amend is disallowed.

77 Mr Lindberg's criticism is that these paragraphs introduce a new cause of action and are vague and general.[14] Mr Lindberg submits that the particulars to paragraph 21 (which form the basis of paragraph 21A and 97(n)) do not give details of what was discussed about "the purported inland transportation fee" or the "concern" that some (and if so what) funds were being paid to Iraq. Mr Lindberg contends that it is stated that further particulars to paragraph 21 may be provided prior to trial. He submits that the court ought not to allow amendments in this form at this stage of the proceeding.

78 Further, Mr Lindberg submits that these paragraphs constitute a new cause of action and the court ought not to allow the amendments at this time in the absence of any explanation of: (a) why they were not pursued earlier; or (b) how they will effect the trial.

79 ASIC submits that paragraphs 21A and 21B support both an existing alleged breach of duty, namely, paragraph 97(a) and a new but related alleged breach of duty in connection with the Arthur Andersen report, namely paragraph 97(n).

80 ASIC contends that paragraphs 21A and 21B relate to material facts which support ASIC's allegation that Mr Lindberg had knowledge of that report and the key matters which were found in it and what Mr Lindberg did following receipt of the report and its findings.

81 ASIC contends that paragraph 97(n) complains that Mr Lindberg failed to inform or advise the AWB board of the existence of and/or the findings contained in the Arthur Andersen report.

82 ASIC contends that this is a new breach of duty alleged but is inextricably related to an existing breach of duty alleged in paragraph 97(a). ASIC submits that each of the sub-paragraphs of paragraph 97 constitutes an alleged breach of duty of s 180.

83 Para 19 alleges the existence of the Arthur Andersen report and the effect of it. Para 21 alleges that Mr Lindberg provided a copy of the report to Mr Fuller. I do not understand how that purports to be a material fact to the cause of action pleaded. I would have thought that the material allegation is that Mr Lindberg received a copy of the report but did not inform the board of what is alleged to be the material effect of the report. Para 21B does not plead the material effect of the report. Para 97(n) does not plead precisely what purport of the report Mr Lindberg did not inform the board of.

84 In those circumstances, leave to amend is disallowed.

85 Mr Lindberg complains that paragraph 22A is not a material allegation of fact and is vague and general.

86 ASIC submits that this paragraph relates to the internal audit services fraud risk assessment undertaken by Ernst & Young on behalf of AWB in early 2002. ASIC submits that it is alleged that Mr Lindberg received a copy of this important report concerning fraud risks which AWB faced in or around July 2002.

87 ASIC submits that this paragraph is material and relevant for the following reasons:

(a) the Ernst & Young fraud risk assessment is relevant to the question of whether Mr Lindberg knew or ought to have known that AWB sold wheat in countries where bribery and corruption, including kickbacks and agency payments, were common business practices raising a high risk of fraud or other improprieties as alleged in paragraph 35(n);

(b) the allegations in paragraphs 22A and 35(n) taken together, it is submitted, are of critical significance in assessing Mr Lindberg's role, duties and responsibilities having regard to the circumstances of AWB as disclosed to Mr Lindberg in 2002 by the Ernst & Young fraud assessment report; and

(c) the circumstances of AWB, as disclosed by the Ernst & Young fraud assessment report, are relevant to whether Mr Lindberg was aware of or should have been aware of, or should have availed him of the means of becoming aware of, impropriety by AWB with respect to the OFFP.

88 ASIC contends that paragraph 22A is therefore material to the causes of action alleged against Mr Lindberg.

89 Paragraph 22A is not relied on in supporting the allegations of responsibilities and duties.

90 Paragraph 22A is relied on to support the allegations made in paragraph 35. For the reasons given to objection 1, I consider the pleading of 22A and 35 embarrassing. ASIC submits that paragraph 22A is relevant to the allegation in 35(n). That link is not made clear in the pleading.

91 I refer to and repeat my observations under objection 1 on the reliance of paragraph 22A in paragraph 97.

93 Mr Lindberg complains that these are not material allegations of fact and notes that paragraph 29C relates to an email which is particularised under paragraphs 26 and 31.

94 ASIC accepts the objection in respect of paragraph 29C and will remove this paragraph as it is adequately addressed in the other particulars referred to.

95 With respect to the remaining paragraphs 29A and 29B, ASIC submits that these paragraphs are relevant to the breaches of duty alleged in respect of the Tigris debt (paragraph 29A) and the iron filings claim (paragraph 29B), both of which are important incidents in respect of which it is alleged that Mr Lindberg breached his duties to AWB.

96 Under this claim, ASIC alleges that Mr Lindberg knew that IGB's iron filing claim was to be paid using the sham inland transportation fees (para 35B(i)).

97 Para 29B alleges that Mr Lindberg attended a meeting at which he was handed a document that referred to a proposal to offset the Iron Filings claim against the Tigris Debt.

98 ASIC submits that para 29B is material to the Tigris debt allegation and the iron filings claim. ASIC alleges that Mr Lindberg knew that the Tigris debt was to be recovered by "loading up" the AWB contracts with IGB.

99 In my view, para 29A does not allege a material fact. In my opinion, para 29B does not properly plead the relevant effect of the document it seeks to rely on: see r 13.03.

101 Mr Lindberg complains that particular HA (page 33) is not a particular of what Mr Lindberg was told.

102 ASIC submits that it is a particular of what Mr Lindberg was told at the meeting which occurred on or about 10 June 2003.

103 To avoid any possible confusion, ASIC seeks to further amend the particular.

104 The particular does not allege that he was told anything. It says certain things were referred to. If it is alleged that Mr Lindberg was told something, then the particular should allege the effect of what was said: r 13.03.

OBJECTION 10 - 34B TO 34I, PARTICULARS C & D, 96A (k) & (l), 97(p),(s) & (u)

106 These amendments seek to introduce allegations concerning Project Rose.

107 Mr Lindberg complains that these paragraphs introduce a new cause of action in relation to Project Rose which he says are vague, general and embarrassing.

108 Mr Lindberg maintains that these paragraphs are vague and general and ought not to be allowed at this stage of the proceeding. Mr Lindberg submits that, for example, paragraph 34E is now drafted in the widest possible terms: that the defendant "knew, ought to have known or knew facts which ought to have put him on a train of enquiry". He submits that the particulars do not identify how Mr Lindberg had such knowledge.

109 The essence of the "Project Rose" allegations is that:

(a) Mr Lindberg was responsible for the establishment,[15] supervision[16] and operation[17] of an inquiry into the allegations made by US Wheat Associates that AWB was inflating its contracts for the sale of wheat to Iraq under the OFFP and some of the excess had gone into the accounts of Saddam Hussein's family.[18] The inquiry was known as Project Rose;[19]

(b) Mr Lindberg reported to the AWB Board that Project Rose was a thorough, detailed and genuine investigation of the allegations;[20]

(d) Mr Lindberg reported to the AWB Board that the investigation had found no impropriety on AWB's part and absolved AWB from any responsibility [the pleading is ambiguous as to whether or not the inquiry had found impropriety or whether or not he knew that it had];[22] and

(e) Mr Lindberg failed to ensure the investigation was thorough and bona fide.[23]

110 ASIC submits that these allegations are relevant to:

(a) Mr Lindberg's actual or constructive knowledge as to Project Rose as alleged in paragraphs 35(q), (r) and (s) of the FASOC;

(b) Mr Lindberg's alleged responsibilities with respect to Project Rose as alleged in paragraphs 96A(k) and (l) of the FASOC; and

(c) the breaches of duty alleged in paragraphs 97(p), (s) and (u), where they are alleged to constitute breaches of s 180 of the Corporations Act.

111 ASIC submits that these allegations with respect to Project Rose are clear and simply expressed and form an important part of the Plaintiff's case against Mr Lindberg.

112 ASIC accepts that these allegations relate to new alleged breaches of duty under ss 180 and 181 of the Corporations Act.

113 The pleadings are unsatisfactory. In paragraph 35(r), it is alleged that Mr Lindberg knew or ought to have known that the Board of AWB had been misinformed by Mr Lindberg and others that Project Rose involved a rigorous and detailed review of the facts surrounding AWB's OFFP contracts with Iraq and uncovered no evidence of wrongdoing by AWB or its officers despite that rigorous and detailed review. It is unclear whether the allegation includes an allegation that the board was misinformed because Project Rose did uncover evidence of wrong doing. If so, what was the wrongdoing that was uncovered? If not, then what is the relevance of this allegation?

114 In paragraph 97(p), it is alleged that Mr Lindberg misinformed the Board that the review had found no evidence that AWB had knowledge that monies paid to Alia were passed on to the former government of Iraq. As far as I can see, there is no allegation that the review did find such evidence. Rather, I took the allegation to be that the review did not find such evidence as it was not thorough.

115 In my opinion, the allegations are embarrassing. "A pleading is embarrassing when it places the opposite party in the position that he or she does not know what is alleged against him or her."[24] ASIC does not precisely state what it is Mr Lindberg is alleged to have known and how precisely he misinformed the board. Is it alleged that he knowingly did so? When it alleges that he allowed others to misinform the board, is that allegation that he knowingly did so?

116 Paragraph 97(s) alleges that Mr Lindberg failed to take any reasonable steps to properly investigate the allegations made in the US Wheat Associates complaint. It is not clear whether it is alleged that Mr Lindberg knew that the complaints were well-founded and deliberately set about ensuring that Project Rose would not ascertain what he knew to be the true state of affairs. What does ASIC mean, in para 35(q), when it alleges that Mr Lindberg knew that the inquiry was not a bona fide or thorough investigation into wrongdoing by AWB? Is it alleging that, although he did not know of the wrongdoing, he knew that those conducting the inquiry did not seek to ascertain whether AWB was engaged in wrongdoing? Or is it alleging that, he did not know of the wrong doing, but knew the inquiry was not seeking to uncover the true state of affairs? What is the alleged wrongdoing?

117 If it is alleged that Mr Lindberg knew that the complaints were well founded, then it would follow that if the investigations did not disclose that the complaints were well founded, that Mr Lindberg would know that the report was not thorough and if he permitted the report to be presented to the board, he would have allowed the board to be misled. These allegations are not pleaded and what is left is vague and embarrassing.

118 In my opinion, the allegations ought to have an appropriate degree of particularity such that Mr Lindberg knows precisely what is alleged against him.

119 I disallow the amendments relating to Project Rose.

120 Mr Lindberg contends that para 34E is unintelligible, vague and embarrassing.

121 ASIC contends that this paragraph alleges in clear and unambiguous terms that Project Rose did not constitute a bona fide attempt to investigate whether AWB and its officers, agents or employees had engaged in any impropriety in relation to the OFFP. ASIC says that further, detailed particulars of that allegation are given in the FASOC.

122 I have already ruled that the proposed amendment in para 34E is not allowed. The allegation is ambiguous, vague and embarrassing. It is not clear whether it is alleging that those conducting the inquiry deliberately did not interview Hogan, Whitwell and Long, when those conducting the inquiry otherwise knew they ought to if the inquiry was to ascertain the true state of affairs. Project Rose did not conduct the inquiry. The inquiry was conducted by people. The pleading alleges that Project Rose did not constitute a bona fide attempt to investigate. It is not clear what this means. The pleading is embarrassing.

OBJECTION 12 - PARAS 34J-34N, PARTICULAR 35 E AND PARAS 97(q),(r), (t) & (u)

124 Mr Lindberg contends that these paragraphs raise a new cause of action based on his reporting to the AWB board on the inquiry by the Independent Inquiry Committee ("IIC") into the OFFP. Mr Lindberg submits that the allegations are too general and unparticularised. He also submits that the amendments should not be permitted as they introduce a new cause of action at this late stage of the proceeding.

125 ASIC contends that as with the Project Rose allegations, these paragraphs set out important allegations of fact in respect of which it is alleged that Mr Lindberg failed to adequately inform the AWB Board as to:

(b) the nature of the allegations which had been put to Mr Lindberg by IIC investigators and the seriousness of the subject matter which Mr Lindberg was called upon to address; and

(c) the full extent of the findings and proposed findings of the IIC with respect to AWB's involvement in the OFFP and the factual basis for these findings.

126 ASIC contends that the facts which were or should have been known to Mr Lindberg are alleged in paragraphs 34J - 34N. The non-disclosure to the AWB Board of those facts, and other relevant matters within Mr Lindberg's knowledge, is alleged in paragraphs 97(q), (r), (t) and (u). ASIC submits that these allegations are clear and unambiguous and appropriately pleaded.

127 In substance the "IIC" allegations is as follows:

(a) In April 2004, the United Nations established a committee known as the Independent Inquiry Committee into the United Nations Oil-for-Food Program (IIC) to investigate and determine whether established procedures under the OFFP were violated and whether contractors engaged in any illicit or corrupt practices.[25]

(b) In February 2005, IIC investigators interviewed Mr Lindberg. During the interview, the investigators informed Mr Lindberg that they had been informed by various sources that Alia had been used to channel funds to the former government of Iraq under the guise of transportation costs, that it was not possible to contract with the Iraq government without making "a side payment" to the Hussein regime, and no company had been exempt from paying a 10 per cent kick back to the Iraq government.[26]

(i) the IIC had issued a major report in September 2005;

(ii) the relevant issues discussed in the report were the use of Alia, the purported inland transportation fee and the size of AWB's exports to Iraq; and

(iii) AWB had not paid sham or purported inland transportation fees for non-existent trucking services, but there was a risk that AWB's "legitimate trucking operations" in relation to Australian wheat could be misinterpreted as purported inland transportation fees.[27]

(d) the IIC report described the purported service fees paid by contractors under the OFFP as a source of kick backs; and

(e) the report indicated that the service fees amounted to double the amount of purported inland transportation fees paid by contractors.[28]

(f) on or about 26 September 2005, Mr Lindberg was informed by the IIC of what the ICC intended to report and Mr Lindberg responded to the ICC by saying he was concerned about the IIC's proposed findings on AWB's participation in the OFFP and that AWB had believed that Alia was a bona fide company providing a genuine service.[29]

(g) Mr Lindberg knew or ought to have known that IIC's investigation was not limited to purported inland transportation fees but extended to purported service fees.[30]

(h) Mr Lindberg failed to adequately inform or advise the AWB board of the allegations raised by the IIC investigators in February 2005, including that the IIC's allegations included the payment of the purported service fees.[31]

(i) Mr Lindberg failed to inform the AWB board of the true nature and extent of the allegations raised by the IIC in its September report, including allegations concerning the payment of the purported service fees.[32]

(j) Mr Lindberg failed to take any reasonable steps to properly investigate the allegations made by the IIC investigators or the findings of the IIC.[33]

(k) Mr Lindberg failed to inform or advise the board of his knowledge of the matters set out in para 35.[34]

128 In my opinion, these allegations do seek to raise a new cause of action and the pleading of this cause of action is unsatisfactory.

129 Paragraph 34K does not plead that the investigators made any allegations. If it is assumed that the matters they informed Mr Lindberg of are allegations, then it is pleaded that on 2 September 2005, he did advise the board of several matters relating to the IIC inquiry. I do not see the relevance of pleading these matters when the allegation is that he did not advise the board of certain allegations. The matters he advised the board of do appear to include some of the allegations made by the investigators in February 2005. This pleading lacks precision and includes irrelevant allegations. In my opinion, it is embarrassing.

130 Paragraph 97(r) does not allege what constituted the "true nature" of the allegations that were made in the September 2005 report. As far as I am aware, they are not pleaded elsewhere. In my opinion, this pleading is vague and embarrassing.

131 Paragraph 35 does not distinguish between those matters Mr Lindberg is alleged to have known, those matters he ought to have known or those matters that would have been disclosed to him by enquiry. In my opinion, para 37(u) requires the pleader to plead precisely those matters Mr Lindberg knew, as opposed to matters he ought to have known or would have been disclosed to him on enquiry. Is Mr Lindberg accused of not telling the board matters he did know? Or is Mr Lindberg accused of not telling the board matters he did not know himself? Or is Mr Lindberg accused of not telling the board matters he did not know but ought to have known or would have known if he make certain inquires that he did not make?

132 Mr Lindberg submits that I should disallow the amendments as they raise a new cause of action. I do not propose to disallow the amendments for that reason. I do, however, disallow the amendments in their present form for the above reasons.

133 Mr Lindberg maintains that these paragraphs are unintelligible and embarrassing and ought not to be allowed in this form at this stage of the proceeding. Mr Lindberg contends that ASIC now appears to concede that AWB cannot breach UN Resolutions: see paragraph 66 of the 18 June submissions. As a result, it is meaningless to allege that AWB acted "contrary to or inconsistent with" resolutions which it was not bound to comply with. Mr Lindberg notes that, notwithstanding its concession, ASIC maintains its plea that AWB acted "in contravention" of the UN Resolutions.

134 Mr Lindberg complains that para 35(c) does not allege a material fact to any cause of action alleged.

135 The paragraphs are not relied on in establishing Mr Lindberg's duties or responsibilities.

136 For the reasons given under objection 1, I consider paragraph 35(c) should not be allowed. As I said earlier, it is not clear which paragraphs support this allegation. It is not clear whether it is alleged that he knew of the matter or ought to have known of the matter, and if so why he ought to have known, or that the matter would have been disclosed to him on inquiry. It is not clear what facts it is alleged he knew that should have put him on a train of enquiry that would have disclosed the matter alleged in paragraph (c).

137 The same observations may be made as to paragraph 35(n).

138 Mr Lindberg alleges that the amendment concerning AWB's conduct as "otherwise contrary to or inconsistent with" the UN sanctions is meaningless and unintelligible. This complaint relates to the amendments to paragraphs 35(f), 35(j), 35(l) and 35(o).

139 ASIC contends that the objection that the wording "otherwise contrary to or inconsistent with" the UN sanctions is vague, general or embarrassing is without justification.

140 ASIC accepts that the UN resolutions and arrangements did not bind AWB directly as a matter of law. However, ASIC submits that a participating supplier in the OFFP, as AWB was, can act consistently or inconsistently with the purposes and procedures of the OFFP as codified in the UN resolutions. What is alleged is that:

(a) AWB acted contrary to or inconsistently with the stated purposes and procedures of the OFFP as set out in the UN resolutions;

(b) if AWB behaved in a manner which was contrary to or inconsistent with the UN resolutions concerning the international wheat trade with Iraq, the revelation of that fact would be likely to expose AWB to international and domestic criticism, and harm its business and therefore the company itself; and

(c) Mr Lindberg knew or ought to have known of the consequences of any revelation that AWB acted contrary to or inconsistently with the UN resolutions.

141 Accordingly, ASIC submits that even though AWB cannot be directly prosecuted for breaches of the UN resolutions, that any impropriety with respect to OFFP and any flouting of UN resolutions exposed AWB to the risk of harm which AWB ultimately experienced after it was discovered that it had acted in a manner contrary to or inconsistent with the UN resolutions. ASIC also alleges that Mr Lindberg knew or ought to have known that this would occur.

142 I refer to paragraphs 4-11 where allegations are made concerning the United Nations Security Council resolutions 661, 687, 986 and 1472 and a Commonwealth regulation.

143 Paragraph 4 alleges that, by resolution 661, the Security Council decided that member states should prevent the sale of supply by their nationals or from their territories of any commodities or products to any person or body in Iraq ... but not including supplies ... in humanitarian circumstances, foodstuffs.

144 As far as I am aware, no allegation is made as to the affect of that resolution on Australian nationals. In fact it does not call on Australian nationals to do or not do anything. It is directed to member states and decides that they should prevent certain activities by their nationals and from their territories.

145 As far as I am aware, no allegation is made that the Australian Government did or did not comply with that decision of the United Nations Security Council. Para 11 does allege that a Commonwealth regulation prohibited the exportation of wheat to Iraq unless it received permission for the export of wheat from the Minister of Foreign Affairs and Trade or his authorised representative. As far as I can ascertain, this allegation is not material to any cause of action pleaded.

146 Can the conduct of AWB, which is not alleged to contravene any domestic or international law, be conduct which is "contrary to or inconsistent" with the United Nations Security Council decision as to what its member states should do? In my opinion, it might be alleged to be conduct that the United Nations called on the Commonwealth of Australia to prevent.

147 Mr Lindberg alleges that the allegation is meaningless and unintelligible. Mr Lindberg asks, 'What does it mean to say they acted inconsistently with UN resolutions?' He asks rhetorically, 'Is it alleged AWB made a payment it was not authorised to make? Did AWB make a supply it was not authorised to make? What did it do that it was not entitled to do?'[35]

148 ASIC currently alleges that the conduct of AWB was or was likely to be in contravention of UN sanctions. In view of the concession made by ASIC, that allegation is ambiguous and vague. What does ASIC mean when it alleges that the conduct was in contravention of UN sanctions, particularly when it concedes that AWB was not obliged to observe the sanctions? It is not alleged that AWB was in contravention of any law of the Commonwealth of Australia made in response to the United Nations request.

149 Paragraph 35(l) says "or otherwise contrary to or inconsistent with United Nations sanctions in that they resulted either directly or indirectly in the illegitimate payment of funds to Iraq or its instrumentalities." Why are the payments illegitimate?

150 In my opinion, this pleading is not open to be made.

151 On the current pleadings, the status of UN resolutions is not made clear. Do they bind the Australian government, and if so, in what way? Is it alleged, for example, that the Australian government did or did not comply with the decision?

At a glance

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Judgment (901 paragraphs)

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Legislation Cited (4)